Low Hua Kin v Kumagai-Zenecon: Director's Breach of Duty & Provisional Liquidator's Sale of Shares

In Low Hua Kin v Kumagai-Zenecon Construction Pte Ltd, the Court of Appeal of Singapore heard an appeal arising from a misfeasance summons against Low Hua Kin for breach of fiduciary duty as a director. The liquidators of Kumagai-Zenecon Construction Pte Ltd and Kumagai Property Marketing Pte Ltd claimed Low Hua Kin's actions led to financial losses. The court dismissed the appeal, finding that Low Hua Kin's breach of duty caused the loss and the provisional liquidators' sale of shares did not break the chain of causation.

1. Case Overview

1.1 Court

Court of Appeal of the Republic of Singapore

1.2 Outcome

Appeal dismissed

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Appeal regarding a director's breach of fiduciary duty and a provisional liquidator's sale of shares. The court dismissed the appeal.

1.7 Decision Date

27 July 2000

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Low Hua Kin	Appellant	Individual	Appeal Dismissed	Lost	Alvin Yeo of Wong Partnership Nandakumar Ponniya of Wong Partnership
Kumagai-Zenecon Construction Pte Ltd (in liquidation)	Respondent	Corporation	Appeal Dismissed	Won	Anthony Lee of Bih Li & Lee Rodney Keong of Bih Li & Lee

3. Judges

Judge Name	Title	Delivered Judgment
Chao Hick Tin	Justice of Appeal	Yes
L P Thean	Justice of Appeal	No
Yong Pung How	Chief Justice	No

4. Counsels

Counsel Name	Organization
Alvin Yeo	Wong Partnership
Nandakumar Ponniya	Wong Partnership
Anthony Lee	Bih Li & Lee
Rodney Keong	Bih Li & Lee

4. Facts

Low Hua Kin was a director and chairman of Zenecon Pte Ltd and held controlling shares.
Kumagai and Zenecon formed Kumagai-Zenecon Construction Pte Ltd (K-Z) as a joint venture.
Zenecon held 51% of the shares in K-Z, while Kumagai held 49%.
Kumagai Property Marketing Pte Ltd (KPM) was formed as a subsidiary of K-Z.
Low Hua Kin used KPM to purchase shares in public listed companies without consulting Kumagai.
KPM borrowed money from Arab Bank plc to finance the purchase of shares.
Kumagai filed a petition seeking reliefs under s 216 of the Companies Act and for the winding up of K-Z.
Don Ho and Wee Aik Guan were appointed as provisional liquidators of K-Z.
KPM defaulted on an interest payment to Arab Bank.
The provisional liquidators procured the sale of Pac Can shares owned by KPM to repay the loan.

5. Formal Citations

Low Hua Kin v Kumagai-Zenecon Construction Pte Ltd (in liquidation) and Another, CA 124/1999, [2000] SGCA 38

6. Timeline

Date	Event
1972-01-01	Kumagai Gumi Co Ltd engaged Low Hua Kin as a consultant and advisor.
1976-01-01	Low Hua Kin became a full time consultant and advisor to Kumagai.
1979-01-01	Low Hua Kin incorporated Zenecon Pte Ltd.
1983-04-25	Kumagai and Zenecon executed a shareholders` agreement and memorandum of understanding.
1983-06-03	Kumagai-Zenecon Construction Pte Ltd was incorporated.
1984-11-01	Kumagai Property Marketing Pte Ltd was formed.
1991-05-01	KPM purchased 7,321,000 shares in Pacific Can Investment Holdings Ltd.
1991-05-10	KPM entered into a loan agreement with Arab Bank plc.
1991-08-01	KPM bought 278,000 more shares in Pac Can.
1992-01-29	Kumagai filed a petition seeking reliefs under s 216 of the Companies Act in respect of K-Z.
1992-02-11	Don Ho and Wee Aik Guan of Deloitte and Touche were appointed as provisional liquidators of K-Z.
1992-04-15	Arab Bank made a margin call on KPM.
1992-04-22	Arab Bank indicated its intention to sell shares to satisfy the margin shortfall.
1992-04-23	Solicitors for the provisional liquidators wrote to the solicitors for KPM informing the company of an offer to purchase all the Pac Can shares.
1992-06-12	Low Hua Kin and his associates were removed as directors of KPM.
1992-06-22	KPM defaulted on an interest payment.
1992-06-24	Arab Bank gave notice of default and demanded payment from KPM.
1992-06-25	Secretary of KPM sent a notice calling for an extraordinary general meeting.
1992-07-01	Arab Bank agreed to give KPM a short period of time to arrange a `married deal`.
1992-07-03	Low Hua Kin wrote directly to KPM raising queries on the sale of shares.
1992-07-04	Low Hua Kin wrote to KPM raising a further query on the fair price for the sale of shares.
1992-07-08	Low Hua Kin wrote to KPM requesting for a right of first refusal.
1992-07-10	An extraordinary general meeting of the shareholders of KPM was held.
1992-07-14	KPM wrote to Low Hua Kin asking him to offer a price for the purchase of the shares.
1992-07-16	KPM sent another letter to Low Hua Kin repeating the request for an offer.
1992-07-17	Low Hua Kin replied through his solicitors stating he did not wish to make a first offer.
1992-07-18	The provisional liquidators` solicitors denied that Low Hua Kin had any right of first refusal.
1992-07-21	KPM sent a fax to Low Hua Kin regarding an interested party to purchase the shares.
1992-07-22	The shares were sold at 70 cents per share.
1994-07-01	Warren LH Khoo J ordered that both K-Z and KPM be wound up and liquidators be appointed.
2000-07-28	Appeal dismissed.

