Poh Leong Soon v SL Hair & Beauty Slimming Centre Pte Ltd

• Jurisdiction: Singapore
• Judge: Hoo Sheau Peng J
• Judgment Date: 27 April 2018
• Neutral Citation: [2018] SGHC 109
• Court: High Court (Singapore)
• Docket Number: CWU No 170 of 2017
• Year: 2018
• Published date: 07 March 2019
• Hearing Date: 28 November 2017,15 November 2017
• Plaintiff Counsel: Andrew John Hanam (Andrew LLC)
• Defendant Counsel: Ignatius Joseph, Wong Jun Weng Andrew and Chong Xin Yi (Ignatius J & Associates),Beverly Wee
• Subject Matter: Companies,Winding Up
• Citation: [2018] SGHC 109

Hoo Sheau Peng J: Introduction

The plaintiff, Poh Leong Soon (“Mr Poh”), and Naron Lim Newkiat (“Ms Lim”) are the only two directors of the defendant, SL Hair & Beauty Slimming Centre Pte Ltd (“the Defendant”). They are also the only two shareholders, each holding 50% of the Defendant’s shares.

By this application, Mr Poh sought to wind up the Defendant (“the winding up application”). Mr Poh relied on the ground under s 254(1)(f) of the Companies Act (Cap. 50, 2006 Rev Ed) (“Companies Act”), alleging that Ms Lim, as a director, had acted in the affairs of the Defendant in her own interests, or in a manner unfair to Mr Poh. Alternatively, Mr Poh relied on the ground under s 254(1)(i) of the Companies Act, claiming that it was just and equitable that the Defendant be wound up.¹ In response, the Defendant filed HC/SUM 4277/2017, seeking an order to strike out the winding up application on the ground that it was an abuse of process (“the striking out application”).

Having considered the arguments of the parties, and the facts and circumstances of the case, I dismissed the winding up application. As such, I did not make any order on the striking out application. Mr Poh has appealed against my decision. I now furnish my reasons.

Background The parties

The Defendant was incorporated on 8 November 2013. Prior to that, Ms Lim ran a sole proprietorship by the name of SL Hair & Beauty Slimming Centre. She started the sole proprietorship on 29 June 1996, and it lasted for about 17 years.² Upon its incorporation, the Defendant took over the business of the sole proprietorship, which mainly involves the provision of beauty services and the selling of associated beauty products. From sometime in early 2010, Mr Poh began doing work for Ms Lim.³ For some time, they were also in a romantic relationship.⁴

Roles within the company

At its incorporation, Mr Poh became the company secretary of the Defendant. He was involved in the general management and administration of the business. Also, he handled the general record keeping of the company, such as preparing the company’s financial statement and accounts. Ms Lim, on the other hand, continued to run the Defendant’s day-to-day operations, such as managing the three to five staff, allocating their work and actually providing services to the customers herself.⁵ There was some disagreement between the parties concerning how much Ms Lim knew about the financial affairs of the Defendant. I discuss this dispute in more detail at [38] below.

Acquisition of shares

Initially, the paid up capital of the Defendant was $30,000, which was wholly paid for by Ms Lim. Nonetheless, Mr Poh was allotted 40% of the shareholding (being 12,000 shares), with Ms Lim holding the remaining 60% (being 18,000 shares).⁶ On 13 February 2014, Ms Lim injected a further $20,000 of capital into the company, and the total number of shares increased to 50,000. However, the allotment of shares remained 40% to Mr Poh (being 20,000 shares) and 60% to Ms Lim (being 30,000 shares).⁷ Then, on 8 May 2015, there was a transfer of 5,000 shares from Ms Lim to Mr Poh, such that each held 25,000 shares in the Defendant. Mr Poh paid a consideration of only $1 to Ms Lim for the 5,000 shares.⁸ Parties disagreed as to how and why Mr Poh came to own these shares, and I discuss the dispute over the acquisition of shares at [31]. In any event, as it stands, Mr Poh and Ms Lim are equal shareholders.

Use of funds

From sometime in May 2010, Mr Poh was paid a salary for his work with the sole proprietorship, and later for the Defendant.⁹ In addition, from sometime in 2014, some of Mr Poh’s personal expenses, especially in relation to his Housing and Development Board flat at Block 119A Rivervale Drive #09-310 (“the HDB flat”), were being paid by the Defendant.¹⁰ Initially, in his lawyer’s letter dated 21 August 2017, Mr Poh denied this, and claimed that he paid for such expenses.¹¹ However, after Ms Lim produced certain financial records in her first affidavit filed in the winding up application,¹² Mr Poh asserted that such expenses were approved by Ms Lim.¹³ Ms Lim admitted that she knew about the Defendant paying for Mr Poh’s personal expenses.¹⁴ However, she claimed that she did not realise the burden these expenses imposed on the company’s finances until around mid-June 2017, as she was not involved in the financial aspects of the business.¹⁵ The use of the company’s funds for Mr Poh’s personal benefit formed another area of dispute between the parties, and this is set out in more detail from [33] below.

