Swee

- vs -

Project Aqua Culture & Trading Co Pte Ltd

Judgment

SK Chan JC

1. This is a petition by a director of the respondent company (the company) for the following reliefs under s 391 of the Companies Act (Cap 50) (the Act):

   1. from any liability for fines and penalties which he may have incurred under s 143 of the Act or otherwise by reason of his negligence, default or breach of duty in having been a party to the default of the company in failing to hold its 1983 annual general meeting;

   2. from any liability for fines and penalties which he may have incurred under s 175 of the Act or otherwise by reason of his negligence, default or breach of duty in having been a party to the default of the company in failing to lodge the annual return for the year 1983 with the Registrar of Companies within one month after the annual general meeting;

   3. from any liability for fines and penalties which he may have incurred under s 143 of the Act or otherwise by reason of his negligence, default or breach of duty in having been a party to the default of the company in failing to hold its 1984 annual general meeting;

   4. from any liability for fines and penalties which he may have incurred under s 175 of the Act or otherwise by reason of his negligence, default or breach of duty in having been a party to the default of the company in failing to lodge the annual return for the year 1984 with the Registrar of Companies within one month after the annual general meeting;

   5. from complying with the order of court dated 25 July 1986 in originating summons no 87 of 1987 obtained by Ang Siak Kee, Chow Wai Hoong and Lau Kwok Wah (hereinafter called ‘the retired directors’) ordering the petitioner to:

      1. lodge with or send to the Registrar of Companies the return in Form 49 and such other prescribed form that will give full effect to the resignations of the retired directors;

      2. effect the necessary alterations to the register of directors, managers and secretaries of the company by striking therefrom the names of the retired directors;

      3. effect the necessary alterations to the share register of the company by striking out therefrom the names of the retired directors as shareholders.

2. In originating summons no 87 of 1986, the retired directors of the company were the plaintiffs and the company and the petitioner herein were the defendants. Both the defendants did not appear at the hearing of this summons, when, after reading the affidavits of the retired directors and hearing counsel, I made the following declaratory orders:

   (1)	the plaintiffs have ceased to be directors of Project Aqua Culture & Trading Co (Pte) Ltd with effect from 31 December 1981;
   (2)	that the first and second defendants within fourteen (14) days from the date of this order make good the default in failing to lodge with or send to the Registrar of Companies the return in Form 49 and such other prescribed form that will give full effect to the plaintiffs’ resignation as directors of Project Aqua Culture & Trading Co (Pte) Ltd;
   (3)	that the register of directors, managers and secretaries of Project Aqua Culture & Trading Co (Pte) Ltd be rectified by striking out the plaintiffs’ name therefrom as directors of the same and that the first and second defendants do effect the necessary alterations to the said register;
   (4)	that the plaintiffs have ceased to be beneficial owners of shares of Project Aqua Culture & Trading Co (Pte) Ltd with effect from 31 December 1981;
   (5)	that the first and second defendants within fourteen (14) days from the date of this order make good the default in failing to enter such transfer of shares in the share register of Project Aqua Culture & Trading Co (Pte) Ltd from the plaintiffs to the second defendant;
   (6)	that the share register of Project Aqua Culture & Trading Co (Pte) Ltd be rectified by striking out the plaintiffs’ name therefrom as shareholders of the same and that the first and second defendants do effect the necessary alterations to the said register.

3. The material facts giving rise to this petition are as follows. The company was incorporated on 7 September 1981 as a private exempt company with an authorized capital of $100,000 divided into 100,000 shares of $1 each. The petitioner, who was responsible for initiating the venture, and the three retired directors (i.e. Ang Siak Kee, Chow Wai Hoong and Lau Kwok Wah) were subscribers for one share each in the memorandum and articles of association of the company. They were also named as the first directors in the articles of association. The petitioner was a regular officer in the Singapore Armed Forces prior to the incorporation of the company and so had no knowledge or experience of business practices. Even before the company had been in business for more than a month, trouble began to brew. As at 11 April 1986 (according to a search made in the Registry of Companies by the solicitors for the retired directors) there was no change in the company’s paid-up capital or the number and identities of the shareholders and the directors.

4. On 2 October 1981, Lau Kwok Wah resigned as a director and sold his share to the petitioner. Chow Wai Hoong and Ang Siak Kee also resigned as directors on 24 October 1981 and sold their shares to the petitioner. The petitioner, who was the sole remaining director as well as the managing director, failed to make the requisite entries in the statutory books of the company to reflect these changes in the shareholders as well as the directorship. As a result, on 8 January 1985, summonses were issued under ss 175 and 197(4) of the Act against each of the retired directors (and also the petitioner) for being a party to the default of the company in failing to hold its 1983 and 1984 annual general meetings and also in failing to lodge the annual returns for the same year. This led to the proceedings in Originating Summons No 87 of 1986 in which the retired directors obtained, inter alia, an order of court declaring that they had, ceased to be directors since October 1981.

