Lim Yew Ming v Aik Chuan Construction Pte Ltd

• Jurisdiction: Singapore
• Judge: Aedit Abdullah JC
• Judgment Date: 15 April 2015
• Neutral Citation: [2015] SGHC 101
• Year: 2015
• Date: 15 April 2015
• Published date: 20 April 2015
• Hearing Date: 03 February 2015,22 January 2015
• Plaintiff Counsel: Jeffrey Ong Su Aun & Nichol Yeo (JLC Advisors LLP)
• Citation: [2015] SGHC 101
• Defendant Counsel: Daniel Koh & Favian Kang (Eldan Law LLP)
• Court: High Court (Singapore)
• Docket Number: Originating Summons No 1043 of 2014

Aedit Abdullah JC: Introduction

This case concerns the ability of the majority shareholder of a company to conduct a meeting to allow him to put to the vote essentially his vision of how the company should proceed. The minority shareholders, namely his mother and siblings opposed his plans, and declined to attend the meetings called by him, rendering these meetings inquorate. I granted his application to have a quorum of one. The minority shareholders have appealed.

Mr Lim Yew Ming, the plaintiff and majority shareholder of Aik Chuan Construction Pte Ltd (the first Defendant, hereafter ‘Aik Chuan’), sought to have the company, previously active only in the construction industry and boarding business, move into the renewable energy sector. His desire to expand the company’s activities into this new area ran up against the concerns of the 2nd to 7th defendants (“the Defendants”). The Defendants are the other shareholders of Aik Chuan, and are also the Plaintiff’s family members. These Defendants chose not to attend extraordinary general meetings (“EGMs”) called by him on two occasions in 2014 depriving him of the needed quorum. The case thus turns on whether the property rights of the majority shareholder should be vindicated, or whether he is constrained from pursuing his vision by the other shareholders.

The Plaintiff by Originating Summons 1043 of 2014 (“OS 1043/2014”), sought an order against Aik Chuan and the Defendants under s 182 of the Companies Act (Cap 50, Rev Ed 2006) (“the Companies Act”) that a quorum of one be sufficient for a general meeting of the members or shareholders of the company. Aik Chuan did not take an active part in the proceedings. After hearing arguments, I granted the order. The Defendants have now pursued the present appeal.

Background

The Plaintiff has 51.5%, of Aik Chuan. He is also the Managing Director. The remaining 48.5% is held by other family members, namely Lim Yew Soon, Lim Yew Ghee, Lim Yew Chee, Lim Po Lin, Lim Yu Lin, and Neoh Siew Inn (the mother of the Plaintiff). Lim Yew Soon (the 2nd Defendant) and Lim Po Lin (the 5th Defendant) are the other directors. Aik Chuan Construction, as the name suggests is active primarily in construction work in Singapore, though it has also gone into boarding and lodging houses.

In 2013, the Plaintiff sought to get into the renewable energy business, incorporating AC Global Energy Pte Ltd (“AC Global”) in December 2013. A contract was subsequently entered into on 1 February 2014 to construct a biomass plant in Tennessee, the United States. AC Global was to invest in the biomass plant, funded by an increase in AC Global’s paid up capital, and a $32m loan from Hitachi Capital Singapore Pte Ltd, which would be obtained to pay for the construction costs of the biomass plant. The Hitachi Loan in turn required a personal guarantee from the Plaintiff, a corporate guarantee, and an irrevocable banker’s guarantee of $3.2m over AC Global’s performance of its obligations. To provide the $3.2m bank guarantee, a first charge over Aik Chuan’s fixed deposit accounts had to be given to the bank, CIMB Bank Berhad. This was signed by the Plaintiff and the 5th Defendant. The application for the bank guarantee and a letter of authorisation in respect of the bank guarantee was signed by the Plaintiff and the 6th Defendant (an authorised signatory). The bank guarantee was approved. Subsequently, the Plaintiff and the 5th Defendant signed a resolution approving the corporate guarantee.

The Plaintiff then considered financing the Biomass Project by other means through project financing with the United Overseas Bank (“UOB”). The project financing supposedly offered better terms, and the possibility of enrolling on to an IE Singapore supported programme. IE Singapore approved AC Global’s application to be part of the programme. The UOB facility required a personal guarantee from the Plaintiff, and a corporate guarantee from Aik Chuan. However, at this point, the 2nd and 5th Defendants declined to sign the corporate guarantee.

