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].

Case Update: The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal

The Royal Bank of Scotland NV (formerly known as ABN Amro Bank NV) and others v TT International Ltd and another appeal [2012] 2 SLR 213; [2012] SGCA 9classification of creditors in scheme of arrangement and principles on implementation of Schemes of Arrangement

 

  1. The Court of Appeal in this case laid down several principles on how schemes of arrangement are to be implemented.[1] Preliminarily, issues of creditors’ classification should be considered by a court when it first hears the application for creditors’ meetings.

 

  • (a) A proposed scheme manager must act transparently and objectively and should not be in a position of conflict of interest (ie, if he aligns his interests without good reason with those of the company) (at [71]-[73]). In this case, the proposed scheme manager was conflicted because he was also the nominee for the individual voluntary arrangements filed by the chairman and an executive director (who was also the chairman’s wife) of the respondent (at [74]-[78]).

 

  • (b) Scheme creditors are entitled to examine the proofs of debt submitted by other scheme creditors in respect of a proposed scheme (at [79]-[93]).

 

  • (c) A scheme creditor should be notified of the proposed scheme manager’s decisions to admit or reject its own and other creditors’ proofs of debt before the votes are cast at the creditors’ meeting. In this case, the proposed scheme manager should have completed adjudicating all the proofs of debt submitted (and notified all scheme creditors of the admitted proofs) prior to the Scheme Meeting (at [94]-[99]).

 

  • (d) A scheme creditor may appeal the proposed scheme manager’s decisions to admit or reject its own and other creditors’ proofs of debt for the purposes of voting. In this case, some of those decisions to admit or reject certain proofs of debt were held to be incorrect (at [100]-[110]).

 

  • (e) Scheme creditors should be classified differently for voting purposes when their rights are so dissimilar to each other’s that they cannot sensibly consult together with a view to their common interest. In other words, if a creditor’s position will improve or decline to such a different extent vis-à-vis other creditors simply because of the terms of the scheme assessed against the most likely scenario in the absence of scheme approval, then it should be classified differently. In this case, while the contingent creditors’ claims need not have been classified separately, the claims of certain substantial shareholders should have been classified separately. This was because the substantial shareholders’ claims would have been subordinated in a liquidation pursuant to s 250(1)(g) of the Act, but they would not have been subordinated under the Scheme (at [130]-[151]).

 

  • (f) Related party creditors and contingent creditors should generally have their votes discounted; while wholly owned subsidiaries should have their votes discounted to zero and should effectively be classified separately from the general class of unsecured creditors (at [152]-[175]).

[1] See Supreme Court Note: The Royal Bank of Scotland NV v TT International Ltd 2012] SGCA 9 (principles governing implementation of schemes of arrangement), Supreme Court Note, Supreme Court, Mar 2012 (1).

Case Update: Long Say Ting Daniel v Merukh Nunik Elizabeth

Long Say Ting Daniel v Merukh Nunik Elizabeth (personal representative of the estate of Merukh Jusuf, deceased) (Motor-Way Credit Pte Ltd, intervener) [2013] 1 SLR 1428; [2012] SGHC 250. Section 391 of the Companies Act does not apply to proceedings commenced by persons other than the company.

  1. The High Court in this case interpreted section 391 of the Companies Act, which sets out the Court’s power to grant relief from liability where, among others, a director believes that any claim will or might be made against him in respect of any negligence, default, breach of duty or breach of trust.
  2. Section 391 applies to officers of a company, persons employed by a company as auditors, experts within the meaning of the Companies Act, and persons who are receivers, receivers and managers or liquidators (section 391(3) of the Companies Act)]
  3. The Court had to determine whether section 391 of the Act only applies to proceedings commenced by the company, and not by any other persons. The Court held in the affirmative, i.e. that section 391 of the Act does not apply to proceedings commenced by persons other than the company (at [56]).
  4. Background: the estate of the plaintiff’s deceased co-director threatened to take legal action against the plaintiff (either by the Company or qua the estate as a third party) for breach of director duties in selling several properties belonging to the company.
  5. The Court held (at [66], [68]) on the facts that the plaintiff was entitled to relief under section 391 against proceedings by the Company only as he had not been deceitful or unreasonable. However, this was not applicable to potential proceedings by third parties.
  6. Significance: this decision makes clear that relief under section 391 of the Companies Act is a narrow one and does not protect the applicant from proceedings by third parties. It is however unclear what effect a judgment granting relief under section 391 would have on proceedings commenced by third parties. It is likely that a favourable judgment would at the very least dissuade third parties from commencing proceedings since the court would already have deemed the applicant to have been acting honestly and reasonably.

Case Update: Ang Thiam Swee v Low Hian Chor [2013] SGCA 11

Ang Thiam Swee v Low Hian Chor [2013] SGCA 11commencement of statutory derivative action – good faith requirement.[1]

 

The Court of Appeal clarified and articulated several principles on the good faith requirement (under section 216A(3)(b) of the Companies Act) in respect of commencing statutory derivative actions under section 216A of the Companies Act.

 

The Court of Appeal clarified that while the motivations of the applicant should be assessed, it is not the motivations per se that constitute bad faith; instead, bad faith will only be established where the applicant’s motivations amounted to a personal purpose (where the applicant’s judgment becomes “clouded by purely personal considerations”) which indicated that the company’s interest would not be served: at [12]-[17].

 

There is no presumption that every party with a reasonable and legitimate claim was acting in good faith. Instead, the onus was upon the applicant to demonstrate that he was or may be genuinely aggrieved. (At [18]-[23]). (This overturned existing Singapore case law which stated that there was a presumption.)

 

Drawing from Canadian and Australian jurisprudence, the Court of Appeal applied a test for good faith which looked at (at [24]-[31]):

  • whether the applicant had an honest belief in the merits of the proposed derivative action; and
  • whether the applicant’s collateral purpose is sufficiently consistent with the purpose of doing justice to a company such that he is not abusing the statute, amounting to abuse of process, or abusing the company as a vehicle for his own personal interests.

 

Further, considerations of legal merit should not be factored into the assessment of good faith and may more appropriately be dealt with under s 216A(3)(c), which looked to the prima facie interests of the company (at [58]).

[1] See also Supreme Court Note- Ang Thiam Swee v Low Hian Chor [2013] SGCA 11 (s 216A of the Companies Act) Supreme Court Note, Supreme Court, Mar 2013 (1).