Tay Beng Chuan v Official Receiver and Liquidator, Kie Hock Shipping (1971) Pte Ltd

• Jurisdiction: Singapore
• Judge: Lai Kew Chai J
• Judgment Date: 18 March 1987
• Neutral Citation: [1987] SGCA 6
• Docket Number: Civil Appeal No 57 of 1982
• Date: 18 March 1987
• Published date: 19 September 2003
• Year: 1987
• Plaintiff Counsel: Peter Julian Millett QC and Eddy Teng Jong Pu (Haridass Ho & Partners)
• Citation: [1987] SGCA 6
• Defendant Counsel: James Robert Reid QC, Joseph Grimberg and Muthu Arusu (Drew & Napier)
• Court: Court of Appeal (Singapore)
• Subject Matter: s 305(1) Companies Act (Cap 185, 1970 Ed),Circumstances under which appellate court would interfere with lower court's findings,Whether summary procedure the proper procedure to adopt for case,Civil Procedure,O 28 r 6(1) Rules of the Supreme Court 1970,Companies,Whether court to order proper pleadings, discovery and full trial for case,Winding up,Summary procedure under s 305 Companies Act,Appeals

Cur Adv Vult

(delivering the judgment of the court): In this appeal the respondent is the official receiver and liquidator of Kie Hock Shipping (1971) Pte Ltd (the company) a private exempt company which was compulsorily wound up on 27 May 1978. The appellant, Tay Beng Chuan, was one of five directors and held 2% of the issues shares of the company. Another director was Tay Hock Gwan who was the permanent managing director and the other directors were a wife, a son, and a daughter of Tay Hock Gwan. The appellant is a nephew of Tay Hock Gwan who together with members of his family owned the other 98% of the issued shares of the company which carried on a shipping business.

After the winding up order the Minister of Finance in exercise of his powers under ss 195 and 196 of the Companies Act (the Act) appointed two Inspectors to investigate the affairs of the company. Their terms of reference, inter alia, were:

(B)(2) To inquire specifically into the following matters:

(i) Losses suffered through negligence or fraud on the part of the officers;

(v) Any dealings which may be in breach of fiduciary duty required of the officers;

(vii) Any failure on the part of the officers to act honestly and diligently;

(ix) Any inappropriate applications of the company`s funds.

The inspectors conducted a lengthy investigation during which they examined many witnesses including Tay Hock Gwan, the appellant and the other directors of the company and on 30 September 1980 they submitted their report (The inspectors` report). It would appear that, based on the inspectors` report, criminal proceedings were instituted in early 1981 by the Public Prosecutor against Tay Hock Gwan and the appellant. Five charges for offences under the Act were preferred against the appellant, one of them being for `falling to cause action to be taken by the (company) to recover debts owed to (the company) by twelve companies incorporated in the Republic of Panama ... which on 30 December 1977, amounted to $10,291,000 and which were allowed to accumulate to $11,551,000 by 26 May 1978, and thereby commit a breach of duty under s 132(1) of the Act to all times use reasonable diligence in the discharge of the appellant`s duty as a director of the company. The appellant was fined $1,500 when on 29 September 1981, he pleaded guilty to that charge.

On 15 October 1981, the respondent as liquidator of the company took out an application by way of a summons-in-chambers in the winding-up proceedings against Tay Hock Gwan and the appellant pursuant to s 305 of the Act seeking from the High Court the following orders:

(1) a declaration that one Tay Hock Gwan and the appellant had been guilty of misfeasance or breach of duty in-relation to Kie Hock Shipping (1971) Pte Ltd (the company):

(a) in failing between 30 December 1977 and 26 May 1978, to cause action to be taken by the company to recover debts owed to it by twelve companies incorporated in the Republic of Panama, namely:

Companina 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

Keringo Shipping Co Ltd SA

Kadima Shipping Co Ltd SA

Benteng Enterprises Co Ltd SA

Sahaka Enterprises

Salama Shipping Ltd SA

Gambella Enterprises Ltd SA

(collectively the Panamanian companies) which on 30 December 1977 amounted to $10,291000 and

(b) in allowing the said debts to accumulate such that by 26 May 1978 they totalled $11,551,000;

(2) An order that Tay Hock Gwan and the appellant do jointly and severally pay to the respondent herein 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 or such sum by way of compensation in respect of the misfeasance or breach of duty as this honourable court thought just;

The 12 Panamanian companies named in the application are the 12 Panamanian companies named in the criminal charge to which the appellant had pleaded guilty on 29 September 1981. Although the inspectors` report was not referred to or exhibited in the affidavit in support of the respondent` application affirmed by the deputy official receiver, the affidavit was apparently based on the inspectors` report and in particular Pt C which deals with 13 Panamanian companies which, according to the inspectors, were incorporated or caused to be incorporated by Tay Hock Gwan `for the purpose of owning or operating various ships under the Panamanian flag` the object being `to take advantage of the absence of any statutory regulations governing the business or activities of Panamanian companies and the operation of ships sailing under the Panamanian flag` and thus permitting `Tay Hock Gwan to do what he liked with the Panamanian companies and their ships`. That this is so can be seen from paras 11 to 13 of the affidavit which reads:

11 It was therefore clear that by 1977, the company was in critical financial difficulties. Despite this, 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 12 Panamanian companies although by that year, the debts had amounted to $10,744,000. On the contrary, the respondent Tay Hock Gwan was at about that time actively disposing of the ships belonging to the Panamanian companies to his relatives and affiliated companies. The 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, the respondents further allowed the debts to accumulate such that by 26 May 1978, the date of the winding up order, they totalled $11,551,000.

(12) The ships were the only assets of the Panamanian companies. In thus disposing of them without payment to the company, the 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 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.

(13) 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. The company was finally wound up on 26 May 1978. To date, the claims filed by the company`s creditors in this winding up amount to about $24.3m.

It would also appear from the deputy official receiver`s affidavit that the fact of the applicant`s conviction on the charge of breach of duty under s 132(1) of the Act, in failing at all times to use...