Foo Kian Beng v OP3 International: Director's Duties, Dividends, and Insolvency Law
In Foo Kian Beng v OP3 International Pte Ltd (in liquidation), the Court of Appeal of Singapore addressed the liability of Foo Kian Beng, the sole director and shareholder of OP3 International, for authorizing dividend payments and loan repayments to himself while OP3 faced a lawsuit. The court dismissed Foo's appeal, clarifying directors' duties to consider creditors' interests when a company is imminently likely to be unable to discharge its debts.
1. Case Overview
1.1 Court
Court of Appeal of the Republic of Singapore1.2 Outcome
Appeal Dismissed
1.3 Case Type
Civil
1.4 Judgment Type
Judgment
1.5 Jurisdiction
Singapore
1.6 Description
Appeal regarding director Foo Kian Beng's liability for OP3 International's payments to him while facing a lawsuit. The court clarified directors' duties concerning creditors.
1.7 Decision Date
2. Parties and Outcomes
| Party Name | Role | Type | Outcome | Outcome Type | Counsels |
|---|---|---|---|---|---|
| Foo Kian Beng | Appellant | Individual | Appeal Dismissed | Lost | Nair Suresh Sukumaran, Noel Chua Yi How, Alex Chia Yao Wei |
| OP3 International Pte Ltd (in liquidation) | Respondent | Corporation | Appeal Upheld | Won | Lee Ming Hui Kelvin, Ong Xin Ying Samantha |
3. Judges
| Judge Name | Title | Delivered Judgment |
|---|---|---|
| Sundaresh Menon | Chief Justice | Yes |
| Steven Chong | Justice of the Court of Appeal | No |
| Belinda Ang Saw Ean | Justice of the Court of Appeal | No |
| Kannan Ramesh | Judge of the Appellate Division | No |
| Judith Prakash | Senior Judge | No |
4. Counsels
| Counsel Name | Organization |
|---|---|
| Nair Suresh Sukumaran | PK Wong & Nair LLC |
| Noel Chua Yi How | PK Wong & Nair LLC |
| Alex Chia Yao Wei | PK Wong & Nair LLC |
| Lee Ming Hui Kelvin | WNLEX LLC |
| Ong Xin Ying Samantha | WNLEX LLC |
| Lee Eng Beng | Rajah & Tann Singapore LLP |
4. Facts
- Foo Kian Beng was the sole director and shareholder of OP3 International Pte Ltd.
- OP3 was in the business of interior design, decorating consultancy and construction services.
- OP3 was ordered to be liquidated on 3 April 2020.
- OP3 entered into a contract with Smile Inc Dental Surgeons Pte Ltd to provide fitting out works.
- Smile Inc discovered mould growing on the walls of the Clinic.
- Smile Inc sent a letter of demand to OP3 claiming that OP3’s fitting out works had been tardy and further that they had been defective and were the cause of the First Flood and the Second Flood.
- Between 2015 and 2017, Mr Foo caused OP3 to pay him dividends and repay him loans that he had earlier extended to the company.
