Re Tang Yoke Kheng (ex parte Lek Benedict and another)

• Jurisdiction: Singapore
• Judge: Tan Lee Meng J
• Judgment Date: 14 November 2005
• Neutral Citation: [2005] SGHC 214
• Docket Number: Bankruptcy Petition No 797 of 2005
• Date: 14 November 2005
• Year: 2005
• Published date: 18 November 2005
• Plaintiff Counsel: Lim Fung Peen (Lim Ang John and Tan LLC)
• Citation: [2005] SGHC 214
• Defendant Counsel: Roderick Martin (Martin and Partners) and Trinel Chakraborty (T C Siva and Partners)
• Court: High Court (Singapore)
• Subject Matter: Debtor also creditor of company,Whether exceptional circumstances warranting stay of bankruptcy proceedings existing,Bankruptcy,Debtor funding action by liquidator of company against petitioning creditors,Petition,Petitioning creditors both directors and shareholders of company,Insolvency Law

14 November 2005

Tan Lee Meng J:

1 The petitioning creditors, Mr Lek Benedict (“Lek”) and Mr Lim Wee Chuan (“Lim”), appealed against the decision of the assistant registrar, Mr Vincent Leow, to stay their bankruptcy proceedings against Mdm Tang Yoke Kheng (“Mdm Tang”) on condition that the money owed by Mdm Tang to Lek and Lim is paid into court.

Background

2 Mdm Tang and her husband, Mr Chan Chon Tuck, were ordered to pay costs when Suit No 864 of 2003, which they instituted against Lek and Lim for conducting a business with intent to defraud creditors, was dismissed in September 2004 by Andrew Ang JC (as he then was), whose decision (see Tang Yoke Kheng v Lek Benedict (No 2) [2004] 4 SLR 788) was affirmed by the Court of Appeal. The bankruptcy proceedings initiated by Lek and Lim against Mdm Tang relate to the non-payment of the costs of the dismissed action.

3 For a better understanding of the assistant registrar’s decision to stay the bankruptcy proceedings on terms, the background of the dismissed action and of an earlier suit, Suit No 21 of 2002, must be considered. Mdm Tang traded in Bohemian crystal goods under the name of her company, “Niklex Supply Company”. She was the principal supplier of such goods to Amrae Benchuan Trading Pte Ltd (“Amrae”), of which Lek and Lim are shareholders and directors.

4 Amrae, which paid Mdm Tang more than $5m for Bohemian crystal goods, made its last purchase from Mdm Tang in December 1999. The goods that were ordered were delivered in February and April 2000. From about that time, Amrae, which still owed Mdm Tang a substantial amount of money for unpaid goods, obtained its supplies from other sources. Lek said that he and Lim feared that Mdm Tang would wind up Amrae. As such, in June 2001, they bought a shelf company, called Axum. Lim said that a new company was required to obtain goods from new suppliers at cheaper prices so as to earn better profits to pay off Amrae’s debts.

5 Between July 2001 and June 2002, Amrae sold to Axum $1,268,983.02 worth of Bohemian crystal goods. Although Axum paid Amrae $713,831.38 for the goods, not a single cent was paid to Mdm Tang. Instead, the money was utiltised by Lek and Lim to pay themselves, inter alia, backdated directors’ fees under circumstances where a question as to unfair preference by an insolvent company arose.

6 Mdm Tang instituted Suit No 21 of 2002 to recover around $1.5m from Amrae. On 21 August 2002, she obtained judgment for $245,226.02 for part of her claim and on 5 September 2002, a consent judgment was entered against Amrae for the sum of $821,000.00. The total sum awarded to Mdm Tang in Suit No 21 of 2002 was thus $1,066,226.02.

7 Mdm Tang only managed to recover $59,710.46 from Amrae by way of a Sheriff’s sale. This left more than $1m of the judgment debt unsatisfied. On 19 September 2003, Mdm Tang obtained a winding-up order against Amrae.

8 Mdm Tang’s next move to recover the money still owed to her by Amrae proved to be a costly mistake. On 25 September 2003, she commenced Suit No 864 of 2003 against Amrae’s directors, Lek and Lim. Numerous allegations of fraud were made, including a claim that Lek and Lim caused Amrae to continue trading with her even though they knew that their company was insolvent and that they caused the dissipation of Amrae’s assets by, inter alia, paying salaries and bonuses to themselves in 2000 and 2001 when the company was already insolvent.

9 As far as the allegation of undue preference is concerned, the trial judge, Andrew Ang JC, who noted that Amrae did not use any part of the $713,831.38 it received from Axum to pay Mdm Tang, observed in [23] of his judgment as follows:

[Amrae] could have used the money to keep up instalment payments to the plaintiff but did not. I am not persuaded by the first and second defendants’ reasons for stopping the instalment payments. In my view, at the time these repayments of loans were made, [Amrae] was already insolvent, the plaintiff’s demand of 31 January 2001 not having been met. … A case could well be made out for saying that in making these and other payments (such as the payment of directors’ fees accrued from previous years) [Amrae] was unfairly preferring the defendants over the plaintiff. [emphasis added]

10 Ang JC also noted that in many instances, money paid by Amrae to Lek and Lim was channelled by way of loan or otherwise to Axum, which then paid back the money to Amrae on the very same day or shortly thereafter to reduce the outstanding amount owed by Axum to Amrae. In other words, the money “simply went one full circle”. All the same, the trail judge held that however “strongly suggestive of unfair preference they may be”, the facts were insufficient to warrant a finding that Lek and Lim were liable for fraudulent trading under s 340(1) of the Companies Act (Cap 50, 1994 Rev Ed). Mdm Tang’s appeal to the Court of Appeal was dismissed: see Tang Yoke Kheng v Lek Benedict [2005] 3 SLR 263.

11 The taxed costs for Mdm Tang’s failed action against Lek and Lim were adjusted to $181,698.98 on 3 February 2005. M/s Lim Ang John & Tan LLC, solicitors for Lek and Lim, served a statutory demand on Mdm Tang on 7 February 2005. A Bankruptcy...