5. In this petition, the main ground on which the petitioner has relied upon for relief was that his failure to comply with ss 143 and 165 of the Act for the years 1983, 1984 and all subsequent years was due to the fact that he had sold all his shares in the company to a company called Bumper Harvest Pte Ltd (BHP) on or about 10 February 1982 and had given all the books and materials relating to the company to BHP. As evidence of this sale, he has produced a document (signed only by him but which, he alleged, was prepared by BHP) in which he acknowledged that he had sold his shares in the company to BHP. He also claimed that after the sale, he approached one of the directors of the purchaser, viz Chow Yew Kee ‘to request that all steps be taken to formalize my relinquishment of all connections with the company’ and was ‘assured that all steps necessary would be taken’.

6. After the petitioner was served with the two summonses for failing to hold the said annual general meeting and to file the said annual returns, he instructed his solicitors and they on 21 May 1986 wrote to BHP requesting it to remove the petitioner’s name as director and shareholder of the company. On 27 May 1986, BHP replied that it did not buy any shares in the company but only its farm. Although subsequent correspondence between the petitioner’s solicitors and BHP did not resolve the problem, the petitioner took no steps whatever either to sue BHP or to retrieve from BHP all the company’s papers and documents which were allegedly in the possession of BHP. As matters stood at the date of the petition, the petitioner was the sole remaining director of the company which has been defunct since 1982. There is no evidence that any creditor has been prejudiced by the petitioner’s default in complying with the requirements of the Act.

7. Counsel for the petitioner contended that the above facts showed that the petitioner had acted reasonably and honestly and that in all the circumstances of the case he ought to be relieved from liability in terms of paras (a) to (e) of his petition under s 391 of the Act.

8. This petition raises a number of legal points which have not been appreciated by counsel. The first relates to the ambit of the statutory provision which reads as follows:

   (1)	If in any proceeding for negligence, default, breach of duty or breach of trust against a person to whom this section applies it appears to the court before which the proceedings are taken that he is or may be liable in respect thereof but that he has acted honestly and reasonably and that, having regard to all the circumstances of the case including those connected with his appointment, he ought fairly to be excused for the negligence, default or breach the court may relieve him either wholly or partly from his liability on such terms as the court thinks fit.
   (2)	Where any person to whom this section applies has reason to apprehend that any claim will or might be made against him in respect of any negligence, default, breach of duty or breach of trust he may apply to the Court for relief, and the Court shall have the same power to relieve him as under this section it would have had if it had been a court before which proceedings against him for negligence, default, breach of duty or breach of trust had been brought.
   (3)	The persons to whom this section applies are — (a) officers of a corporation; (b) persons employed by a corporation as auditors, whether they are or are not officers of the corporation; (c) experts within the meaning of this Act; and (d) persons who are receivers, receivers and managers or liquidators appointed or directed by the Court to carry out any duty under this Act in relation to a corporation and all other persons so appointed or so directed.

9. It can be seen at once that the power to grant relief under s 391(1) may only be exercised by the court before which the proceedings are taken. Although the Companies Act defines ‘Court’ to mean the High Court or a judge thereof, the word defined has a capital ‘C’ whereas the word ‘court’ used in this subsection has a small ‘c’ as distinguished from the use of the same word with a capital ‘C’ in sub-s (2). Assuming that the expression ‘proceedings’ include criminal proceedings, the criminal proceedings in respect of which reliefs have been prayed for in the petition are before the magistrates’ courts. On this ground alone, and without going into its merits, prayers (a), (b), (c) and (d) of the petition must be dismissed: see Re Gilt Edge Safety Glass Ltd [1940] Ch 495.

10. The second point that counsel has not appreciated is that the court may only grant relief under s 391(1), and again assuming that it has the power to do so in respect of defaults which are in the nature of criminal offences, where the default is that of the person claiming relief. In Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 2 All ER 697, the Court of Appeal dismissed an application by a director for relief under s 448(1) of the Companies Act 1948 (which is in pari materia with s 391(1) on the ground, inter alia, that the company alone was in default and not the director himself. In that case, the company was under a statutory obligation to pay betting duty under the Betting and Gaming Duties Act 1972, in default of which s 2(2) provided that the commissioner was entitled to recover from any director of that company. In other words, the director was statutorily liable even though he was not in default.

