Seah Chee Wan and another v Connectus Group Pte Ltd

• Jurisdiction: Singapore
• Judge: Ang Cheng Hock J
• Judgment Date: 25 September 2019
• Neutral Citation: [2019] SGHC 228
• Court: High Court (Singapore)
• Docket Number: Companies Winding Up No 78 of 2018
• Published date: 01 October 2019
• Year: 2019
• Hearing Date: 05 March 2019,01 March 2019,06 March 2019,07 March 2019,06 May 2019,08 March 2019
• Plaintiff Counsel: Rajiv Nair (GKS Law LLC)
• Defendant Counsel: Khoo Ching Shin Shem, Teo Hee Sheng, Christian and Esther Yong (Focus Law Asia LLC),The defendant absent and unrepresented.
• Subject Matter: Companies,Winding up,Insolvency of company,Just and equitable winding up
• Citation: [2019] SGHC 228

Ang Cheng Hock J: Introduction

In this judgment, I deal with an application to wind up a company by one of its contributories, who is also a creditor, on the grounds that it is just and equitable to wind it up and also that it is unable to pay its debts as they fall due. There is a separate but linked application in Originating Summons No 449 of 2018 (“OS 449/2018”), which is an application under s 182 of the Companies Act (Cap 50, 2006 Rev Ed) (the “Act”) to convene an Extraordinary General Meeting of the same company without the necessary quorum. OS 449/2018 will be the subject of a separate judgment although the material facts in relation to that application are essentially the same as that for the present winding up application.

The background to the disputes The setting up of the company

The company that it is at the centre of these disputes is Connectus Group Pte Ltd, a company established and based in Singapore (“Connectus Group”). It was incorporated on 16 August 2012. It is in the business of providing human resource services, particularly employment and executive search services.¹

Connectus Group was set up by (i) Seah Chee Wan, who is also referred to as Alex Seah (“AS”), (ii) Seah Shiang Ping, who is also referred to as Stacey Seah (“SS”), and (iii) Lim Tien Ho (“LTH”). The two Seahs are siblings. Together with LTH, the three of them had been colleagues in Hudson Global Resources (Singapore) Pte Ltd (“Hudson”), which is a well-established firm in the same line of business.²

AS, SS and LTH decided to strike out on their own. They came up with the name “Connectus” for their own human resource services business and Connectus Group was thus set up.³

To start the business, the three of them needed additional capital investment. In March 2012, before Connectus Group was incorporated, SS had been introduced through an acquaintance to one Ng Sing King, also referred to as Paul Ng (“PN”). PN was a potential investor who had various business interests.⁴ SS asked PN whether he would be interested in being a partner in their business that would be established. PN had many meetings with AS, SS and LTH. He learnt of their respective areas of specialities and what each of them wanted to do. PN told them about his own track record in human resource services businesses in Singapore and China. He had acted as a consultant and advisor to several such businesses. With his undoubted experience, AS, SS and LTH were looking to PN as an advisor on how to set up and run a successful human resource services business.⁵

PN eventually agreed to invest in the business venture. In November 2012, a few months after Connectus Group was incorporated, PN used a company that he substantially owned and controlled, APBA Pte Ltd (“APBA”),⁶ to subscribe for shares in Connectus Group.⁷ On 12 November 2012, the four shareholders - APBA, SS, AS and LTH - entered into a Shareholders’ Agreement in relation to Connectus Group (“the SHA”).⁸

The SHA was comprehensive and dealt with all the usual matters that one would expect to be covered by such an agreement. It included provisions dealing with how meetings would be conducted, restrictions on voting rights, reserved matters, anti-dilution of shareholding, “tag-along” and “drag-along” rights, dividends policy, management deadlock, buy-out provisions etc. There is also a provision of the SHA (clause 5.2), which provided, in gist, that each of the shareholders was entitled to appoint a director to the board of Connectus Group unless his shareholding fell below 15%.⁹

After the entry of APBA, the shareholding in Connectus Group was as follows:¹⁰ AS - 117,000 shares (23.4%) SS - 117,000 shares (23.4%) LTH - 117,000 shares (23.4%) APBA - 149,000 shares (29.8%)

It is not disputed that PN had asked for slightly more than a 25% stake so that he could block any special resolutions.¹¹ After APBA’s investment, as per the terms of the SHA, PN was appointed as APBA’s representative to the board of Connectus Group.¹² The only other directors were AS, SS and LTH.¹³

The four shareholders brought different practice areas and business segments to the table. AS had been working for a number of years in China, developing human resource businesses there. He wanted to continue focusing on growing the business in China. SS’s and LTH’s practice areas were based in Singapore. SS was primarily interested in servicing the healthcare industry, while LTH’s practice areas were the IT and semiconductor industries.¹⁴

