Traxiar Drilling Partners II Pte Ltd v Dvergsten: Breach of Directors' Duties & Fraudulent Trading
In Traxiar Drilling Partners II Pte Ltd (in liquidation) v Dvergsten, Dag Oivind, the High Court of Singapore heard a case brought by the liquidators of Traxiar Drilling Partners II Pte Ltd against Dag Oivind Dvergsten, alleging breaches of directors' duties and fraudulent trading. The liquidators sought damages arising from the defendant’s breaches of directors’ duties as well as a declaration that the defendant had carried on the plaintiff’s business with an intent to defraud creditors. The court found that Dvergsten had breached his duties as a director but did not establish fraudulent trading. The court ordered the Defendant to pay the Plaintiff the sum of US$7,579,960 flowing from the Defendant’s breaches of director’s duties.
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
Liquidators sought damages for breach of directors' duties and fraudulent trading. The court found a breach of duties but no fraud.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Traxiar Drilling Partners II Pte Ltd (in liquidation) | Plaintiff | Corporation | Judgment for Plaintiff | Won | |
| Dvergsten, Dag Oivind | Defendant | Individual | Judgment against Defendant | Lost |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Aedit Abdullah | Judge | Yes |
4. Counsels
4. Facts
- The Plaintiff was incorporated as a special purpose vehicle by the Defendant.
- The Defendant was a director of the Plaintiff at all material times prior to its liquidation.
- The Plaintiff did not operate any bank accounts in its own name.
- The Plaintiff's proposed business venture was to acquire a jack-up drilling rig known as the “Somnath”.
- The Plaintiff entered into loan transactions with AMS SG and Symphony Ventures Pte Ltd.
- The Plaintiff made payments to DDAS, DDPTE, TY Global LLC and Treatmil.
- The Plaintiff was unable to acquire the Somnath and was wound up.
5. Formal Citations
- Traxiar Drilling Partners II Pte Ltd (in liquidation) v Dvergsten, Dag Oivind, Suit No 975 of 2015, [2018] SGHC 14
6. Timeline
| Date | Event |
|---|---|
| Plaintiff company incorporated in Singapore | |
| Loan for US$3m obtained from AMS SG | |
| Plaintiff entered into agreements with GOL Offshore | |
| Tripartite agreement between AMS SG, Treatmil and the Plaintiff dated | |
| Plaintiff obtained a “bridging loan” of US$15m from Symphony | |
| Symphony transferred US$6m to the DDPTE’s Bank Account | |
| Plaintiff transferred US$3.25m to TY Global LLC | |
| Plaintiff transferred US$1.28m to Treatmil | |
| TY Global transferred US$2.25m to AT Offshore LLC | |
| AT Offshore transferred US$2m to Rocky Point International LLC | |
| Symphony chanced upon a news article stating that the Somnath was no longer available for purchase | |
| Symphony verbally requested that the Defendant provide particulars as to how the first tranche of the Symphony Loan (amounting to US$6m) had been utilised | |
| Symphony’s solicitors requested that the Defendant provide all correspondence between the Plaintiff and GOL Offshore that reflected the present status of the Plaintiff’s right to purchase the Somnath | |
| Defendant sent Symphony an email enclosing a letter from GOL Offshore dated 16 June 2014, stating that the Plaintiff had defaulted in making the deposit to GOL Offshore | |
| Symphony then requested for all correspondence between the Plaintiff and GOL Offshore relating to the default in making the deposit and the Plaintiff’s right to purchase the Somnath | |
| Defendant provided Symphony with various letters that had been exchanged between the Plaintiff and GOL Offshore | |
| Defendant confirmed in a telephone call with Symphony’s representative, Mr Subramaniam, that the Plaintiff had received compensation of US$1.5m from GOL Offshore for the latter having sold the Somnath to a third party | |
| Symphony served a Notice of Default and Acceleration on the Plaintiff and Treatmil stating that, inter alia, the non-disclosure of correspondence between the Plaintiff and GOL Offshore constituted an event of default | |
| Plaintiff entered into a settlement agreement with Symphony and Treatmil | |
| Plaintiff was wound up by an order of court |
7. Legal Issues
- Breach of Directors' Duties
- Outcome: The court found that the Defendant breached his duties to act honestly, bona fide, and without conflict of interest, and to consider the interests of creditors.
