[1] This originating summons (encl 3) by the plaintiff is for, inter alia, a declaration that the payment of RM115,500 made on or about 19 April 2001 by Skytex Industries (M) Sdn Bhd (‘Skytex’) to the defendant obtained from the proceeds of sale of eight units of knitting machineries, accessories and spare parts belonging to the plaintiff (in liquidation) to Skytex constitutes an act of fraudulent preference in favour of the defendant and is therefore illegal based on the provisions of s 304 of the Companies Act 1965 (‘the Act’).

[2] The plaintiff’s application is supported by the affidavit affirmed on 27 July 2005 (encl 4) by V Ventkatachalam the provisional liquidator of the plaintiff (‘the plaintiff’s affidavit’). In resisting the plaintiff’s application the defendant filed an affidavit in reply affirmed on 28 January 2008 (encl 29) (‘the defendant’s affidavit’).

[*730] BRIEF ACCOUNT OF THE FACTS

[3] On 7 August 2003 an order for the winding up of the plaintiff company was made by the Johor Bahru High Court and V Ventkatachalam (‘the provisional liquidator’) was appointed as provisional liquidator of the plaintiff. The defendant was at all material times the managing director of the plaintiff. The provisional liquidator concluded that the plaintiff was insolvent on the basis of the audited accounts of the plaintiff for the financial year ending 31 March 2001. There was also an outstanding judgment entered against the plaintiff for S$ 210,334.23 at the Johor Bahru High Court on 9 April 2002 by Kawin Knitting (Pte) Ltd. The said judgment is in respect of the unpaid purchase price of eight units of used knitting machinery, accessories and spare parts (‘the machineries’) purchased on 12 August 2000. Pursuant to an agreement for sale of machineries dated 19 April 2001 the plaintiff sold the machineries to Skytex at the purchase price of RM115,500. The purchase price of RM115,500 was paid to the defendant.

THE PLAINTIFF’S SUBMISSION

[4] Learned counsel for the plaintiff submitted that the payment of RM115,500 to the defendant is illegal and in contravention of ss 304, 305 and 132 of the Companies Act 1965 (‘the Act’). Accordingly, the defendant is under a duty to repay the said sum to the plaintiff. The defendant has admitted to receiving the said sum but contends that it was made to satisfy a debt owed by the plaintiff to him. The defendant admits that he is a director of the plaintiff but denies being a managing director.

[5] Learned counsel submitted that the transaction for the sale of the machineries to Skytex was carried out with the intent to defraud the other creditors of the plaintiff and or the defendant had misapplied the money or property of the plaintiff in breach of his duties in relation to the plaintiff. Under the circumstances the court is empowered to order the defendant to repay the said sum of RM115,500 to the plaintiff under ss 304 and 305(1) which provide as follows:

304 Responsibility for fraudulent trading

(1) If in the course of the winding up of a company or in any

proceedings against a company it appears that any business of the

company has been carried out with intent to defraud creditors of the

company or creditors of any other person or for any fraudulent purpose,

the Court on the application of the liquidator or any creditor or

contributory of the company may if it thinks proper so to do declare

that any person who was knowingly a party to the carrying on the

business in that manner shall be personally responsible, without any

limitation of liability, for all or any of the debts or other

liabilities of the company as the Court directs.

[*731]

305 Power of Court to assess damages against delinquent officers, etc.

(1) If in the course of winding up it appears that any person who has

taken part in the formation or promotion of the company or any past or

present liquidator or officer h