Velstra Pte Ltd (in compulsory winding up) v Azero Investments SA
Jurisdiction | Singapore |
Judge | Lai Siu Chiu J |
Judgment Date | 09 November 2004 |
Neutral Citation | [2004] SGHC 251 |
Court | High Court (Singapore) |
Year | 2004 |
Published date | 24 November 2004 |
Plaintiff Counsel | Vinodh Coomaraswamy, David Chan and Stanley Tok (Shook Lin and Bok) |
Defendant Counsel | Conrad Campos and Ramesh Tiwari (Robert Wang and Woo LLC) |
Subject Matter | Companies,Directors,Duties,Whether director of company actively assisted creditor in collecting debt from company to the prejudice of other creditors,Whether director was a "person connected with" or "associate" of defendant,Regs 2, 4, 5 Companies (Application of Bankruptcy Act Provisions) Regulations (Cap 50, Rg 3, 1995 Ed),Section 101 Bankruptcy Act (Cap 20, 2000 Rev Ed),Insolvency Law,Avoidance of transactions,Unfair preferences,Whether plaintiff's director allowed defendant creditor to garnish the plaintiff's money to the prejudice of the plaintiffÂ’s other creditors,Whether defendant held garnished money as constructive trustee for plaintiff,Whether unfair preference given at "relevant time",Sections 99, 100(1)(b), (c) Bankruptcy Act (Cap 20, 2000 Rev Ed),Section 329(2)(a)(i) Companies Act (Cap 50, 1994 Rev Ed) |
Citation | [2004] SGHC 251 |
9 November 2004 |
Judgment reserved. |
Lai Siu Chiu J:
The facts
1 Velstra Pte Ltd (“the plaintiff”) is a local company incorporated on 19 June 1999 with a paid-up capital of $2.00. Its directors were a Belgian national, Tony F E Snauwaert (“Snauwaert”), and a Singaporean, Tan Lee Chin (“Tan”). Tan was also the plaintiff’s company secretary. Although the plaintiff’s objects stated that its principal activities, inter alia, related to information technology in speech and artificial intelligence, in reality the plaintiff’s sole activity was to act as an investment holding company.
2 The plaintiff is a fully-owned subsidiary of a Belgian company called Language Development Fund (“LDF”). LDF was incorporated on 31 March 1999. As at 31 August 2000, the plaintiff itself had nine subsidiaries of which six were incorporated in Belgium and the remaining three in Singapore. The Singapore subsidiaries were/are The French CALC Pte Ltd, The German CALC Pte Ltd and The Italian CALC Pte Ltd (collectively “the Singapore subsidiaries”). The six Belgian subsidiaries all bear the initials “LDC NV” in their names, eg The Slavic LDC NV (hereinafter they will all be referred to collectively as “the LDCs”). Neither the plaintiff nor its Singapore subsidiaries carried out any real business activity in Singapore. Similarly, its foreign subsidiaries did not carry out any business activities either. The common registered address of the plaintiff and its Singapore subsidiaries is at UIC Building #12-05 which address is that of a local law firm.
3 The plaintiff was placed into compulsory liquidation by an order of court dated 12 April 2002 made in Companies Winding Up No 600096 of 2002 (“the winding-up petition”). The petitioner was one Harout Khatchadourian (“Khatchadourian”), a Lebanese-American businessman who had extended an unsecured loan of US$36m to the plaintiff on or about 24 December 1999. The winding-up petition was based on a default judgment which Khatchadourian had obtained on the unpaid loan, after it became due on 27 December 2001. William Caven Hutchinson (“Hutchinson”), Kon Yin Tong and Wong Kian Kok (collectively “the liquidators”) from the accounting firm of M/s Foo, Kon, Tan and Grant Thornton were appointed joint and several liquidators. The liquidators instituted these proceedings on the plaintiff’s behalf. One of the liquidators, viz Hutchinson, was the plaintiff’s only witness.
4 According to subsequent investigations conducted by the liquidators, the plaintiff and its subsidiaries were essentially established by individuals who were closely associated with Lernout & Hauspie Speech Products NV (“L&H”), a speech technology and voice synthesis software company incorporated in Belgium. At the material time, L&H was the world’s largest provider of speech recognition software competing against computer giants like IBM and Philips Electronics. The founders and managers of L&H were Jo Lernout (“Lernout”), Pol Hauspie (“Hauspie”) and Nico Willaert (“Willaert”). The plaintiff and its subsidiaries were established for the sole purpose of acquiring licences from L&H for its software.
5 Azero Investments SA (“the defendant”) was incorporated under the laws of Luxembourg on 23 November 1999 and has its registered office at 106, Route d’Arlon L-8210, Mamer. Since its incorporation to date, the directors of the defendant are three Luxembourg entities, viz F van Lanschot Management SA, F van Lanschot Corporate Services SA and Harbour Trust and Management SA.
6 The shareholders of the defendant are Rozea Lux Holding SA (“Rozea”) and FVL Management, holding 9,999 shares and one share respectively. Its parent company, Rozea, was incorporated on 9 June 1999 under its former name Azero Investments SA. Rozea changed to its present name on 16 November 1999 just before the defendant was incorporated. The three directors of the defendant were also the original shareholders and directors of Rozea.
