Tang Yoke Kheng (trading as Niklex Supply Co) v Lek Benedict and Others (No 2)

• Jurisdiction: Singapore
• Judge: Andrew Ang JC
• Judgment Date: 27 September 2004
• Neutral Citation: [2004] SGHC 215
• Docket Number: Suit No 864 of 2003
• Date: 27 September 2004
• Published date: 29 September 2004
• Year: 2004
• Plaintiff Counsel: P Suppiah and Elengovan Krishnan (P Suppiah and Co)
• Citation: [2004] SGHC 215
• Defendant Counsel: Daniel John and Lim Fung Peen (John Tan and Chan),Daryll Ng and Nicole Tan (Haridass Ho and Partners)
• Court: High Court (Singapore)
• Subject Matter: Plaintiff alleging first and second defendants causing company to continue trading even though company insolvent,Whether first and second defendants liable for company's debts,First and second defendants directors of company -First and second defendants causing company to purchase goods on running account from plaintiff then transferring such goods to other related companies,Winding up,Companies,Whether first and second defendants knowingly parties to carrying on of business of company with intent to defraud creditors,Conspiracy,Tort,Whether third defendant conspiring with first and second defendants in alleged wrongdoings,Section 340(1) Companies Act (Cap 50, 1994 Rev Ed)

27 September 2004 Judgment reserved.

Andrew Ang JC:

1 The plaintiff, trading as Niklex Supply Co (“Niklex”), is a creditor of Amrae Benchuan Trading Pte Ltd (“the Company”), now in liquidation, of which the first and second defendants were at all material times the directors and shareholders. The third defendant was an employee of the Company.

2 The gravamen of the claim by the plaintiff is that the business of the Company had been carried on with intent to defraud creditors of the Company (in particular the plaintiff or Niklex) in breach of s 340(1) of the Companies Act (Cap 50, 1994 Rev Ed) (“the Act”).

3 Adopting a “blunderbuss approach” in the Re-Amended Statement of Claim, the plaintiff also alleged breaches of ss 157 and 339(3) of the Act and sought to invoke s 409A of the Act. However, the plaintiff’s counsel, Mr P Suppiah did not, at any stage of the trial, pursue them. That is just as well; no civil suit can be commenced in respect of a breach of s 339(3) until there has been a conviction for the offence. As for s 157, it merely imposes upon a director a duty at all times to act honestly and to use due diligence in the discharge of his duties. By itself, it confers no rights on a creditor. Although the provisions of s 409A could, in an appropriate case where the court has power under the section to grant an injunction, be invoked to found a claim for damages in respect of a breach of s 157 (or indeed of any other provisions of the Act), the remedy is not available to the plaintiff in this case; the interlocutory injunction taken out by the plaintiff has been discharged by the order of Lai Kew Chai J and this has been upheld despite the plaintiff’s appeal to the Court of Appeal.

4 As set out in the Re-Amended Statement of Claim, the plaintiff’s numerous allegations against the first and second defendants, with a view to proving intent on their part to defraud the Company’s creditors, included the following:

(a) Although the Company was insolvent from 1999 onwards, the first and second defendants caused the Company to continue trading;

(b) The first and second defendants paid salaries, bonuses, travelling expenses to themselves and to the third defendant in 2000 and 2001;

(c) The first and second defendants wrongfully caused the Company to grant loans to themselves and to the third defendant in 2000 and 2001, which loans were never repaid;

(d) In order to dissipate the Company’s assets, the first and second defendants wrongfully caused the Company to:

(i) pay $32,067.84 to Axum Marketing Pte Ltd (“Axum”) of which the defendants were shareholders and directors;

(ii) spend $283,769.31 on advertising and promotion in 2002 when the Company was insolvent;

(iii) pay $100,000 as reimbursement of petty cash; and

(iv) pay Concept Gifts Pte Ltd (“Concept Gifts”) $125,000;

(e) The first and second defendants wrongfully dissipated the Company’s assets in order to put them out of the reach of Niklex by transferring them to allegedly related companies, ie, Amrae Benchuan Sdn Bhd (“Amrae Sdn Bhd”), Amrae Benchuan International Pte Ltd (“Amrae International”), Axum, Concept Gifts, Concept Gifts (M) Sdn Bhd, Edge Point (M) Sdn Bhd and Edge Point (S) Pte Ltd;

(f) The first and second defendants conspired with the third defendant to make to the third defendant the fraudulent payments described in paras (b) and (c) above.

5 Against the third defendant, the plaintiff’s allegations may be summed up as follows:

(a) He conspired with, aided and abetted the first and second defendants in the dissipation of the assets of the Company, in particular by his receiving moneys as purported salaries, bonuses and loans;

(b) He conspired with, aided and abetted the first and second defendants, and was knowingly a party to the fraudulent conduct of the business of the Company to defraud the plaintiff, in particular:

(i) by the setting up of Amrae Sdn Bhd, Amrae International and Axum and transferring to them goods bought by the Company from the plaintiff without the Company or the plaintiff being paid for the same;

(ii) by the transferring of goods (bought by the Company from the plaintiff) to Concept Gifts (of which the third defendant was sole proprietor but which was later converted into a private limited company owned by the three defendants) without the Company or the plaintiff being paid for the goods.

