Minority Protection

MINORITY PROTECTION UNDER THE CA 2016 CORPORATE LAW – LAW 485

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STATUTORY PROTECTION OF A MINORITY – S346 S346(1) - Any member or holder of debenture…may apply to the court for an order under this section on the ground: a) b)

That the affairs of the company are being conducted or the power of the directors are being exercised in a manner oppressive to one or more of the members or debenture holder…or in disregard of his or their interest as members, shareholders or debenture holder; or That some act of the company has been done or is threatened or that some resolution of the members or debenture holders or any class of them has been passed or is proposed which unfairly discriminate against or prejudicial to one or more of the members or debenture holders including himself.

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WHAT AMOUNT TO OPPRESSION, DISREGARD, UNFAIRLY DISCRIMINATES OR PREJUDICIAL? ARE NOT DEFINED IN THE CA 2016.

R E F E R C A S E L AW.

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NG CHEE KEONG V NG TEONG KIAT HIGHLAND PLANTATION The directors had neglected the tea plantation belonging to the company.

Because of failure to pay the quit rent, there was the danger of the land being forfeited to the state.

Held: In view of the indifferent attitude of the BOD and the company in allowing the tea plantation to deteriorate from a profitable concern to one of near insolvency, together with their conduct in allowing the tea plantation to be in arrears of quit rent to such an extent that the land has almost forfeited to the state, it was clearly established that the affairs of the company were being conducted in an oppressive manner.

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SCOTTISH COOPERATION CO V MEYER Cooperative society majority

The purpose is to allow the cooparative society to engage in rayon business.

Subsidiary co

Later, the majority deliberately run down the subs company as they did not need it anymore. The shares becomes useless

Minority/petitioners Held: the petitioners’ case has been established and the society was ordered to buy out the 2 minority shareholders shares at a fair value.

Viscount Simonds said –”oppression is established where the majority shareholder exercise his authority in a burdensome, harsh and wrongful manner to the other members.

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RE H. R. HARMER LTD The father still control the running of the biz as if it was his own. Disregard the wishes of the fellow s/holders. Refused to comply with any resolution passed by the board. Impossible for the company to be carried out successfully. Held – oppression had been made out.

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RE BRIGHT PINE PTY. LTD. Read…

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Disagreement about policy or management do no entitle a member to relief under s 181 (equivalent to s 346)- Re Kong Thai sawmills Mismanagement does not necessarily constitute oppression or disregard of a member’s interest – Re Five Minute Car Wash Service Ltd. The act complained of must affect the member in his capacity as a member. –Re Chi Liung & Son ltd & Re Dundie Bros ltd

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LORD WILBERFORCE IN RE KONG THAI: ‘Oppression’ – a visible departure from the standard of fair dealing and a violation of the conditions of fair play. ‘disregard of interest’ – involve something more than a failure to take account of the minority’s interest; there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure.

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OWEN SIM LIANG KHUI V PIASAU JAYA SDN BHD (1996) ï‚­ It is important that the act complained of must continue right up to the date of the commencement of the action (for oppression). The act may be in form of action, omission, inaction; it may even be a single act of omission.

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EXAMPLES OF OPPRESSIONS Withdrawal of substantial funds from the company by the controllers and deposit it in fixed deposit account in their individual or joint names – Eric Lau Man Hin v Eramara Jaya Sdn Bhd & Re Kong Thai Sawmill.

Using company’s fund by the controllers to pay for their personal interest – Low Peng Boon v Low Jenie Diversion of the company’s business opportunities to related companies – Kumagai Gumi

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WHAT IS UNFAIR PREJUDICIAL OR UNFAIR DISCRIMINATORY? Prof Gower – no necessity to show ‘actual illegality or invasion of the legal rights as was postulated for the remedy for oppression.

