Sim Guan Seng v One Organisation Ltd

• Jurisdiction: Singapore
• Judge: Vinodh Coomaraswamy J
• Judgment Date: 26 August 2022
• Docket Number: Suit No 1078 of 2017
• Court: High Court (Singapore)

Sim Guan Seng and others

and

One Organisation Ltd and others

[2022] SGHC 194

Vinodh Coomaraswamy J

Suit No 1078 of 2017

General Division of the High Court

Insolvency Law — Administration of insolvent estates — Disposal of assets — Bankrupt entering into various transactions with wife and related companies — Whether trustees in bankruptcy entitled to restoration of bankrupt's estate or civil remedy — Bankruptcy Act (Cap 20, 2009 Rev Ed) — Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed)

Insolvency Law — Avoidance of transactions — Transactions at an undervalue — Whether bankrupt's transfer of assets at no or nominal consideration constituting transaction at undervalue — Section 98 Bankruptcy Act (Cap 20, 2009 Rev Ed)

Insolvency Law — Avoidance of transactions — Unfair preferences — Whether bankrupt's transfer of assets to wife and related companies amounting to unfair preference

Held, allowing the claim:

(1) Based on the totality of the evidence adduced at trial and despite any oral evidence from the Bankrupt or the second defendant to the contrary, the Bankrupt was a shadow director of both corporate defendants: at [21].

Three documents dated 28 February 2010

(2) The “Agreement for Securities Lending” (“SLA”), the “Shareholder Agreement for Minority Protection” (“SAMP”), both dated 28 February 2010, and the notices and demands allegedly issued under both documents were created by the Bankrupt and the second defendant in September 2016 and falsely backdated by up to six years. The documents were null and void and devoid of legal effect: at [51].

(3) The “Points of Agreement for Securities Lending” (“POA”), also dated 28 February 2010, was a falsely backdated agreement. It was also null and void and devoid of legal effect. Even if the POA had been created and executed in 2010, it was a sham agreement and devoid of legal effect: at [69], [83] and [90].

(4) On the balance of probabilities, the Bankrupt had at all material times used the second defendant as well as the companies which he or the second defendant owned or controlled as his nominees in connection with his business affairs, and more particularly in connection with his substantial shareholding in Healthway Medical Corp Ltd (“HMC”) and International Healthway Corp Ltd (“IHC”): at [86].

The Bankrupt's solvency at the material times

(5) The Bankrupt was insolvent from September 2015 onwards when IHC's share price collapsed. In particular, the Bankrupt was insolvent when the challenged transactions took place between February and May 2016, and in February 2017: at [91] and [93].

(6) The Bankrupt was insolvent within the meaning of s 100(4)(a) of the Act in and after September 2015. The evidence showed that the Bankrupt had undertaken an obligation in July 2013 under a deed of undertaking to guarantee that the counterparty to the deed would receive certain minimum proceeds upon selling certain shares and failed to pay this debt when it fell due: at [115] and [116].

(7) The Bankrupt was insolvent within the meaning of s 100(4)(b) of the Act between February and May 2016. The true state of the Bankrupt's assets and liabilities in February to May 2016 was that he owned assets worth no more than $12m and owed liabilities of at least $126m: at [127].

(8) The Bankrupt was insolvent in February 2017. First, the Bankrupt presented his application to have himself adjudicated bankrupt on 8 March 2017. Second, the arbitration award handed down on 20 February 2017 could not have tipped him into solvency because it was only for the sum of $13.6m: at [128], [129] and [131].

First transaction

(9) The Bankrupt's transfer to the second defendant of 58 shares which he held in the first defendant was a fraudulent conveyance within the meaning of s 73B of the Conveyancing and Law of Property Act (Cap 61, 1994 Rev Ed) (“CLPA”). The shares were property, the conveyance of the shares had prejudiced the Bankrupt's creditors, the Bankrupt did not convey the shares to the second defendant for valuable consideration or upon good consideration, and the Bankrupt and the second defendant had a common fraudulent intent: at [137], [139], [147] and [153].

(10) The Bankrupt's transfer of the 58 shares was also a transaction at an undervalue within the meaning of s 98 of the Act. The Bankrupt was actually insolvent at the time of the transfer or presumed to be insolvent at the time of the transfer under s 100(3) read with s 101(2) of the Act. The transfer of the shares was, in economic substance, a gift by the Bankrupt to the second defendant. The defendants' submission that the shares in the first defendant were worthless at the time of transfer was rejected: at [155] to [157] and [171].

