Chow Kwok Chuen v Chow Kwok Chi and Another

• Jurisdiction: Singapore
• Judge: Chan Sek Keong CJ
• Judgment Date: 13 August 2008
• Neutral Citation: [2008] SGCA 37
• Docket Number: Civil Appeals Nos 153, 154 and 155 of 2007
• Date: 13 August 2008
• Published date: 18 August 2008
• Year: 2008
• Plaintiff Counsel: Ang Cheng Hock, Tan Xeauwei and Jacqueline Lee (Allen & Gledhill LLP)
• Citation: [2008] SGCA 37
• Defendant Counsel: Jimmy Yim SC, Abraham Vergis, Lim Wei Shin and Clive Myint Soe (Drew & Napier LLC)
• Court: Court of Appeal (Singapore)
• Subject Matter: Application by non-minority shareholder to wind up company on just and equitable grounds,Section 254(1)(i) Companies Act (Cap 50, 2006 Rev Ed),Grounds for just and equitable winding up of family companies,Whether management deadlock and equitable considerations relating to quasi-partnerships applicable to family companies,Companies,Winding up

13 August 2008 Judgment reserved.

Chao Hick Tin JA (delivering the judgment of the court):

1 The present appeals arose from the decision of the High Court judge (“the Judge”) in Re Lee Tung Co (Pte) Ltd [2008] 1 SLR 800 (“the GD”) where she ordered the winding up of Chow Cho Poon (Pte) Ltd (“CCPL”), Lee Tung (Pte) Ltd (“Lee Tung”) and Associated Development Pte Ltd (“ADPL”) (collectively “the Companies”), which were set up by the late Chow Cho Poon (“Mr Chow”) to hold real properties. His eldest son, Chow Kwok Chi (“Chi”), applied to the High Court pursuant to s 254(1)(i) of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”) for a court order to wind up the Companies on the ground that it would be “just and equitable” to do so. His second son, Chow Kwok Chuen (“Chuen”), and third son, Chow Kwok Ching (“Ching”), opposed the application, although Ching had earlier commenced oppression suits against Chi and Chuen seeking, inter alia, for an order that the Companies be wound up. Chuen has appealed against the winding-up orders made by the Judge.

2 The Companies were set up by Mr Chow to hold the assets which he had accumulated over the years. His three sons, ie the three brothers, are the only directors of the Companies, with each of them effectively owning more than 25% shares in each company following Mr Chow’s death, and their eldest sister, Mrs Betty Sheares, holding a smaller beneficial interest under a trust executed by their late mother, Mrs Chow. The ownership of the Companies was summarised at [11] of the GD as follows:

The shares in the companies are held by members of the Chow family. Some years before she died, Mrs Chow executed a deed of trust whereby she gave each of her sons 30% of her assets and her daughter 10% of her assets. These assets included her shares in the companies. In the breakdown that follows therefore, although I refer to Mrs Chow’s shares, it should be borne in mind that the beneficial owners of those shares are actually her sons and daughter in the percentages mentioned. The shareholdings in the various companies, according to Chi, are:

LEE TUNG

Shareholder	Number of shares	%
Estate of Mr Chow	1,230	45.56
Mrs Chow	1,149	42.56
Chi	247	9.14
Chuen	67	2.48
Ching	7	0.26

ADPL

Shareholder	Number of shares	%
Estate of Mr Chow	1,500,001	33.33
Mrs Chow	750,001	16.67
Chi	750,000	16.67
Chuen	750,000	16.67
Ching	750,000	16.67

CCPL

Shareholder	Number of shares	%
Estate of Mr Chow	7,287	29.74
Mrs Chow	84	0.34
Chi	5,712	23.31
Chuen	6,202	25.31
Ching	5,215	21.29

Taking into account the distribution of Mr Chow’s and Mrs Chow’s shares, the three brothers’ shareholdings in the Companies would be as follows:

Lee Tung

Shareholder	Number of shares	%
Chi	1,048.56	38.84%
Chuen	692.84	25.66%
Ching	808.56	29.95%

ADPL

Shareholder	Number of shares	%
Chi	1,532,143.53	34.05%
Chuen	1,317,857.67	29.29%
Ching	1,532,143.53	34.05%

CCPL

Shareholder	Number of shares	%
Chi	8,443.8	34.46%
Chuen	7,892.8	32.22%
Ching	7,946.8	32.44%

It would be seen that Chuen has enough voting power (more than 25%) to block any proposal for the voluntary winding-up of the Companies.

