Legal Issues and Implications

Directors' Liability: Insolvency and Recovery of Debt

Question 1

 

(a) BST Pte Ltd was having trouble paying its creditors. In order to make one last effort to “save” the company, the directors purchased a large order of inventory hoping that it would generate extra income to repay the creditors. Unfortunately, the company is being wound up due to insolvency. The liquidator wants to recover from the directors the debt due from the order of inventory. The directors asserted that they are not responsible for the debt of the company since they are separate legal persons from BST Pte Ltd.

State and discuss whether the directors are correct in their assertion.

 

(b) Abel is a very conscientious student. In order to prepare for his upcoming open-book examination, he made a concise set of notes with systematic flow-charts and colour-coded diagrams. Abel stored this set of notes in a file on Google drive and shared the link to his drive with his classmate Barry. Barry thought the notes were very useful and shared the link with Cindy. Cindy decided to download the notes and put them on Carousell, an e-Commerce website, so that she could sell the notes to students who might be interested in buying the notes.

 

(i) Discuss if Abel is entitled to any protection under the law of intellectual property (IP).

 

(ii) Give your opinion on whether Abel is able to enforce this IP right against Barry and Cindy, and if Barry and Cindy have any defences against Abel.

 

Question 2

Dylan wants to start a business importing craft beer and liquor with his siblings, Connor and Caesar. All three brothers are Singaporeans and reside in Singapore. Both Connor and Caesar are not keen to be involved in the day-to-day operations of the business, but they are prepared to invest money into it. Dylan, on the other hand, has very little money to invest but is keen to get his hands dirty and do all the “hard labour”, including sourcing products, marketing, accounting and delivery of goods.

 

After some discussions, the three siblings decided to incorporate Hops and Barrels Pte Ltd, a company limited by shares. Connor and Caesar do not want to be directors as they do not have the time to be involved in the company. They tell Dylan that directors must always be hands-on and be actively involved in the day-to-day operations of the company. Connor thinks that he cannot be a director because his educational qualification was an O-level certification at a secondary school level. In addition, Caesar is worried about conflicts of interests since he is also a director of a company that is in the same industry as Hops and Barrels Pte Ltd.

In order to save cost, the siblings want Dylan to be the director and the company secretary of the company.

 

(a) Explain to Connor if his view on being a director is correct. Describe the requirements to be a director. Does Connor meet with the requirements?

 

(b) Explain to Connor and Caesar the role of directors. Advise the brothers if they could still be on the board of directors despite not being involved in the day-to-day operations of the company.

 

(c) Explain to the brothers if Dylan is able to be the director and the company secretary of the company.

 

(d) Explain to Caesar how he might be able to be a director of both companies in the same industry.

 

Question 3

Mamalala Hot Pot Pte Ltd (Mamalala) operates a hot pot restaurant in Singapore. Six months ago, a customer found a dead rat in the soup pot and reported this in social media. As a result of this incident, many customers have stayed away from the restaurant. Mamalala has found it hard to recover from the adverse publicity. Mamalala also notes that there is an over-saturated market of hot pot restaurants in the area. Mamalala is currently facing serious cash flow problems.

 

To date, Mamalala owes Able Bank $150,000 and this amount is secured by a floating charge on the company’s assets and undertakings executed on 1 July 2016. The company also owes Beta Bank some $60,000 in overdraft secured by a floating charge over the company’s inventory on 12 December 2017. Mamalala also owes suppliers an amount totaling $50,000. It has not paid its employees’ salaries amounting to $60,000 for the last three months. Mamalala owes $10,000 of CPF contributions in arrears, and the tax due to the Inland Revenue Authority of Singapore is $20,000. The current cash at bank stands at $10,000. Mamalala’s assets and undertakings are valued at $100,000. One of its suppliers, Ah Seng, is fed-up with chasing Mamalala for the monies owed to him. Ah Seng served a Statutory Demand on Mamalala two weeks ago.

 

Mamalala’s board of directors is very worried. They convene a board meeting and discuss if they should close down the business voluntarily before the creditors start legal proceedings against the company.

(a) Comment whether Mamalala is insolvent and discuss the implications of the Statutory Demand served on the company.

 

(b) Explain if Mamalala is able to voluntarily wind up the company. Describe the process of voluntary winding up.

 

(c) Assume that Mamalala is wound up. Express your view on how each of the creditors mentioned above will be ranked. You may assume that each employee’s claim shall not exceed $12,500, or five months’ unpaid salaries, whichever is the lesser. You are NOT required to calculate the amount that each of the creditors will receive. You are only required to rank the order of priority of the creditors’ claims.

 

 

 

 

Question 4

Adam lives in a block of old walk-up apartments in Singapore. The government has re-zoned the plot ratio on which the apartments are built on. In the light of “en-bloc” fever, Adam persuaded his neighbours to come together to find a developer to buy their apartments “en-bloc”. An en-bloc is a collective sale of all the units in a strata-titled development being sold to a single developer for a higher price than an individual home owner would otherwise receive if he were to sell his own individual apartment to a third party in the open market.

 

Adam formed an “En-bloc Sales Committee” (“Sales Committee”) consisting of the neighbours in his apartment block and set out to find a property agent to market their apartments. After some considerations, they engaged the services of EAA Property Agency (EAA) as their marketing agent. EAA proceeded to sign a contract with BCC Surveyors Pte Ltd (BCC) in order for BCC to prepare a valuation of the property for EAA.

 

BCC prepared a valuation report which was acceptable to Adam and his Sales Committee. EAA subsequently found a potential buyer for the property. Just before the parties signed on the sales agreement, Adam found out that the valuation was made on the assumption that the land tenure was a 99-year leasehold, when in fact the land tenure is a 999-year leasehold. If the valuation was based on the actual 999-year leasehold, the value of the property would have increased by 20% to 30%.

 

Adam and his Sales Committee are furious. They have come to seek your advice as they know you have recently studied a course which covers the tort of negligence. You may assume that BCC signed the contract with EAA, and not with Adam or his Sales Committee.

Advise Adam and his Sales Committee on the following:

 

(a) Could Adam and his Sales Committee commence an action against BCC on negligent misstatement arising from the valuation report? In your answer, you should discuss whether there was a duty of care in this case.

 

(b) Discuss the factors used to determine a breach of duty and analyse whether there was a breach of duty in this case. In your answer, you are expected to apply the four factors generally used to determine the standard of care.

 

Note: You are NOT required to consider other substantive law apart from the tort of negligence for the purpose of answering this question.