7 On its day of incorporation (9 June 1999), the aforementioned three shareholders of Rozea transferred their shares to APJ Veltmeijer, Robert AF Veltmeijer and JHMJF Philippen. APJ Veltmeijer and Robert AF Veltmeijer (“Veltmeijer”) are brothers while JHMJF Philippen is their brother-in-law.
8 On 17 August 1996, a company which came to be known as NV Language Investment Company (“LIC”) was incorporated. Its managing director was Willem Hardeman.
9 On 11 February 1999, Snauwaert incorporated a company in Ghent, Belgium, called BVBA Language Development Service (“LDS”) with himself as the sole director. This was followed by the incorporation of LDF ([2] supra) on 31 March 1999. The directors of LDF were Snauwaert, LDS and LIC. Upon incorporation, the capital of LDF was 2.5m Belgian Francs (“BEF”) divided into 2,500 shares of 1,000 BEF each. The shareholders were LDS (2,499 shares) and LIC (one share). On the same day of its incorporation, an extraordinary general meeting was held wherein LDF’s capital was increased from 2.5m BEF to 77.76m BEF by the issuance of 75,260 new shares of 1,000 BEF each to a company called Mercator & Noordstar NV (“M&N”) whose chief executive officer (“CEO”) is Ronald Everaert. M&N is an insurance company listed on the Belgian stock exchange.
10 In January 1999, whilst he was on a skiing holiday, Veltmeijer met one Thomas Denys (“Denys”) who introduced himself as a financial adviser of L&H. In actual fact, Denys was the general counsel and senior vice president of L&H. At that time, L&H was highly regarded in Belgium as a leader in speech technology. L&H was listed on the Belgian stock-exchange and had a secondary listing on NASDAQ in the United States. It was at one time the darling of the stock market and documents produced in court showed that broking houses gave a “buy” recommendation on the stock. Computer giants such as Microsoft and Intel were amongst its investors. The company was constantly in the news; at its height its share price rose to US$80 with a projected increase of another US$40. However by 9 November 2002 when trading in its stock was suspended, its price had nose-dived to US$6.22 (according to Internet business reports). After L&H collapsed, its share price dropped further to a few cents (according to Veltmeijer). During its heyday, a large section of Belgian society (including the royal family) invested in L&H in one way or another.
11 Veltmeijer was told by Denys that L&H invested in the development of speech technology for various languages and that this was normally done through joint ventures with other parties. Veltmeijer then had a Hungarian business partner who was keen on developing software to translate the Hungarian language into English. As Veltmeijer thought his business partner would be interested in the business of L&H, he stayed in touch with Denys.
12 On 14 September 1999, Veltmeijer and his Hungarian partner visited the offices of L&H in Leper. They met Denys who introduced them to Snauwaert and Hauspie. In the course of conversation, Veltmeijer and his partner were told that L&H was looking for investors. They were given a demonstration of speech technology products, which greatly impressed them.
13 Veltmeijer was surprised, albeit flattered, to be invited by the three founders of L&H to the opening ceremony of its Leper office on 11 November 1999. His bank manager was most impressed. Guests at the opening ceremony included the Crown Prince of Belgium. At Leper, Veltmeijer was introduced to L&H’s managing director, Willaert, who Veltmeijer thought was the actual decision-maker for the company as, whenever they held discussions, Snauwaert would say he had to speak to Willaert before reverting to Veltmeijer.
14 However it was Snauwaert who proposed that Veltmeijer invest in a language development company in Singapore. Veltmeijer said he was only comfortable with investing in a Belgian company. Snauwaert then suggested that Veltmeijer’s investment be by way of a loan to a Belgian company, viz LDS. After further discussions, it was agreed that Veltmeijer would make the loan and that the same would be secured by personal guarantees from Willaert, Lernout and Hauspie (hereinafter referred to as “the three sureties”). On 26 November 1999, a loan agreement (“the loan agreement”) for the sum of €2m (“the loan”) was signed between LDS and the defendant; the loan was disbursed that day. A separate surety agreement (“the guarantee”) was also signed that day by the three sureties. The loan was to expire on 31 May 2001. Unbeknownst to Veltmeijer, LDS and the plaintiff subsequently entered into a separate loan agreement dated 3 December 1999 (“the sub-loan agreement”) whereby LDS agreed to advance to the plaintiff 75% of the loan, repayable by 25 May 2001. Snauwaert signed the sub-loan agreement as legal representative for both LDS and the plaintiff.
15 Before proceeding further, it is necessary to give a brief background of the Veltmeijer family. According to Veltmeijer, his father started a chain of amusement parks in various parts of Europe. In January 1999, a large part of that business was sold off. He, his brother and brother-in-law owned (usually in equal shares), and operated between themselves, about 20 to 25 companies. When he referred to the family or the Veltmeijer group of companies, Veltmeijer said he meant those 20 to 25 companies. The family’s diverse investments included real estate and rental businesses. As a result of the sale of the group’s majority stake in amusement parks, the Veltmeijer family was cash-rich and was looking for fresh investment opportunities when the proposal from Snauwaert came along. Veltmeijer revealed that the loan extended by the defendant to LDS was one of several investments which his family made at that point in time through their various companies.
16 In mid-2000, press reports started to appear in Belgium questioning the licensing fees which L&H was supposed to receive from four companies in the LDS group. Veltmeijer became...
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