Shareholders Remedies In Singapore

Transcription

1 Shareholders Remedies In Singapore Introduction Shareholder relationships provide an ever intriguing interplay of challenging and complex dynamics; all the more so in the tussle to be heard between majority and minority shareholders. Shareholders rights pertain to a variety of matters, including rights relating to general meetings, rights to approve company transactions and certain corporate matters, rights to information and above all, the right to be treated fairly. Most recently, the battle over Asia Pacific Breweries (APB) provided a timely reminder that shareholder approval thresholds matter. In the aftermath of the sale of its stake in APB, Fraser and Neave s (F&N) proposed capital reduction scheme was effectively blocked by Thai Beverage and TCC Assets, who collectively hold about 30.7% shareholding in F&N. The proposed capital reduction scheme was meant to reward F&N shareholders with the APB sale proceeds, but F&N failed to garner the required 75% shareholding support. Furthermore, there has been a raft of reform initiatives in the corporate governance arena. Earlier in May this year, the Monetary Authority of Singapore released the revised Code of Corporate Governance. The Ministry of Finance has also just completed its review of the Companies Act; improved corporate governance being amongst the wide ranging changes. In the midst of these developments, we take stock of the various legal remedies available to minority shareholders 1. 1 The main sources of the rights of shareholders in Singapore companies are the Companies Act (Cap. 50 of Singapore), the Securities and Futures Act (Cap. 289 of Singapore), the Code of Corporate Governance, the Singapore Exchange s Listing Manual as well as case law. 1 Rajah & Tann LLP

2 Key Points To Note The legal mechanisms for minority protection include (i) action for oppression / unfair prejudice (Oppression Remedy) and (ii) derivative action on the company s behalf against its directors. Shareholders may also employ self-help remedies by seeking representation from industry bodies to mediate in their disputes with the company. In this Client Update, we focus on the Oppression Remedy given that it affords unhappy minority shareholders the principal remedy to be bought out. The key points in this Client Update to be noted are:- (1) Amongst the various avenues for minority protection, this remedy is most often utilised by minority shareholders due to its wide scope of remedies, in particular, the right to be bought out at a fair price or to apply for just and equitable winding up of the company. (2) Oppressive / unfairly prejudicial conduct occurs when there is a visible departure from the standards of fair dealing and a violation of fair conduct which shareholders are entitled to expect. (3) While each case is to be decided on its own facts, there are a number of categories of conduct which the Courts have deemed to be oppressive / unfairly prejudicial in nature. Overview Of The Oppression Remedy For practical purposes, the Oppression Remedy is favoured by minority shareholders for its wide scope and the flexible remedies provided that directly benefit them, in comparison to the derivative actions that do not result in a direct personal benefit to minority shareholders. Under an Oppression Remedy, the Courts are able to order the purchase of an oppressed minority s shares or a division of assets on winding up. The flexibility of the remedies afforded under this mechanism is wide and includes the possibility of awarding damages to the company for breaches of directors duties (on the basis that this is part of the shareholder s claim). 2 Rajah & Tann LLP

3 Test of Commercial Unfairness The legal test for the Oppression Remedy is that of commercial unfairness. The breach (or typically, breaches) of the written contract and/or legitimate expectations between the shareholders must cause commercial unfairness to the aggrieved shareholder and is an objective standard to be proven on the factual matrix of each individual case. Set out below are the various types of cases that tend to amount to commercial unfairness, though it should be noted that these categories are not determinative of oppression. (1) Dominant Members Advancing Own Interests At Company / Minority s Expense Conduct typically involves majority shareholders and directors diverting corporate assets and/or opportunities to themselves or parties in which they have an interest. Such diversion constitutes a breach of directors common law, fiduciary and statutory duties. (2) Abuse Of Voting Powers Conduct typically involves majority shareholders and directors causing harm to minority shareholders by using their voting power in bad faith, for a collateral purpose and/or in a manner inconsistent with the company s Articles of Association. (3) Exclusion From Management Where a shareholder has a legitimate expectation of being involved in the management of a company, exclusion from management may amount to commercial unfairness. Where there is a legitimate expectation of management participation of a shareholder, such shareholder may be fairly excluded from management if the circumstances warrant it and fair compensation is provided. In the past few years, there have been a number of major cases whereby a minority shareholder was able to successfully deploy the Oppression Remedy. One such example is 3 Rajah & Tann LLP

4 the Court of Appeal case of Over & Over Ltd v Bonvests Holdings Ltd [2010] 2 SLR 776. Here, the minority shareholder (represented by Rajah & Tann LLP) of a two-party joint venture found its interests being repeatedly disregarded. The Court of Appeal held that even though not all the instances were sufficient on their own to constitute oppression, together, they comprised clear evidence of unfairness that amounted to oppressive conduct. In particular, the Court of Appeal decided that the majority s decision to issue shares to dilute the minority s voting power in the context of the parties original expectation of quasi-partnership amounted to oppression. The Court of Appeal thus ordered the majority shareholder to purchase the minority interest at a fair market value ascertained by an independent valuer, or else proceed with the winding up of the joint venture. The Oppression Remedy was also utilised in the seminal case of Lim Swee Khiang v Borden Co (Pte) Ltd [2006] 4 SLR(R) 745. The minority shareholders in this case applied to wind up the company ( the Company ) under s. 216 of the Companies Act. The Court of Appeal found that the majority shareholders, instead of promoting the commercial interest of the Company, had acted in a manner that furthered the commercial interests of another company set up by one of the majority shareholders, disregarding the Company s commercial interests. It was held that winding up was not an appropriate remedy, and the majority shareholders were thus ordered to purchase the shares of the minority. Concluding Words There is no doubt that the case for strengthening shareholder rights is gaining momentum, as evidenced in the Ministry of Finance s (MOF) Responses to the Report of the Steering Committee (SC) for Review of the Companies Act. Although the MOF agreed with the SC that there are no compelling reasons to introduce a specific minority buy-out right in the Companies Act, the MOF agreed with the SC s recommendations on new buy-out remedies in the context of winding-up applications, where the Courts find it just and equitable to do so or where the directors have acted in their own interest or in unfair or unjust manner. Together with the other major changes proposed to the Companies Act, shareholders can look forward to a much improved corporate regulatory framework in Singapore. For further insight into this area of law, please contact our Corporate Practice & Commercial Litigation Practice partners listed below. 4 Rajah & Tann LLP

5 Contacts Mark Cheng Partner D (65) F (65) mark.cheng@rajahtann.com John Cordova Partner (Foreign Lawyer) D (65) F (65) john.cordova@rajahtann.com Loh Hui Lin Associate D (65) F (65) huilin.loh@rajahtann.com Please feel free to also contact the Knowledge and Risk Management Group at eoasis@rajahtann.com Rajah & Tann LLP is the largest law firm in Singapore and Southeast Asia, with regional offices in China, Lao PDR, Vietnam and Thailand, as well as associate and affiliate offices in Malaysia, Indonesia, Cambodia and the Middle East. Our Asian network also includes regional desks focused on Japan, South Asia and Myanmar. As the Singapore member firm of the Lex Mundi Network, we are able to offer access to excellent legal expertise in more than 100 countries. Rajah & Tann LLP is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealing with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The contents of this Update are owned by Rajah & Tann LLP and subject to copyright protection under the laws of Singapore and, through international treaties, other countries. No part of this Update may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose save as permitted herein) without the prior written permission of Rajah & Tann LLP. Please note also that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business and operational requirements. It is to your advantage to seek legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann LLP or the Knowledge & Risk Management Group at eoasis@rajahtann.com. 5 Rajah & Tann LLP