In SME Care Pte Ltd v Jannie Chan Siew Lee [2025] SGHC 27, the Singapore High Court (“Court“) held a bankrupt ex-director of a company personally liable to the company for failing to take steps to recover sums owed by third parties to the company.
Jannie Chan, the former director of a company known as Timor Global Pte Ltd (“TGPL“), was made a bankrupt. A private trustee in bankruptcy (“PTIB“) was appointed to administer her bankruptcy estate. TGPL filed proofs of debt with the PTIB, asserting claims of breach of fiduciary duty against Jannie Chan for failing to recover two sums owing to TGPL. The first sum comprised more than S$15 million which had been paid by TGPL to a Timor Leste company (“TL“), which was 70% owned by Jannie Chan (the “TL Sum“). The second sum comprised more than S$3 million of sale proceeds for finished goods sold by TGPL, which sum was paid by the buyers of the goods to TL instead of to TGPL (the “Finished Goods Sum“).
The PTIB rejected the proofs of debt filed by TGPL. TGPL assigned its rights under the proofs of debt to Fulcrum Distressed Partners Limited (“FDPL“) and FDPL then appealed to the Court to reverse the PTIB’s rejection of the proofs of debt. The Court allowed FDPL’s appeal and held that Jannie Chan was personally liable for both sums.
The Court held that the TL Sum and the Finished Goods Sum remained owing to TGPL due to Jannie Chan’s breaches of fiduciary duty as a director of TGPL and that she was personally liable to TGPL for both sums.
The Court found that Jannie Chan had breached her fiduciary duty to TGPL, as she had failed to act bona fide in TGPL’s best interests. Due to the imminent or actual insolvency of TGPL at the time of the breaches, Jannie Chan qua director of TGPL had to consider the interests of TGPL’s creditors, as part of her overall fiduciary duty to act in TGPL’s best interests. The Court found that she had breached this duty based on the following:
- Jannie Chan had allowed the transfer of the TL Sum to TL and the payment of the Finished Goods Sum to TL, despite the fact that such payments served no legitimate commercial purpose for TGPL.
- There was no repayment schedule for the TL Sum to be repaid to TGPL, and Jannie Chan never caused TGPL to make a demand for the repayment of the TL Sum or the Finished Goods Sum from TL. Instead, Jannie Chan caused these sums owed by TL to TGPL to be written off, at the expense of TGPL’s creditors.
- On the facts, Jannie Chan either knew or should have known of the transfers of the TL Sum and the Finished Goods Sum to TL, as well as the failure by TGPL to take steps to recover such sums. The Court rejected the PTIB’s submission that a director would only be in breach of duty if they had personally signed off on and had direct knowledge of the transfers in question.
The Court’s decision highlights that a breach of a director’s fiduciary duty to act in the best interests of the company need not always comprise a positive act, such as authorising a payment or transfer of funds from the company without a legitimate commercial purpose. Rather, the failure to take steps to recover debts owed to the company may also constitute a breach of fiduciary duty. This is particularly so in scenarios where the company is insolvent or approaching insolvency, as the director would be obliged to take into account the interests of the company’s creditors, and failure to pursue the repayment of debts would clearly be against the interests of such creditors.
Directors should thus ensure that they are apprised of outstanding debts owed to the company and the steps that need to be taken to recover such debts. The failure to act promptly to protect the interests of the company by recovering its receivables may, in certain cases, result in directors being personally liable to the company.
In this case, FDPL was successfully represented by Lee Eng Beng SC of Rajah & Tann Singapore LLP.
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