Traxiar Drilling Partners II Pte Ltd (in liquidation) v Dvergsten, Dag Oivind

• Jurisdiction: Singapore
• Judge: Aedit Abdullah J
• Judgment Date: 23 January 2018
• Neutral Citation: [2018] SGHC 14
• Court: High Court (Singapore)
• Hearing Date: 07 March 2017,02 March 2017,01 March 2017,12 May 2017,03 March 2017,28 February 2017
• Docket Number: Suit No 975 of 2015
• Plaintiff Counsel: Letchamanan Devadason and Bernice Leong Huiqi (LegalStandard LLP)
• Defendant Counsel: Kronenburg Edmund Jerome, Ho Mingjie Kevin and Tan Po Nin Jeslyn (Braddell Brothers LLP)
• Subject Matter: Companies,Directors,Duties,Liabilities
• Published date: 06 July 2019

Aedit Abdullah J: Introduction

In this case, the liquidators of the plaintiff company (“the Liquidators”) sought, among other forms of relief, damages arising from the defendant’s breaches of directors’ duties as well as a declaration that the defendant had carried on the plaintiff’s business with an intent to defraud creditors under s 340(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the CA”). Having considered the submissions and the evidence, I concluded that breach of directors’ duties was made out, but that the requisite threshold for fraud was not established. Both the Liquidators and the defendant have appealed against my decision. I now set out the reasons for my decision.

Background facts Relevant parties

The plaintiff company, Traxiar Drilling Partners II Pte Ltd (“the Plaintiff”), was incorporated in Singapore by the defendant, Mr Dag Oivind Dvergsten (“the Defendant”), on 12 April 2013 as a special purpose vehicle.¹ At all material times prior to its liquidation, the Defendant was a director of the Plaintiff. The Defendant was one of two directors of the Plaintiff when it was first incorporated, and was its sole director from 20 December 2013 until the Plaintiff was wound up on 3 June 2015.²

At the time of the Plaintiff’s incorporation, the Plaintiff had an issued share capital of $1, comprising a single share held by First Marine Holdings Pte Ltd (“First Marine”), a Singapore-incorporated company.³ Subsequently, on or about 22 December 2013, an additional 999 shares were allotted to various other parties such that the overall shareholding of the Plaintiff became as follows:⁴ First Marine – 21%; Ms Hege Anfindsen – 3%; the Defendant – 25%; and Treatmil Holdings Limited (“Treatmil”), a Cyprus-incorporated entity – 51%.

First Marine’s sole shareholder was Dag Dvergsten Pte Ltd (“DDPTE”).⁵ DDPTE was in turn wholly owned by Dag Dvergsten AS (“DDAS”), a Norwegian company.⁶ The Defendant was a director and the sole shareholder of DDAS⁷ and was also a director of DDPTE.⁸ DDAS owned 36.5% of the shares in Treatmil.⁹ Treatmil was the sole shareholder of Atlantic Marine Services Asia Pacific Limited, which in turn previously owned Atlantic Marine Services Singapore Pte Ltd (“AMS SG”).¹⁰ The Defendant was also a director of Treatmil.¹¹

The Plaintiff did not open or operate any bank accounts in its own name from the time of its incorporation. Instead, the Defendant utilised DDPTE’s pre-existing bank account with DBS Bank Pte Ltd (“DBS”) (“DDPTE’s Bank Account”), both to receive funds from third parties as well as to make payments in connection with the Plaintiff’s affairs.¹²

Facts leading up to the dispute

The dispute arose primarily from the Plaintiff’s proposed business venture to acquire a jack-up drilling rig known as the “Somnath” that was being offered for sale by GOL Offshore Fujairah LLC FZE (“GOL Offshore”) for US$215m. Negotiations between the Plaintiff and GOL Offshore culminated in the Plaintiff entering into the following agreements with GOL Offshore on 11 December 2013: a Memorandum of Agreement (“the Second MOA”) and a Supplemental Agreement to the Second MOA (“the Supplemental Agreement”) (collectively, “the Somnath Purchase Agreements”).¹³

In connection with the purchase of the Somnath, the Defendant negotiated for the Plaintiff to enter into various loan transactions. First, a loan for US$3m was obtained from AMS SG on 30 September 2013, which carried an interest rate of 6% per annum and was due to be repaid on 31 December 2016 (“the AMS Loan”).¹⁴ The AMS Loan was disbursed to the Plaintiff by AMS SG over three tranches on 17, 18 and 23 October 2013.¹⁵

Second, to finance the payment of, inter alia, the first deposit of US$15m as required by the Somnath Purchase Agreements (“the First Deposit”),¹⁶ the Plaintiff obtained a “bridging loan” of US$15m from Symphony Ventures Pte Ltd (“Symphony”) on 23 December 2013 (“the Symphony Loan”).¹⁷ The Symphony Loan was due to be repaid in full on 27 December 2014.¹⁸ Clause 2.2 of the Symphony Loan agreement expressly stated that the borrower (ie, the Plaintiff) was to apply the Symphony Loan monies “for the purpose of financing the [First Deposit]” and “for other expenses related to” the Somnath and the Second MOA.¹⁹ When Symphony first attempted to remit the first tranche of US$6m to the Plaintiff on 24 December 2013, it was unsuccessful. This was because the Defendant had provided Symphony with DDPTE’s Bank Account details but named the Plaintiff as the payee. Thus, DBS informed Symphony that for that particular bank account number, the corresponding named payee should have been DDPTE and not the Plaintiff. Symphony then enquired with the Defendant as to the discrepancy, and asked for the Defendant to provide the details of a bank account held in the Plaintiff’s name.²⁰ In his email reply dated 24 December 2013, the Defendant informed Symphony that “DBS bank could not process the New account in time” and thus the monies should be sent to DDPTE’s Bank Account. The Defendant also stated in the same email that he would appreciate Symphony remitting the monies in the morning so that “we can start processing for rig Already thursday [sic]”. ²¹ Symphony then transferred US$6m to the DDPTE’s Bank Account on 26 December 2013.²²

