PARK HOTEL MANAGEMENT PTE. LTD. (IN LIQUIDATION) & 2 Ors v LAW CHING HUNG & 3 Ors

Facts

Park Hotel Management Pte Ltd (PHMPL) ran an international hotel management business, owning brands such as Grand Park, Park Hotel and Destination, 135 trademarks, hotel management agreements, a restaurant company (Yan Pte Ltd) and a hospitality training business. Its subsidiaries operating Park Hotel Clarke Quay and Grand Park Orchard stopped paying rent during COVID-19, and PHMPL had guaranteed their leases. Law Ching Hung (Mr Law) was PHMPL's sole shareholder and director. After a landlord's letter of demand on 20 February 2021, he began what he called a restructuring.

Under four agreements dated 8 March and 23 March 2021, PHMPL's assets were sold to three companies Mr Law owned or controlled (Park Hotel Group Management Pte Ltd, Good Movement Holdings Limited and SG Inst. Of Hospitality Pte Ltd) for S$3,400,002 and US$40,000. PHMPL also declared back-dated dividends of S$22m and S$5.9m to Mr Law and made book entries setting off sums that he and his companies owed it, while large cash sums went to an account held by Mr Law and his wife. PHMPL was wound up on 2 July 2021. Its liquidators sued in Suit No 364 of 2022 for breach of fiduciary duty, transactions at an undervalue and unfair preferences under the Insolvency, Restructuring and Dissolution Act 2018 (IRDA), dishonest assistance, knowing receipt and conspiracy. Mr Law said PHMPL was solvent at the time and the restructuring carried out a 2017 plan.

Issues

1. Whether and when PHMPL was insolvent or financially parlous, so that Mr Law's duty to consider creditors' interests applied.
2. Whether the dividends, book entries and cash payments to Mr Law were invalid as transactions at an undervalue, unfair preferences or breaches of fiduciary duty.
3. Whether the asset sales were at an undervalue and in breach of Mr Law's duties, and what the assets were worth.
4. Whether Mr Law diverted the Park Hotel Kyoto management opportunity, and whether the defendant companies were liable for dishonest assistance, knowing receipt and conspiracy.

Holding

Hri Kumar Nair J found the defendants liable on almost all of the claims, so the claim was allowed in part. The S$22m and S$5.9m dividends and the book entries were held invalid. The cash payments were unfair preferences that Mr Law must repay, and he was liable for the receivables he had diverted, except S$106,245.91 owed by Yan Pte Ltd. The sale agreements were transactions at an undervalue, entered in breach of his duties to put assets beyond creditors' reach. The Kyoto opportunity had been diverted. The defendant companies were liable for dishonest assistance, knowing receipt and conspiracy. The waiver of a subsidiary's debt was a breach but caused no loss. Reliefs and costs were left for later submissions.

Reasoning

On insolvency, the judge applied the cash flow test and found PHMPL insolvent by 31 December 2020, once its claims against the failing subsidiaries were written down and its guarantee exposure was counted, and in any event by 20 February 2021. Mr Law's emails showed he expected the guarantees to be called, wanted the transfers done so creditors could not unwind them, and sought to buy time with the landlords.

The dividends were decided in March 2021 and back-dated, and were made while PHMPL was insolvent, so they were transactions at an undervalue and breaches of duty. The book entries took on worthless subsidiary debts at face value. The cash payments were unfair preferences.

On the sales, Mr Law acted on both sides and fixed the prices without independent valuation. Sole-shareholder consent could not cure this once creditors' interests were at stake, and he had not declared his interest as the Companies Act requires. Weighing the experts' evidence, the court valued the management contracts and Maldives shares at S$18,540,830, Yan Pte Ltd at S$3,276,927, the training business at S$2,611,206 and the trademarks at S$1,875,552 after a 33% discount for COVID-19. All far exceeded the prices paid. Mr Law had used a 90% expense ratio to depress the contracts' value, and neither expert supported it.

The Kyoto hotel opportunity had become concrete by March 2021, with a draft agreement naming PHMPL and the hotel already taking bookings, but it was signed later with Mr Law's new company. Because Mr Law was the directing mind of the defendant companies, his knowledge was attributed to them, which made them liable for dishonest assistance, knowing receipt and an unlawful means conspiracy that caused PHMPL loss.

From the judgment