Singapore Court of Appeal affirms High Court decision on the fiduciary duties of a director of an insolvent or financially parlous company

22 May 2026

The decision of the Singapore High Court in Park Hotel Management Pte Ltd (in liquidation) & Ors  v Law Ching Hung & Ors [2025] SGHC 149 (“HC Decision”) reaffirmed the principle that where a company is insolvent or financially parlous, the general fiduciary duties of a director continue to apply, but are weighted towards the interests of the company’s creditors. Where a company is in a financially parlous position, the law imposes a duty on the director to consider the creditors’ interests, to accord them appropriate weight, and to balance these interests against the shareholders’ interests (“Creditor Duty”). The Court of Appeal affirmed the High Court decision in April 2026 and dismissed the appeal brought by the company director (“L”) and the corporate defendants (owned directly or indirectly by L) (“Defendant Companies”).

Allen & Gledhill Partners William Ong and Lee Bik Wei represented the liquidators of Park Hotel Management Pte Ltd (“PHMPL”) successfully in the action and the appeal.

Background

PHMPL was an international hotel operator headquartered in Singapore that managed hotels in Singapore, China, Japan, and the Maldives, and owned the “Park Hotel”, “Grand Park”, and “Destination” brands, among others. Hotels managed by PHMPL included the former Grand Park Orchard hotel and Park Hotel Clarke Quay.

Grand Park Orchard and Park Hotel Clarke Quay were operated by Grand Park OR Pte Ltd (“GPOR”) and Park Hotel CQ Pte Ltd (“PHCQ”) respectively, both wholly-owned subsidiaries of PHMPL. PHMPL provided a guarantee and indemnity to secure the liabilities of the two subsidiaries to their landlords. At all material times, L was the sole shareholder and director of PHMPL, and the sole director of GPOR and PHCQ.

GPOR and PHCQ failed to make payments of rent under their respective leases. PHMPL as guarantor was accordingly liable to repay the landlords the outstanding amounts owed by the subsidiaries.

A letter of demand was issued to GPOR on 20 February 2021. The High Court found that the letter “triggered immediate action from [L]” who launched into a plan he called a “restructuring” to:

• move PHMPL’s revenue generating assets to the Defendant Companies;
• eliminate all liabilities owed to PHMPL by him and entities owned by him; and
• leave PHMPL a shell carrying only substantial liabilities, including liabilities owed to the landlords.

The High Court also found that L “embarked on the restructuring knowing that PHMPL was facing financial extinction with no hope of relief or rehabilitation” and “manipulated PHMPL’s books to hide his subterfuge”. In doing so, L “clearly had no concern about the interests of PHMPL or its creditors”.

Decision of the High Court, upheld by the Court of Appeal

PHMPL successfully established its claim against L for breaches of fiduciary duties owed to PHMPL, including the breach of the no-conflict, self-dealing, and no-profit rules.

The Defendant Companies, which were effectively owned and controlled by L, were found liable in dishonest assistance and knowing receipt, and for conspiring with L to injure PHMPL in respect of the transfers of PHMPL’s assets and diversion of a business opportunity belonging to PHMPL.

“Creditor Duty” - A component of a director’s fiduciary duties to the company

Affirming the principle in the Court of Appeal decision in Foo Kian Beng v OP3 International Pte Ltd (in liquidation) [2024] 1 SLR 361 (“Foo Kian Beng”), the High Court described the Creditor Duty as a duty imposed on the director by law to consider the creditors’ interests, to accord them appropriate weight, and to balance these interests against the shareholders’ interests, where a company is insolvent or financially parlous:

• Where a company is financially parlous, i.e. imminently likely to be unable to discharge its debts, the court will scrutinise the subjective bona fides of the director with reference to the potential benefits and risks that the impugned transactions might bring to the company. Transactions which appear to exclusively benefit shareholders or directors will attract heightened scrutiny.
• Where corporate insolvency proceedings are inevitable, the Creditor Duty operates to prohibit directors from authorising corporate transactions that have the exclusive effect of benefitting shareholders or themselves at the expense of the company’s creditors, such as the payment of dividends.

The High Court also observed that there is a difference between a company being insolvent and being financially parlous. In the case of the latter, the court will assume the vantage point of the director and consider the factors such director ought reasonably to have taken into account in assessing the transaction, including: (i) the recent financial performance of the company; (ii) the industry that the company operates in, including its recent and future prospects; and (iii) any other external developments, such as geopolitical ones, which may have an impact on the company’s business.

A director who authorises a transaction that falls within the meaning of section 224 (on undervalued transactions) and/or section 225 (on unfair preference) of the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) would, save in exceptional circumstances, be found to have breached the Creditor Duty.