As matters transpired, only the first tranche of the Symphony Loan was disbursed to the Plaintiff instead of the two tranches as planned. It was this amount which formed a central aspect of the Plaintiff’s claim against the Defendant: the US$6m from the first tranche of the Symphony Loan, together with the US$3m from the AMS Loan, were the material borrowed funds (“the Borrowed Funds”).

Several outgoing transactions were made by the Plaintiff in the period spanning 2013 to 2015. First, on 1 December 2013, the Plaintiff entered into an agreement with DDAS for the provision of “high level business services supporting [the Plaintiff] and in particular related to the acquisitions of rig Somnath and the financing of such assets and support services”.²³ It appeared that in 2014 and 2015, the Plaintiff entered into further similar agreements with DDAS (collectively, “the Management Fee Agreements”).²⁴ In connection with the services allegedly provided by DDAS in 2013, 2014 and 2015, the Plaintiff made payments to DDAS in the amounts of US$830,800, US$750,000 and US$300,000 respectively, totaling US$1,880,800 (“the DDAS Payments”).²⁵

Second, the Plaintiff granted a loan of US$1.7m to DDPTE (“the DDPTE Loan”). There were two documents which allegedly recorded the DDPTE Loan: one stated that the loan agreement was entered into on 1 December 2013,²⁶ while the other stated that the loan agreement was entered into on 1 November 2014.²⁷ Regardless, both documents stated that the DDPTE Loan carried an interest rate of 4% per annum and was due for repayment only on 31 December 2023. The DDPTE Loan was allegedly made pursuant to a novation agreement between DDPTE, the Plaintiff and First Marine dated 14 November 2014 (“the Novation Agreement”).²⁸ The Novation Agreement provided for the DDPTE Loan in exchange for the novation of First Marine’s rights under an agreement entered into with PT Harmoni Drilling Services (“PT Harmoni”) to the Plaintiff. The terms of the Novation Agreement also provided that “work provided by [DDPTE] and invoiced as management services and outlays” would be “offset against the [DDPTE Loan]”. This was a reference to a business services agreement entered into by DDPTE and the Plaintiff on the same day (ie, 14 November 2014) (“the Business Services Agreement”), under which the Plaintiff was to pay US$50,000 per month to DDPTE as management fees.²⁹

Third, the Plaintiff transferred a total of US$3.25m to a company known as TY Global LLC (“TY Global”). On 15 December 2013, the Defendant had instructed Mr Abraham Thomas (“Abraham”), the owner of TY Global, to send invoices to the Plaintiff’s address, to which Abraham replied “[w]hat is the amount of the invoice I should make”.³⁰ On 27 December 2013, the Plaintiff transferred a total of US$3.25m³¹ to TY Global based on the following invoices (“the TY Global Payments”): US$2,472,500 for “Upfront brokerage commission payable on Rig Somnath”;³² and US$777,500 for “Advisory and Financial consulting for acquisition of Rig Somnath”.³³

On 30 December 2013, TY Global transferred US$2.25m to AT Offshore LLC (“AT Offshore”),³⁴ an entity controlled by Abraham.³⁵ On 3 January 2014, AT Offshore transferred US$2m to Rocky Point International LLC (“Rocky Point”),³⁶ an entity wholly and ultimately controlled and owned by the Defendant.³⁷ This money was then used to make payments for Rocky Point’s outstandings.³⁸

Fourth, on 27 December 2013, the Plaintiff transferred US$1.28m to Treatmil (“the Treatmil Payment”) under the Defendant’s directions.³⁹ The monies were transferred from DDPTE’s Bank Account (which was being utilised in connection with the Plaintiff’s affairs, as stated at [5] above) to DDAS’s bank account⁴⁰ (which Treatmil was allegedly utilising as its own).⁴¹ The Treatmil Payment was allegedly a partial repayment of the AMS Loan, pursuant to a tripartite agreement between AMS SG, Treatmil and the Plaintiff dated 20 December 2013 (“the Tripartite Agreement”). This Tripartite Agreement was possible because AMS SG had extended a US$3m loan to the Plaintiff (see [7] above) and separately, there were also inter-company loans between Treatmil and AMS SG. The Tripartite Agreement itself had not been signed by AMS SG.⁴² There was also a payment schedule attached to the Tripartite Agreement which recorded that the US$3m owed under the AMS Loan had been reduced to US$1.72m, two different versions of which were produced during the course of proceedings. One version was unsigned⁴³ and this was the copy which was in the records of the Plaintiff’s auditor and in the Plaintiff’s company records which were presented to the...