5. Formal Citations
- Foo Kian Beng v OP3 International Pte Ltd (in liquidation), Civil Appeal No 47 of 2022, [2024] SGCA 10
6. Timeline
| Date | Event |
|---|---|
| OP3 International Pte Ltd incorporated. | |
| OP3 entered into a contract with Smile Inc Dental Surgeons Pte Ltd. | |
| Contractual date of completion for fitting out works. | |
| OP3 completed fitting out works and handed the Clinic over to Smile Inc. | |
| Smile Inc discovered mould growing on the walls of the Clinic. | |
| Smile Inc discovered the First Flood and notified OP3. | |
| Contractor checked for leakages from the sump and water pipes at the Clinic. | |
| Contractor checked for leakages from the sump and water pipes at the Clinic. | |
| OP3 handed the Clinic back to Smile Inc. | |
| Smile Inc discovered mould growth on the walls of the Clinic for the second time. | |
| Ms Grace Chong notified Mr Foo of the Second Flood. | |
| Mr Foo visited the Clinic to investigate the circumstances surrounding the Second Flood. | |
| Smile Inc sent a letter of demand to OP3. | |
| AXN Engineering Pte Ltd conducted hydrostatic tests on the Clinic’s water pipes. | |
| AXN Engineering Pte Ltd conducted hydrostatic tests on the Clinic’s water pipes. | |
| Smile Inc served the writ of summons and statement of claim on OP3. | |
| Director's resolution authorizing the payment of the dividend. | |
| OP3 paid Mr Foo dividends of $1,200,000. | |
| OP3 paid Mr Foo dividends of $700,000. | |
| OP3 repaid Mr Foo loans of $138,352. | |
| Mr Parwani advised Mr Foo that OP3 had a strong defence to Smile Inc’s claim in Suit 498. | |
| OP3 engaged an independent expert, Mr Chee Yan Pong. | |
| Director’s resolution authorizing the payment of the dividend. | |
| OP3 paid Mr Foo dividends of $400,000. | |
| Mr Chee prepared a report setting out his views. | |
| Disputed dividend of $500,000. | |
| Trial of Suit 498 commenced. | |
| OP3 paid Mr Foo $682,394. | |
| Mr Parwani's Letter stating that he had advised Mr Foo on 22 August 2014 and 25 May 2015 that Smile Inc’s claim in Suit 498 was unmeritorious. | |
| Chan Seng Onn J rendered his decision on liability in Suit 498. | |
| Chan J rendered his decision on damages. | |
| Smile Inc applied for a winding-up order against OP3. | |
| High Court granted the winding-up order against OP3. | |
| OP3’s liquidator commenced HC/S 152/2021. | |
| Judgment reserved. | |
| Judgment date. |
7. Legal Issues
- Breach of Director's Duties
- Outcome: The court found that Mr. Foo breached his director's duties by failing to consider the interests of creditors when authorizing payments to himself.
- Category: Substantive
- Sub-Issues:
- Failure to consider creditors' interests
- Improper dividend payments
- Unfair preference to director
- Engagement of Creditor Duty
- Outcome: The court clarified that the Creditor Duty is engaged when a company is imminently likely to be unable to discharge its debts.
- Category: Substantive
- Sub-Issues:
- Company in a financially parlous state
- Company imminently likely to be unable to discharge its debts
- Company bordering on insolvency
- Standing to Claim Repayment of Dividends
- Outcome: The court held that OP3 had standing to claim repayment of the disputed dividend based on breach of the Creditor Duty, distinct from a claim under s 403(1) of the Companies Act.
- Category: Procedural
- Unfair Preferences and Limitation Periods
- Outcome: The court held that the expiration of the statutory clawback period for unfair preferences did not bar OP3 from bringing a claim for breach of the Creditor Duty.
- Category: Procedural
8. Remedies Sought
- Recovery of sums equivalent to the Payments
9. Cause of Actions
- Breach of Director's Duties
- Breach of Fiduciary Duty
10. Practice Areas
- Commercial Litigation
- Insolvency Litigation
11. Industries
- Construction
- Interior Design
12. Cited Cases
| Case Name | Court | Affirmed | Citation | Jurisdiction | Significance |
|---|---|---|---|---|---|
| Liquidators of Progen Engineering Pte Ltd v Progen Holdings Ltd | Court of Appeal | Yes | [2010] 4 SLR 1089 | Singapore | Cited for the principle that directors are effectively trading with creditors' money when a company is insolvent. |
