EQ Capital Investments Ltd v The Wellness Group Pte Ltd

• Jurisdiction: Singapore
• Judge: Chua Lee Ming J
• Judgment Date: 25 June 2019
• Neutral Citation: [2019] SGHC 154
• Court: High Court (Singapore)
• Hearing Date: 29 April 2019,02 May 2019,30 April 2019
• Docket Number: Companies Winding Up No 62 of 2018
• Plaintiff Counsel: Davinder Singh SC, Jaikanth Shankar, Srruthi Ilankathir, Hanspreet Singh Sachdev, Rajvinder Singh Chahal and Avinesh Selvarajah (Davinder Singh Chambers LLC)
• Defendant Counsel: Toby Landau QC and Calvin Liang (instructed), Chua Sui Tong, Liew Yik Wee and Wong Wan Chee (Rev Law LLC),Alvin Yeo SC, Koh Swee Yen, Lin Chunlong and Jasmine Low (WongPartnership LLP)
• Subject Matter: Companies,Winding up,Directors acting in own interests,Just and equitable winding up,Stay of execution pending appeal
• Published date: 31 January 2020

Chua Lee Ming J: Introduction

These proceedings involved an application to wind up the defendant, The Wellness Group Pte Ltd (“Wellness”), under s 254(1)(f) and s 254(1)(i) of the Companies Act (Cap 50, 2006 Rev Ed). The original plaintiffs were two shareholders of Wellness – Vickers Private Equity Fund VII LP and Vickers Venture Fund II LP (together, “the Vickers Funds”).

Wellness and the majority shareholder, Sunbreeze Group Investments Ltd (“Sunbreeze”), opposed the winding up application. The remaining holder of ordinary shares in Wellness, EQ Capital Investments Ltd (“EQ Capital”), supported the application.

On the first day of the hearing, the Vickers Funds sought leave to withdraw their application. EQ Capital applied to be substituted as the plaintiff in place of the Vickers Funds. Sunbreeze and Wellness objected. On 29 April 2019, I granted the Vickers Funds leave to withdraw their application. I also granted EQ Capital’s application in Summons No 2232 of 2019 to be substituted as the plaintiff, and proceeded to hear the winding up application.

On 2 May 2019, I ordered Wellness to be wound up. Both Wellness and Sunbreeze have appealed against my decision. There is no appeal against my decision in respect of Summons No 2232 of 2019.

Background

On 22 December 2003, Mr Manoj Mohan Murjani (“Manoj”) incorporated Wellness.¹ Manoj and his wife, Mrs Kanchan Manoj Murjani (“Kanchan”) were the initial shareholders. In 2006, the Vickers Funds became shareholders of Wellness, and in 2008, EQ Capital followed suit. In 2010, Manoj and Kanchan transferred their shareholdings in Wellness to Sunbreeze, a company that was wholly owned by, and under the directorships of, Manoj and Kanchan.

As at the date these proceedings were commenced, the shareholding in Wellness was as follows:

	Vickers Funds	Sunbreeze	EQ Capital	Manoj
Ordinary shares	2,789,526 (11.83%)	19,000,000 (80.62%)	1,778,658 (7.55%)	0
Preference shares	5,600	0	4,000	2,500

A shareholders’ agreement dated 21 August 2007² supplemented by an addendum dated 21 August 2008³ (together, “the SHA”) governed the rights and obligations of Wellness and its shareholders. Sunbreeze and EQ Capital became parties to the SHA by way of accession. The directors of Wellness were Manoj, Kanchan and Dr Finian Tan Seng Chin (“Dr Finian Tan”). Dr Finian Tan represented the Vickers Funds.

By an employment agreement dated 12 October 2007, Manoj was employed by Wellness as the chief executive officer (“CEO”) for a period of five years (ie, until 12 October 2012). Under this agreement, Manoj’s remuneration was to be determined in accordance with the SHA. Manoj tendered his resignation as CEO on 14 August 2012.

Wellness had been established for the purposes of wholesale and/or retail of lifestyle and/or wellness related products. However, it appeared that its only substantial asset was its shareholding in TWG Tea Company Pte Ltd (“TWG Tea”) which Manoj had incorporated in 2007. In early 2011, Manoj started discussions with OSIM International Ltd (“OSIM”) in relation to an investment by OSIM into TWG Tea. At that time, the shareholders of TWG Teawere Wellness and Paris Investment Pte Ltd (“Paris”). Paris was then owned by Mr Taha Bou Qdib (“Taha”) and two employees of TWG Tea. Taha was the former CEO of Wellness’ tea division which was subsequently corporatized and became TWG Tea.

During the negotiations with OSIM, Manoj presented profit projections which showed that TWG Tea would achieve profit before tax and minority interests (“PBT”) of S$29m for the financial year ending on 31 March 2013 (“FY2013”).

Pursuant to a sale and purchase agreement dated 18 March 2011 (“the OSIM SPA”), OSIM International Limited (“OSIM”) became a 35% shareholder of TWG Tea. After the sale to OSIM, Wellness’ and Paris’ shareholdings in TWG Tea were 54.7% and 10.3% respectively. Mr Ron Sim Chye Hock (“Ron Sim”) was the CEO of OSIM. He was also the principal of EQ Capital.

