Cheng Tim Jin v Alvamar Capital Pte Ltd [2019] SGHC 220

Introduction

By Originating Summons 636 of 2019, the plaintiff sought a declaration that he is a de facto director of the defendant company for the purposes of s 4(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). The plaintiff also sought orders for him to inspect the accounts of the company.

Having heard the parties’ submissions, I granted the plaintiff’s application, and delivered an oral judgment detailing my reasons.

Given the novelty of the issue, I publish my grounds of decision herein.

Facts

The defendant is a company that was incorporated by the plaintiff on 9 September 2009. At the time of its incorporation, the plaintiff was the sole director of the defendant, while his wife was the sole shareholder.

In February 2010, one Chan Kam Piew (“KP”) and Hidayat Charles (“Charles”) took up shares in the defendant. Subsequently, Charles resigned as a director of the defendant, and transferred his 20% shareholding in the defendant to KP and the plaintiff in equal shares.

In April 2012, the plaintiff arranged for all the shares in the defendant that were held by his wife and himself to be held by KP, pursuant to a trust deed dated 3 April 2012 (“the Trust Deed”). The result of the Trust Deed was that KP held 50% of the defendant’s shares absolutely, while he held the remaining 50% of the shares on trust for the plaintiff.

Following the execution of the Trust Deed, on 13 April 2012, the plaintiff resigned as a director of the defendant.

The plaintiff did not want to be a registered shareholder and director of the defendant because he “wanted to avoid the possible risk of transactions between the [d]efendant and the companies under [his] control being regarded as related party transactions under the [Act], which may then require certain disclosure or approvals.”

After his formal resignation as the director of the defendant, on 8 December 2012, the plaintiff was appointed as the “Marketing Director” of the defendant. He continued to play an active role in the financial and operational matters of the defendant until about August 2018, when he was allegedly shut out of the defendant’s affairs by KP, who remained the only formally appointed director of the defendant.

On this backdrop, the plaintiff sought a declaration that he is a de facto director of the company. Flowing from such directorship, the plaintiff also sought access to the defendant’s accounts so that he could investigate into suspected wrongdoings or mismanagement by KP.

The issues

I dealt with the issues in the following order:

(a) First, is the plaintiff a de facto director?

(b) Second, if the plaintiff is a de facto director, does this give him the right to inspect the company’s accounts?

(c) Third, even if the plaintiff is a de facto director and such directorship gives him the right to inspect the company’s accounts, does any consideration operate to deny him such right of inspection?

Before dealing with each issue, however, a preliminary matter that was disposed of related to the appointment of the plaintiff as a de jure director of the defendant. In this regard, KP stated in his affidavit that he “would not object to the [p]laintiff being formally appointed a director” of the defendant, and he had in fact taken steps in early 2018 to formally appoint the plaintiff as such. However, the plaintiff declined to be formally appointed, allegedly because he suspected that doing so would allow KP to resign as a director. Given that the defendant no longer has any employees, KP’s resignation as the only formal director of the defendant could leave the plaintiff unable to investigate into the financial affairs of the company.

During the hearing, I asked the defendant’s counsel, Mr Fong Wei Li (“Mr Fong”), if KP would be willing to give an undertaking that he would not resign as a director were the plaintiff to be formally appointed as a director of the company. In my view, such an approach would have been the most obvious mode of resolving the matters at hand, as the plaintiff could be a de jure director with the concomitant right to inspect the company’s accounts pursuant to s 199 of the Act while KP would stay on as a director to assist in any such inspection. However, Mr Fong explained that he did not have any instructions from KP as to whether the latter was willing to give such an undertaking but, in any event, it was also KP’s prerogative to resign as a director if he so wished. In the circumstances, I proceeded to consider the merits of the plaintiff’s application to be declared a de facto director, and to be granted the right to inspect the defendant’s accounts.

Plaintiff is a de facto director

Turning to the issue of whether the plaintiff is a de facto director of the defendant, I was cognisant of the following principles expressed in Gemma Ltd v Davies [2008] BCC 812, which were endorsed in Raffles Town Club Pte Ltd v Lim Eng Hock Peter and others (Tung Yu-Lien Margaret and others, third parties) [2010] SGHC 163 (“Raffles Town Club”) at [58]:

Reviewing the evidence, I found that the plaintiff is a de facto director of the defendant for several reasons.

As a starting point, the plaintiff was held out as a “Marketing Director” of the defendant. While this is not sufficient in and of itself, this was at least probative of the fact that he was the de facto director of the defendant.

More importantly, the plaintiff clearly exercised real influence in the defendant, and participated in the management of the affairs of the company on an equal footing with KP, the defendant’s only formally-appointed director.

In this regard, even after his resignation as a de jure director of the defendant in April 2012, the plaintiff continued to participate as a director in almost all aspects of the company, be it with respect to the company’s finances, banking, human resource, or even in business dealings (which was client facing).

That the plaintiff acted as a co-equal to KP was confirmed by Vina Misra d/o Rama Kantmisra (“Vina”), whose evidence was not directly contradicted by the de jure director, KP. Vina was employed as the Business Analyst of the defendant from 9 July 2012 to 29 July 2016, and she gave evidence that both KP and the plaintiff were involved in hiring her, and that decisions were jointly made by the plaintiff and KP. In fact, emails tendered by the plaintiff confirmed that Vina had sought the approval of both the plaintiff and KP for business decisions.

