Parakou Investment v Parakou Shipping: Directors' Duties & Avoidance of Transactions
The Court of Appeal heard appeals related to Parakou Shipping Pte Ltd (in liquidation)'s claims against its directors, Liu Cheng Chan, Chik Sau Kam, Liu Por, and Yang Jianguo, and related companies, Parakou Investment Holdings Pte Ltd and Parakou Shipmanagement Pte Ltd, for breach of fiduciary duties and asset stripping. The liquidator claimed the transactions were designed to strip Parakou of its assets. The court dismissed most appeals, finding breaches of fiduciary duties in several transactions, including bonus payments, salary increases, and certain repayments, and allowed the liquidator the option of an account of profits. The court allowed the appeal in part regarding the sale of OPL Vessels and the commencement and/or continuance of the London Arbitration and HK Court Proceedings.
1. Case Overview
1.1 Court
Court of Appeal of the Republic of Singapore1.2 Outcome
Appeal dismissed in part and allowed in part.
1.3 Case Type
Civil
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
Appeal concerning claims against directors for asset stripping. Court found breaches of fiduciary duties, allowing account of profits.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| PARAKOU INVESTMENT HOLDINGS PTE LTD | Appellant, Respondent | Corporation | Appeal allowed in part | Partial | Sim Chong, Yap Hao Jin, Tee Lim Min Joan |
| PARAKOU SHIPMANAGEMENT PTE LTD | Appellant, Respondent | Corporation | Appeal allowed in part | Partial | Sim Chong, Yap Hao Jin, Tee Lim Min Joan |
| PARAKOU SHIPPING PTE LTD (IN LIQUIDATION) | Respondent, Appellant, Plaintiff | Corporation | Appeal dismissed in part and allowed in part | Partial | Edwin Tong SC, Kenneth Lim Tao Chung, Chua Xinying, Yu Kexin, Nigel Yeo Kok Quan, Rebecca Chia Su Min, Wong Pei Ting |
| LIU POR | Appellant, Respondent, Defendant | Individual | Appeal dismissed in part and allowed in part | Partial | Siraj Omar, Premalatha Silwaraju |
| YANG JIANGUO | Appellant, Respondent, Defendant | Individual | Appeal dismissed in part and allowed in part | Partial | Siraj Omar, Premalatha Silwaraju |
| CHIK SAU KAM | Appellant, Respondent, Defendant | Individual | Appeal dismissed in part and allowed in part | Partial | Lok Vi Ming SC, Lee Sien Liang Joseph, Justin Chan, Natalie Joy Huang Kim Lian |
| LIU CHENG CHAN | Appellant, Respondent, Defendant | Individual | Appeal dismissed in part and allowed in part | Partial | Lok Vi Ming SC, Lee Sien Liang Joseph, Justin Chan, Natalie Joy Huang Kim Lian |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Sundaresh Menon | Chief Justice | No |
| Andrew Phang Boon Leong | Judge of Appeal | Yes |
| Steven Chong | Judge of Appeal | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Sim Chong | Sim Chong LLC |
| Yap Hao Jin | Sim Chong LLC |
| Tee Lim Min Joan | Sim Chong LLC |
| Siraj Omar | Premier Law LLC |
| Premalatha Silwaraju | Premier Law LLC |
| Lok Vi Ming SC | LVM Law Chambers LLC |
| Lee Sien Liang Joseph | LVM Law Chambers LLC |
| Justin Chan | LVM Law Chambers LLC |
| Natalie Joy Huang Kim Lian | LVM Law Chambers LLC |
| Edwin Tong SC | Allen & Gledhill LLP |
| Kenneth Lim Tao Chung | Allen & Gledhill LLP |
| Chua Xinying | Allen & Gledhill LLP |
| Yu Kexin | Allen & Gledhill LLP |
| Nigel Yeo Kok Quan | Allen & Gledhill LLP |
| Rebecca Chia Su Min | Allen & Gledhill LLP |
| Wong Pei Ting | Allen & Gledhill LLP |
4. Facts
- Parakou was incorporated in 1995 and engaged in outer port limit services, ship management, and ship chartering.
- In 2008, Parakou purportedly entered into a charterparty with Galsworthy for a ship named the Canton Trader.
- The collapse of Lehman Brothers in September 2008 triggered a worldwide financial crisis, severely affecting Parakou's Chartering Business.
- In November 2008, Parakou sold 10 vessels and two uncompleted hulls to Parakou Investment Holdings Pte Ltd (PIH).
