Park Hotel Management and Allen Law’s legal battle results in landmark High Court judgment for insolvency law

Former Park Hotel Management (PHMPL) director Allen Law, who is being sued by liquidators of the company, has failed to reduce his potential liabilities by S$6.8 million after the High Court rejected his application to amend his defence and introduce a counterclaim. 

In a landmark judgment last year, Justice Goh Yihan dismissed Law’s application on the basis that the counterclaims Law sought to introduce did not fall within the scope of insolvency set-offs. 

Justice Goh ruled that insolvency set-offs are the only form of set-offs that can be advanced against an insolvent company without requiring permission from the court. 

This is the first time a court in Singapore has authoritatively addressed the legal issue of what kind of set-offs are available against an insolvent company.

An insolvency set-off is a mechanism by which a company’s debt is cancelled out or reduced by the amount the other party owes, if the company goes into liquidation. There are also legal and equitable set-offs but these are not provided for in the Singapore statutes. 

In his application, Law claimed that the S$6.8 million included S$4.3 million, which he paid to UOB as a guarantor of a loan extended by the bank to PHMPL, and S$2.5 million, which was paid to discharge PHMPL’s debts. 

Since 2022, the liquidators of PHMPL and Law have been embroiled in several related court cases over the disposal of assets sold to entities related to Law before PHMPL was placed into liquidation. 

The main case pertains to whether Law transferred virtually all of PHMPL’s assets to himself and three companies under his control, in undervalued transactions or in breach of Law’s duties as a director. 

“The effect of these transactions was allegedly to substantially reduce the sums available for distribution amongst PHMPL’s creditors in the event of its liquidation,” Justice Goh said. 

While a verdict has yet to be delivered for the main case, in dismissing Law’s application to introduce a counterclaim, Justice Goh said that because the claims against the defendants were based on the defendants’ “wrongdoing”, the claims do not satisfy the requirement of mutual dealings required for insolvency set-offs. 

In their suit, PHMPL’s liquidators allege that Law committed breach of fiduciary duty, breach of trust and conspiracy through unlawful means. 

Citing English case law, Justice Goh said: “There is no set-off available between a debt due to a misfeasant and his liability to repay the monies which he has been ordered to pay in misfeasance proceedings.” 

He pointed out how English legal scholar Roy Goode said: “Any other conclusion would enable the wrongdoer to benefit from his wrongdoing by recovery through set-off instead of having to prove in the winding-up in competition with other creditors.” 

In another judgment released last Friday (May 23), High Court Judge Audrey Lim ruled that another of PHMPL’s creditors, the trustee of Ascendas Hospitality Reit (AH-Reit), will not be able to claim the full amount it is seeking from PHMPL’s subsidiary PHCQ, which is also in liquidation.

This was after Park Hotel Group Management, one of Law’s companies, challenged how AH-Reit had derived its claim for over S$562,400 in property tax it was seeking from the liquidators.

AH-Trust, the stapled entity which comprised AH-Reit and Ascendas Hospitality Business Trust, has since combined with Ascott Residence Trust to form what is known today as CapitaLand Ascott Trust. AH-Reit was the landlord of the former Park Hotel Clarke Quay property at Unity Street leased by PHCQ. 

AH-Reit sought to claim, among other costs, rental and property tax payable from August 2021 to June 2023. PHCQ stopped paying rent in 2020, which resulted in AH-Reit terminating its lease in August 2021 and repossessing the property after PHCQ failed to pay around S$5.92 million in rent. 

From August 2021 to September 2022, Ascott International Management (AIMPL), an entity related to AH-Reit, was appointed to manage the hotel. The building was leased to Ascott Hospitality Business Trust from October 2022, with AIMPL remaining as manager. The property is currently home to The Robertson House by The Crest Collection, which officially opened in October 2023. 

Under the lease, Ascott Hospitality Business Trust paid rent to AH-Reit while AH-Reit bore the property tax, Justice Lim noted. 

The judge said it was “not unreasonable” for AH-Reit to have arranged for AIMPL to manage the property and that it was “reasonable” for AH-Reit to lease the property to Ascott Hospitality Business Trust. 

However, she added: “Neither AH-Reit nor the liquidators have explained why AH-Reit did not impose the obligation to pay property tax on Ascott Hospitality Business Trust.. Nor why the tax was borne by AH-Reit. 

“That the Ascott Hospitality Business Trust lease did not include an obligation on Ascott Hospitality Business Trust to bear the property tax is to be contrasted with the lease wherein PHCQ bore such an obligation.” 

“AH-Reit appears to have treated AHBT more favourably (compared to PHCQ) by not imposing an obligation on AHBT to pay property tax, only to then claim the property tax from PHCQ instead.”

The liquidators’ acceptance of AH-Reit’s property tax claim, without any scrutiny it would seem, was unsatisfactory, Justice Lim said.

As a result, the High Court judge reduced AH-Reit’s proof of debt by S$273,792 in property tax it was claiming for the period from October 2022 to June 2023. 

She also ruled that some of the items the Reit sought to claim under costs for replacement had insufficient evidence to prove that they were remedial works that fell within PHCQ’s obligations under its lease. 

Nanthini Vijayakumar from TSMP Law was the lead counsel representing Allen Law, while Allen & Gledhill’s Lee Bik Wei and her team acted on behalf of the liquidators. The case continues. 

Source: The Business Times © SPH Media Limited. Permission required for reproduction.

Woman admits to providing legal services when she could not practise law due to bankruptcy Singapore’s biggest motor association in legal tussle with its president