Public Prosecutor v Lew Syn Pau and Another

JudgeSundaresh Menon JC
Judgment Date11 August 2006
Neutral Citation[2006] SGHC 146
Citation[2006] SGHC 146
Defendant CounselMichael Hwang SC and Nicholas Narayanan (Michael Hwang),K Shanmugam SC, Kenneth Pereira and Eugene Thuraisingam (Allen & Gledhill)
Published date27 October 2006
Plaintiff CounselNg Cheng Thiam, Amarjit Singh and Ong Luan Tze (Deputy Public Prosecutors)
Date11 August 2006
Docket NumberCriminal Case No 14 of 2006
CourtHigh Court (Singapore)
Subject MatterWhether principle of separation of legal personalities may be displaced,Criminal Law,Companies Act,Accused and abettor charged with authorising holding company to give financial assistance directly or indirectly for acquisition of company's own shares,Whether acts of subsidiary may be treated as acts of holding company,Whether such financial assistance prohibited by s 76 Companies Act,Lifting corporate veil,Companies,Incorporation of companies,Statutory offences,Financial assistance given by subsidiary of holding company,Sections 76(1)(a)(i)(A), 76(1)(a)(i)(B) Companies Act (Cap 50, 1994 Rev Ed)

11 August 2006

Judgment reserved.

Sundaresh Menon JC:


1 The study of company law often begins with the celebrated decision of the House of Lords more than a century ago in Salomon v Salomon & Company, Limited [1897] AC 22 (“Salomon”). In that case, the House of Lords held that a company and its shareholders had separate legal personalities and that the actions and liabilities of the former were not ordinarily to be attributed to the latter. That proposition might seem trite today but its familiarity should not be allowed to obscure its continuing vitality as a fundamental principle of company law.

2 In ruling as it did, the House of Lords reversed the decisions of both the Court of Appeal and the High Court. Vaughan Williams J at first instance thought that the business in truth belonged to Mr Salomon, and that the company was employed by him as his agent and that as such he was bound to indemnify the agent. The Court of Appeal arrived at its conclusion by a somewhat different route. That court was convinced that there was in truth no separation between the legal personality of Mr Salomon and that of the company and this was expressed in a variety of ways. The company was described as a myth and a fiction and it was suggested that the legislation in question contemplated independent shareholders who “had a mind and a will of their own, and were not the mere puppets of an individual who … carried on his old business in the same way as before, when he was a sole trader” (per Lopes LJ as quoted by Lord Halsbury LC at 32). Clearly both courts struggled with the notion that a merchant could establish a company, transfer his business to it and then not be liable himself for the losses even though he appeared to control the will and mind of the company and to conduct his business in just the same way that he had done before the incorporation.

3 Some things have not changed even after a hundred years. Intelligent minds are still boggled by the idea that a company and its shareholders are separate legal persons and when confronted with what appears to be a situation of a shareholder being in a position to control a company there is sometimes a tendency to overlook this crucial separation. In my view this lies at the heart of the present case.

The evidence and the facts

4 The facts are substantially not in dispute. The parties settled upon a “Statement of Agreed Facts” which contained almost all the relevant factual material. In addition, the Prosecution called seven witnesses. Their evidence was taken over a day and a half. There was little, if any, cross-examination. Finally, the Prosecution also tendered the long statements taken from each of the two accused persons under s 121 of the Criminal Procedure Code (Cap 68, 1985 Rev Ed) (“the CPC”). There was some debate as to the precise weight I should accord and the overall approach I should take to these statements when considering a submission at the close of the Prosecution’s case that the defence ought not to be called. I return to this at a later point.

5 The first accused is one Mr Lew Syn Pau. Mr Lew is a friend and business associate of the second accused, Mr Wong Sheung Sze. At the material times, Mr Wong was the executive chairman and a director of Broadway Industrial Group Ltd (“BIGL”). BIGL is a company listed on the main board of the Singapore Exchange. Mr Wong was also a director of the following companies:

(a) Compart Holdings (S) Pte Ltd (“Compart Holdings”), a private limited company incorporated in Singapore;

(b) Compart Asia Pte Ltd (“Compart Singapore”), also a private limited company incorporated in Singapore; and

(c) Compart Asia Pacific Limited (“Compart Mauritius”), a company incorporated in the Republic of Mauritius.

6 For convenience I refer to these companies collectively, but not including BIGL, as the Compart Group. They were all related companies. Compart Mauritius was a wholly owned subsidiary of Compart Singapore which in turn was a subsidiary of Compart Holdings. Compart Holdings was in turn a subsidiary of BIGL.

7 In terms of shareholdings, BIGL owned 50.49% of Compart Holdings, which in turn held 93.84% of the shares in Compart Singapore. BIGL also directly owned some 2.74% of the shares in Compart Singapore. As noted above, Compart Singapore in turn owned all the shares of Compart Mauritius.