- With effect from 30 November 2008, Parakou terminated 12 ship management agreements (SMAs).
- Between 12 and 24 November 2008, Parakou repaid debts of S$9,812,543 that it had owed to PIH.
- On 5 December 2008, Parakou repaid debts of S$3,046,200 to Parakou Shipping SA (PSSA).
5. Formal Citations
- Parakou Investment Holdings Pte Ltd and anothervParakou Shipping Pte Ltd (in liquidation)and other appeals, Civil Appeals Nos 55, 56, 57 and 58 of 2017, [2018] SGCA 3
6. Timeline
| Date | Event |
|---|---|
| Parakou was incorporated | |
| Liu Por became a shareholder | |
| Liu Por became Vice-President and Yang Jianguo was appointed President | |
| Liu Por and Yang Jianguo became directors and C C Liu and Chik Sau Kam stepped down as directors | |
| Board resolution of March 2008 | |
| Parakou sold off three vessels | |
| Collapse of Lehman Brothers | |
| Parakou received email warning about Ocean Glory's financial condition | |
| Parakou received charterparty for Canton Trader from Galsworthy | |
| Parakou sold 10 vessels and two uncompleted hulls to PIH | |
| PSMPL was incorporated | |
| Parakou repaid debts to PIH | |
| Parakou terminated 12 ship management agreements | |
| Parakou repaid debts to PSSA | |
| Parakou set off debts PIH owed to it | |
| Parakou paid bonuses to all four of the Directors | |
| C C Liu and Chik transferred their shares in Parakou to Liu Por and Yang | |
| Parakou released 39 employees | |
| C C Liu and Chik resigned as directors in Parakou | |
| Parakou increased the monthly salaries of Liu Por and Yang | |
| 39 employees were hired by PSMPL | |
| Parakou paid salaries of six employees | |
| Parakou paid PIH in respect of space | |
| Parakou informed Galsworthy that it would not execute the charterparty | |
| Parakou commenced court proceedings in Hong Kong against the owners and/or demise charterers of the Jin Kang | |
| First Award was made | |
| Parakou’s claim in the HK Court Proceedings was struck out | |
| Parakou entered provisional liquidation | |
| Parakou entered creditors’ voluntary liquidation | |
| London tribunal assessed further damages against Parakou | |
| C C Liu passed away intestate | |
| Chik applied for and was granted the administration of the estate | |
| Hearing | |
| Judgment reserved |
7. Legal Issues
- Breach of Fiduciary Duty
- Outcome: The court found that the directors breached their fiduciary duties in several transactions, including bonus payments, salary increases, and certain repayments.
- Category: Substantive
- Sub-Issues:
- Conflict of interest
- Failure to act in the best interests of the company
- Failure to consider creditors' interests
- Transactions at an Undervalue
- Outcome: The court initially found that the sale of OPL Vessels was a transaction at an undervalue, but later reversed this finding on appeal. The court found that the transfer of SMAs was a transaction at an undervalue but did not constitute a breach of fiduciary duty.
- Category: Substantive
- Sub-Issues:
- Sale of assets at a significantly lower price than market value
- Transfer of assets without adequate consideration
- Shadow Director Liability
- Outcome: The court affirmed the finding that C C Liu was a shadow director after 31 December 2008.
- Category: Substantive
- Sub-Issues:
- Influence over company decisions without formal appointment
- Compliance with directions from a shadow director
- De Facto Director Liability
- Outcome: The court affirmed the finding that Liu Por and Yang were not de facto directors before 22 December 2008.
- Category: Substantive
- Sub-Issues:
- Acting as a director without formal appointment
- Responsibility for management and day-to-day operations
- Undue Preference
- Outcome: The court found that the PIH Repayments and PSSA Repayment were made in breach of the directors' fiduciary duties, as they preferred PIH and PSSA to other creditors.