- Category: Substantive
- Sub-Issues:
- Failure to act honestly
- Failure to act bona fide in the company's interest
- Failure to consider creditors' interests
- Conflict of interest
- Related Cases:
- [2007] 2 SLR(R) 597
- [1996] 1 SLR(R) 161
- [2002] 2 SLR(R) 848
- [2004] 4 SLR(R) 162
- [1970] VR 434
- [1994] 1 SLR(R) 513
- [2014] 3 SLR 329
- [1994] 3 SLR(R) 1064
- [2017] 2 SLR 592
- [2017] SGHC 285
- [2006] 2 SLR(R) 307
- [1970] Ch 62
- [2010] 4 SLR 1089
- [2017] SGHC 15
- [2014] 3 SLR 277
- [2018] SGCA 3
- [2003] 2 BCLC 153
- [2017] 3 SLR 957
- [1974] AC 821
- [1967] 2 AC 134
- [2010] 3 SLR 1069
- [1970] Ch 212
- [2004] 4 SLR(R) 318
- [2004] 1 BCLC 131
- [2013] 1 SLR 374
- (1986) 4 NSWLR 722
- [2007] 4 SLR(R) 218
- Fraudulent Trading
- Outcome: The court did not find sufficient evidence to conclude that the Defendant had engaged in fraudulent trading.
- Category: Substantive
- Related Cases:
- [2005] 3 SLR(R) 263
- [2015] 2 SLR 271
- [2007] 2 SLR(R) 77
- (1960) 105 CLR 451
8. Remedies Sought
- Damages
- Declaration that the defendant had carried on the plaintiff’s business with an intent to defraud creditors
9. Cause of Actions
- Breach of Directors' Duties
- Fraudulent Trading
10. Practice Areas
- Commercial Litigation
- Insolvency Law
11. Industries
- Oil and Gas
- Drilling
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Townsing Henry George v Jenton Overseas Investment Pte Ltd (in liquidation) | Court of Appeal | Yes | [2007] 2 SLR(R) 597 | Singapore | Cited for the principle that a director's duty of honesty and duty to act bona fide may be regarded as a composite obligation. |
| Cheam Tat Pang v PP | High Court | Yes | [1996] 1 SLR(R) 161 | Singapore | Cited to support the principle that the statutory duty to act honestly is the equivalent of the duty to act bona fide at common law. |
| Lim Weng Kee v PP | High Court | Yes | [2002] 2 SLR(R) 848 | Singapore | Cited to support the principle that the statutory duty to act honestly is the equivalent of the duty to act bona fide at common law. |
| Vita Health Laboratories Pte Ltd v Pang Seng Meng | High Court | Yes | [2004] 4 SLR(R) 162 | Singapore | Cited to support the principle that the statutory duty to act honestly is the equivalent of the duty to act bona fide at common law. |
| Marchesi v Barnes | Supreme Court of Victoria | Yes | [1970] VR 434 | Australia | Cited for the principle that directors have a unitary obligation to act bona fide in the interests of the company. |
| Multi-Pak Singapore Pte Ltd v Intraco Ltd | High Court | Yes | [1994] 1 SLR(R) 513 | Singapore | Cited for the principle that directors have a unitary obligation to act bona fide in the interests of the company. |
| Ho Kang Peng v Scintronix Corp Ltd (formerly known as TTL Holdings Ltd) | Court of Appeal | Yes | [2014] 3 SLR 329 | Singapore | Cited for the principle that a director must act bona fide to promote or advance the interests of the company. |
| Intraco Ltd v Multi-Pak Singapore Pte Ltd | Court of Appeal | Yes | [1994] 3 SLR(R) 1064 | Singapore | Cited for the objective test for determining whether the duty to act honestly has been breached. |
| Vita Health Laboratories Pte Ltd and others v Pang Seng Meng | High Court | Yes | [2004] 4 SLR(R) 162 | Singapore | Cited for the principle that the requirement of bona fide or honesty will not be satisfied if the director acted dishonestly even if for the purported aim of maximising profits for the company. |
| Goh Chan Peng and others v Beyonics Technology Ltd and another and another appeal | Court of Appeal | Yes | [2017] 2 SLR 592 | Singapore | Cited for the principle that even if the director subjectively believed his actions to be in the company’s best interests, he would still be held to have breached his duty if, on the Intraco test, his actions on an objective view were not in the company’s best interests. |
| Ong Bee Chew v Ong Shu Lin | High Court | Yes | [2017] SGHC 285 | Singapore | Cited for the principle that a director owes duties even if he is the sole director and the owner or effective owner of the company. |
