Skincare brand founder sued by investors admits diverting revenue from company

She admits liability to pay damages in lawsuit by shareholders; court to determine amount

The founder of local skincare brand Klarity, who was sued by four investors for diverting revenue and profits away for her own benefit, has admitted that she was liable to pay damages for breaching her duties to the company.

The issue before the High Court now is how much damages Ms Karine Estelle Cheong, 31, has to pay for acting against the interests of the company she started.

The four minority shareholders, who brought the lawsuit against Ms Cheong on behalf of the company, have engaged a forensic accountant who estimated that her breaches resulted in losses of nearly $2.2 million.

The wrongful acts include Ms Cheong using another company called Secretive, which she solely owns, to sell Klarity products and pocket the profits. However, Ms Cheong, who also has an expert witness lined up, contends that no loss was caused and that she should pay only nominal damages of $1.

A High Court hearing to assess the quantum of damages started yesterday, after Ms Cheong consented to judgment being entered against her on the issue of liability.

In court papers she filed, she contended that her sole efforts and hard work resulted in the growing popularity of the brand. She said she even took part in a beauty pageant to promote the brand, coming in second runner-up in 2015.

Ms Cheong set up Klarity in March 2014, with a paid-up share capital of $7,777. The company, which gets its skincare products from a South Korean factory, hailed itself as the first brand to offer halal-certified skincare in Singapore.

In May 2014, she agreed to issue 49 per cent of the share capital to four individuals who invested a total of $300,000. They were Madam Ang Sock Hua, Mr Manmohan Singh Balbir Singh, Mr Omar Shah Jahan Malik and Mr Nicholas Ng Yick Hing.

The products were sold online and at selected retailers and were promoted through public relations events, official social media accounts and sponsored blog reviews.

The brand also expanded to overseas markets, including Myanmar, Malaysia, Thailand and Brunei.

In court papers filed by the investors, they said they found out in May 2016 that the "Klarity" trademark was registered not under the company's name but that of J Consultancy, which is solely owned by Ms Cheong. J Consultancy was later renamed Kreate Global.

They said they also discovered that Ms Cheong operated a competing business by using Secretive to sell Klarity products and to enter into distribution agreements in overseas markets.

The investors, represented by Mr Nicholas Narayanan, sued Ms Cheong, J Consultancy and Secretive last year.

Ms Cheong, represented by Mr Sarbrinder Singh, claimed she had disclosed her interest in her two companies to the minority shareholders before they invested.

She said she tendered her resignation as director in September 2015, after her proposal for more funding to launch new products was rejected, but the minority shareholders failed to appoint a replacement.