Fraudulent directors, rogue businessmen and delinquent corporate partners. The modern commercial world is a minefield and these are but a few of the landmines within it. With a pinch of wise business strategy, a sprinkle of solid due diligence and a generous helping of good fortune, the modern corporation seeks to navigate this minefield.
However, sooner or later the modern corporation will stumble onto and inevitably set off a landmine, be it a fraudulent director, rogue businessman or delinquent corporate partner. If the resulting explosion does not result in a fatality, the wounded modern corporation will likely attempt to protect its interests and that of its shareholders by suing the offending landmine.
This course of action sounds good in theory, but given the characterisation of the offending landmine (read “fraudulent”, “rogue” and “delinquent”), the lawsuit may lead to a “paper judgment”, two words which strike fear into the hearts of lawyers and plaintiffs alike.
Here’s an analogy. When a corporation (plaintiff) sues a fraudulent director (defendant), they are like two boxers about to battle over the fight purse (fraudulent director’s assets) in a boxing ring. However, either before or during the fight, the fraudulent director surreptitiously empties the fight purse and removes its contents (dissipation of assets). Therefore, no matter how hard or how well the corporation fights in its triumph over the fraudulent director, its only prize is an empty fight purse.
What then, can a corporation do to protect its interests and that of its shareholders? Enter the Mareva (or freezing) injunction.
Mareva injunctions are one of law’s “two nuclear weapons” (Lord Justice Donaldson in Bank Mellat v Nikpour  FSR 87 at 92), best described as a hard-hitting remedy through which a plaintiff or potential plaintiff may obtain some measure of protection against a defendant who undermines or intends to undermine any judgment by dissipating his/her/its assets.
By obtaining a Mareva injunction against the defendant’s assets, the plaintiff “freezes” the defendant’s assets by: (a) preventing the defendant from dealing with his assets; and (b) preventing any third party from assisting or allowing the defendant to do so. Any person or entity served with the Mareva Order who does not comply with its terms may be fined or imprisoned.
That being said, the effectiveness of a Mareva injunction as a “nuclear weapon” will very much depend on its wielder, as the timing and precision in its delivery is key to unlocking its full effectiveness.
The case study (reported in The Business Times on 27 September 2017)* below of how we helped one of our clients best exemplifies a timeous and effective use of a Mareva injunction.
Shanghai Turbo Enterprises Ltd. (“STE”) is an SGX mainboard-listed company which is a producer and supplier of precision components for power plants, which are manufactured at its factory in Changzhou City, China (the “Factory”). STE owns the Factory through its wholly owned Chinese subsidiary, Changzhou 3D Technological Complete Set Equipment (“CZ3D”).
In April 2017, shareholders of STE voted not to re-elect its then-CEO and executive director, Liu Ming. Instead of a smooth handover, Liu Ming, who was also a director and the chairman of CZ3D, allegedly instigated his relatives and other CZ3D workers loyal to him to seize control of the Factory in a hostile takeover.
There was even a hostage situation: members of CZ3D’s new incoming management team arrived at the Factory to take control of CZ3D and its operations, but were instead held hostage by the Liu Ming’s loyalists.
To protect its interests and that of its shareholders, STE, through Bernard & Rada Law Corporation (“B&R”), filed a lawsuit against Liu Ming in Singapore for various breaches of his service agreement with STE, including a failure to deliver the Factory to CZ3D’s new management team. STE sought, amongst other things, an order for Liu Ming to return the Factory and to compensate STE for the losses it suffered as a result of Liu Ming’s actions.
Soon after, STE were informed of certain developments which resulted in there being a real risk that Liu Ming would dissipate his only known asset within the jurisdiction of Singapore’s Courts: his nearly 30% shareholding in STE.
After receiving counsel from B&R, STE immediately filed an urgent application for a Mareva injunction to “freeze” Liu Ming’s assets in Singapore. Represented by Ms Foo Soon Yien (Director), the Head of B&R’s Litigation Department, STE successfully obtained the Mareva injunction it sought, thereby protecting itself and its shareholders from a “paper judgment” conclusion to its legal proceedings against Liu Ming.
STE’s litigation against Liu Ming is still ongoing. However, its success with the freezing of Liu Ming’s assets is a good example of how decisiveness and timing are key to the effective use of a Mareva injunction and the protection of commercial and shareholder interests where litigation is concerned.
If you would like to discuss how we can help your corporation protect your business and its shareholders, please contact:
Managing Director, Bernard & Rada Law Corporation
DID: 6394 7850
Foo Soon Yien
Director, Bernard & Rada Law Corporation
DID: 6394 7688
Foo Soon Yien
Director, Bernard & Rada Law Corporation
Associate, Bernard & Rada Law Corporation
Link to The Business Times article (login required): http://bt.sg/WHW
The posts found in this Law Blog are not legal advice, nor are they given for the purpose of providing legal advice.
You should contact your lawyer for legal advice if you need legal assistance.