Clause 4.5 of the OSIM SPA (“the Profit Swing Clause”) provided for the combined shareholding of Wellness and Paris to be diluted (by up to 10% of TWG Tea shares) in favour of OSIM if TWG Tea’s audited PBT for FY2013 fell below S$17m, or for the shareholding of OSIM to be diluted (by up to 10% of TWG Tea shares) in favour of Wellness and Paris if the audited PBT for FY 2013 exceeded S$27m. The Profit Swing Clause was based broadly on the profit projections presented by Manoj.

TWG Tea’s audited PBT for FY2013, which was signed off by its auditors on 11 June 2013, was just above S$5m. Pursuant to the Profit Swing Clause, the combined shareholding of Wellness and Paris in TWG Tea was diluted by 10% in favour of OSIM. The dilution reduced Wellness’ shareholding in TWG Tea from 54.7% to 46.3%.

On 18 October 2013, OSIM purchased all the shares in Paris. The shareholding structure of TWG Tea then became as follows: OSIM and Paris (53.7%) and Wellness (46.3%).

In November 2013, TWG Tea proposed a rights issue to raise capital (“the Rights Issue”). Wellness did not subscribe to the Rights Issue. Consequently, OSIM and Paris together subscribed for the entire Rights Issue and the combined shareholding of OSIM and Paris in TWG Tea increased from 53.7% to 69.9% while Wellness’ shareholding was diluted further from 46.3% to 30.1%.

Suit No 187 of 2014

In February 2014, Wellness and Manoj commenced Suit No 187 of 2014 against OSIM, Paris and the directors of TWG Tea (“Suit 187”). Wellness’ claim was for minority oppression, conspiracy to injure and breach of contract whilst Manoj’s claim was for conspiracy to injure. Among other things, Wellness and Manoj alleged that OSIM, Ron Sim and the directors of OSIM, Paris and TWG Tea acted wrongfully to enable OSIM to take control of TWG Tea through the following acts, among others: OSIM’s exercise of its rights under the Profit Swing Clause to obtain an additional 10% of TWG Tea shares from Wellness and Paris; and Ron Sim’s proposal and OSIM’s and Paris’ approval of the TWG Tea Rights Issue, which was, inter alia, not for commercial reasons and intended to dilute Wellness’ shareholding.

On 22 April 2016, I dismissed the claims in Suit 187 – see The Wellness Group Pte Ltd and another v OSIM International Ltd and others [2016] 3 SLR 729. Among other things, I found as follows (at [95], [107] and [200]): OSIM did not cause TWG Tea’s failure to meet the performance target in the Profit Swing Clause and OSIM was entitled to exercise its rights under that clause. TWG Tea failed to achieve its project profit target for FY2013 because the profit projections presented by Manoj were (as Manoj knew) unreliable. The Rights Issue was undertaken bona fide and for good commercial reasons.

Wellness’ appeal in Civil Appeal No 64 of 2016 (“CA 64”) was dismissed by the Court of Appeal on 25 October 2016.

Suit No 545 of 2014

Suit No 545 of 2014 (“Suit 545”) was a separate defamation action by Wellness and Manoj against OSIM and its directors (including Ron Sim). Suit 545 was heard before me together with Suit 187. I dismissed Suit 545 on the ground that the offending words which formed the subject-matter of the claim, were clearly not defamatory and that even if they were, the defendants would have succeeded on their defences of qualified privilege and justification. Wellness and Manoj did not appeal against the dismissal of Suit 545.

Winding up under ss 254(1)(f) and 254(1)(i) The law

Under ss 254(1)(f) and 254(1)(i) of the Companies Act, (1) The Court may order the winding up if ––

…

(f) the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatever which appears to be unfair or unjust to other members;

…

(i) the Court is of the opinion that it is just and equitable that the company be wound up;

…

The law was not in dispute. With respect to s 254(1)(f): the directors are not acting in the interests of the members as a whole if they are seen not to have been acting in the interests of all the members; and the words “unfair and unjust” refer to commercial morality or integrity which the law ought to uphold or sustain having regard to all the circumstances.

See Re HL Sensecurity Pte Ltd (formerly known as HL Integral Systems Pte Ltd) [2006] SGHC 135 at [28].

As for s 254(1)(i), it is well established that the “notion of unfairness is the foundation of the court’s jurisdiction under s 254(1)(i)”: Perennial (Capitol) Pte Ltd and another v Capitol Investment Holdings Pte Ltd and other appeals [2018] 1 SLR 763 (“Perennial”) at [40]. Section 254(1)(i) is a jurisdiction permitting the court to superimpose equitable considerations on the exercise of legal rights: Perennial at [41]. The test for unfairness is an objective one, ie, whether a reasonable bystander would regard the majority shareholder’s conduct as having unfairly prejudiced the minority’s interests: Summit Co (S) Pte Ltd v Pacific Biosciences Pte Ltd [2007] 1 SLR(R) 46 at [5]. It is also well established that the court can wind up a company under s 254(1)(i) where it is found that the company’s business has been carried on in a fraudulent manner or there is a lack of probity in the directors’ conduct: Ma Wai Fong Kathryn v Trillion Investment Pte Ltd and others and another appeal [2019] 1 SLR 1046 (“Kathryn Ma”) at [38].

Whether grounds established

I was satisfied that EQ Capital had established sufficient grounds under both ss 254(1)(f) and 254(1)(i).

Accounts and Annual General Meetings

Wellness’ auditors had qualified the company’s accounts for FY2010 on the basis that:⁴ they were not able to examine the accompanying financial statements of Wellness for FY2010 because Wellness had not maintained proper accounting records and no adequate supporting...