Show Theatres Pte Ltd v Shaw Theatres: Avoidance of Transactions & Unfair Preference

In SIC No 601418 of 2001 and SIC No 601420 of 2001, the liquidator of Show Theatres Pte Ltd sought to reverse three transactions with its shareholders, Shaw Theatres Pte Ltd and Eng Wah Investments Pte Ltd, alleging a transaction at an undervalue regarding the purchase of Chinatown Point shares and an unfair preference concerning the repayment of shareholders’ loans. The High Court of Singapore, presided over by Justice Tan Lee Meng, dismissed both claims, finding that the share purchase was not at an undervalue and the loan repayments did not constitute an unfair preference within the relevant statutory timeframe. The claims were dismissed with costs.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

Claims dismissed with costs.

1.3 Case Type

Insolvency

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Liquidator sought to reverse transactions between Show Theatres and its shareholders, Shaw Theatres and Eng Wah, alleging undervalue and unfair preference. The court dismissed the claims.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Show Theatres Pte Ltd (in liquidation)ApplicantCorporationClaims dismissed with costsLost
Shaw Theatres Pte LtdRespondentCorporationClaims dismissedWon
Eng Wah Investments Pte LtdRespondentCorporationClaims dismissedWon

3. Judges

Judge NameTitleDelivered Judgment
Tan Lee MengJudgeYes

4. Counsels

Counsel NameOrganization
Lee Eng BengRajah & Tann
Lynette LeeRajah & Tann
Tang Khin WaiTan Kok Quan Partnership
Dawn ChewTan Kok Quan Partnership
Tan Kok Quan SCTan Kok Quan Partnership

4. Facts

  1. Show Theatres Pte Ltd (ST) was incorporated on 13 December 1993.
  2. Shaw Theatres Pte Ltd (Shaw) held 375,000 shares in ST, and Eng Wah Investments Pte Ltd (Eng Wah) held 125,000 shares.
  3. ST was wound up on 17 November 2000 due to its inability to pay debts exceeding $8.6 million.
  4. ST purchased 500,000 Chinatown Point shares from Shaw for $600,000 in March 1997.
  5. ST repaid shareholders’ loans of $375,000 to Shaw on 6 August 1999 and $125,000 to Eng Wah on 28 September 1999.
  6. The liquidator questioned the propriety of the transactions, alleging they fell within sections 98 and 99 of the Bankruptcy Act.
  7. Two directors of ST, Mr Shaw Vee Chung Harold and Mr Shaw Vee King, are directors of Shaw.

5. Formal Citations

  1. Show Theatres Pte Ltd (in liquidation) v Shaw Theatres Pte Ltd and another application, CWU 319/2000, SIC 601418/2001, 601420/2001, [2002] SGHC 61

6. Timeline

DateEvent
Show Theatres Pte Ltd incorporated
Negotiations began for purchase of Chinatown Point shares
Formal agreement entered into for purchase of Chinatown Point shares
Agreement for sale and purchase of Chinatown Point shares concluded
Resolution passed for shareholders to provide unsecured interest-free loan
Show Theatres Pte Ltd paid Shaw Theatres Pte Ltd $375,000
Show Theatres Pte Ltd paid Eng Wah Investments Pte Ltd $125,000
Petition to wind up Show Theatres Pte Ltd presented
Show Theatres Pte Ltd wound up
SIC No 601418 of 2001 filed
SIC No 601420 of 2001 filed
Judgment delivered

7. Legal Issues

  1. Transaction at Undervalue
    • Outcome: The court held that the purchase of shares was not a transaction at an undervalue because Show Theatres Pte Ltd entered into the transaction in good faith and for the purpose of carrying on its business, with reasonable grounds to believe it would benefit the company.
    • Category: Substantive
    • Related Cases:
      • [1998] 28 ACSR 49
  2. Unfair Preference
    • Outcome: The court held that the repayment of shareholders' loans did not constitute an unfair preference because the loans were repaid outside the relevant statutory timeframe, as Shaw Theatres Pte Ltd and Eng Wah Investments Pte Ltd were not considered associates of Show Theatres Pte Ltd within the meaning of the Bankruptcy Act.
    • Category: Substantive
    • Related Cases:
      • [1970] AC 567
      • [1975] 1 AC 74
  3. Quistclose Trust
    • Outcome: The court held that no Quistclose trust had been created, and the $500,000 was a normal loan made by Shaw and Eng Wah to Show Theatres Pte Ltd.
    • Category: Substantive
    • Related Cases:
      • [1970] AC 567
  4. Ultra Vires
    • Outcome: The court rejected the argument that the Companies (Application of Bankruptcy Act Provisions) Regulations 1995 were ultra vires the Bankruptcy Act, finding that the Minister of Finance acted within the scope of section 411(g) of the Companies Act.
    • Category: Jurisdictional
  5. Definition of 'Associate'
    • Outcome: The court held that Shaw Theatres Pte Ltd and Eng Wah Investments Pte Ltd could not be regarded as associates of Show Theatres Pte Ltd on the basis of section 101(4) of the Bankruptcy Act.
    • Category: Substantive

8. Remedies Sought

  1. Reversal of transactions
  2. Recovery of funds

9. Cause of Actions

  • Avoidance of transactions at an undervalue
  • Unfair preference

10. Practice Areas

  • Liquidation
  • Corporate Restructuring

11. Industries

  • Entertainment

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Quistclose Investments Ltd v Rolls Razor LtdHouse of LordsYes[1970] AC 567United KingdomCited regarding the principle of a Quistclose trust, where money is loaned for a specific purpose and does not form part of the company's general assets.
Re Goldcorp Exchange LtdN/AYes[1975] 1 AC 74N/ACited for a modern formulation of the Quistclose principle.
McDonald and Anor v HanselmannSupreme Court of New South WalesYes[1998] 28 ACSR 49New South WalesCited regarding the consideration of transactions at an undervalue and whether the bargain could be explained by normal commercial practice.
Andersen v WestonN/AYes(1840) 6 Bing NC 296N/ACited as an example of a case where a document's date is prima facie evidence of its execution date.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 1994 Ed)Singapore
Bankruptcy Act (Cap 20, 2000 Ed)Singapore
s 329(1) Companies Act (Cap 50, 1994 Ed)Singapore
s 98(3) Bankruptcy ActSingapore
s 100 Bankruptcy ActSingapore
s 99(3) of the Bankruptcy ActSingapore
s 101(4) Bankruptcy ActSingapore
section 411 of the Companies ActSingapore
section 411(g) of the Companies ActSingapore

15. Key Terms and Keywords

15.1 Key Terms

  • Transaction at undervalue
  • Unfair preference
  • Quistclose trust
  • Associate
  • Shareholders' loans
  • Liquidation
  • Winding-up petition
  • Insolvency

15.2 Keywords

  • Insolvency
  • Liquidation
  • Transaction at undervalue
  • Unfair preference
  • Quistclose trust
  • Companies Act
  • Bankruptcy Act
  • Shareholders
  • Directors
  • Associate

17. Areas of Law

Area NameRelevance Score
Insolvency Law95
Avoidance of transactions70
Unfair preferences65
Company Law60
Bankruptcy60
Quistclose trust50
Liquidator40
Trust Law40
Contract Law30

16. Subjects

  • Insolvency
  • Corporate Law
  • Bankruptcy
  • Avoidance of Transactions
  • Unfair Preference