6 The defendants were able to show that some of the allegations arose out of the plaintiff’s misinterpretation of accounting entries. For example,

(a) the loans which the first and second defendants were alleged to have caused the Company to grant to themselves and to the third defendant were in fact payments of outstandings owed by the Company to the defendants in respect of accrued directors’ fees and/or loans made by the defendants to the Company; and

(b) the $283,769.31 (allegedly spent on advertising and promotion in 2002 when the Company was insolvent) was shown to have been incurred previously, accounting adjustments having been made belatedly in 2002.

Others were explained away with apparent certitude by the defendants. The plaintiff was unable to adduce any evidence to controvert such explanations even if they were not accepted.

7 The payments of salaries, travelling expenses and bonuses were not denied. However, it was shown that the salaries and travelling expenses were substantially the same as for the years since the Company started business. The plaintiff’s witness had said that if it were less, he would not have objected. When pressed, he did not suggest what the lower figure might be. Mr Suppiah intervened to say that it was a point for submission but this was not pursued in closing submissions. Indeed, in closing, Mr Suppiah said:

There are many facts in this case which are not materially relevant and they have been set out in paras 9, 10, 11, 12 and 13(1), (3) and (4) of the Re-Amended Statement of Claim.

When I sought clarification on this, he said that the plaintiff would only be “targeting” the sale of $1,268,983 worth of goods by the Company to Axum. That is set out in para 13(3) of the Re-Amended Statement of Claim in the following terms:

The 1^st and 2^nd Defendants together with the 3^rd Defendant, incorporated on or about 4.6.2001 a company called Axum Marketing Pte Ltd (Axum) and caused the subject Company to transfer goods bought from the Plaintiff to the said Axum for the purported value of $1,268,983.02. No payments have been made by this Company to the said subject Company.

8 From the evidence, it is clear that the Company had a long course of dealings with David Chan Chon Tuck (“Chan”) and (from October 1994) Niklex, which was at all times represented by Chan. It is common ground that:

(a) “There was a great deal of trust” between the first and second defendants and Chan;

(b) During this period of ten years, the Company made regular periodic payments on a running account although invoices were given between three and 24 months after deliveries;

(d) In all, the Company paid the plaintiff more than $5.2m during this ten-year period;

(d) Chan/Niklex gave the Company generous credit terms. (Although Chan initially denied this, he did concede that the Company was given credit of $0.5m);

(e) From 1994, Chan had access to the Company’s profit and loss account and balance sheet to determine his share of profits as a de facto shareholder as to 50% of the Company’s shares. (However, he said vouchers, invoices and bank statements for the period 1992 to 1998 had not been given to him.)

9 The first defendant’s affidavit of evidence-in-chief gave a fairly detailed account of the deterioration in the relationship between Chan and the first and second defendants from 1998 onwards. In brief:

(a) Chan demanded an increase of his share in the Company to 60% to which the first and second defendants reluctantly agreed;

(b) Chan regularly inspected the accounts books in the company’s office and took the Company’s payment vouchers and GST quarterly submissions for review;

(c) He queried the Company’s expenses, what the Company purchased and the sources of supply;

(d) The first and second defendants complained of uncompetitive prices and unreliable delivery of goods;

(e) Chan, by deception, caused the Company to give up, in favour of the plaintiff, the distribution of Preciosa Crystal figurines to certain department stores;

(f) The first and second defendants feared that Chan’s agenda was ultimately to take away their business by supplying directly to the department stores, the Preciosa Crystal incident being merely a precursor;

(g) The first and second defendants realised that if they continued to buy from Chan they would not be able to compete in the market. (Since 1997, with major political changes in Czechoslovakia and the privatisation of the Czech factories, any large buyer could buy Bohemia crystalware from factories in the Czech and Slovak Republics at better prices than before. Bohemia crystalware prices fell steadily until 2002 at the earliest);

(h) Chan insisted nevertheless that they should continue to buy from the plaintiff and that they could gradually pay him for the goods supplied earlier;

(i) In 1999, when the Company owed the plaintiff about $1.5m, Chan demanded an increase of his stake in the Company to 70% and also asked for a salary. After much negotiation, the parties agreed to the increase to 70% but without a salary for Chan.

10 Then followed the meeting(s) around February 2000 between Chan and the first and second defendants. Chan recalled two meetings (one at McDonald’s at Kallang Place and the other at Cuppage Centre) whereas the first and second defendants recalled only the meeting at Cuppage Centre. Their recollection of what transpired at the meeting(s) also differed in one particular, viz, how the outstandings owed to the plaintiff were to be repaid. Whereas the first and second defendants asserted that it was agreed with Chan that the Company would repay by instalments...