Petroships Investment Pte Ltd v Wealthplus Pte Ltd [2016] SGCA 17
Significance: Singapore Court of Appeal holds that shareholders’ derivative actions–whether statutory or common law actions–are not available as regards companies in liquidation.
The CA held that the statutory provision (section 216A of the Companies Act) on application for leave to commence a derivative action is applicable in the context of going concerns: [35].
The scenario envisaged in s 216A is one where there exists directors who are capable of taking action to vindicate the company’s rights, ie, that they remain in active management. Whilst a company is a going concern, it is normally for the board of directors to authorise legal proceedings as the power to manage is usually vested in the board. However, when a company enters into liquidation, the board is effectively functus officio; the liquidator is now in the driver’s seat: [36].
Section 216B of the Companies Act further indicates that s 216A is meant to be applied to a company other than one under the control of a liquidator, as it envisages ratification of acts by the members of a company: [37].
After examining the legislative history and origin of s 216A, the CA opined that the fact that the shareholder should be required to demonstrate that it is prima facie in the “interests of the company or its shareholders that the action be brought” is an implied suggestion that the statutory derivation action was designed as a remedy for a minority shareholder in a going concern. This is because of the reference to the interests of the company and its members, but not those of its creditors. The interests of creditors would be the dominant consideration in a situation where, for example, an insolvent company is placed in a creditors’ voluntary liquidation: [46].
Further the common law position prior to the introduction of the statutory derivative action in Canada, which legislation was adapted for the Singapore Companies Act, was that the right of a minority shareholder to maintain a representative action against the company and the majority shareholders ceased as soon as the company went into liquidation: Ferguson v Wallbridge [1935] 3 DLR 66: [57].
The CA also left open the issue of whether or not the common law derivative action co-exists with, or has (instead) been abrogated by, s 216A in respect of Singapore companies: [70]. However, the Court opined that as a matter of practicality, it does not seem efficient or effective for a party to initiate a common law derivative action when a statutory derivative action pursuant to s 216A is available: [71].
The appellant argued that this decision would leave it without recourse. It suggested that the new liquidators, who were appointed through a members’ voluntary liquidation and could be removed by special resolution, were beholden to the majority and under its effective control). However, the Court rejected this argument: the appellant’s argument ignored the fact that in liquidation, even in members’ voluntary liquidation, the liquidator is subject to the oversight of the court: [73].