ENVY ASSET MANAGEMENT PTE. LTD. (IN LIQUIDATION) & 5 Ors v NG YU ZHI & 3 Ors

Facts

Three companies used to run a fake nickel-trading business, Envy Asset Management Pte Ltd, Envy Management Holdings Pte Ltd and Envy Global Trading Pte Ltd (all in liquidation), sued with their three liquidators in Suit No 942 of 2021. From around 2015 the companies took investors' money for nickel trades that never existed, soliciting over S$1.5bn in a Ponzi scheme. The founder, Ng Yu Zhi (NYZ), had been adjudged bankrupt and was no longer a party, but testified.

The claims proceeded against Ms Lee Si Ye, a director who held the remaining 10% to 20% of the shares and oversaw the accounts; Mr Ju Xiao, head of trading and a director of the trading company from 10 December 2019 to 16 November 2020; and Mr Cheong Ming Feng, an administrative employee who passed NYZ's instructions to a third party to forge documents. The liquidators sought to make them liable for the "Minimum Net Principal" owed to under-withdrawn investors (S$593,015,240, US$192,220,888 and €880,000) and to claw back the commissions, bonuses, salaries, fees and dividends paid to them.

Issues

1. Whether each defendant was knowingly a party to fraudulent trading under s 238(1) of the IRDA or s 340(1) of the former Companies Act
2. Whether the payments to the defendants could be set aside as transactions defrauding creditors, transactions at an undervalue or unfair preferences
3. Whether the defendants were liable for breach of directors' duties, dishonest assistance, knowing receipt, unjust enrichment or unlawful means conspiracy
4. How liability for the Minimum Net Principal should be shared among the defendants

Holding

Mohamed Faizal JC allowed the liquidators' claims in part. Only Mr Ju was liable for fraudulent trading, dishonest assistance and knowing receipt; Ms Lee and Mr Ju were both liable for breach of directors' duties; no defendant was liable in unjust enrichment or unlawful means conspiracy. Ms Lee and Mr Ju were held jointly and severally liable for the Minimum Net Principal, Ms Lee for the full sum and Mr Ju for up to 40% of it. Ms Lee also had to return the dividend paid to her by the first company. Mr Cheong was ordered to pay S$1,921,485.98 less his salary and the CPF payments on it, the exact figure to be agreed between the parties. Costs were left to be dealt with separately.

Reasoning

Ms Lee missed many red flags, including forged bank screenshots and some S$400m leaving the accounts in transfers of S$200,000, but she had pressed for an external audit, her family had invested and NYZ fed her false assurances; she was grossly negligent but neither aware of nor wilfully blind to the scheme. Mr Ju helped stage an inspection of old warehouse nickel to reassure investors, deleted the related messages, forged forward contracts, lodged a false S$100m paid-up capital with ACRA and declined to invest himself because the returns looked too high; he knew of the fraud or was wilfully blind to it. Mr Cheong knew he was arranging forgeries but, given his limited education and his own investments, did not know the business was a sham. As fraudulent trading requires knowledge that the business itself was a fraud, only Mr Ju was liable.

Payments made in the course of a Ponzi scheme, salaries included, were presumed to be made to defraud creditors. Commissions and profit shares had no basis without profits, bonuses were discretionary, and director's fees and dividends had no proper basis, so all could be clawed back. Basic salaries were contractual and not shown to exceed the value of the work, so Ms Lee and Mr Cheong kept theirs under the good-faith defence in s 73B(3) of the CLPA; Mr Ju, lacking good faith, could not. Salaries were not unfair preferences, as there was no desire to prefer. Ms Lee was liable for a dividend she permitted without profits, but not for a transfer between group companies.

Both directors fell below the minimum standard of care. Unjust enrichment failed for want of an unjust factor. Dishonest assistance and knowing receipt needed knowledge, which only Mr Ju had. Conspiracy failed because the defendants aimed to enrich themselves, not to injure the companies.

Ms Lee's negligence over nearly the whole life of the companies caused foreseeable losses, so she bore the full sum. Mr Ju was a director for less than a year but misused investor funds and knew of the fraud, so his share was up to 40%. Mr Cheong bore none of the Minimum Net Principal. Ms Lee's set-off defence failed for lack of mutuality.

From the judgment