PN’s contribution was his experience and expertise in running a human resource services business.¹⁵ While the other three had experience only in employee recruitment and executive search, PN offered to help Connectus Group develop revenue streams in areas like payroll administration, recruitment process outsourcing, interim management and contract staffing.¹⁶

AS, SS and LTH were employed full-time by Connectus Group and drew salaries.¹⁷ On the other hand, APBA provided consultancy and accounting services to Connectus Group, and billed the company for these services.¹⁸

The entry of Edwin Lim and his family

Less than a year later, in July 2013, LTH decided to part ways with Connectus Group. He sold his shares in the company to PN,¹⁹ who then sold them to one Ong Poh Suan, also known as Sharon Ong (“SO”).²⁰ She is the wife of Edwin Lim Tow Ee (“EL”),²¹ another former colleague of AS and SS from Hudson, and one of the central players in the eventual disputes between the parties. It is not disputed that the AS, SS and EL had known each other for some time, even before they worked together in Hudson. EL was looking to leave Hudson to join Connectus Group. He was introduced by AS and SS to PN. EL wanted to take up LTH’s stake in Connectus Group, and AS, SS and PN then agreed to have him come on board as their fourth shareholder and also to become the Chief Executive Officer (“CEO”) of the company.²²

The trouble was that EL was an inveterate gambler and often found himself in debt.²³ He did not have the funds needed to buy LTH’s stake. EL approached his father, Lim Meng Foo (“LMF”), for the capital. LMF’s unchallenged evidence is that he agreed to pay for the 23.4% stake in Connectus Group so that EL could become the CEO of the company. He would not have come up with the funds if EL was not going to be offered the job of CEO. However, knowing his son’s gambling habits, LMF decided that it would be best that the 23.4% stake be registered in the name of EL’s wife, SO.²⁴ She was also appointed as a director of the company.

Hence, with the departure of LTH, the four shareholders in Connectus Group were AS, SS, APBA and SO, in the same shareholding proportion as before, save that SO stepped into the shoes of LTH. In effecting the transfer of the Connectus Group shares from PN to SO, a document was executed by PN, APBA, AS and SS, which stated, amongst other things, that “APBA, Alex, Stacey and Ng agree to waive the SHA completely and immediately”.²⁵ While these words on the SHA are quite ambiguous, the evidence of the parties before me was that they treated the SHA as no longer having any legal force. Neither side relied on any of the SHA provisions as continuing to give them any particular rights as shareholders or to impose any legal obligations on the other shareholders.

The business in China

In 2013, Connectus Group started taking steps to establish a presence in China. As prevailing government regulations in China did not permit Connectus Group to immediately set up a subsidiary in China, alternative arrangements in China had to be found in order for the company to be able to operate there.²⁶

On 27 March 2013, Connectus Group entered into a Cooperation Agreement (the “Cooperation Agreement”) with a Chinese company called Shanghai Lethic Business Consulting Co Ltd (“SLBC”).²⁷ This was a company that was majority owned and controlled by a businessman called Chary Zhu De Quan,²⁸ who the parties referred to simply as “Chary”.²⁹ PN also has a shareholding interest in SLBC.³⁰ In fact, it was PN who had introduced the other shareholders of Connectus Group to Chary.³¹

The parties have variously described the Cooperation Agreement with SLBC as a “joint collaboration agreement” or a “joint collaborative agreement”.³² This was always intended to be a transitional arrangement until Connectus Group could establish its own subsidiary in China. In essence, pursuant to the Cooperation Agreement, Connectus Group would deposit RMB 1.2m of investment funds with SLBC. In turn, SLBC would set up the entire business infrastructure to allow Connectus Group to operate in China, including the hiring of employees and acting as the payroll agent. The operating expenses would be paid for in the first instance by SLBC. The Cooperation Agreement also provided that SLBC would also sign contracts on Connectus Group’s behalf, issue invoices and also collect on all payments. SLBC would also charge a management fee to Connectus Group.³³

While the Cooperation Agreement was, on paper, only between Connectus Group and SLBC, it is not disputed that there were two other stakeholders. Bonnie Wang and Frank Zhang (collectively, “the Chinese partners”) were two former colleagues of AS in Hudson who worked in China. They were now part of the management team of the Chinese operations of Connectus Group, and they together own 33.33% of the business there.³⁴ Hence, they contributed RMB 300,000 out of the RMB 1.2m of investment funds that were deposited with SLBC.³⁵ However, as far as SLBC was concerned, the entire amount of RMB 1.2m was booked as coming from Connectus Group. The parties have collectively referred to the business arrangement with the Chinese partners as the “joint venture in China”.³⁶

AS was based in China and was the head of the operations of the joint venture there. His evidence was that the profits generated by the joint venture was a total of about RMB 3.335m...