| BTI 2014 LLC v Sequana SA and others | UK Supreme Court | Yes | [2022] UKSC 25 | United Kingdom | Extensive discussion of the director's duty to consider the interests of creditors when a company is nearing insolvency. |
| OP3 International Pte Ltd (in liquidation) v Foo Kian Beng | High Court | Yes | [2022] SGHC 225 | Singapore | The High Court decision under appeal, which found Mr. Foo liable for breach of director's duties. |
| Smile Inc Dental Surgeons Pte Ltd v OP3 International Pte Ltd | High Court | Yes | [2017] SGHC 246 | Singapore | Cited for the findings of fact regarding the defective fitting out works and the cause of the floods. |
| Smile Inc Dental Surgeons Pte Ltd v OP3 International Pte Ltd | High Court | Yes | [2020] 3 SLR 1234 | Singapore | Cited for the quantum of damages awarded to Smile Inc. |
| Parakou Investment Holdings Pte Ltd and another v Parakou Shipping Pte Ltd (in liquidation) and other appeals | Court of Appeal | Yes | [2018] 1 SLR 271 | Singapore | Cited for affirming the relevance and materiality of the Creditor Duty once a company is in a “financially parlous” state. |
| Diablo Fortune Inc v Duncan, Cameron Lindsay and another | Court of Appeal | Yes | [2018] 2 SLR 129 | Singapore | Cited for affirming the relevance and materiality of the Creditor Duty once a company is in a “financially parlous” state. |
| Dynasty Line Ltd (in liquidation) v Sukamto Sia | Court of Appeal | Yes | [2014] 3 SLR 277 | Singapore | Cited for the broad and practical assessment of the financial health of the company to determine whether the Creditor Duty had arisen. |
| BIT Baltic Investment & Trading Pte Ltd (in compulsory liquidation) v Wee See Boon | Court of Appeal | Yes | [2023] 1 SLR 1648 | Singapore | Cited for the duty under s 157(1) of the CA to “act honestly” enshrines in statute the director’s common law duty. |
| Ho Yew Kong v Sakae Holdings Ltd and other appeals and other matters | Court of Appeal | Yes | [2018] 2 SLR 333 | Singapore | Cited for the duty under s 157(1) of the CA to “act honestly” enshrines in statute the director’s common law duty. |
| Voltas Limited v Ng Theng Swee and another | High Court | Yes | [2023] SGHC 245 | Singapore | Discusses whether liquidation is a condition precedent to the relevance of the Creditor Duty in an action that is premised on its breach. |
| Kinsela v Russell Kinsela Pty Ltd (In Liq) | New South Wales Court of Appeal | Yes | 10 ACLR 395 | Australia | Discusses whether liquidation is a condition precedent to the relevance of the Creditor Duty in an action that is premised on its breach. |
| Nicholson v Permakraft (NZ) Ltd (in liq) | Not specified | Yes | [1985] 3 ACLC 453 | New Zealand | Creditors are entitled to consideration if the company is insolvent, or near insolvent, or of doubtful solvency, or if a contemplated payment or other course of action would jeopardize its solvency. |
| Ascend Field Pte Ltd and others v Tee Wee Sien and another appeal | Court of Appeal | Yes | [2020] 1 SLR 771 | Singapore | The proper plaintiff in an action for breach of the Creditor Duty is presumptively the company. |
| Lim Oon Kuin and others v Ocean Tankers (Pte) Ltd (interim judicial managers appointed) | Court of Appeal | Yes | [2022] 1 SLR 434 | Singapore | Directors are obliged to have regard to the interests of creditors in taking corporate decisions when “the company is, or [is] perilously close to being, insolvent”. |
| Goh Chan Peng and others v Beyonics Technology Ltd and another and another appeal | Court of Appeal | Yes | [2017] 2 SLR 592 | Singapore | The relevant question is whether the director exercised his discretion in good faith in what he considered to be in the best interests of the company. |
| Vita Health Laboratories Pte Ltd and others v Pang Meng Sang | High Court | Yes | [2004] 4 SLR(R) 162 | Singapore | It is not the role of the court to censure directors who, in good faith, have made commercial decisions which turn out to be incorrect. |
| Lim Weng Kee v Public Prosecutor | High Court | Yes | [2002] 2 SLR(R) 848 | Singapore | The court will assess whether the director had fallen foul of the objective standard of care and diligence expected of a director. |
