When a company slides towards insolvency, the instinct is to look outward: clawing back unfair preferences, unwinding transactions at an undervalue, chasing assets out the door. But the most direct route to recovery can run inward, to the directors who authorised the dealings in the first place. Three recent decisions – Foo Kian Beng v OP3 International Pte Ltd (in liquidation) [2024] 1 SLR 361 (“Foo Kian Beng”), Park Hotel Management Pte Ltd (in liquidation) v Law Ching Hung [2025] SGHC 149 (“Park Hotel”) and Goh Jin Hian v Inter-Pacific Petroleum Pte Ltd [2025] 1 SLR 872 (“Goh Jin Hian”) – have sharpened when a director’s duty shifts to the company’s creditors, and what it takes to turn a breach into a recovery.
For liquidators and funders backing them, this is more than governance doctrine. It is a litigation toolkit: a way to reach a director, to press the avoidance provisions in tandem, and to follow value into the hands of the entities that received it. This article maps that terrain: when the creditor duty bites, the causation hurdle that decides whether breach yields anything, and how to widen the net beyond the boardroom.
The doctrinal core: when the duty bites
The trigger for the creditor duty was not, until recently, uniformly described: the formulations used included “verge of insolvency”, “financially parlous” and “doubtful solvency”. The rationale for the duty, by contrast, has never been in doubt: as a company slides towards insolvency, its creditors become the real economic stakeholders, and the board is, in substance, spending their money.
Foo Kian Beng brings order to the trigger, replacing the competing formulations with two questions asked in sequence. The first is objective: what was the financial state of the company when it entered the impugned transaction, or that would arise as a result of it? The answer falls into one of three categories: Category 1 – the company is solvent; Category 2 – the company is imminently likely to be unable to pay its debts, which includes the case where the transaction itself will produce that result and the director ought to have seen it coming from the company’s numbers, its industry, or events around it; and Category 3 – insolvency is inevitable.
The second question is subjective: did the director honestly believe he was acting in the company’s best interests? Here, the court will not second-guess an honest, reasonable commercial call that later went wrong, but the latitude narrows as the company slides towards insolvency. In Category 1, serving the shareholders is typically enough. In Category 2, the intermediate zone, a genuine attempt to trade out of trouble is given room, but a transaction that exclusively benefits shareholders or directors draws hard scrutiny. In Category 3, the creditors become the true owners, and the duty forbids paying shareholders or directors ahead of them.
The facts of Foo Kian Beng show the framework bite. Mr Foo, the sole director and shareholder of OP3 International, paid himself S$1.18m in a dividend and a loan repayment at a time when the company faced a contingent claim of S$1.47m from an ongoing suit, held only S$87,000 in cash and had assets of S$545,000. Its business was in decline, with major clients gone and subcontractors demanding cash up front. His allegation that OP3 had a “strong defence” to the suit was given little weight: it rested on legal advice that was oral, cursory, undocumented and never put to his lawyer as a witness. The company was found to plainly be in Category 2, and the creditor duty was engaged. Mr Foo was found to have breached it, as the impugned payments offered creditors no upside and enriched him alone. Tellingly, he had drawn nothing from the company between 2012 and 2015, but made these payments one the suit arrived.
Creditor duty and avoidance, in tandem
Park Hotel is the creditor duty in full flight alongside avoidance claims. Faced with landlords’ demand its subsidiaries could not meet, Mr Law, the sole director and shareholder of Park Hotel Management, launched what he called a “restructuring”: he moved the company’s revenue-generating assets to companies he owned, extinguished the debts those companies owed it, and left it a shell holding only liabilities. The High Court called it an egregious inversion of a director’s duties.
Two features make the case a template for recovery. First, the claim was pleaded across overlapping doctrines rather than resting on the creditor duty alone: breach of the no-conflict, self-dealing and no-profit rules; transactions at an undervalue under s 224 of the IRDA (the asset transfers exceeding S$25m, and interim dividends of some S$28m); and unfair preferences under s 225 (cash payments exceeding S$14m). A director who authorises a s 224 or s 225 transaction will, barring exceptional circumstances, be found to have breached the creditor duty as well. Second, and significantly for the size of the recovery, the recipient companies did not escape. Attributed with Mr Law’s own state of mind as their directing mind and will, they were held jointly and severally liable in dishonest assistance, knowing receipt and conspiracy. The judgment therefore reached the assets more potently.
The case also disposes of a defence sole owners are prone to raise. Mr Law argued that, as the company’s only shareholder, he had consented to his own dealings. Where the creditor duty is engaged, the Court held, the shareholders cannot authorise or ratify its breach: the interests at risk are the creditors’, and they are not the shareholders’ to give away.
The limiting case: breach is not enough
Goh Jin Hian is the necessary counterweight, and we examined it in full in Directors Aren’t Detectives: Lessons from Goh Jin Hian v Inter-Pacific Petroleum. The short point for recovery is that breach does not automatically translate into recoverable loss. Dr Goh was found to have breached his duty of care, being unaware of an entire line of the company’s business, yet the Appellate Division overturned the US$146 million award against him. Breach, it held, must be tied to loss through causation: the claimant must establish, on a prima facie basis, the specific steps the director would have taken had the duty been discharged, and how those steps would have averted the loss. Only then does the director bear the evidential burden of proving that loss would have occurred anyway. Two further limits bear on framing claims against directors from this case: a director is not a forensic investigator, and owes no duty to hunt for concealed fraud absent clear warning signs; and he cannot breach the creditor duty over transactions he knew nothing about, having exercised no relevant discretion at all.
Practical takeaways
Each of the three decisions does distinct work. Foo Kian Beng fixes when the duty bites and how breach is judged; Park Hotel shows it deployed, alongside the avoidance provisions, to claw value back from a director and the entities he routed it through; and Goh Jin Hian marks the outer limit, holding that breach alone recovers nothing without proof of causation.
Contemporaneous documents decide these cases (board minutes, advice files, internal correspondence): they are where the reasoning behind each significant transaction is exposed. Liquidators should press for their discovery early, including, where warranted, pre-action. Directors, for their part, should document the commercial rationale for each material transaction as it is made. That record is the most effective answer to a creditor-duty challenge, and its absence often a glaring weakness.
Just as important is pleading to the causation framework. A claim resting on a counterfactual chain (what the director would have discovered, when he would have intervened, and how that would have averted the loss, as Goh Jin Hian illustrates) must be built on evidence. By contrast, a direct-misappropriation claim is simpler: in Park Hotel and Foo Kian Beng, the liquidators asked not what the directors should have done, but what the company’s asset position would have been had the impugned transactions never occurred.
The next article in this series turns to how claims by the insolvent estate may be financed, by exploring creditor-funded recovery and priority arrangements in insolvency.