11. In the present case, the offences for which the petitioner has been charged were in respect of ss 175 and 197 of the Act. They read as follows:

    175.	(1)	A general meeting of every company to be called the ‘annual general meeting’ shall in addition to any other meeting be held once in every calendar year and not more than 15 months after the holding of the last preceding annual general meeting, but so long as a company holds its first annual general meeting within 18 months of its incorporation, it need not hold it in the year of its incorporation or in the following year.
    	.... (4)	If default is made in holding an annual general meeting — (a) the company and every officer of the company who is in default shall be guilty of an offence; and (b) the court may on the application of any member order a general meeting to be called.
    197.	(1)	Every company having a share capital shall make a return containing the particulars referred to in Part I of the Eight Schedule and accompanied by such copies of documents as are required to be included in the return in accordance with Part II of that Schedule and such of the certificates and other particulars prescribed in that Part as are applicable to the company.
    	.... (7)	If a company fails to comply with this section, the company and every officer of the company who is in default shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $2,000 and also to a default penalty.

12. Under ss 175 and 197, a director is only liable if he is in default. This does not mean that because a company is in default in complying with s 175 or s 197, a director is automatically an officer who is in default. The reason is that s 408(3) of the Companies Act provides as follows:

    For the purposes of any provision of this Act which provides that an officer of a company or corporation who is in default is guilty of an offence under this Act or is liable to a penalty or punishment, the phrase ‘officer who is in default’ or any like phrase means any officer of the company or corporation who knowingly and wilfully — (a) is guilty of the offence; or (b) authorizes or permits the commission of the offence.

13. By reason of s 408(3), a director is only liable under s 175 (for the company’s failure to hold an annual general meeting) and s 197 (for the company’s failure to file its annual return) if he ‘knowingly and wilfully .... authorizes or permits the commission of the offence’.

14. In Manning v Cory (1974) ACLC 28015, Burt J said with reference to the words ‘knowingly and wilfully’:

    I recognize the difficulty in applying the words ‘knowingly and wilfully .... authorizes or permits an offence’ to a case in which the offence is one of omission — a failure to do something which the law requires to be done. I would have thought however that these words require that the prosecution to establish a case to answer must lead evidence upon which, if accepted, it could be held that the accused knew the thing not done was not done and in the free exercise of his will authorized or permitted the non-doing of it but I cannot accept the view that in addition the prosecution must call evidence upon which it could be found that the accused knew there was a law in force which made the failure to do the act unlawful. See generally Iannella v French (1967) 119 CLR at p 84.

15. The present petition was presented to this court on the basis that the petitioner, as a director, was in default, i.e. he knowingly and wilfully authorized or permitted the company to commit offences under ss 175 and 197 of the Companies Act for the years 1983 and 1984. If such be the case, how could it be established to the satisfaction of this court that the petitioner had acted reasonably and honestly and that in all the circumstances of the case he ought to be relieved from liability. If it could be established that the petitioner had so acted in relation to the said defaults, then he should be able to establish that he did not knowingly or wilfully authorize or permit the company to commit the said offences. In other words, if the petitioner had a good defence to the offences for which he is being charged, then he does not require any relief from this court. It seems to me that in a case where an officer has a defence to a criminal charge, this court ought not to arrogate to itself a jurisdiction which properly belongs to the magistrates’ courts.

16. This leads me to the fundamental point as to whether s 391 was ever intended to apply to criminal offences. The use of the expression ‘claim’ in s 391(2) would suggest that relief is granted only for civil breaches of duty or defaults. It is true that in England, the courts have applied the equivalent provisions in the English Companies Act to grant relief against criminal sanctions: see Re Barry and Staines Linoleum Ltd [1934] 1 Ch 227. However, in Lawson v Mitchell [1979] VR 529, the Full Court of the Supreme Court of Victoria, after an exhaustive discussion of the history, the English provision and the English authorities, viz Re Barry & Staines Linoleum Ltd and Re Gilt Edge Safety Glass Ltd, came to the conclusion that the equivalent provision in the Victoria Companies Act 1961 did not apply to proceedings for an offence under the said Act. Counsel has not addressed me on this point. In view of my other findings, I will leave this point open for decision in some other application at some other time.

17. Counsel for the petitioner has also failed to appreciate that s 391 does not give to the court a special power of dispensation with regard to its orders or judgments. The court has no power under s 391 to relieve any person who is in default in complying with a court order from having to comply with it. It is tantamount to asking a court to abrogate or reverse its own order without an appeal and in the absence of the successful party. The petitioner should have appeared and defended the plaintiffs’ claims in originating summons no 87/86 on the ground that he was under no liability or that if he were, he was entitled to relief. It is too late for him to attempt to do it in these proceedings. Paragraph (e) of the petition is entirely misconceived.

18. For the above reasons, the petition is dismissed.

Cases

Barry and Staines Linoleum, Re [1934] 1 Ch 227; Customs and Excise Commissioners v Hedon Alpha [1981] 2 All ER 697; Gilt Edge Safety Glass, Re [1940] Ch 495; Lawson v Mitchell [1979] VR 529; Manning v Cory [1974] ACLC (WA) 28015

Legislations

Companies Act (Cap 50): s.143, s.165, s.175, s.197(4), s.391, s.408(3)

Representations

Anna Oei (Hee Theng Fong & Co) for the petitioner.