| ECRC Land Pte Ltd (in liquidation) v Ho Wing On Christopher and others | High Court | Yes | [2004] 1 SLR(R) 105 | Singapore | The court will not substitute its own decisions in place of those made by directors in the honest and reasonable belief that they were for the best interests of the company, even if those decisions turned out subsequently to be wrong ones. |
| Miao Weiguo v Tendcare Medical Group Holdings Pte Ltd (formerly known as Tian Jian Hua Xia Medical Group Holdings Pte Ltd) (in judicial management) and another | Court of Appeal | Yes | [2022] 1 SLR 884 | Singapore | s 403(1) of the CA prevents a company from issuing dividends except out of its profits. |
| Nordic International Ltd v Morten Innhaug | Court of Appeal | Yes | [2017] 3 SLR 957 | Singapore | The court retains the discretion to relieve a director on the cumulative account of him having acted honestly and reasonably, and in so far as it is fair for the court to excuse him for his default. |
| Turf Club Auto Emporium Pte Ltd and others v Yeo Boong Hua and others and another appeal | Court of Appeal | Yes | [2018] 2 SLR 655 | Singapore | It is imperative that the court be provided sufficient information about the circumstances under which such advice was provided so as to be able to evaluate the extent to which an individual can fairly rely on the fact of legal advice. |
| Lian Kok Hong v Ow Wah Foong and another | High Court | Yes | [2008] 4 SLR(R) 165 | Singapore | Causes of action for single torts requiring proof of damage accrue when damage, rather than breach, materialises. |
| Ho Pak Kim Realty Co Pte Ltd (in liquidation) v Ho Soo Fong and another | High Court | Yes | [2020] SGHC 193 | Singapore | The limitation period for a claim for breach of the Creditor Duty begins to run from the point of breach. |
| Vivendi SA and another v Richards and another | High Court of Justice | Yes | [2013] EWHC 3006 (Ch) | England and Wales | The limitation period for a claim for breach of the Creditor Duty begins to run from the point of breach. |
| Re Oxford Pharmaceuticals Ltd; Wilson and another v Masters International Ltd and another | Not specified | Yes | [2009] 2 BCLC 485 | England and Wales | The limitation period for a claim for breach of the Creditor Duty begins to run from the point of breach. |
| Living the Link Pte Ltd (in creditors’ voluntary liquidation) and others v Tan Lay Tin Tina and others | High Court | Yes | [2016] 3 SLR 621 | Singapore | The court should be slow to find breaches of the Creditor Duty where the disputed transactions are in substance unfair preferences and were made outside the statutory clawback period for such preferences. |
| Ong Chow Hong (alias Ong Chaw Ping) v Public Prosecutor and another appeal | High Court | Yes | [2011] 3 SLR 1093 | Singapore | Any reliance on professional advice must be balanced against the responsibility that the law places upon every individual director to bring to bear his own judgment in evaluating the advice received. |
13. Applicable Rules
| Rule Name |
|---|
| No applicable rules |
14. Applicable Statutes
| Statute Name | Jurisdiction |
|---|---|
| Companies Act (Cap 50, 2006 Rev Ed) s 157(1) | Singapore |
| Companies Act (Cap 50, 2006 Rev Ed) s 391 | Singapore |
| Companies Act (Cap 50, 2006 Rev Ed) s 403(1) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 225 | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 226(1)(b) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 226(1)(c) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 226(2) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 227(1)(a) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 227(1)(c) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 227(7) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 124(1)(c) | Singapore |
| Insolvency, Restructuring and Dissolution Act 2018 s 125(2) | Singapore |
15. Key Terms and Keywords
15.1 Key Terms
- Creditor Duty
- Insolvency
- Director's Duties
- Dividends
- Unfair Preference
- Liquidation
- Fiduciary Duty
- Contingent Liability
15.2 Keywords
- Director's duties
- Creditor duty
- Insolvency
- Dividends
- Unfair preference
- Singapore law
16. Subjects
- Companies Law
- Insolvency Law
- Director's Duties
17. Areas of Law
- Companies Law
- Insolvency Law
- Director's Duties
- Avoidance of Transactions
- Unfair Preferences