Our directors Mr 李国荣 and Ms 杨启玮 represented a corporate group, comprised of a company (publicly listed on the SGX) and its wholly owned subsidiary (a private limited company that undertook the core business of the group) in a concurrent application for a moratorium pursuant to section 64 and section 65 (related company) of the Insolvency, Restructuring and Dissolution Act 2018.
At its very core, the matter saw the in-fighting and power struggle between directors of a fragmented board (at the listed company level), the eventual ousting of one director camp and their retaliatory issuance of statutory demands (and commencing winding up applications) for alleged losses which led to a series of cascading crisis for the corporate group (including the call on overdraft facilities, an SGX imposed trade suspension, etc).
The matter brought to the fore several key take-aways:-
Corporate Governance
- In this matter, former board members were alleged to have mismanaged the group and when new directors were appointed to look into the operations of the group, all former board members tendered their respective resignations which effectively crippled day-to-day operations.
- On hindsight, whilst it may not be a complete cure of the group’s woes, what was lacking was a clear corporate governance framework that could be activated in a crisis to enable quick, informed decisions, establish clear lines of accountability, and avoid the group being crippled. Proper governance structures if weaved conscientiously into the fabric of the group, could likely also prevent the over-centralisation of control in certain director factions and all together preventing any faction from hijacking the group agenda.
Board-Shareholder Power Divide
- The matter also saw attempts by significant shareholder-creditors to seize control from the board but eventually failing. This demonstrated a failure to plan and properly (at the start) negotiate the division of powers between the board and the shareholders. Again, illustrating the paramount importance of a company’s constitution but how, in practice, it is so often neglected and not devoted its fair share of intellectual investment.
- Ultimately, in Singapore, the division of powers between the board of directors and the shareholders is a “matter of contract”. Shareholders therefore should do well to note that any wish for a larger management-say should be negotiated at the outset (with carefully a considered company constitution and shareholders agreement) and, if done, can potentially prevent the need for costly protracted litigation.
Creditor Duty
- Finally, the matter also illustrated the difficulty faced by boards when companies are in financial distress and grappling with when a director’s duty to consider the interests of creditors arises and how to comply with such a duty.
- The difficulty of navigating such a duty was best explained by the Court of Appeal in Foo Kian Beng v OP3 International Pte Ltd (in liquidation) [2024] SGCA 10; “77 … Because an action for breach of the Creditor Duty focuses on the subjective intentions of a director in committing a company to a certain course of action, it is theoretically possible, though perhaps uncommon, for a director to have honestly believed that he had acted in the best interests of the company and be found to have complied with the Creditor Duty even though his actions are found to fall below the objective standard of care and diligence expected of a director. In these circumstances, it remains open to a company to allege that the director had acted in breach of the duty of care and diligence he owes to it. The short point is that compliance with the Creditor Duty does not immunise a director from breaches of other directors’ duties which may be engaged on the same set of facts.”
Mark Lee Chambers Law Corporation is an independent boutique law firm based in Singapore specializing in complex multi-jurisdictional disputes, high-stakes litigation and arbitration with a particular focus in corporate governance, joint ventures, shareholder and boardroom matters.
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