Chip Thye Enterprises v Phay Gi Mo: Directors' Duties & Dividend Declaration
In Chip Thye Enterprises Pte Ltd (in liquidation) v Phay Gi Mo and Others, the High Court of Singapore ruled in favor of the Plaintiff, Chip Thye Enterprises (in liquidation), against the first and second defendants, Phay Gi Mo and Pey Lim Cheng, who were former directors. The court found that the directors breached their duties by declaring dividends and engaging in improper transactions while the company was insolvent. The court ordered the directors to refund the dividend payment of $321,900 and pay damages of $398,693.59 for breaches of directors’ duties. The Plaintiff's claims against the third and fourth defendants, the estate of Lee Tiang Chin and Pey Ciew Chang, were dismissed.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Judgment for Plaintiff
1.3 Case Type
Civil
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Directors breached duties by declaring dividends when Chip Thye Enterprises was insolvent. The court ordered the directors to refund the dividend payment.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Chip Thye Enterprises Pte Ltd (in liquidation) | Plaintiff | Corporation | Judgment for Plaintiff | Won | Nicholas Loh, Christopher Yong |
| Phay Gi Mo | Defendant | Individual | Damages Awarded, Dividend Payment Refund | Lost, Lost | Ravi Chelliah, Lee Hwai Bin |
| Pey Lim Cheng | Defendant | Individual | Damages Awarded, Dividend Payment Refund | Lost, Lost | Ravi Chelliah, Lee Hwai Bin |
| Estate of Lee Tiang Chin, Deceased | Defendant | Other | Claim Dismissed | Dismissed | Ravi Chelliah, Lee Hwai Bin |
| Pey Ciew Chang | Defendant | Individual | Claim Dismissed | Dismissed |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Belinda Ang Saw Ean | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Nicholas Loh | Legal21 LLC |
| Christopher Yong | Legal21 LLC |
| Ravi Chelliah | Chelliah and Kiang |
| Lee Hwai Bin | Chelliah and Kiang |
4. Facts
- The Plaintiff was a family-owned company engaged in the building construction business.
- D1 and D2 were brothers and shareholders and former directors of the Plaintiff.
- The Plaintiff allowed Articon to use its name to tender for the Tanglin Hill project.
- The Plaintiff guaranteed Articon’s loan facility of $4.7 million for the Tanglin Hill project.
- The Court of Appeal allowed Capital Realty’s appeal for the repayment of an outstanding loan of $500,000 from the Plaintiff.
- The Plaintiff was wound up by Order of Court on 23 March 2001.
- The liquidator contended that D1 and D2 breached their duties as directors by engaging in improper transactions while the company was insolvent.
5. Formal Citations
- Chip Thye Enterprises Pte Ltd (in liquidation) v Phay Gi Mo and Others, Suit 103/2002, [2003] SGHC 307
6. Timeline
| Date | Event |
|---|---|
| Plaintiff incorporated | |
| Pey Ciew Chang became a director | |
| Pey Ciew Chang ceased to be a director | |
| Tanglin Hill project completed | |
| CLOB shares suspended from trading | |
| Articon Construction Pte Ltd wound up | |
| Interim dividend declared | |
| Directors and auditors signed financial statements for the year ended 28 February 1999 | |
| Option to purchase Joo Chiat property exercised | |
| Sale of Joo Chiat property completed | |
| Proceedings commenced against Capital Realty in Suit no.500 of 2000/M | |
| Directors invested $130,000 in Thai partnership | |
| Payment of $130,000 made to Patinya Exin Limited Partnership | |
| Capital Realty petitioned for the company to be wound up | |
| Plaintiff wound up by Order of Court | |
| Proceeding against D3 allowed to continue against D2 as personal representative | |
| CLOB shares resumed trading | |
| Decision Date |
7. Legal Issues
- Breach of Directors' Duties
- Outcome: The court found that D1 and D2 breached their duties as directors by engaging in improper transactions and declaring dividends while the company was insolvent.
- Category: Substantive
- Sub-Issues:
- Failure to act bona fide in the interests of creditors during insolvency
- Misapplication of company funds
- Declaration of dividends when company insolvent
- Insolvency
- Outcome: The court found that the Plaintiff was insolvent since the financial year ended 28 February 1999 and remained so until it was wound up on 23 March 2001.
- Category: Substantive
- Sub-Issues:
- Test of insolvency
- Balance sheet insolvency
- Cash flow insolvency
- Declaration of Dividends
- Outcome: The court found that D1 and D2 declared interim dividend on 29 December 1999 without proper investigations and without a bona fide valuation of the property by a competent valuer and that the dividend was paid out of capital.