3 Lee Tung employs three management staff who run the day-to-day affairs of the Companies. Since Mr Chow’s death in August 1997, the Companies have continued their usual businesses of leasing out commercial properties. No substantial business decisions have been made in respect of the Companies or their assets over the past ten years apart from the refurbishment made in 2004 to some common areas of Chow House, which is located along Robinson Road. At the time of his death, Mr Chow owed substantial debts to the Companies. While the exact amounts of the debts are in dispute, Mr Chow’s estate owes ADPL approximately $6.1m, Lee Tung $10.7m and CCPL $17.2m. A “desk-top” valuation of the Companies in 2005 estimated that CCPL’s real properties are worth $11.1m, Lee Tung’s $17.3m, and ADPL’s $30.5m. ADPL’s main asset is Chow House.

4 Mr Chow’s estate has not been able to pay off its debts to the Companies because its principal assets comprise its shares in the Companies themselves. After Mrs Chow died in 2002, and the brothers became the sole trustees of Mr Chow’s estate, they made no progress in administering it. In June 2004, Ching applied to court in Originating Summons No 729 of 2004 for an independent party to be appointed to administer the estate. By an order of court dated 5 October 2005, V K Rajah J appointed one Mr Loong, a certified public accountant, as the independent administrator of Mr Chow’s estate. In February 2006, Mr Loong recommended that Mr Chow’s debts to the Companies be settled by assigning the debts to the beneficiaries in the proportions corresponding to the shares which each of them was entitled to in each of the Companies under Mr Chow’s will, so that the Companies would be able to declare dividends which the brothers could use to repay the debts. Chuen rejected this recommendation; Mr Loong’s application for a court order in August 2006 was adjourned for the brothers to consider an amicable settlement, and there has been no further progress since.

5 At the trial below, Chi applied for the Companies to be wound up under s 254(1)(i) of the Act for two main reasons (see the GD at [24]):

(a) As Mr Chow’s estate consisted mainly of shares in the companies which were not readily realisable, the winding up of the companies would enable the long-overdue debts of the estate to the companies to be dealt with and thus allow the estate to be administered.

(b) The three brothers could no longer work together in running the companies or in dealing with the affairs of the family. In addition, for so long as the companies existed, and the late parents’ estates remain unadministered, the three brothers could not avoid having to deal with one another and that state of affairs had resulted in numerous disputes and law suits between them.

The decision below

6 The Judge, having reviewed all the circumstances of the case, held at [37] of the GD that:

On the evidence, there is indeed no complete deadlock in the management of the companies. Resolutions have been passed, in the majority of cases because Chuen and Chi have been able to agree on the course of action to be taken. However, even though the articles of association of the companies provide for majority rule, the situation is an unhealthy one because Ching is consistently left out of management decisions by virtue of being outvoted.

Having found that all the brothers had contributed to the poor state of their relations with each other, which Chi and Chuen readily admitted, the Judge reasoned that “it would be wrong to deprive Chi of the remedy which he seeks simply because he was also one of the causes of the current state of affairs” (at [40]).

7 Further, she decided at [43] that the deadlock in the management of the Companies was a ground for winding up because a family company, like a quasi-partnership, was a paradigm case in which equitable considerations should be applied:

In a situation such as this where the companies were in effect inherited as a family business (such that the brothers became co-directors because of the inheritance and not because they had a common business that they wanted to promote), while the existence of the companies cannot be said to be the sole cause of the breakdown in the relationships, it appears to me that the parties should not be forced to remain as co-directors.

8 Thus, the Judge noted at [44] that the petition brought by Chi was:

… not the classic case of a winding-up application being brought by a minority shareholder against the majority. This petition was commenced because Chi was of the opinion that a winding up would be in everyone’s interest, not because his participation as a director was being sidestepped by the majority.

9 As to Chi’s submissions that the Companies should be wound up so that the siblings would be able to make a clean break from one another, the Judge recognised (at [46]):

The desire for a clean break is not an established ground for a winding-up application. ... In a case like this, however, where the dispute may be considered as springing from domestic relations, it may have some place. Even so, it should be regarded not so much as a basis for making the order as a factor put forward to establish that any remedy short of winding up would be unlikely to resolve the issue before the court.

10 Viewing the case in its totality, the Judge decided (at [51]):

Looking at the actions of the parties over the years, the outlook for an amicable resolution of their various difficulties with one another appears bleak. … The history of these parties over the past five years shows an increasing tendency to look to the court to resolve one party’s disagreement with the others or to break the deadlock that has prevented any forward motion in respect of any particular matter. The court has an interest in discouraging unnecessary litigation. It should also be remembered that while the brothers are feuding, their sister’s interest is being affected. … In this situation, one could see that a clean break would benefit not only the brothers by allowing them to move on with their lives freed from the necessity of interacting with each other but would also assist in resolving issues related to the sister’s interest and would, in all likelihood, reduce the prospect of future litigation.

11 As to the question whether the administration of Mr Chow’s estate could be considered in deciding whether the petition to wind up the Companies should be allowed, the Judge opined at [56] that:

[T]he administration of the estate is a relevant factor to consider in relation to the winding-up application. It is a major argument in favour of a...