8 Mr Lew was a director of each of the aforementioned companies in the Compart Group but he was not a director of BIGL.

9 BIGL is an investment holding company. Its business activities were organised into what were described as the “packaging” and the “components” segments. The latter is of particular interest in the present case as it was owned and operated through the Compart Group of companies, consisting of Compart Holdings, Compart Singapore and a number of subsidiaries including Compart Mauritius. For convenience, I refer to BIGL and its related companies collectively as the BIGL Group.

10 The Compart Group and the components segment of BIGL that was operated through this group was financially the strongest performing part of BIGL’s business. It was accepted by both the Prosecution and the Defence that for the financial year 2003, BIGL itself made a profit of $260,000; its packaging segment made a loss of $212,000; and its components segment, ie, the Compart Group, made a profit of $10,509,000. Similarly for the financial year 2004, BIGL itself made a profit of $1,223,000; the packaging segment made a profit of $907,000; and the components segment made a profit of $24,349,000.

11 One feature of the way the components segment was run was that Compart Mauritius would purchase products produced by other companies in the Compart Group and then sell these products to customers. In his long statement, Mr Wong described it as a paper company through which sales were channelled. In effect, it operated as a middleman and I was given to understand that the business was set up in this way for tax planning reasons.

12 I pause here to make some observations about the accounting treatment of the finances of the BIGL Group. BIGL, being purely an investment holding company, had no business operations of its own. Its income derived principally from dividends declared in respect of its shareholdings in its subsidiaries.

13 It was therefore the case that other things remaining equal, the group’s consolidated net worth would tend to increase with that of its subsidiaries. It was also accepted that the financial statements that were presented to the public included figures for BIGL itself as well as consolidated figures for the group as a whole including BIGL’s subsidiaries. In particular, the balance sheet and income statement of Compart Mauritius was consolidated into Compart Singapore’s accounts, which in turn was consolidated into Compart Holdings’ accounts and finally this was included in the BIGL Group consolidated financial statements. It was not disputed that the Compart Group was very largely responsible for the favourable consolidated financial results of the BIGL Group.

14 Despite this all was not well with BIGL’s financial health. In August 1999, BIGL had issued 925 “Redeemable Cumulative Convertible Preference Shares” (“RCCP Shares”) to a company known as “3i Group plc” (“3i”). The maturity date for the RCCP Shares was sometime in October 2004. At maturity, 3i would be entitled to redeem the RCCP Shares and BIGL then would have to pay 3i an amount of around $11.8m which sum included interest on the principal value of the RCCP shares.

15 As early as August 2002, BIGL had tried to obtain credit from the United Overseas Bank (“UOB”). UOB had rebuffed these efforts as it felt that BIGL had a weak balance sheet. BIGL in fact had a negative net worth for a period of time until December 2002. UOB was also aware of BIGL’s debt liability under the RCCP Shares and it was not confident that this level of debt was sustainable. UOB had therefore indicated that it would not advance any further credit until and to the extent a fresh equity injection was made by BIGL’s shareholders.

16 By early 2003, BIGL’s total debt liability stood at around $23.5m, of which some $11.2m was in respect of the liability to 3i (including interest).

17 In BIGL’s financial statements for the financial year 2002, its auditors, PricewaterhouseCoopers (“PwC”), had expressed concerns as to BIGL’s ability to continue as a business entity. These concerns stemmed largely from debts which were then expected to fall due in the following 12 months. Both the BIGL board of directors and PwC noted that the outlook depended upon BIGL’s ability to dispose of some of its non-core assets at prices that would be sufficient to meet the anticipated liabilities as and when these crystallised or upon the outcome of other alternatives that were then being explored.

18 In March 2003, BIGL appointed PricewaterhouseCoopers Corporate Finance Pte Ltd, (“PwCCF”) as its financial adviser to assist:

(a) in the overall financial restructuring of BIGL and its subsidiaries; and

(b) to find potential investors for BIGL

19 BIGL through Mr Wong also engaged Mr Lew in the latter’s capacity as a director of his own company, Capital Connections Pte Ltd (“Capital Connections”), to assist in finding suitable prospective investors for BIGL. An official engagement letter was signed relating to this. Under the terms of this engagement, BIGL agreed to pay Capital Connections a fee of 1% of the aggregate amount of new equity funds successfully raised by Capital Connections for BIGL. This fee would only be payable to Capital Connections when the amount, structure and terms upon which the funds were to be raised had been accepted and the funds had been received by BIGL.

20 PwCCF was not able to find a suitable investor. Mr Lew on the other hand appeared to fare better. He approached an associate from his previous business dealings, Mr Dick Tan Beng Phiau (“Mr Tan”), an Indonesian businessman who...

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