- Category: Substantive
- Sub-Issues:
- Payment of dividends out of capital
- Declaration of dividends without proper investigations
- Untruthful dividend tax vouchers
8. Remedies Sought
- Damages
- Refund of Dividend Payment
9. Cause of Actions
- Breach of Directors' Duties
- Misapplication of Company Funds
10. Practice Areas
- Commercial Litigation
- Insolvency Litigation
11. Industries
- Construction
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Civil Appeal no. 50 of 2000 | Court of Appeal | Yes | [2000] 4 SLR 548 | Singapore | Cited regarding the repayment of an outstanding loan in the sum of $500,000 and the relationship between Chip Thye and Articon. |
| West Mercia Safetywear Limited (In Liq.) v Dodd | Unknown | Yes | [1988] BCLC 250 | England and Wales | Cited for the principle that when a company is insolvent, the interests of the creditors become the dominant factor in what constitutes the benefit of the company as a whole. |
| Tong Tien See Construction Pte Ltd (in liquidation) v Tong Tien See & Ors | High Court | Yes | [2002] 3 SLR 76 | Singapore | Followed and applied the principle from West Mercia Safetywear Limited (In Liq.) v Dodd regarding directors' duties to creditors when a company is insolvent. |
| Kinsela v Russell Kinsela Pty Ltd (in liq) | Unknown | Yes | [1986] ACLR 395 | Australia | Cited for the principle that when a company is insolvent, the interests of the creditors intrude and become prospectively entitled to displace the power of the shareholders and directors to deal with the company’s assets. |
| Winkworth v Edward Baron Development Co Ltd & Ors | Unknown | Yes | [1986] 1WLR 1512 | England and Wales | Cited for the principle that the duty is owed to creditors present or future. |
| Nicolson v Permakraft | Unknown | Yes | [1985] 1 NZLR 242 | New Zealand | Cited regarding directors’ fiduciary duties towards creditors when the company is insolvent. |
| Brady v Brady | Unknown | Yes | [1988] 2 All ER 617 | England and Wales | Cited regarding directors’ fiduciary duties towards creditors when the company is insolvent. |
| Re Sanpete Builders (S) Pte Ltd | High Court | Yes | [1989] 1 MLJ 393 | Singapore | Cited for the view that the test for putting a company into liquidation is one of fact to be decided in the light of all the circumstances of the case. |
| Re Great Eastern Hotel (Pte) Ltd | Unknown | Yes | [1998] SLR 841 | Singapore | Cited for the tests of insolvency, termed as the practical and theoretical tests. |
| ANZ Executors and Trustee Company Ltd v Quintex Australia Ltd | Unknown | Yes | [1991] 2 Qd R 360 | Australia | Cited regarding the breach of duty when distributing assets as dividends when the company is confronted by insolvency. |
| Mackie v Clough | Unknown | Yes | [1891] 17 VLR 493 | Australia | Cited regarding the breach of duty when distributing assets as dividends when the company is confronted by insolvency. |
| Marra Development Ltd v B.W. Rofe Pty Ltd | Unknown | Yes | [1977] 2 NSWLR 616 | Australia | Cited regarding the principle that dividends may be based upon realised or unrealised capital profits provided the subscribed capital of the company is preserved. |
| QBE Insurance Group Ltd v Australian Securities Commission | Unknown | Yes | (1992) 110 ALR 301 | Australia | Cited regarding the principle that dividends may be based upon realised or unrealised capital profits provided the subscribed capital of the company is preserved. |
| Australasian Oil Exploration Ltd v Lachberg & Ors | High Court of Australia | Yes | (1958) 101 CLR 119 | Australia | Cited regarding the fundamental principle of company law that the whole of the subscribed capital of a company with limited liability shall remain available for the discharge of its liabilities. |
| Dimbula Valley (Ceylon) Tea Co Ltd v Laurie | Unknown | Yes | [1961] Ch 353 | England and Wales | Cited regarding the principle that unrealised profits may be used to base a dividend, but the revaluation of capital must be in good faith by competent valuers. |
| Re City Equitable Fire Insurance Co Ltd | Unknown | Yes | [1924] 19 Lloyd's List Law Reports 93 | England and Wales | Cited regarding the principle that before any declaration of dividend is made, the directors should have a detailed list of the company’s assets and investments prepared for their information. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap.50) | Singapore |
| Companies Act (Cap.50) s254(1)(e) | Singapore |
| Companies Act s403(1) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Insolvency
- Directors' Duties
- Dividend Declaration
- Improper Transactions
- Liquidator
- Contingent Liabilities
- Contingent Assets
- Deed of Assignment
- Tanglin Hill Project
- Capital Realty
- Articon Construction Pte Ltd
15.2 Keywords
- directors duties
- insolvency
- dividend
- liquidation
- company law
16. Subjects
- Company Law
- Insolvency Law
- Directors' Duties
17. Areas of Law
- Companies Law
- Insolvency Law
- Directors' Duties