7. Legal Issues

Breach of Fiduciary Duty
- Outcome: The court found that the appellant had breached his fiduciary duties as a director.
- Category: Substantive
- Sub-Issues:
  - Conflict of interest
  - Improper use of company assets
Powers of Provisional Liquidator
- Outcome: The court held that the provisional liquidators acted within their powers in procuring the sale of the shares.
- Category: Procedural
- Sub-Issues:
  - Scope of authority
  - Duty to preserve assets
  - Duty to act in the best interests of the company
Causation of Loss
- Outcome: The court found that the actions of the provisional liquidators did not break the chain of causation between the appellant's breach of duty and the loss incurred.
- Category: Substantive
- Sub-Issues:
  - Intervening act
  - Negligence
  - Commercial judgment

8. Remedies Sought

Reimbursement of Loss
Damages

9. Cause of Actions

Breach of Fiduciary Duty
Misfeasance

10. Practice Areas

Commercial Litigation
Insolvency Litigation

11. Industries

Construction
Finance

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Re Kumagai-Zenecon Construction Pte Ltd	High Court	Yes	[1994] 3 SLR 552	Singapore	Cited for the initial finding that the share purchases were acts of oppression and the order for reimbursement, which was later quashed due to insufficient evidence.
Kumagai Gumi Co Ltd v Zenecon Pte Ltd & Ors and other appeals	Court of Appeal	Yes	[1995] 2 SLR 297	Singapore	Cited for the court's affirmation of oppressive conduct but quashing the reimbursement order due to lack of evidence, leading to the current action.
Re ML Industries Pty Ltd	Unknown	Yes	Re ML Industries Pty Ltd (1981) ACLC 33,229	Queensland, Australia	Cited regarding the primary duty of a provisional liquidator to preserve the status quo, but distinguished due to different legislation and facts.
Carpark Industries Pty Ltd (in liquidation) and Companies Act 161 (No 1)	Unknown	Yes	Carpark Industries Pty Ltd (in liquidation) and Companies Act 161 (No 1) [1967] 1 NSWR 337	New South Wales, Australia	Cited for the general rule that the primary duty of a provisional liquidator is to preserve the status quo, but the court notes that this is not an inflexible rule.
Re Codisco Pty Ltd	Unknown	Yes	Re Codisco Pty Ltd (1974) 8 ACLC [para ] 40-126 p 27,906	Unknown	Cited for the principle that sometimes the only way to preserve the assets of a company is to sell them off quickly.
Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd & Ors	Supreme Court of New South Wales	Yes	Northbourne Developments Pty Ltd v Reiby Chambers Pty Ltd & Ors [1990] 8 ACLC 39	New South Wales, Australia	Cited for the principle that the court will generally defer to the commercial judgment of a liquidator unless bad faith or unreasonableness is shown.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, 1994 Ed) s 341	Singapore
Companies Act (Cap 50, 1990 Ed) s 216	Singapore
Companies Act s 254(1)(i)	Singapore
Companies Act s 267	Singapore
Companies Act s 272	Singapore
Companies Act s 160	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Provisional Liquidator
Fiduciary Duty
Misfeasance
Ultra Vires
Chain of Causation
Margin Call
Married Deal
Shareholders' Agreement
Winding Up
Oppression

15.2 Keywords

Companies Act
Directors
Fiduciary duty
Winding up
Provisional liquidator
Sale of shares
Negligence
Causation

17. Areas of Law

Area Name	Relevance Score
Winding Up	95
Fiduciary Duties	90
Company Law	75
Insolvency Law	60
Commercial Disputes	40

16. Subjects

Company Law
Insolvency Law
Directors' Duties