Re Kie Hock Shipping Pte Ltd

• Jurisdiction: Singapore
• Judge: T S Sinnathuray J
• Judgment Date: 28 December 1984
• Neutral Citation: [1984] SGHC 44
• Docket Number: Companies Winding Up No 56 of 1978
• Date: 28 December 1984
• Year: 1984
• Published date: 19 September 2003
• Plaintiff Counsel: Yap Siew Yong
• Citation: [1984] SGHC 44
• Defendant Counsel: AB Netto (Netto Low & Partners)
• Court: High Court (Singapore)
• Subject Matter: Inspectors appointed to investigate affairs of company,Directors,Duties,Companies,Claim against directors by liquidator on winding-up,Breach of statutory duties,Director's criminal and civil liability of director,Whether director ought to be excused,Failure to use reasonable diligence and act honestly,ss 132, 195, 196, 305 & 354 Companies Act (Cap 185)

In this application made by the Official Receiver, the liquidator of Kie Hock Shipping (1971) Pte Ltd (the Company), in Summons in Chambers No 5125 of 1981, the issue is whether the second respondent, Tay Beng Chuan, the executive director of the company, has been guilty of misfeasance or breach of duty under s 305 of the Companies Act (Cap 185) (the Act).

At an earlier hearing of the summons in chambers before the learned Chief Justice, the first respondent, Tay Hock Gwan, the managing director of the company having through his counsel admitted liability, an order was made against him in terms of the application. It was declared that the first respondent `has been guilty of misfeasance or breach of duty in relation to the said Company in failing between 30 December 1977 and 26 May 1978 to cause action to be taken by the said Company to recover debts owed to it by twelve companies mentioned in the said Summons which companies were incorporated in the Republic of Panama and further in allowing the said debts to accumulate such that by 26 May 1978 they totalled $11,551,000`; it was ordered that the first respondent pay the liquidator `the sum of $11,551,000 being the total amount of the said unrecovered debts and interest thereon at 8% per annum from 26 May 1978 until payment`; and it was further ordered that he pay the costs of the application.

The company was wound up on 26 May 1978 in Companies Winding-Up No 56 of 1978 on a petition presented by Eastern Lloyd Trading Pte Ltd and the Official Receiver was appointed its liquidator. Then nine creditors of the company sent a petition to the Minister for Finance. On 19 April 1979, the Minister appointed Mr Chan Sek Keong, an advocate and solicitor, and Mr Wong Siong Poon, a public accountant, as inspectors under ss 195 and 196 of the Act to investigate into the affairs of the company.

There was a very lengthy investigation into the affairs of the company by the inspectors. A certified copy of their report was tendered at the hearing of this application. The inspectors investigated, among various matters, the debts due to the company from the 12 Panamanian companies mentioned in the summons. The Inspectors found that `The "loss" of the Panamanian accounts was the single most important factor which accounted for the sorry state of the Company`s financial affairs`.

Based on the report of the inspectors, the Attorney General instituted criminal proceedings against the two respondents, Tay Hock Gwan and Tay Beng Chuan. There were six charges against the second respondent, Tay Beng Chuan. On 29 September 1981 he pleaded guilty to five of the charges and consented to the sixth charge to be taken into consideration in assessing sentence. For the purpose of this application only the first charge is relevant. The amended first charge reads as follows:

You, Tay Beng Chuan are charged that you, between the 30 December 1977 and 26 May 1978, being a Director of Kie Hock Shipping (1971) Pte Ltd did commit a breach of your duty under s 132(1) of the Companies Act, Cap 185 to at all times use reasonable diligence in the discharge of your duties, to wit, by failing to cause action to be taken by the said Kie Hock Shipping (1971) Pte Ltd to recover debts owed to Kie Hock Shipping (1971) Pte Ltd by twelve companies incorporated in the Republic of Panama viz:

Compania Naviera Thompson SA

Africa Shipping Co Ltd Inc

Gammewah Enterprises Ltd SA

Tali Shipping Co Ltd SA

Compania De Navegacia Laiton SA

Holley Shipping Co Ltd SA

Karingo Shipping Co Ltd SA

Kadima Shipping Co Ltd SA

Benteng Enterprises Co Ltd SA

Sahaka Enterprises

Salama Shipping Ltd SA

Gambela Enterprises Ltd SA

which on the 30 December 1977 amounted to $10,291,000 and which were allowed to accumulate in the accounts of Kie Hock Shipping (1971) Pte Ltd such that by the 26 May 1978, these debts totalled $11,551,000 and you have thereby committed an offence punishable under s 132(3)(b) of the Companies Act, Cap 185.

