HSBC (Malaysia) Trustee Bhd and Others v Soon Cheong Pte Ltd

• Jurisdiction: Singapore
• Judge: Judith Prakash J
• Judgment Date: 19 October 2006
• Neutral Citation: [2006] SGHC 193
• Date: 19 October 2006
• Subject Matter: Scope of director's power to refuse to register transfer of shares,Whether director properly exercising discretion not to register transfer of shares if decision made due to director's judgment that registration would cause company to lose status as private company,Transfer,Sections 128(2), 194(1) Companies Act (Cap 50, 1994 Rev Ed),Companies,Shares
• Docket Number: Originating Summons No 1662 of
• Published date: 20 October 2006
• Defendant Counsel: Chia Chor Leong (Citilegal LLC)
• Court: High Court (Singapore)
• Plaintiff Counsel: Tay Wei Loong Julian and Jiang Ke-Yue (Lee & Lee)

19 October 2006

Judith Prakash J:

1 This originating summons concerned an application by the plaintiffs for an order to compel the defendant to rectify its register of members by striking out the name of Chua Chai Wu, deceased (“the deceased”), as the holder of 175 shares of the defendant (“the 175 shares”) and by inserting in place thereof the names of the second to seventh plaintiffs as the holders of the 175 shares, and for all other consequential and incidental orders. I dismissed this application and now give my reasons for that decision.

Background

2 The second to seventh plaintiffs (“the beneficiaries”) were the children of the deceased who passed away on 4 October 2003 and were also the beneficiaries of the deceased’s estate. The first plaintiff, HSBC (Malaysia) Trustee Berhad, was the executor and trustee of the deceased’s estate under a will dated 25 September 1998. Amongst the deceased’s assets were the 175 shares which formed the subject matter of this application.

3 The defendant, Soon Cheong Private Limited, was incorporated in Singapore on 10 July 1947 as a private company limited by shares. The primary object of the defendant when it was incorporated was to acquire and take over the businesses then carried on by one Chua Toh Hua, in partnership with one Yeo Khye Sim. When the application was made, the defendant’s issued share capital stood at 5,002 shares, with a total of 23 shareholders. Eight of these shareholders were executors, administrators or trustees holding shares in trust for the respective estates of shareholders who had already passed away (“the trustee shareholders”). All of the shareholders, including those whose shares were then held by the trustee shareholders but excluding the sole corporate shareholder, Kong Hua Realty Sdn Bhd, were the descendants or relatives of either Chua Toh Hua or Yeo Khye Sim. It is worth noting that all of the shareholders of Kong Hua Realty Sdn Bhd, except for one member, were also concurrently shareholders of the defendant. Thus the defendant was essentially a private family business which was owned by the families of the founding partners, Chua Toh Hua and Yeo Khye Sim.

4 A special feature of the defendant that should be highlighted is that, under its articles of association, all powers, authorities and discretions vested in the directors by the Companies Act or the articles were vested in its first two directors, Chua Toh Hua and his son, Chua Hock Tat (“CHT”). The relevant portions of Art 58 of the defendant’s articles of association state as follows:

Chua Toh Hua and Chua Hock Tat also known as Chua Yat Chye shall be the first Directors of the company and each of them shall hold office until he dies, or resigns, or ceases to hold 100 shares in the company. While the said Chua Toh Hua and Chua Hock Tat also known as Chua Yat Chye or either of them holds office as directors, all powers, authorities and discretions vested in the directors by the Companies Act or these articles shall be vested in them or him alone, and all other directors (if any) for the time being of the company shall exercise such powers only as the said Chua Toh Hua and Chua Hock Tat also known as Chua Yat Chye or either of them may delegate to them and they shall be under their or his control and shall be bound to conform to their or his directions in regard to the company’s business.

Accordingly, by virtue of Art 58, and with the death of Chua Toh Hua sometime in 1981, CHT had sole, absolute and unfettered power and authority over the defendant exercisable at his own discretion.

5 In discharge of its duty as the executor and trustee of the deceased’s estate, the first plaintiff corresponded with the defendant and/or its representative on the registration of the transfers of the 175 shares from the deceased to the beneficiaries on various occasions between 17 June 2004 and the filing of the application.

6 The first plaintiff had first informed the directors of the defendant of its intention to transfer the 175 shares to the beneficiaries or alternatively, to sell the 175 shares to the existing shareholders at a suitable price on 17 June 2004. The defendant’s company secretary, ACA Management Services (Pte) Ltd (“ACA”), replied on 7 July 2004, with instructions on the procedure for transferring the 175 shares to the beneficiaries. ACA also notified the first plaintiff that CHT was willing to purchase the 175 shares for $650 per share. As the beneficiaries were of the view that that offer was too low, a counter-offer of $2,000 per share was made by a letter of 30 July 2004. Neither CHT nor the defendant responded to the counter-offer and the negotiations on the sale of the 175 shares did not proceed any further.

7 The chain of correspondence between the first plaintiff and the defendant then focused on the option of transferring the 175 shares to the beneficiaries. It should be noted that it was only on 27 September 2004 that the first plaintiff disclosed the names and number of the beneficiaries and identified them as being the second to seventh plaintiffs. By a letter dated 11 October 2004, the first letter following the first plaintiff’s disclosure, ACA informed the first plaintiff that CHT had advised that he would appreciate it if one of the beneficiaries was appointed to hold the 175 shares on trust for all the other beneficiaries of the estate in order to avoid the defendant losing its status as a private company, ie, because it would then have more than 50 members. As the plaintiffs were, however, not willing to accept such an arrangement, the defendant resorted to referring them to Art 20 of its articles of association which provided that the directors had the power to decline to register any transfers of shares to persons of whom they did not approve. While the defendant appears to have taken a rather strong stance against registering the transfers of the 175 shares to the beneficiaries, it did advise the plaintiffs that they could offer the shares to other members of the defendant and even attached a list of the members for their reference.

8 The parties were not able to resolve the issue amicably and solicitors were brought into the picture. Only after a further exchange of correspondence between the solicitors for the parties did the first plaintiff’s solicitors, M/s Lee & Lee, by a letter dated 6 May 2005, send the duly executed transfer forms in respect of the 175 shares, whereby the shares were transferred to the beneficiaries, together with a copy of the grant of probate dated 19 February 2004 appointing the first plaintiff as personal representative of the deceased’s estate, to the defendant’s solicitors, M/s Citilegal LLC, for registration. This was the first proper application made to the defendant to have the beneficiaries registered as its shareholders. The solicitors for the defendant replied on 7 June 2005 stating that the directors were rejecting the first plaintiff’s application for the registration of the transfers of the 175 shares to the beneficiaries. The letter reiterated that the defendant was a private company whose members were limited under its memorandum of association to a total of 50 and gave the following reasons for the directors’ rejection of the first plaintiff’s application:

If your clients’ application is granted, the following consequences may ensue:

(a) [The] trustee shareholders may make similar applications for the shares of the deceased members to be transferred to the beneficiaries of the respective estates of the deceased members; and

(b) The executors/administrators of members who pass away after the date hereof may similarly apply for the shares of these members to be transferred to the beneficiaries of the respective estates of these members.

If all of the aforesaid applications, including your clients’ application, are granted, and if, pursuant thereto, all of the shares to which these applications relate are transferred to all of the beneficiaries to which these applications relate, the total resultant number of the members of the Company may exceed fifty, in breach of the Memorandum of Association.

The directors were, however, prepared to approve and register the transfers of the 175 shares to a maximum of two of the beneficiaries. I noted though, that it was only later, in CHT’s first...