A FORMER director of insolvent marine fuel supplier Inter-Pacific Petroleum (IPP), Goh Jin Hian, had not taken “reasonable steps”, such as making necessary inquiries, when various red flags surrounding the company arose, said High Court Justice Aedit Abdullah in his grounds of decision released on Thursday (Jul 11).
He was also unaware of the existence of IPP’s cargo trading business, despite being a director of the company, and therefore did not know this business was the fraudulent scheme perpetrated by IPP, said the justice.
This comes after Dr Goh in February was found liable for breach of director’s duties, statutory duties and losses suffered by the firm amounting to US$146 million plus interest.
Dr Goh, who is the son of former prime minister Goh Chok Tong, has since appealed the decision.
The liquidators of IPP had sued Goh to recover US$156 million in losses, accusing him of “sleepwalking through his time as a director” and failing to discover and stop drawdowns in trade financing between June 2019 and July 2019 to fund alleged non-existent or sham transactions.
Dr Goh had served as a director of IPP from Jun 28, 2011, to Aug 20, 2019.
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According to Deloitte & Touche, who are IPP’s liquidators, the trade financing came from the company’s two largest creditors – Malayan Banking (Maybank) and the Singapore branch of Societe Generale.
It consisted of US$146 million drawn down for cargo trading operations, and US$10.5 million drawn from SocGen’s facility for IPP’s bunkering operations allegedly when IPP was balance-sheet insolvent.
In the grounds of decision, Abdullah said a director’s duty to monitor and supervise his company’s affairs contains an obligation that the director equip himself with sufficient knowledge to monitor and supervise.
He therefore accepted IPP’s submission that Dr Goh’s lack of knowledge of the company’s cargo trading business amounted to a breach of his duty, skill and diligence.
The cargo trading business is one of IPP’s main business lines, in which the company purchases fuel oil from suppliers and sells it to downstream customers, noted Abdullah.
“The fact that Dr Goh had not known of this line of business meant that he could never have been in a position to discharge his minimum obligation to monitor and supervise it,” he said.
While Dr Goh argued that his involvement in IPP did not, by nature, entail involvement in its cargo trading business, Abdullah said Dr Goh did not escape liability for negligence as he had a duty to monitor and supervise IPP’s affairs due to his role as a director.
“Dr Goh ’s duty to monitor and supervise IPP’s affairs was a default standard that he could not disapply regardless of the actual role that he played in IPP,” said Abdullah.
He added that even if most functions of IPP’s business were delegated to management, this move does not excuse Dr Goh’s failure to obtain a basic understanding of the company’s business and to maintain some degree of oversight.
Abdullah also highlighted that the red flags submitted by IPP should have put Dr Goh on a “path of inquiry” into IPP’s financial position and to uncover the sham and non-existent cargo trading transactions.
One such red flag was an audit confirmation request relating to amounts of receivables due to IPP from customer Mercuria Energy Trading, which Dr Goh signed and was sent to Mercuria on Feb 7, 2018. The sum due was US$132 million.
Abdullah said Dr Goh had breached his duty by failing to make any inquiries, when faced with the audit confirmation request, on the extent of the US$132 million in outstanding receivables.
He agreed with IPP that “any reasonable director would have at least enquired on the status of collection of receivables and how much of it could reasonably be expected to be collected in time”.
Other red flags, such as the suspension of IPP’s bunker craft operator licence, should have also raised questions from “any reasonable director in Dr Goh’s position”, as such an event should have prompted Dr Goh to make inquiries into IPP’s financial position, said the justice. However, Dr Goh failed to do so.