(11) The Trustees' challenge on the ground of unfair preference failed because one of the conditions precedent was not met. The second defendant was not a creditor of the Bankrupt in February 2017: at [173].

(12) The second defendant did not hold the 58 shares on trust for the Trustees. The transfer was effective to vest title to the shares in the second defendant. The Bankrupt's fraudulent intent and the fact that it was a voluntary transfer did not operate in equity to separate legal title to the shares from the beneficial interest in the shares. Finding otherwise would create intolerable instability in property rights pre-bankruptcy and render otiose the law on fraudulent conveyances and undervalue transactions post-bankruptcy: at [183] and [185].

(13) The Trustees' claim for restitution in the law of unjust enrichment failed. This claim asserted a cause of action which accrued to the Bankrupt pre-bankruptcy and vested in the Trustees by reason of the bankruptcy. As the Bankrupt had, in substance, made a gift of the 58 shares to the second defendant, the Bankrupt would not have had a cause of action to recover the shares from the second defendant pre-bankruptcy. The Trustees could be in no better position than the Bankrupt himself in relation to pre-bankruptcy claims such as this: at [188] and [189].

(14) The Trustees' final alternative claim in conspiracy could not succeed. Making a gift in the exercise of one's own free will could not be economic injury to the person giving the gift. In any event, in so far as the alleged conspiracy caused economic injury to the Bankrupt's creditors, those creditors were not the plaintiffs in this action: at [193] and [194].

(15) The second defendant's allegation that the Bankrupt held 29 of the 58 shares on trust for her was a pure afterthought and was rejected. This aspect of the defendants' case was pleaded nowhere and was in fact contrary to the case that the defendants had actually pleaded: at [198] to [200].

Second transaction

(16) When the first defendant lent 233.6 million HMC shares to the Bankrupt pursuant to the POA, title to those shares vested in the Bankrupt. After the Bankrupt directed the first defendant to transfer these shares to the first defendant's brokerage accounts, the first defendant held the shares on a bare trust for the Bankrupt. The Trustees, standing in the shoes of the Bankrupt, were entitled to terminate the bare trust for and on behalf of the Bankrupt under the principle in Saunders v Vautier(1841) 4 Beav 115: at [210] and [216].

Third transaction

(17) The Bankrupt's transfers of substantial assets to the first defendant in 2015 and 2016 were fraudulent conveyances. The transfers were undoubtedly conveyances, they had the effect of removing assets from the Bankrupt's estate for the sole benefit of the first defendant, and they were done with fraudulent intent: at [223].

(18) The transfers were also transactions at an undervalue within the meaning of s 98 of the Act. The Bankrupt had been actually insolvent since September 2015. In any event, the Bankrupt was presumed to be insolvent at the time of the transfers because the first defendant was an associate of the Bankrupt from 2007. The conveyances amounted to the Bankrupt making gifts to the first defendant: at [226], [227] and [229].

(19) The Trustees' alternative claim that these transfers were unfair preferences failed because the first defendant was never a creditor of the Bankrupt: at [231].

Fourth transaction

(20) The Bankrupt's transfer of his 1,000 shares in One Organisation Pte Ltd (“OOPL”) to the third defendant for US$1 in February 2016 was a fraudulent conveyance because the defendants shared a common fraudulent intent and the Bankrupt received at most only nominal consideration for these shares: at [244] and [245].

(21) The Bankrupt's transfer of his 1,000 OOPL shares to the third defendant was also a transaction at an undervalue within the meaning of s 98 of the Act. The Bankrupt disposed of the shares within five years before his bankruptcy and at a time when he was actually insolvent. In any event, he was presumed to be insolvent at the time of the transfer because the third defendant was an associate of the Bankrupt within the meaning of ss 100(3) and 101(9)(b) of the Act: at [246] to [248].

(22) There was no scope to treat the Bankrupt's transfer of his 1,000 OOPL shares to the third defendant as an unfair preference to either the first defendant or the third defendant, because neither defendant was a creditor of the Bankrupt: at [250].

Fifth transaction

(23) The Bankrupt's one share in Golden Cliff International Ltd (“Golden Cliff”) was not worthless. On the first defendant's own case, it was now the sole shareholder of Golden Cliff. The solvency of Golden Cliff was especially within the first defendant's knowledge. Under ss 103 and 108 of the Evidence Act, the burden of proving that the sole share in Golden Cliff was worthless in May 2016 rested on the first defendant. The first defendant had failed to discharge this burden on the balance of probabilities. Golden Cliff was not insolvent in May 2016 as claimed. The Bankrupt's ownership of the sole share in Golden Cliff therefore had some...