The Plaintiff sought to convene an EGM on 8 October 2014 for the removal of the 2nd and 5th Defendants as directors. General meetings are governed by Article 54 of Aik Chuan’s Memorandum of Articles of Association (“Aik Chuan’s Articles”), which states the following:

Any director may whenever he thinks fit convene an extraordinary general meeting, and extraordinary meetings shall be convened on such requisition or in default may be convened by such requisitionists as provided by the Act.

Quora at general meetings are governed by Article 57 of Aik Chuan’s Articles, which state the following:

No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business, and continues to be present until the conclusion of the meeting. Save as herein otherwise provided, two members present in person shall be a quorum…

Article 58 specifies what happens if there is no quorum:

If within half an hour from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the same day in the next week at the same time and place, or to such other day and at such other time and place as the directors may determine.

The Defendants refused to attend this EGM, and no quorum could be formed. The Plaintiff attempted to have a 2nd EGM on 1 November 2014 to consider the appointment of other persons as directors of Aik Chuan. The Defendants again refused to attend, and the meeting was again inquorate. No issues were raised as to the propriety of the requisitions for these meetings.

The Plaintiff’s Case

Relying on s 182 of the Companies Act, and the English case of Union Music Limited v Russell John Watson & Anor [2003] EWCA Civ 180 (“Union Music”), interpreting a provision in pari materia, the Plaintiff contended that the inability to convene a meeting with a quorum because of the 2nd to 7th Defendants’ refusal to attend amounted to an impracticability, allowing the Court to order the meeting to proceed on a quorum of one. It was further argued that minority shareholders do not have a right of veto through the quorum requirements.

It is said that the Defendants had in defending their position made allegations which that were irrelevant to the Plaintiff’s application. The Defendants justified their stand on the ground that the agreement to invest in the Biomass Project was only on the basis that the Company would not invest more than $6.5m in the project. Any balance was to be raised by AC Global on its own. The Plaintiff contended that the Defendants, or at least the 2nd and 5th Defendants, knew all along that the financial support required went beyond $6.5m.

In addition, the actions of the Plaintiff are intended to further the interests of Aik Chuan. In contrast, the Defendants seek to pressure the Plaintiff into agreeing to enter a share swap between these Defendants’ shares in Aik Chuan, and the Plaintiff’s interests in the companies controlled by these Defendants.

The Defendants’ Case

The Defendants argued that s 182 is not engaged as there is no deadlock in the running of Aik Chuan’s business; that as Aik Chuan is a family business, the Defendants had the right to use the quorum provision to defend their interests. The Court should not grant an order under s 182 as the Plaintiff merely sought to further his personal project.

The Defendants also contended that there was an agreement that Aik Chuan would not need to lend more than $6.5m to a related company for the purposes of the Biomass Plant. This assurance led the Defendants to agree to that loan. Subsequently however, the Plaintiff informed them that $15m was needed. This additional sum was objected to by these Defendants as they saw this as going beyond the agreement that had been reached. As it was, a subsidiary of Aik Chuan was caused by the Plaintiff to provide the Biomass entity with funds for the project. The Plaintiff requisitioned two EGMs: the first to remove the 2nd and 5th Defendants as directors of Aik Chuan, and the second to appoint two persons friendly to him on to the board of directors. The Defendants declined to attend both EGMs, leading to the present case.

The Decision

The main issue in this case was whether the Plaintiff should be permitted to proceed with a quorum of one at a meeting of Aik Chuan to approve his preferred course of action. In resisting the application by the Plaintiff to do so, the Defendants relied on local cases which, they contend, recognise the right of shareholders to effectively boycott company meetings and veto proposals by their absence.

Grouping the issues a little differently from the parties, for ease of discussion, the issues in the present case are thus: The operation of s 182 Companies Act ‘Impracticability’ and the court’s exercise of discretion under s 182 of the Companies Act Whether minority shareholders are entitled in Singapore to cause a lack of quorum; in particular, whether a different approach applies to family run companies; and whether a family agreement is a sufficient basis to depart from the general position under s 182 of the Companies Act.

I drew no distinction between membership and shareholding in the company in my decision as the issue did not arise.

The operation of s 182 of the Companies Act

The portion of s 182 of the Companies Act relevant to the present case reads as follows:

If for any reason, it is impracticable to call a meeting in any manner in which meetings may be called or to conduct the meeting in the manner prescribed by the articles or this Act, the Court may, either of its own motion or on the application of any director or of any member who would be entitled to vote at the meeting or the personal representative of any such member,...