Petroships Investment Pte Ltd v Wealthplus Pte Ltd (in members' voluntary liquidation) (Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd and another, interveners) and another matter

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 31 May 2017
• Neutral Citation: [2017] SGHC 122
• Docket Number: Companies Winding Up No 119 of 2016; Originating Summons No 594 of 2016
• Date: 31 May 2017
• Published date: 07 April 2018
• Plaintiff Counsel: Tan Kok Peng, Kevin Ho, Grace Loke and Xiao Hongyu (Braddell Brothers LLP)
• Defendant Counsel: Chandra Mohan, Audrey Lim and Tan Ruo Yu (Rajah & Tann Singapore LLP),Prakash Mulani and Kimberly Yang (M & A Law Corporation)
• Court: High Court (Singapore)
• Hearing Date: 17 November 2016,03 October 2016
• Subject Matter: Conversion of members' voluntary liquidation to compulsory winding up,Companies,Insolvency law,Findings of fact,Res judicata,Removal of liquidator,Issue estoppel,Liquidator,Winding up

Vinodh Coomaraswamy J: Introduction

Petroships Investment Pte Ltd (“Petroships”) is a minority shareholder of Wealthplus Pte Ltd (“Wealthplus”). Since 2011, Petroships has maintained that four transactions which Wealthplus entered into between 2003 and 2009 disclose at least a prima facie breach of the directors’ fiduciary duties and therefore merit further investigation. In 2012, Petroships applied for leave to commence a statutory derivative action against the directors. While that was pending, the majority shareholders of Wealthplus passed a special resolution putting it into members’ voluntary liquidation. Petroships opposed the liquidation. Despite Petroships’ urging, the current liquidators of Wealthplus have thus far refused to investigate the four transactions.

The result is that Petroships now brings two applications under the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) against Wealthplus and its liquidators. Petroships’ case on both applications is that the liquidators’ refusal to investigate the four transactions either: (i) arises from an actual lack of impartiality on the liquidators’ part; or (ii) gives rise to a perception of a lack of impartiality on their part. As a result, Petroships seeks to displace the current liquidators – the nominees of the majority shareholders – and to replace them with Petroships’ own nominees.

The first of Petroships’ two application is brought under s 254 of the Act. By this application, Petroships seeks two principal orders: (i) an order placing Wealthplus in compulsory liquidation, notwithstanding its ongoing voluntary liquidation; and (ii) an order appointing Petroships’ nominees as Wealthplus’ new liquidators. I shall call this application “the Winding Up Application”.

Petroships’ second application is brought under s 302 of the Act. By this application, Petroships seeks four principal orders: (i) an order removing Wealthplus’ current liquidators; (ii) an order appointing Petroships’ nominees as Wealthplus’ new liquidators; (iii) an order preventing the new liquidators from being removed without the court’s leave; and (iv) an order authorising and empowering the new liquidators to investigate the four transactions specifically and Wealthplus’ affairs generally. I shall call this application “the Removal Application”.

Between 2009 and 2015, Petroships brought a series of six successive proceedings arising out of its investment in Wealthplus. I enumerate them at [23] below. All six of those proceedings have failed. One of those six proceedings was Petroships’ application, mentioned at [1] above, for leave to commence a statutory derivative action against Wealthplus’ directors for breach of fiduciary duties in causing Wealthplus to enter into the four transactions. I dismissed that application at first instance: Petroships Investment Pte Ltd v Wealthplus Pte Ltd and others [2015] SGHC 145 (“Petroships (HC)”). The Court of Appeal dismissed Petroships’ appeal, albeit on a different ground: Petroships Investment Pte Ltd v Wealthplus Pte Ltd and others and another matter [2016] 2 SLR 1022 (“Petroships (CA)”).

Both at first instance (as an alternative ground for my decision) and on appeal (as the only ground for the Court of Appeal’s decision), it was held that once a company goes into liquidation and control over its decision to commence proceedings passes from the ultimate control of its majority shareholders to neutral third parties, ie, its liquidators, an application for leave to commence a statutory derivative action under s 216A of the Act loses its underlying purpose. At that point, the proper recourse for an aggrieved member of the company becomes his power under the Act to hold the liquidators to account for the manner in which they conduct the liquidation.

It is in this context that Petroships now brings the two applications before me, seeking to hold the liquidators to account for their conduct of the liquidation.

I have dismissed both of Petroships’ applications. I have done so despite accepting Petroships’ submissions on the preliminary point made against it. That preliminary point is that these two applications are either barred by the doctrine of res judicata or are an abuse of the process of the court because Petroships has commenced – and failed – in six other proceedings on the same or similar subject matter. Petroships’ central complaint on the applications before me is that there is an actual or a perceived lack of impartiality on the liquidators’ part. For reasons I expand on at [73] to [107] below, I accept that Petroships’ pursuit of its central complaint is neither an abuse of the process of the court nor barred by a res judicata arising from Petroships (HC) or from Petroships (CA). Its complaint was not the subject-matter of any of the previous six proceedings, it was not adjudicated upon in any of those proceedings nor could it have reasonably been raised in any of those proceedings.

