Leong Seng Hin Piling Pte Ltd (in liquidation) v Chan: Fraudulent Trading & Undue Preference
The liquidator of Leong Seng Hin Piling Pte Ltd brought an action against three former directors, Chan Ah Lek, Chan Soon Chew Tony, and Chan Ah Lay, alleging fraudulent trading under Section 340(1) of the Companies Act and undue preference under Section 329(1). The High Court dismissed the fraudulent trading claim against all three defendants, finding no dishonesty. However, the court allowed the undue preference claim in part against Chan Soon Chew Tony for $190,835.21. The plaintiff was ordered to pay costs to the first and third defendants and was awarded 50% of the costs against the second defendant.
1. Case Overview
1.1 Court
High Court1.2 Outcome
Plaintiff's claim against the first and third defendants under Section 340(1) of the Companies Act failed. The claim against the second defendant for undue preference succeeded in part for $190,835.21.
1.3 Case Type
Insolvency
1.4 Judgment Type
Grounds of Decision
1.5 Jurisdiction
Singapore
1.6 Description
Liquidator's claim against directors for fraudulent trading was dismissed, but claim for undue preference against one director succeeded in part.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Liquidator of Leong Seng Hin Piling Pte Ltd | Plaintiff | Other | Claim Dismissed in part, Claim Allowed in part | Partial | Gan Kam Yuin |
| Chan Ah Lek | Defendant | Individual | Claim Dismissed | Won | Spencer Gwee, Lee Kwok Weng |
| Chan Soon Chew Tony | Defendant | Individual | Claim Allowed in part | Partial | Spencer Gwee, Lee Kwok Weng |
| Chan Ah Lay | Defendant | Individual | Claim Dismissed | Won | Spencer Gwee, Lee Kwok Weng |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Belinda Ang Saw Ean | Judge | Yes |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Gan Kam Yuin | Bih Li & Lee |
| Spencer Gwee | Lee Kwok Weng & Co |
| Lee Kwok Weng | Lee Kwok Weng & Co |
4. Facts
- LSH was wound up on 29 April 2005 due to insolvency.
- The plaintiff sought a declaration that the defendants were knowingly a party to carrying on the business of LSH with intent to defraud creditors.
- The plaintiff also sought to recover $430,066.34 from the second defendant, alleging undue preference.
- The defendants argued that they had a dispute with GIPL over the price of RC piles.
- The second and third defendants identified the company’s interests with their own.
- The company paid its other creditors a total sum of $909,492.61 between April 2004 and April 2005.
- The second defendant had not rebutted the statutory presumption in respect of the sum of $190,835.21.
5. Formal Citations
- Liquidator of Leong Seng Hin Piling Pte Ltd v Chan Ah Lek and Others, Suit 680/2005, [2007] SGHC 9
6. Timeline
| Date | Event |
|---|---|
| GIPL agreed to manufacture and supply RC piles to LSH. | |
| LSH did not pay GIPL for any of the RC piles supplied between April and July 2004. | |
| Supplies collected between 3 April and 10 July 2004. | |
| Supplies collected between 3 April and 10 July 2004. | |
| Third defendant relinquished position as managing director; second defendant succeeded him. | |
| Transfer to the second defendant of a debt owed by LSH to the third defendant totalling $376,176.48. | |
| First defendant named as director. | |
| Cash payments made by LSH in favour of second defendant. | |
| Cash payments made by LSH in favour of second defendant. | |
| Overdraft facility terminated. | |
| Judgment obtained against LSH on 28 February 2005. | |
| Petition to wind up the company was filed. | |
| LSH was wound up. | |
| Oral judgment delivered. | |
| Decision Date |
7. Legal Issues
- Fraudulent Trading
- Outcome: The court dismissed the claim, finding no dishonesty on the part of the defendants.
- Category: Substantive
- Undue Preference
- Outcome: The court allowed the claim in part, ordering the second defendant to pay back $190,835.21.
- Category: Substantive
8. Remedies Sought
- Declaration that the defendants were knowingly a party to the carrying on of the business of LSH with intent to defraud creditors
- Recovery of $430,066.34 from the second defendant
9. Cause of Actions
- Fraudulent Trading
- Undue Preference
10. Practice Areas
- Commercial Litigation
- Insolvency Law
11. Industries
- Construction
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Rahj Kamal bin Abdullah v PP | High Court | Yes | [1998] 1 SLR 447 | Singapore | Cited for the proposition that positive evidence of a dishonest intention was not needed and that dishonesty could be inferred from the surrounding circumstances and from the subsequent conduct of the defendants. |
| Tang Yoke Kheng (trading as Niklex Supply Co) v Lek Benedict and others | Court of Appeal | Yes | [2005] 3 SLR 263 | Singapore | Cited for the principle that dishonesty is an essential ingredient to liability under s 340(1) of the Companies Act and that the standard of proof in a civil case where fraud is alleged is based on a balance of probabilities, but the more serious the allegation, the more the party may have to do to establish his case. |
| Aktieselskabet Dansk Skibsfinansiering v Brothers & Ors | N/A | Yes | [2001] 2 BCLC 324 | N/A | Cited regarding the standard of honest conduct, noting that while a defendant cannot shelter behind a private standard of honesty, the objective standard of the reasonable man is not a proper test. |
| Buildspeed Construction Pte Ltd (in liquidation) v Theme Corp Pte Ltd & another | N/A | Yes | [2000] 4 SLR 776 | Singapore | Referred to regarding cash flow insolvency. |
| Re Sarflax Ltd | N/A | Yes | [1979] 1 Ch 592 | N/A | Cited for the principle that the mere preference of one creditor over another does not amount to an intention to defraud, even where a director knew or had ground to suspect that his company would not have sufficient assets to pay all the creditors in full. |
| TangYoke Kheng (trading as Niklex Supply Co) v Lek Benedict & Others (No 2) | N/A | Yes | [2004] 4 SLR 788 | Singapore | Cited the decision of In re Lloyd’s Furniture Palace Ltd [1925] Ch 853, where it was held that the preference of a creditor who was himself a director shareholder and the promoter of the company could not amount to fraudulent trading without more. |
| Amrae Benchuan Trading Pte Ltd (in liquidation) v Gregory Tan Te Teck | N/A | Yes | [2006] 4 SLR 969 | Singapore | Cited for the relevant principles applicable in deciding whether a transaction may be successfully challenged as an undue preference. |
| In re Lloyd’s Furniture Palace Ltd | N/A | Yes | [1925] Ch 853 | N/A | Cited for the principle that the preference of a creditor who was himself a director shareholder and the promoter of the company could not amount to fraudulent trading without more. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Section 340(1) Companies Act | Singapore |
| Section 329(1) Companies Act | Singapore |
| Bankruptcy Act (Cap 20, 2000 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Fraudulent Trading
- Undue Preference
- Insolvency
- Liquidator
- Directors
- Companies Act
- Cash Payments
- Running Account
- Assignment of Debt
- Statutory Presumption
15.2 Keywords
- Fraudulent Trading
- Undue Preference
- Companies Act
- Insolvency
- Singapore
16. Subjects
- Insolvency Law
- Companies Law
- Commercial Law
17. Areas of Law
- Companies Law
- Insolvency Law
- Fraudulent Trading
- Avoidance of Transactions
- Undue Preferences