Case Commentary Company Law Directors' Duties and Liabilities Insolvency Law Liquidation Setting Aside Antecedent Transactions Singapore

The Consequences of Procuring an Unfair Preference Payment [Insolvency & Company Law] [Directors’ Duties and Liabilities]

Case Commentary:Living the Link Pte Ltd v Tan Lay Tin Tina [2016] SGHC 67 (“Tina Tan”)

The extent of a director’s liability for procuring the payment amounting to an undue preference under Singapore law (see s.329 of the Companies Act read with ss.100 to 103 of the Bankruptcy Act)) was considered for the first time in an unreported decision of the Singapore High Court in Living the Link Pte Ltd v Tan Lay Tin Tina [2016] SGHC 67 (“Tina Tan”), a decision delivered by Justice Steven Chong.

Whilst the law relating to the situations in which a court will set aside a payment to a creditor as being an undue preference is settled (see the Court of Appeal’s decision in Liquidators of Progen Engineering Pte Ltd v Progen Holdings Ltd [2010] 4 SLR 1089), the decision in Tina Tan is notable because it considers the issue and extent of a director’s liability for procuring the payment of the undue preference.

By way of background, it is accepted that directors of an insolvent company (or a company in a parlous financial position) owe a duty to act in the company’s creditors collective best interests when making decisions for the company. This duty is fiduciary in nature and owed to the company. However, it has never been clear (under Singapore law at least) what the consequence of a breach of this duty would be, insofar as the procuring the payment of an undue preference is concerned.

The Court answered this question by holding that a director who procures a payment amounting to an undue preference to a creditor will generally:-

  • be found to have breached his/her fiduciary duties to the company; and
  • be jointly and severally liable with the creditor to whom the unfair preference payment was made to restore the company to the position it would otherwise be in had the unfair preference not been given.

On the facts of this case, the director (Tina Tan) was held to be jointly and severally liable with the company’s associated entities to repay certain monies (which were found to be undue preferences) to the company. At the date of writing, it is unclear if the decision is subject to appeal.

The decision may be useful in the event there is a need to advise company directors on their obligations where their businesses are not doing well and, in particular, the extent of the director’s potential liability should any payments to creditors procured by them be subsequently set aside as undue preferences.

25 April 2016

*The contents of this article represent the views of the author alone from a Singapore law perspective and are subject to copyright protection under the laws of the Republic of Singapore (as may from time to time be amended). No part of this article may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed and/or broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of the author.

Please note that whilst the information in this article is correct to the best of the author’s knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for and/or in respect of any particular course of action as such information may not suit your specific business, operational and/or commercial requirements. You are therefore urged to seek legal advice for your specific situation. All the author’s rights are expressly reserved and nothing herein shall be construed as a waiver thereof.

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