Case Update: Thio Syn Kym Wendy v Thio Syn Pyn [2018] SGHC 54 – Singapore High Court set out legal principles on minority discount in share buyout

Significance: Singapore High Court set out legal principles on whether a minority discount (for lack of control by the minority shareholding, and not non-marketability of minority shares) should be applied in a share buyout following a finding of minority oppression.

Where the company in question is a quasi-partnership, there is a strong presumption that no discount should be applied: In re Bird at 430; Strahan v Wilcock [2006] 2 BCLC 555 (“Strahan”) at [1]; Robin Hollington, Hollington on Shareholders’ Rights (Sweet & Maxwell, 7th Ed, 2013) (“Hollington”) at para 8-152. This presumption may be displaced in special circumstances (O’Neill and Another v Phillips and Others [1999] 1 WLR 1092 at 1107), such as when the minority shareholder has acted in such a manner as to deserve his exclusion from the company or has contributed to the oppressive conduct of the majority: see In re Bird at 430–431; Hollington at para 8-152: at [25].

There is no general rule in cases involving companies that are not quasi-partnerships: In re Bird at 431 (affirmed on appeal in In re Bird Precision Bellows Ltd [1986] 1 Ch 658). This view adequately takes into account the balance of competing considerations: (a) generally, an oppressed minority shareholder should not be treated as having elected freely to sell his shares; (b) the court should ensure that the oppressor does not profit from his wrongful behaviour (at [29]). There is no presumption or “baseline”. See [30].

The court must look at all the facts and circumstances when determining whether a discount should be applied in any case. E.g. the court will be more inclined to order no discount where the majority’s oppressive conduct was directed at worsening the position of the minority as shareholders so as to compel them to sell out (see Re Sunrise Radio Ltd [2009] EWHC 2893 (Ch) at [305]), or entirely responsible for precipitating the breakdown in the parties’ relationship: Over & Over Ltd v Bonvests Holdings Ltd and another [2010] 2 SLR 776. As with cases involving quasi-partnerships the court is likely to order a discount where the conduct of the minority contributed to their exclusion from the company or the oppressive conduct complained of: Sharikat Logistics Pte Ltd v Ong Boon Chuan and others [2014] SGHC 224 at [246]. The court will also consider relevant background facts such as whether the minority had originally purchased their shares at a discounted price to reflect their minority status, or for full value: Hollington at para 8-153; Re Blue Index Ltd at [51]. Ultimately, the broad task for the courts is to ensure that the forced buyout is fair, just and equitable for the parties in all the circumstances. See [31].

As regards minority discount for non-marketability of minority shares, the concern of preventing unfairness to a minority shareholder
who otherwise would not have sold out applies with equal force, but the countervailing considerations are different. Such a discount arises from the difficulty of selling shares due to share transfer restrictions and the narrowness of the market, regardless of whether the shares are majority or minority shares. The factors to be weighed are also distinct. For instance, the company may not be a listed company and there may be share transfer restrictions which stipulate that the shares may only be sold to Singaporeans. These are considerations that would be more appropriately evaluated by the expert valuer when assessing the value of the company and its shares as a whole, rather than by the court. The question of whether to apply a discount for non-marketability should ordinarily be left to be determined by the independent valuer in his expertise. However, it is possible that in an exceptional case, the circumstances may warrant an order by the court that no discount be applied in order to remedy the unfairness to the minority that would otherwise result. See [32].

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