| Golden Village Multiplex Pte Ltd v Phoon Chiong Kit | High Court | Yes | [2006] 2 SLR(R) 307 | Singapore | Cited for the principle that each company in a group is a separate legal entity and the directors of a particular company are not entitled to sacrifice the interest of that company. |
| Charterbridge Corporation Ltd v Lloyds Bank Ltd | Chancery Division | Yes | [1970] Ch 62 | England and Wales | Cited for the principle that each company in a group is a separate legal entity and the directors of a particular company are not entitled to sacrifice the interest of that company. |
| Liquidators of Progen Engineering Pte Ltd v Progen Holdings Ltd | Court of Appeal | Yes | [2010] 4 SLR 1089 | Singapore | Cited for the principle that when a company is insolvent, or even in “a parlous financial position”, directors have a fiduciary duty to take into account the interests of the company’s creditors when making decisions for the company. |
| Parakou Shipping Pte Ltd (in liquidation) v Liu Cheng Chan and others | High Court | Yes | [2017] SGHC 15 | Singapore | Cited for the principle that the greater the concern over the company’s financial health, the more weight the directors must accord to the interests of creditors over those of the shareholders. |
| Dynasty Line Ltd (in liquidation) v Sukamto Sia and another and another appeal | Court of Appeal | Yes | [2014] 3 SLR 277 | Singapore | Cited for the principle that the greater the concern over the company’s financial health, the more weight the directors must accord to the interests of creditors over those of the shareholders. |
| Prima Bulkship Pte Ltd (in creditors’ voluntary liquidation) and another v Lim Say Wan and another | High Court | Yes | [2017] 3 SLR 839 | Singapore | Cited for the principle that the duty to take into account the interest of creditors principally obliges directors to ensure that the company’s assets are not dissipated or exploited to the prejudice of creditors’ interests. |
| Parakou Investment Holdings Pte Ltd and another v Parakou Shipping Pte Ltd (in liquidation) and other appeals | Court of Appeal | Yes | [2018] SGCA 3 | Singapore | Cited to confirm observations made in Parakou Shipping Pte Ltd (in liquidation) v Liu Cheng Chan and others [2017] SGHC 15. |
| Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd | High Court | Yes | [2003] 2 BCLC 153 | England and Wales | Cited for the principle that balance sheet and/or cash flow insolvency is not required to establish a duty to take into account the interest of creditors. |
| Nordic International Ltd v Morten Innhaug | High Court | Yes | [2017] 3 SLR 957 | Singapore | Cited for the definitions of the no-conflict rule, no-profit rule and rule against self-dealing. |
| Howard Smith Ltd v Ampol Petroleum Ltd | Privy Council (Appeal from New South Wales) | Yes | [1974] AC 821 | United Kingdom | Cited for the principle that where a director is found to have placed himself in a position of conflict of interest, he will not be permitted to assert that his action was bona fide or thought to be in the interests of the company. |
| Regal (Hastings) Ltd v Gulliver | House of Lords | Yes | [1967] 2 AC 134 | United Kingdom | Cited for the principle that a director can be in breach of the no-conflict rule even though his or her own conduct has caused no loss to the company. |
| Tan Hup Thye v Refco (Singapore) Pte Ltd | High Court | Yes | [2010] 3 SLR 1069 | Singapore | Cited for the principle that the rule against self-dealing prohibits a director from entering, on behalf of the company, into an arrangement or transaction with himself or with a company or firm in which he is interested. |
| Bamford v Bamford | Court of Appeal | Yes | [1970] Ch 212 | England and Wales | Cited for the principle that shareholders can only release directors from their obligations to the company, following a full and frank disclosure made by the directors. |
