What remedies does a minority shareholder or debenture holder have if he feels aggrieved that he is being treated unfairly by majority shareholders and/or directors of a company?
Grounds for Relief
Under section 216 of the Companies Act, such a minority shareholder can apply to the Singapore Court for any of the following remedies:
The grounds for such relief are:
What amounts to minority oppression?
What constitutes oppressive conduct under section 216 of the Companies Act? This is where there has been a visible departure from the standards of fair dealing and a violation of what is commercially unfair conduct. The Court of Appeal’s decision in Lim Swee Khiang v Borden Co (Pte) Ltd [2006] 4 SLR(R) 745 sets out the guiding principles[1] (at [80]–[82], per Chan CJ):
80 The law on acts that are considered oppressive to a minority shareholder or in disregard of his interests is settled. Although the courts have been slow to intervene in the management of the affairs of companies (see for example Re Tri-Circle Investment Pte Ltd [1993] 1 SLR(R) 441) on the ground that a minority shareholder participates in a corporate entity knowing that decisions are subject to majority rule, s 216 of the CA enjoins them to examine the conduct of majority shareholders to determine whether they have departed from the proper standard of commercial fairness and the standards of fair dealing and conditions of fair play: Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 at 229.
81 … Margaret Chew, author of Minority Shareholders’ Rights and Remedies (Butterworths Asia, 2000) pertinently states at pp 107 and 108 that:
Section 216 of the Companies Act was conceived and passed with the objective of protecting minority shareholders from majority abuse. In order to offer effective and comprehensive protection, section 216 confers on the courts a flexible jurisdiction to do justice and to address unfairness and inequity in corporate affairs. …
The courts may be said to be empowered under section 216 of the Companies Act to re-lay the boundaries of what is or is not fair as between corporate participants.
82 A clear exposition of the rationale underlying s 216 of the CA is found in the judgment of Lord Hoffmann in O’Neill v Phillips [1999] 1 WLR 1092, a case under s 459 of the Companies Act 1985 (c 6) (UK), which corresponds materially to our s 216 CA. Lord Hoffmann said (at 1098–1099): …
Although fairness is a notion which can be applied to all kinds of activities, its content will depend upon the context in which it is being used. … So the context and the background are very important.
In the case of section 459, the background has the following two features. First, a company is an association of persons for an economic purpose, usually entered into with legal advice and some degree of formality. The terms of the association are contained in the articles of association and sometimes in collateral agreements between the shareholders. Thus the manner in which the affairs of the company may be conducted is closely regulated by rules to which the shareholders have agreed. Secondly, company law has developed seamlessly from the law of partnership, which was treated by equity, like the Roman societas, as a contract of good faith. One of the traditional roles of equity, as a separate jurisdiction, was to restrain the exercise of strict legal rights in certain relationships in which it considered that this would be contrary to good faith. These principles have, with appropriate modification, been carried over into company law.
The first of these two features leads to the conclusion that a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted. But the second leads to the conclusion that there will be cases in which equitable considerations make it unfair for those conducting the affairs of the company to rely upon their strict legal powers. Thus unfairness may consist in a breach of the rules or in using the rules in a manner which equity would regard as contrary to good faith.
83 It bears repeating that in a case such as the present where a company has the characteristics of a quasi-partnership and its shareholders have agreed to associate on the basis of mutual trust and confidence, the courts will insist upon a high standard of corporate governance that must be observed by the majority shareholders vis-à-vis the minority shareholders.
The conduct complained of must affect the plaintiff’s “interests as member” (section 216(1)(a), CA). Generally, this would be in respect of rights and obligations set out in the CA, the company’s memorandum and articles of association and the shareholders’ agreement if any.[2] However, this may also include “legitimate expectations” or “equitable considerations” of the member based on mutual understanding between parties as to the company (the latter is the preferred term of usage[3]).[4] This would include expectations based on managing the company as a quasi-partnership. Equitable considerations typically include the following elements:[5]
a. Association formed or continued on the basis of a personal relationship, involving mutual confidence;
b. An agreement or understanding that all or some of the shareholders shall participate in the conduct of the business;
c. Restriction upon the transfer of the members’ interest in the company.
Even if there was a legitimate expectation that minority shareholders can participate in management of the company, the fact that the complainant minority shareholder failed to contribute to management, resulting in the defendant excluding the former from management, would mean that there could be no commercial unfairness.[6] This may go towards the question of liability or remedy (discount on the value of shares for the purposes of a buy-out order).[7]
—
[1] Tan Cheng Han, ed., Walter Woon on Company Law, 3rd edn. (Sweet & Maxwell, 2009) at para. 5.51.
[2] Tan Cheng Han, ed., Walter Woon on Company Law, 3rd edn. (Sweet & Maxwell, 2009) at para. 5.60.
[3] Tan Cheng Han, ed., Walter Woon on Company Law, 3rd edn. (Sweet & Maxwell, 2009) at para. 5.75, citing O’Neill v Phillips [1999] 1 WLR 1092.
[4] Tan Cheng Han, ed., Walter Woon on Company Law, 3rd edn. (Sweet & Maxwell, 2009) at para. 5.60-5.61; Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL), applied in Lim Swee Khiang v Borden Co (Pte) Ltd [2006] 4 SLR(R) 745 (CA) at [13], [73] and Over & Over Ltd v Bonvests Holdings Ltd and another [2010] 2 SLR 776 (CA) at [80]. Lim Kok Wah and others v Lim Boh Yong and others and other matters [2015] SGHC 211, per Vinodh Coomaraswamy J at [102], [105]-[108].
[5] Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL) at 379E, cited in Lim Kok Wah and others v Lim Boh Yong and others and other matters [2015] SGHC 211, per Vinodh Coomaraswamy J at [105].
[6] Tan Cheng Han, ed., Walter Woon on Company Law, 3rd edn. (Sweet & Maxwell, 2009) at para. 5.66, citing Re RA Noble & Sons (Clothing) Ltd [1983] BCLC 273 (HC) (unable to find written judgment).
[7] Richards v Landy [2000] 1 BCLC 376 (HC); Blackmore v Richardson [2005] EWCA Civ 1356; [2005] All ER (D) 345 (Nov) at [53], [57] (unable to find written judgments).