Thuy Le, another employee of the defendant, also gave financial updates relating to the defendant to both the plaintiff and KP, further corroborating the fact that the plaintiff was actively involved in the financial management of the company.

Secondly, the plaintiff had access to and could produce the company’s unaudited accounts from 2010 to 2018. Such accounts would not ordinarily be available to members of the company, as s 203 of the Act only entitles members to the audited financial statements of a company. In fact, while Mr Fong suggested that the plaintiff would have access to the company’s accounts by virtue of his indirect shareholding in the defendant (through KP), clause 106 of the defendant’s articles of association stipulates that “no member (not being a director) shall have any right of inspecting any account … except as conferred by statute or authorised by the directors or by the company in general meeting”. There was no evidence that separate approval had been sought from KP (the de jure director) or at a general meeting of members for the plaintiff to obtain the unaudited accounts. This supported the plaintiff’s case that he had always had access to the defendant’s accounts, until he was shut out by KP sometime in August 2018. In my view, the fact that the plaintiff was able to produce the company’s unaudited accounts since 2010 showed that he had always been actively involved in the financial management of the defendant in his capacity as a de facto director.

Thirdly, and crucially, KP had absolutely no issue with formally appointing the plaintiff as a director when the plaintiff so requested, and he in fact took steps to get the company secretary to formally appoint the plaintiff as such. The formal appointment did not however go through as the plaintiff later retracted his request to be a director of the company. Be that as it may, KP’s readiness to formally appoint the plaintiff as a director strongly suggested that the plaintiff had all along been acting as a de facto director of the defendant, such that any formal appointment would not disrupt the status quo.

In totality, I was satisfied on the evidence that the plaintiff is a de facto director of the company. In this regard, I did not accept the defendant’s argument that the court has no power to make the declaration that the plaintiff is a de facto director. As Mr Fong conceded, the courts have traditionally declared persons to be de facto directors, although such declarations have often been for the imposition of directorial duties. It would therefore be incongruent if the court were to be denied its powers to make a declaration that a person is a de facto director of a company simply because the putative director seeks to exert rights of directorship. No reasons were proffered to explain why a distinction ought to be made in such cases.

Power of de facto directors to inspect a company’s accounts

In fact, in Wuu Khek Chiang George v ECRC Land Pte Ltd [1999] 2 SLR(R) 352 (“George Wuu”), the Court of Appeal recognised that “a director has the right of inspection of any documents such as the accounting and other records of the company and such right is a concomitant of the fiduciary duties of good faith, care, skill and diligence which the director owes to the company. … The language of [s 199 of the Act] clearly shows the obligation of the company to allow inspection by its director as mandatory” [emphasis added] (George Wuu at [25]).

Hence, the “right of a director to inspect the books and records of the company flows from his office as a director and enables him to perform his duties as a director”. This is because “unless a director has access to these sources of information, he would be severely inhibited in the proper performance of his duties”: George Wuu at [33]; see also Mukherjee Amitava v DyStar Global Holdings (Singapore) Pte Ltd and others [2018] 2 SLR 1054 (“Mukherjee (CA)”) at [25].

The “director” contemplated under s 199 of the Act extends to de facto directors, although the burden is on the de facto director to show that he is one. As Vinodh Coomaraswamy J explained in Murkherjee Amitava v DyStar Global Holdings (Singapore) Pte Ltd and others [2018] 5 SLR 256 at [22]–[23], under the statutory scheme of s 199(3) of the Act, three elements must be satisfied before a director’s right to inspect the company’s records arises:

The “extended definition of ‘director’ in s 4(1) of the Act” encompasses a de facto director. In Raffles Town Club, Chan Seng Onn J held at [54] that “our s 4(1) [of the Act] which speaks of a person ‘occupying the position of director of a corporation by whatever name’ alludes to a de facto director”.

Hence, as I found on the evidence that the plaintiff is a de facto director of the defendant, it followed from the authorities above that he has the right to inspect the accounting records of the company.

The right to inspect was not being utilised for purposes unconnected to his duties as a director

Nonetheless, the right of a director to inspect a company’s accounts is not an unfettered one. The Court of Appeal in Mukherjee (CA) highlighted at [25] that

Mr Fong confirmed that it was not alleged that if the plaintiff were granted access to the company’s financial documents, there was a risk that he might abuse such right of access. In any event, the plaintiff stated on affidavit that he was seeking access to the defendant’s accounts to investigate suspected wrongdoings or mismanagement by KP. No evidence was tendered to contradict this.

Therefore, I was satisfied that the access to the accounts of the defendant would not be misused by the plaintiff.

Conclusion

In the circumstances, I granted the following orders:

(a) a declaration that the plaintiff is a director of the defendant for the purposes of s 4(1) of the Act;

(b) an order that the defendant make available for inspection by the plaintiff and/or a public accountant acting for the plaintiff all accounting and other records, including those in electronic form, as will sufficiently explain the transactions and financial position of the defendant; and

(c) an order that the plaintiff and/or a public accountant acting for the plaintiff be permitted to make copies of or take extracts from the records to be made available for inspection.