Company Law
| Date | 01 December 2006 |
| Published date | 01 December 2006 |
| Author | TAN Cheng Han SC LLB (National University of Singapore), LLM (Cambridge); Advocate and Solicitor (Singapore); Professor and Dean, Faculty of Law, National University of Singapore. |
| Citation | (2006) 7 SAL Ann Rev 143 |
8.1 One fundamental aspect of corporate law both in common law and civil law countries is the general recognition that a corporate entity is a separate legal person from its shareholders, management, and related companies. This doctrine of the company”s separate personality facilitates investment and helps to reduce the cost of capital.
8.2 This approach has been affirmed again in PP v Lew Syn Pau[2006] 4 SLR 210. In that case, the principal issue was whether the prohibition against a company directly or indirectly providing financial assistance for the purchase of its own shares was breached. The financial assistance in question was provided by a subsidiary and one argument advanced by the Prosecution was that the act of the subsidiary should be attributed to the company. Sundaresh Menon JC did not accept this. His Honour said that the mere fact that companies were part of a group did not by itself justify any lifting of the corporate veil to ignore the separate personalities of the companies within the group. In the present case, his Honour found that the subsidiary was a bona fide company established years before the transaction in question for perfectly valid and legitimate tax reasons. The subsidiary was not a sham or façade. It was incorporated in Mauritius for good commercial reasons and the group had been run in this way for years.
8.3 There is little doubt that this aspect of the decision is correct. It has been argued elsewhere by this author that at the heart of the cases where the corporate veil has been lifted, the courts have felt that the corporate form has been abused to further an improper purpose, and not for a bona fide commercial transaction: see Tan Cheng Han, ‘Piercing the Separate Personality of the Company: A Matter of Policy?’[1999] Sing JLS 531. On Menon JC”s findings, this was plainly not the case.
8.4 Guan Soon Development Pte Ltd v Yeo Gek Lang Susie [2006] 3 SLR 387 was a case involving pre-emption rights and the transmission of shares upon the death of a shareholder. Essentially, the deceased”s shares in the appellant company were transmitted to his estate. The deceased”s widow, the first respondent, was the administratrix of the deceased”s estate. The shares held by the deceased were distributed to the respondents (the deceased”s widow and children) according to the provisions of the Intestate Succession Act (Cap 146, 1985 Rev Ed). The respondents successfully applied to the High Court for an order compelling the appellant to register them as shareholders on the ground that the appellant”s articles of association had been amended resulting in the addition of a new article (Art 31A). Article 31A stated that the members” right of pre-emption would not apply in respect of any ‘transfer’ of shares following the death of a member where the deceased”s shares were transferred to, inter alia, ‘such person(s) who shall become entitled to a share in consequence of the death of the member in accordance with the applicable laws of intestacy’.
8.5 The appellant argued that the respondents were not allowed to rely on Art 31A as it was part of the amendments to the appellant”s articles of association made after the death of the deceased. The appellant relied on a minute of its directors” meeting with a statement to the effect that the amendments were not intended to apply to deaths of members occurring before the amendments (‘the qualifying statement’). The appellant also argued that even if Art 31A were read without the qualifying statement, it would still not apply to the shares that were distributed to the third, fourth and fifth respondents as it applied only to transfers and not to transmissions of shares.
8.6 The Court of Appeal dismissed the claim. Chan Sek Keong CJ, delivering the judgment of the court, said that Art 31A did not stipulate the time from which it was to apply and accordingly, the amendment took place from the day it was made. Furthermore, the text of Art 31A had been filed with the Registry of Companies without the qualifying statement and it was this version of Art 31A that was subsequently incorporated in the appellant”s memorandum and articles of association. It was also important to note that when the company first sent out its notice of annual general meeting, the attached text of Art 31A did not contain the qualifying statement. As such, it would have been improper for the company to change the text of Art 31A and approve it at the shareholders” meeting without giving prior notification to the administratrix who did not attend the meeting.
8.7 The effect of Art 31A was to exclude the pre-emption rights under Art 28 of the Articles in respect of any transfer of shares following the death of any member, upon a ‘transfer’ in the situations prescribed in Art 31A. It was arguable that the shareholders must have understood the expression ‘transfer’ in Art 28 to apply to a transmission of the shares of a deceased member under a testamentary disposition or otherwise by operation of law and also to a transfer by an administrator to a beneficiary. Accordingly, the effect of Art 31A was that, on the basis that Art 28 applied to transmissions of shares, it removed the pre-emption right of members against beneficiaries of the deceased member”s shares arising from an intestacy.
8.8 Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex Pte Ltd [2007] 1 SLR 940 is an interesting case involving nominee directors of a joint venture company. Under the terms of the joint venture agreement, each of the two conglomerates to the joint venture nominated three directors to the board of directors of the joint venture company (‘the Board’), with a total of six nominated directors. If there was a deadlock in relation to any decision by the Board, the chairman would, under the articles of the respondent joint venture company, have the casting vote.
8.9 The catalyst for the proceedings began when a warrant to act was given by the respondent”s managing director to a firm of lawyers, authorising the law firm to act on the respondent”s behalf in a claim against the appellant which was part of the joint venture conglomerate that was from Hong Kong, the other conglomerate joint venturer being from Australia. There was also a claim against the listed holding company of the appellant as the second defendant. The respondent required a resolution of its board of directors to ratify this warrant to act. The directors nominated to the Board by the party to the joint venture belonging to the Hong Kong conglomerate objected to a director nominated...
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