The High Court observed that this case was an “egregious instance of a director who did the opposite of what the law demands”. L breached his fiduciary duties to PHMPL by reason of the following:

• The transfers of PHMPL’s assets and businesses to the Defendant Companies pursuant to four agreements were transactions at an undervalue in excess of S$25 million under sections 224 and 438 of the IRDA.
• The substantial cash payments in excess of S$14 million to L amounted to unfair preferences under section 225 of the IRDA.
• The declarations of two interim dividends of S$22 million and S$5.9 million were transactions at an undervalue pursuant to section 224 of the IRDA.
• L had diverted or appropriated the benefits of receivables in excess of S$22 million due to PHMPL to/for himself.
• L had intentionally diverted the opportunity for PHMPL to manage Park Hotel Kyoto to one of the Defendant Companies of which he was the ultimate beneficial owner.

“Market value” basis of valuation under section 224 of the IRDA 

The High Court stated that the appropriate basis of valuation under section 224 of the IRDA is the market value of the subject asset, framing the question as “what is the best price the insolvent company could reasonably achieve for the asset if properly marketed?”

It was accepted that the “market” includes participants who may have a special interest in the asset, and who may therefore be willing to offer more than others. The issue of value is considered from the perspective of the (insolvent) company seller and not the buyer. If the seller had excluded the participation of a class or classes of potential bidders who could reasonably have offered a significantly higher price on account of their special interest in the asset, then the asset would have been sold at an undervalue. However, it cannot be said that a buyer has paid below market value simply because the asset may be worth more to him than what he paid. 

No-conflict, self-dealing, and no-profit rules 

It is trite law that a director owes the following fiduciary duties to the company:

• Not to place themselves in a position in which there is a conflict between their duties to the company and their personal interests or duties to others (“no-conflict rule”);
• Not to enter, on behalf of the company, into an arrangement or transaction with himself or with a company in which he is interested (“self-dealing rule”); and
• Not to retain any profit which he has made through the use of the company’s property, information, or opportunities to which he has access by virtue of being a director, without the fully informed consent of the company (“no-profit rule”).

L and the Defendant Companies argued that PHMPL’s constitution permitted L to vote in matters in which he was interested, and that PHMPL was fully informed of and had consented to L’s interests in the agreements, as he was the sole shareholder of PHMPL. The High Court rejected L’s defence.

In addition to the fact that L did not comply with the formalities in PHMPL’s constitution to declare his interests, the High Court held that the defence does not apply when the company is insolvent or approaches insolvency when the risks of continued trading of the company shifts from the shoulders of the shareholders to that of the creditors. The court further held that where “the interests at risk are those of creditors [there is] no reason in law or in logic to recognise that the shareholders can authorise the breach”.

In causing PHMPL to enter into the agreements with the Defendant Companies which he owned and controlled, L was in breach of the no-conflict, self-dealing, and no-profit rules. L could not absolve himself of his breaches of having preferred his own interests over those of PHMPL’s creditors when PHMPL was insolvent or financially parties. 

Diversion of corporate opportunity

The High Court also found that the opportunity to manage Park Hotel Kyoto had “crossed the line from a mere idea to a concrete business opportunity” and was a “maturing business opportunity”. Accordingly, L had breached the no-profit rule and section 157(2) of the Companies Act 1967 in intentionally diverting the opportunity for PHMPL to manage the hotel to one of the Defendant Companies.

The Defendant Companies

The Defendant Companies were attributed with the state of mind of L, who was their “directing mind and will”. He owned and controlled the Defendant Companies for all intents and purposes. They entirely delegated the decision making to L. He was the sole decision maker in the entire “restructuring” which involved them. Accordingly, the Defendant Companies were held jointly and severally liable with L in dishonest assistance, knowing receipt, and conspiracy.

The Defendants’ appeal was dismissed by the Court of Appeal.

Significance of the decision

This decision is a timely reminder to directors - particularly directors who may be the only shareholders of their company - that the interests of the company are not unchanging. As the Court of Appeal observed in Foo Kian Beng (and followed in this case), the “evaluation of a company’s best interests does not admit of a single and unchanging answer”.

While the interests of shareholders may be a sufficient proxy for the company’s interests when a company is financially healthy, the interests of the creditors will “come to the fore” and a director’s duty will be “weighted towards” the interests of the company’s creditors when a company is insolvent or financially parlous, as the directors are effectively trading and running the company’s business with the creditors’ money.

This case supports the proposition that when the interests of the company’s creditors come into play in the case of an insolvent or financially parlous company, and the Creditor Duty arises, even the shareholders of the company cannot authorise or ratify a breach of the Creditor Duty by the director.

Practical takeaways

While the court will consider from the vantage point of a director the factors regarding the financial performance of a company a director should have taken into account when assessing a transaction, it is no excuse for the director to claim that he did not appreciate how dire the company’s financial state was if he ought reasonably to have done so.

Where the director has reason to be concerned about the financial state of the company, a director should bear in mind the Creditor Duty and exercise greater or increased caution and scrutiny towards a contemplated transaction.

Reference materials

The judgment is available on the Singapore Courts website www.judiciary.gov.sg.