On this amended charge the second respondent was fined $1,500 and in default two months` imprisonment. Following the convictions of the two respondents, the Official Receiver as liquidator of the company took out this application.

Having introduced the facts that led to this application, I now proceed to summarize the facts relevant to the application.

The company was incorporated on 27 November 1970 with its registered office at 48-A Cecil Street, Singapore. The nominal capital of the company was $2m divided into 2m shares of $1 each. The amount of capital paid up or credited as paid up was $1m.

The first respondent, Tay Hock Gwan, was at all material times the managing director and the major shareholder of the company. At the date of the winding of the company he was holding 98% of the issued share capital of the company. He was also at all material times the managing director and had sole control of 12 companies he incorporated in the Republic of Panama (the Panamanian companies).

The second respondent, Tay Beng Chuan, is the nephew of the first respondent, Tay Hock Gwan. He was at all material times the executive director of the company. He was also a shareholder of the company, he owned 2% of the issued share capital of the company at the date of the winding-up order.

The company commenced trading on 1 January 1971 by taking over the shipping operations and the assets and liabilities of its predecessor company, Kie Hock Shipping Co (Pte) Ltd. The company was engaged in operating and chartering its own vessels, hiring of its motor launches, operating a workshop to service and repair its vessels and acting as agent for vessels owned by its related and affiliated companies.

During the years 1971 to 1974, the company did well. The profits from operating its vessels alone increased from $275,000 in 1971 to $9,616,000 in 1974. After 1974, however, freight income began to drop but operating expenses continued to rise. In 1977, the operations of the company`s ships alone resulted in a loss of $3.7m.

The Panamanian companies were among the affiliated companies which had dealings with the company. Each of the Panamanian companies owned one or more ships and the company was the Singapore agent for all the Panamanian ships. As at 1 January 1975, 39 Panamanian ships were noted in the records of the company. However, information derived from the books of account of the company showed that the Company did not always operate the Panamanian ships for the accounts of their respective registered owners.

As agents of the Panamanian companies, all disbursements and advances made by the company in respect of the Panamanian ships were debited to the accounts of the Panamanian companies kept by the company, and all freight earnings and other income of the ships were credited to the same accounts. However, in addition to the normal disbursements incurred by the ships, various other expenses which could not be satisfactorily accounted for were similarly debited to these accounts. There were also other private expenses incurred by the first respondent, Tay Hock Gwan, and his family which were debited to these accounts. The combined debts of the Panamanian companies amounted to $6,446,000 in 1975 and $10,291,000 in 1976.

During 1976 and 1977, a number of large claims were made against the company by both foreign and local creditors. Among the company`s creditors who were pressing for payment at that time were:

(a) Berger Paints (S) Pte Ltd

(b) Caltex (Asia) Ltd

(c) Castrol (Far East) Pte Ltd

(d) Jurong Shipyard Ltd

(e) Keppel Shipyard Ltd

(f) Port of Singapore Authority

(g) Sembawang Shipyard Ltd

(h) Van Der Horst (Asia) Pte Ltd and

(i) Sin Chiao Shipping Pte Ltd

The total claims of these nine creditors alone were in excess of $5m.

By 1977 the company was in critical financial difficulties. The debts of the Panamanian companies were by now $10,774,000. But both the respondents, Tay Hock Gwan, and Tay Beng Chuan, as managing director and executive director respectively of the company, took no action whatsoever to recover the enormous debts owed to it from the Panamanian companies. Instead, the first respondent, Tay Hock Gwan, was at about that time actively disposing of the ships belonging to the Panamanian companies to his relatives and other affiliated companies. The second respondent, Tay Beng Chuan, was aware of this. No proceeds of the disposal of the ships were credited to the accounts of the Panamanian companies kept by the company. To aggravate matters, both the respondents further allowed the debts of the Panamanian companies to accumulate such that by 26 May 1978, at the date of the winding-up of the Company, they totalled $11,551,000.

The ships were the only assets of the Panamanian companies. By disposing of them without payment to the company, the first respondent, Tay Hock Gwan, effectively deprived the company of all possibility of recovering the debts owing by the Panamanian companies. In the statement of affairs filed by the second respondent, Tay Beng Chuan, all the Panamanian debts due to the company were classified by him as irrecoverable on the basis that the Panamanian companies had no assets to which the company could have recourse.

There is no doubt that the loss of $11,551,000 suffered by the company as a result of the irrecoverability of the Panamanian debts was the single most important factor which accounted for the hopeless state of the Company`s insolvency. At the date of the hearing of the application, the claims filed by the company`s creditors in this winding-up was about $24.3m.

The facts that I have...