Nevertheless, I have rejected the remainder of Petroships’ submissions on both applications. In view of the substance of Petroships’ central complaint and the way it argued its applications, I have in these grounds dealt first and primarily with the Removal Application, followed by the Winding Up Application. My conclusions on them are as follows: First, on the Removal Application, I find that Petroships has no subjective or reasonable belief in its central complaint. I accept that the liquidators have erred in their decision to make an investigation of Wealthplus’ affairs conditional on the members’ unanimous approval. But I find that they erred in good faith. Their error is not evidence of bias and is not sufficient, in all the circumstances, to give rise to a reasonable perception of bias. Removing the liquidators would therefore not serve the real, honest and substantial interest of the liquidation or the purpose for which the liquidators were appointed. Petroships has therefore failed to show cause under s 302 of the Act to enliven my power to remove the liquidators. Second, on the Winding Up Application, I find that there is no evidence that Wealthplus’ liquidation cannot be continued as a voluntary liquidation with due regard to the interests of Petroships or any of its creditors or contributories within the meaning of s 253(2)(d) of the Act. I therefore have no power to make a winding up order in respect of Wealthplus.

Petroships has appealed against my decision. I therefore now set out my reasons in full.

Background The parties

Petroships is a special-purpose vehicle owned and controlled by Mr Alan Chan Hong Joo. It holds 10% of the shares in Wealthplus.

The other 90% of the shares in Wealthplus are held ultimately by a company known as Koh Brothers Group Limited (“KBGL”). KBGL is a listed company which specialises in construction, property development and specialist engineering. It was founded by Mr Koh Tiat Meng. KBGL has a number of subsidiaries. I shall refer to KBGL and its subsidiaries collectively as the KBGL group.

The Winding Up Application has only one respondent: Wealthplus. The Removal Application has four respondents: each of Wealthplus’ three liquidators and Wealthplus.

The two interveners in both applications are the majority shareholders of Wealthplus: Megacity Investments Pte Ltd (“Megacity”) and Koh Brothers Building & Civil Engineering Contractor (Pte) Ltd (“KBCE”). Both Megacity and KBCE are members of the KBGL group of companies and are therefore under KBGL’s ultimate control.

It is the interveners, and not Wealthplus or its liquidators, who have provided the real opposition to Petroships’ applications.

Joint venture to exploit land use rights

The history of the parties’ disputes goes back almost 20 years. In 1998, Alan Chan and Koh Tiat Meng agreed to enter into a joint venture to exploit certain land use rights in China. Wealthplus was incorporated as the special-purpose vehicle for their joint venture. Wealthplus in turn incorporated three special-purpose companies in Singapore, each of which held a single special-purpose company in China.¹ The sole purpose of each Chinese subsidiary was to hold a single set of land use rights in China. Wealthplus is therefore itself the holding company of a small group of companies.

From 1998 to 2011, Megacity held 90% of the shares in Wealthplus. In 2011, in order to increase the number of Wealthplus’ shareholders from two to three, Megacity transferred 41% of the shares in Wealthplus to KBCE. Wealthplus thus has three shareholders today: Megacity holding 49%, KBCE holding 41% and Petroships holding 10%.

The shareholders of Wealthplus have the right to nominate its directors. From 1998 to 2009, Wealthplus had three directors. Alan Chan was Petroships’ nominee. Mr Koh Teak Huat (Koh Tiat Meng’s brother) and Mr Koh Keng Siang (Koh Tiat Meng’s son) were Megacity’s nominees. Both of Megacity’s nominees also served simultaneously as directors of other KBGL group companies.

Soon after Wealthplus was incorporated, Petroships and Megacity entered into a formal agreement to govern their joint venture. Their joint venture agreement provided that Wealthplus was to be funded by share capital of $1m and a shareholders’ loan of up to $27.7m. The agreement also provided that Wealthplus’ two shareholders at that time – Megacity and Petroships – were to contribute to the share capital and the shareholders’ loan pro rata. Megacity therefore contributed 90% of Wealthplus’ share capital (ie, $900,000) and 90% of an initial shareholders’ loan of $11m (ie, $9.9m). Petroships contributed $100,000 to Wealthplus’ share capital and $1.1m to the loan. Petroships’ loan of $1.1m to Wealthplus is a significant feature of the parties’ dispute.

Petroships’ and Megacity’s joint venture to exploit the land use rights in China was ultimately abandoned. In 2007, with Petroships’ consent, Wealthplus sold the land use rights. It did so by...