Events leading to the proceedings

Around mid-June 2017, Ms Lim claimed that she realised that the Defendant’s bank accounts were almost depleted, and that the Defendant would run out of cash in one or two months.¹⁶ This was puzzling to her, as there was no substantial decline in the business.¹⁷ Every year, Mr Poh would be overseas for long periods of time.¹⁸ As he was away at the time, Ms Lim decided to stop the payment of certain expenses which were for Mr Poh’s personal benefit.¹⁹

Thereafter, Ms Lim obtained all the financial documents from the Defendant’s corporate secretarial firm.²⁰ Upon going through the financial statements and management accounts, Ms Lim formed the view that the Defendant had paid for unnecessary and excessive expenses for Mr Poh.²¹ Further, Ms Lim claimed that the Defendant had advanced several sums of money to Mr Poh.²² Again, I shall set out more details of the dispute over the use of funds at [33] below.

Mr Poh returned to Singapore at the end of July 2017. Ms Lim handed him a letter from her lawyers, M/s Ignatius J & Associates, dated 23 June 2017.²³ Ms Lim had also packed all of Mr Poh’s belongings, and asked him to leave the Defendant’s business premises.²⁴

On 1 August 2017, Mr Poh met with Ms Lim and her lawyer on a without prejudice basis.²⁵ At this without prejudice meeting, Mr Poh was informed that Ms Lim wanted Mr Poh removed as a director and for him to transfer all his shares in the Defendant to Ms Lim for no consideration. Mr Poh was also asked to repay the company a certain sum of money. Subsequently, Mr Poh realised that he had been removed as a signatory to one of the Defendant’s bank accounts.²⁶

In response, Mr Poh engaged M/s Andrew LLC to correspond with Ms Lim’s lawyers. From 10 to 25 August 2017, two rounds of letters were exchanged between the lawyers. The contents of these letters are important, and I set them out here: In a letter dated 10 August 2017, Mr Poh’s lawyer wrote, stating that “[d]ue to irreconcilable differences, [Mr Poh] proposes that [Ms Lim] purchase his shares in the [Defendant] for the sum of $150,000 or at half the value of the [Defendant] with such valuation to be carried out by an accountant with such costs to be shared equally” [emphasis added]. More pertinently, Mr Poh’s lawyer ended the letter by proposing that in the alternative, the Defendant could enter into a voluntary winding-up. Should the Defendant or Ms Lim not agree with any of the options, Mr Poh “will have no choice but to apply to court for a winding up” [emphasis added]. Mr Poh expected to hear from Ms Lim by 17 August 2017, which was a mere seven days away.²⁷ In her lawyer’s letter dated 17 August 2017, Ms Lim disagreed with the proposal of the purchase of Mr Poh’s shares for $150,000, highlighting that this sum was unreasonable because Mr Poh did not pay anything for his shares in the Defendant. Also, Mr Poh benefitted at the expense of the Defendant. Details of all of Mr Poh’s personal expenses paid by the Defendant, and the advances which were given by the Defendant, were set out. Ms Lim then counter-proposed to Mr Poh to transfer all of his shares in the Defendant to Ms Lim for no consideration, and for him to repay a sum of $89,328 to the Defendant. This sum was the amount of a loan taken from DBS Bank for the HDB flat (“the DBS loan”), which the Defendant had allegedly helped to repay. This is described further at [33(a)] below. Ms Lim was prepared to waive all other claims for the monies used for Mr Poh’s other personal expenses.²⁸ In a letter dated 21 August 2017, Mr Poh denied that the Defendant funded Mr Poh’s personal expenses which were enumerated in the earlier letter. Mr Poh also explained that he earned his 50% share of the Defendant through his work and extensive contributions towards establishing the Defendant.²⁹ Mr Poh then gave Ms Lim an ultimatum stating that “unless [Ms Lim] agrees by 25 August 2017 to a valuation and to buy out [Mr Poh’s] 50% share in the [Defendant], [Mr Poh will] commence legal action”.³⁰ It was proposed that the valuation be carried out by an independent auditor, and Ms Lim was given four days to consider the matter. In a letter dated 25 August 2017, Ms Lim replied rejecting Mr Poh’s share buy-out proposal and informed Mr Poh that the offer in the letter dated 17 August 2017 remained.³¹

On 28 August 2017, barely within one month of Ms Lim raising her concerns with Mr Poh, the winding up application was filed. On 15 September 2017, acting upon the direction of Ms Lim, the Defendant filed the striking out application. Thereafter, the matters were heard before me.

The parties’ cases

As stated at [2], for the winding up application, Mr Poh relied on both the grounds in ss 254(1)(f) and (i) of the Companies Act. However, in his arguments, Mr Poh’s counsel essentially relied on the latter ground – that it was just and equitable for the court to wind up the company.

Mr Poh’s counsel submitted that at the heart of the “just and equitable jurisdiction” is “the notion of unfairness”: Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR(R) 827 (“Evenstar”) at [31]. The company is like a quasi-partnership. Following the end of the romantic relationship in 2017, Ms Lim acted to shut Mr Poh out of the Defendant’s affairs.³² Given the actions taken by Ms Lim, there was a management...