- Category: Substantive
- Sub-Issues:
- Preferring certain creditors over others
- Payments made to related parties
8. Remedies Sought
- Damages
- Account of Profits
- Equitable Compensation
9. Cause of Actions
- Breach of Fiduciary Duty
- Transaction at an Undervalue
- Dishonest Assistance
- Knowing Receipt
10. Practice Areas
- Commercial Litigation
- Insolvency Litigation
11. Industries
- Shipping
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Parakou Shipping Pte Ltd (in liquidation) v Liu Cheng Chan and others | High Court | Yes | [2017] SGHC 15 | Singapore | The High Court judge found primarily for the Liquidator based largely on the inexplicable haste with which the transactions had been entered into. |
| Chay Chong Hwa and others v Seah Mary | Court of Appeal | Yes | [1983–1984] SLR(R) 505 | Singapore | Cited for the rule that an administrator is clothed with the authority to deal with the estate only when the grant of letters of administration has been extracted. |
| Teo Gim Tiong v Krishnasamy Pushpavathi (legal representative of the estate of Maran s/o Kannakasabai, deceased) | Court of Appeal | Yes | [2014] 4 SLR 15 | Singapore | Cited for the rule that where such grant has not been extracted and the administrator purports to act in a suit in a capacity that he does not possess, the action is a nullity and of no effect. |
| BTI 2014 LLC v Sequana SA and others | English High Court | Yes | [2016] EWHC 1686 (Ch) | England and Wales | Cited for the proposition that the question of how much a contingent claim should be taken into account was “a question to be posed by the directors to themselves considering the nature of the contingent and prospective liabilities”. |
| Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung Yu-Lien Margaret and others, third parties) | Singapore High Court | Yes | [2010] SGHC 163 | Singapore | Cited for the test that what is needed is a “discernable pattern of compliance” and occasional departures from the pattern would not detract from this finding. |
| In re a Debtor (No 82 of 1926) | English Court of Appeal | Yes | [1927] Ch 410 | England and Wales | Cited for the principle that the amount of a debt to which a creditor is prevented from having recourse as a statutory set-off is the amount of the debt that he has wrongly received. |
| Living the Link Pte Ltd (in creditors’ voluntary liquidation) and others v Tan Lay Tin Tina and others | Singapore High Court | Yes | [2016] 3 SLR 621 | Singapore | Cited for the principle that a finding of undue preference would “‘ipso facto [lead] to the conclusion’ that the director who procured the undue preference ‘breached [his] fiduciary duty to ensure that the company’s assets are not misapplied to the prejudice of creditors’ interests’. |
| Hellard and another v Carvalho | English High Court | Yes | [2013] EWHC 2876 (Ch) | England and Wales | Cited for the principle that a claim for unfair preference and a claim for breach of fiduciary duty are “premised on distinct causes of action” even when they concern the same subject matter. |
| West Mercia Safetywear Ltd (in liq) v Dodd and another | English Court of Appeal | Yes | [1988] BCLC 250 | England and Wales | Cited for the principle that a claim for unfair preference and a claim for breach of fiduciary duty are “premised on distinct causes of action” even when they concern the same subject matter. |
| Liquidators of Progen Engineering Pte Ltd v Progen Holdings Ltd | Court of Appeal | Yes | [2010] 4 SLR 1089 | Singapore | Cited for the principle that the balance sheet of Parakou had reflected an (increasingly) negative equity position for six years prior to the PIH Repayments and PSSA Repayment. |
| CMS Dolphin Ltd v Simonet and another | English High Court | Yes | [2001] 2 BCLC 704 | England and Wales | Cited for the principle that the remedy of an account of profits is available against a fiduciary who procures an unlawful benefit for a corporate vehicle in which he has a substantial interest, particularly where the corporate vehicle is but a “mere cloak” for his unlawful conduct. |
| Swiss Butchery Pte Ltd v Huber Ernst and others and another suit | Singapore High Court | Yes | [2010] 3 SLR 813 | Singapore | Followed CMS Dolphin Ltd v Simonet and another [2001] 2 BCLC 704. |
| Cook v Deeks | Privy Council | Yes | [1916] 1 AC 554 | United Kingdom | Cited for the principle that both the directors and the company are liable to account for profits where the business is put into a company which is established by the directors who have wrongfully taken advantage of the corporate opportunity. |
| Parakou Shipping Pte Ltd (in liquidation) v Liu Cheng Chan and others | High Court | Yes | [2017] SGHC 91 | Singapore | Costs Judgment |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) | Singapore |
| Bankruptcy Act (Cap 20, 2009 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Liquidation
- Directors' Duties
- Shadow Director
- De Facto Director
- Transaction at an Undervalue
- Undue Preference
- Clawback Period
- Ship Management Agreement
- Outer Port Limit Services
- Charterparty
15.2 Keywords
- directors duties
- insolvency
- liquidation
- shadow director
- undue preference
- transaction at undervalue
- Parakou Shipping
16. Subjects
- Insolvency
- Company Law
- Fiduciary Duties
17. Areas of Law
- Insolvency Law
- Company Law
- Directors' Duties
- Avoidance of Transactions