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CIRCUMSTANCES OF UNFAIR PREJUDICIAL OR UNFAIR DISCRIMINATORY. The making of a discriminatory right issue and taking of excessive management fees out of the company : Re A Company No 002612. The exclusion of a quasi-partner from the management of the company: Re Bird Precision Bellow ltd. The improper allotment of share or the allotment of shares in breach of pre-emption rights: Re DR Chemicals Ltd The creation and allotment of invalid share: Re Nuneaton Borough AFC ltd

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CIRCUMSTANCES OF UNFAIR PREJUDICIAL OR UNFAIR DISCRIMINATORY? (CONT) The diverting of business and corporate opportunities away from the company: Re London School of Electronic Ltd The payment of inadequate dividends: Re Sam Weller & Sons Ltd The alteration of the composition of the subsidiary’s board of directors while the subsidiary was suing the parent company: Whyte, Petitioner.

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RE GEE HOE CHAN TRADING CO PTE LTD (1991) The company made a profit. The directors paid themselves directors’ fees and salaries and did not recommend appropriate dividend Held: there was unfair conduct against the minority members.

S132(1) of the CA 2016 – the power to pay dividend is now vested in the directors.

If the directors fails to recommend dividend despite the company making profit; and instead reward themselves with high director’s fees and salaries, the minority may seek remedies under s 346.

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REMEDIES AVAILABLE TO MINORITY MEMBER – S346(2) Direct or prohibit any act (the wrongful act)

The court may, with the view to bring an end or remedy the matter complained of, make such orders as the court thinks fit of. The orders may include:

cancel or vary any transaction or resolution which are of oppressive or unfairly discriminatory or prejudicial Regulate the conduct of the affairs of the company in future Order other members or debenture holders or the company itself to purchase the shares or debentures of the affected members order the company to be wound up MINORITY PROTECTION/SS

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ADDITIONAL REMEDIES t o t h e c o n DAMAGES - The court may also order damages sto be paid to the oppressed member - Koh Jui t Hiong v Ki Tak Sang & Anor (2014) i S346(4) – the court may order alteration to the t company’s constitution. u t i o n w h i c h

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PROCEEDINGS ON BEHALF OF A COMPANY – S 347 (DERIVATIVE ACTION) – WHO MAY TAKE ACTION?  S 347 – A complainant may, with court leave, bring, intervene in or defend an action on behalf of the co.

It must be brought in the company’s name.

Right to bring derivative action at common law is abrogated. S 345 ‘Complainant’ means:  Members of a company or person entitled to be registered as members.  Former member – relates to matters he ceased to be member  Any director of a company; or  Registrar – for declared company under section 590.

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‘LEAVE OF COURT’ s348 – an application for leave of the court under s 347 shall be made without the need for a appearance to be entered.

Must give 30 days notice in writing to directors of intention to apply the leave Must initiate proceeding in court within 30 days from the grant of the leave.

Matters considered by court before granting the leave for derivative action:  The complainant acting in good faith; and  Appears prima facie to be in the best interest of the company.

Any action brought cannot be discontinued , compromise, or settled except with thje leave of the court. This is to ensure that the complainant is serious in filing and conduction the derivative action.

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EFFECT OF RATIFICATION S 349 – if members of the company, ratify or approve the conduct of the subject matter of the action, such ratification does not prevent any person from bringing, intervening in or defending proceedings with the leave of court.

->Even though the members have approved the oppressive or unfair discriminatory conduct, the member may still apply for the leave of the court to take action on behalf of the company. The ratification has no effect.

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POWER OF THE COURT S 350 - When granting the leave for derivative action, the court may make the following orders:  Authorising the complainant to control the conduct of the proceedings;  Giving directions for the conduct of the proceeding;  For any person to provide assistance and information to the complainant  Requiring the company to pay reasonable legal fees.

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REMEDIES FOR MEMBERS UNDER THE CA 2016 IN BRIEF S223 and 228 – to restrain the directors from entering into a substantial value property transaction without the members’ approval.

S 195 – management review during members meeting.

S346 –where the member is oppressed S 347 – derivative action – the members is taking or defending an action in the name of the company.

S 351 – for an injunction to restrain the wrongdoer from committing an act which contravene the CA 2016 S 465 – to wind up the company.

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