| Dayco Products Singapore Pte Ltd (in liquidation) v Ong Cheng Aik | High Court | Yes | [2004] 4 SLR(R) 318 | Singapore | Cited for the principle that a breach of the no-conflict rule will be avoided only where there is full disclosure to all the shareholders of all the material facts and shareholders’ approval is subsequently obtained. |
| Gwembe Valley Development Co Ltd v Koshy (No 3) | Court of Appeal | Yes | [2004] 1 BCLC 131 | England and Wales | Cited for the principle that a breach of the no-conflict rule will be avoided only where there is full disclosure to all the shareholders of all the material facts and shareholders’ approval is subsequently obtained. |
| Raffles Town Club Pte Ltd v Lim Eng Hock Peter | Court of Appeal | Yes | [2013] 1 SLR 374 | Singapore | Cited for the principle that in the absence of any factor that would disqualify shareholders from ratifying unauthorised or unlawful acts of directors, a company may waive any claims it may have against its directors for any kind of liability where the company is solvent. |
| Kinsela v Russell Kinsela Pty Ltd | Supreme Court of New South Wales | Yes | (1986) 4 NSWLR 722 | Australia | Cited for the principle that in a solvent company the proprietary interests of the shareholders entitle them as a general body to be regarded as the company when questions of the duty of directors arise. |
| Tang Yoke Kheng (trading as Niklex Supply Co) v Lek Benedict and others | High Court | Yes | [2005] 3 SLR(R) 263 | Singapore | Cited for the principle that the more serious the allegation of fraud, the more the party bearing the burden of proof may have to do to make out its case. |
| M+W Singapore Pte Ltd v Leow Tet Sin and another | High Court | Yes | [2015] 2 SLR 271 | Singapore | Cited for the principle that for fraudulent trading to be established, the plaintiff's business had to be carried out with the intention of defrauding the plaintiff's creditors or creditors of any other person or for any fraudulent purpose and the defendant was knowingly a party to the business being carried out in that manner. |
| Liquidator of Leong Seng Hin Piling Pte Ltd v Chan Ah Lek and others | High Court | Yes | [2007] 2 SLR(R) 77 | Singapore | Cited for the principle that for fraud to be shown, it must also be demonstrated that the directors had intended to gain an advantage. |
| Hardie v Hanson | High Court of Australia | Yes | (1960) 105 CLR 451 | Australia | Cited for the principle that for such an inference of dishonesty to be drawn from the evidence, something else, such as misrepresentation of the position or an intention to use goods purchased on credit for the purposes of dishonest gain, which gives it a fraudulent character must be shown. |
| W&P Piling Pte Ltd v Chew Yin What | High Court | Yes | [2007] 4 SLR(R) 218 | Singapore | Cited for the principle that for relief under s 391 of the CA to be granted, the director must show that (1) he has acted honestly, (2) he has acted reasonably, and (3) that it is fair to excuse him for his default. |
13. Applicable Rules
| Rule Name |
|---|
| Rules of Court (Cap 322, R 5, 2014 Rev Ed) |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) | Singapore |
| s 157(1) of the CA | Singapore |
| s 340(1) of the CA | Singapore |
| s 391 of the CA | Singapore |
| s 156(5) of the CA | Singapore |
| s 156(14) of the CA | Singapore |
| Evidence Act (Cap 97, 1997 Rev Ed) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Directors' duties
- Fraudulent trading
- Liquidation
- Special purpose vehicle
- Management fees
- Loan agreement
- Novation agreement
- Borrowed Funds
- Somnath
- Tripartite Agreement
15.2 Keywords
- Directors' duties
- Fraudulent trading
- Companies Act
- Liquidation
- Conflict of interest
17. Areas of Law
| Area Name | Relevance Score |
|---|---|
| Director's Duties | 95 |
| Company Law | 90 |
| Fiduciary Duties | 85 |
| Directors' Liabilities | 75 |
| Winding Up | 70 |
| Insolvency Law | 70 |
| Fraud and Deceit | 60 |
| Contract Law | 30 |
16. Subjects
- Company Law
- Directors' Duties
- Fraudulent Trading
- Insolvency