Case: Court holds director-employee liable for mismanaging closure of businesses

Wee Ewe Seng Patrick John v True Yoga Pte Ltd [2023] SGHC(A) 26

Significance: A director or employee can be held liable for mismanaging the closure of a business, i.e., the manner of closing it down. They can be liable for causing damage to the brand equity of a company or group of companies.

Here, the Appellate Division of the Singapore High Court upheld the trial judge’s decision to hold a director liable for breach of duty (both employment obligations and fiduciary duties) in mismanaging the closure of certain businesses / companies.

In this case, the Court considered that the director knew or ought to have known that the relevant True Yoga companies were already insolvent and not going concerns.

Despite that, the director continued to promote and sell new membership and training packages. The Court found that the continued sale of packages that would not be fulfilled would lead to public outcry and distrust, and cause consequent damage to the brand equity of the “True” brand. This would naturally have ramifications for True Yoga and the other respondents which used the same brand. See [86].

He also allowed a notice to be put up at an outlet stating that the outlet would be closed for renovations when in fact it was closed because of a writ of seizure and sale arising from rental arrears. The Court found that the mismanagement and breach of duty is in that the director maintained the appearance that there was nothing afoot and left its members stranded upon the abrupt closure of the business.

Further, the director did not take steps to adequately arrange for and maintain the arrangement with alternative service providers to take on the members of the two companies following their closures.

The above acts of mismanagement were breaches of the directors’ employment obligations under the contract.

As regards the breach of director’s and fiduciary duties, the companies of which he was a director sued him for reputational damage as there was no contractual relationship between him and the said companies. The Court found that the director breached his duty to act in good faith in the best interests of the companies by way of the above acts. Such acts would adversely affect the companies as it would undermine the brand equity which these companies enjoyed, shared with the businesses that closed down.

The Court rejected the director’s argument that the negative publicity was caused by the fact of closures of the businesses rather than the manner of closure. The Court observed that in any case, the director’s conduct gravely exacerbated any negative publicity caused by the mere fact of the closures.

Click to access [2023]%20SGHC(A)%2026.pdf

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