Judge finds ex-CEO of True Group fitness chain mismanaged closures of Malaysia, Thailand branches
SINGAPORE: Months before the impending closures of True Group fitness chains in Malaysia and Thailand, then CEO Patrick John Wee Ewe Seng was still allowing the sale of new gym memberships of up to five years.
Staff in Malaysia did not even know about True Group's closure in the country until one day before, while gym members in Thailand were only informed on the day of the closure itself.
In a judgment made available on Tuesday (Jul 5), a High Court judge found that Mr Wee's mismanagement of the closures of True Group's companies in Malaysia and Thailand was a breach of his duties to three other companies in the group.
Mr Wee was the CEO and founder of True Group, which runs the True Yoga and True Fitness chains, from March 2008 until his termination in May 2018.
The lawsuit was brought against him by three Singapore-incorporated companies in the group - True Yoga, True Fitness and True Fitness (STC).
According to the plaintiffs, Mr Wee knew that True Group (Malaysia) was facing impending closure as early as February 2017. The company ceased operations on Jun 10, 2017.
But he allowed the company to publicise and sell long-term gym memberships ranging from one-year to five-year periods until May 2017, with 43 such memberships sold before the closure.
The plaintiffs said that he misled gym members by putting up a notice at one of the gyms saying that it was closed for renovation on May 10, 2017, when it was in fact closed for the court bailiff to take inventory under a writ of seizure for unpaid rental arrears.
They also argued that Mr Wee conducted pre-sales for a new club in Plaza Damas, a development in Kuala Lumpur, that never opened, selling 50 such memberships from November 2016 to May 2017.
As for True Group (Thailand), the plaintiffs said Mr Wee allowed membership fees to be collected from almost 39,000 members each month until end-May 2017, despite his knowledge of the impending closure.
They accused him of allowing the sale of gym memberships of up to three years to prospective members, up to the first week of June 2017. The company ceased operations on Jun 9, 2017.
They also argued that instead of dealing with the fallout from the closure, Mr Wee appointed one Ms Moonjaisai, the wife of his friend's tailor, to be sole director and his "scapegoat" once the closure came into effect, the judgment stated.
The plaintiffs said that Mr Wee failed to provide gym members in Thailand with alternative fitness facilities after the closure. For those in Malaysia, there was an arrangement to use CHI Fitness facilities, but this abruptly ended in January 2018.
Mr Wee's lawyers argued that his actions leading up to the closures were "commercial decisions made in the best interests of True Group (Malaysia) and True Group (Thailand) given the circumstances", the judgment stated.
He also counterclaimed for wrongful termination and unpaid salary of S$120,000 a month for the period of Jan 1, 2018 to May 9, 2019, and salary in lieu of a year's notice for his termination.
The plaintiffs argued that Mr Wee's termination was justified under his employment contract on the grounds of "wilful misconduct or gross negligence" in his mismanagement of the closures, the judgment stated.
In his judgement, Justice Choo Han Teck agreed that Mr Wee had known that the True Group companies in Malaysia and Thailand were facing financial difficulties and impending closure since February 2017.
He said Mr Wee knew that the True Group chains in Malaysia and Thailand would not be able to fulfil the long-term memberships they were still selling.
"The defendant ought to have known that the members would be outraged, and reasonably so, upon the closure of the gyms which would in turn damage True Group's reputation and businesses in other countries," said the judge.
These actions taken in the lead up to the closures breached Mr Wee's duty to act diligently and in the best interests of the plaintiffs in managing the closures, said Justice Choo.
He also said that Mr Wee's conduct suggested "he was more concerned with evading responsibility as a director" rather than dealing with the consequences of the closures on staff and gym members.
Justice Choo cited Mr Wee's resignation days before the closure of True Group (Thailand), leaving Ms Moonjaisai as sole director to handle the winding up and creditors' claims, and his similar resignation before the closure of True Group (Malaysia).
"While these actions may not be breaches of the defendant's director duties in themselves, they shed light on his priorities and personal interests in managing the closures," said the judge.
"The evidence shows that Ms Moonjaisai was at a complete loss as to how to deal with the closure of the business," he added.
Justice Choo also ruled that Mr Wee was entitled to unpaid salary of about S$62,660, but found that his employment was not wrongfully terminated.
The judge reserved the issues of costs and quantification of the plaintiff's losses to a later date.