Re Lee Tung Company (Pte) Ltd

• Jurisdiction: Singapore
• Judgment Date: 22 November 2007
• Date: 22 November 2007
• Docket Number: Companies Winding Up Originating Summons No 55 of 2007
• Court: High Court (Singapore)

Re Lee Tung Co (Pte) Ltd and other matters

[2007] SGHC 197

Judith Prakash J

Companies Winding Up Originating Summons No 55 of 2007

High Court

Companies–Winding up–Application by non-minority shareholder to wind up company on just and equitable grounds–Whether there was management deadlock when company being run by senior management and turning in profit–Whether clean break desirable and justifying winding-up order–Whether difficulties in administering founder's and founder's wife's estates relevant in application for winding-up order–Companies–Winding up–Whether equitable considerations relating to winding up of quasi-partnerships applicable to family companies–Companies–Winding up–Whether just and equitable to order winding up of company–Section 254 (1) (i) Companies Act (Cap 50, 2006 Rev Ed)

By this originating summons, the plaintiff, Chow Kwok Chi (“Chi”), applied for the winding up of the defendant company, Lee Tung Company (Private) Limited (“Lee Tung”). At the same time he filed separate proceedings for similar orders to be made against two related companies, Associated Development Private Limited (“ADPL”) and Chow Cho Poon (Private) Limited (“CCPL”). The basis of all three applications (“winding-up applications”) was that it would be just and equitable for the court to make such orders pursuant to s 254 (1) (i) of the Companies Act (Cap 50, 2006 Rev Ed).

The companies had been set up by Chi's father, Chow Cho Poon (“Mr Chow”). Following the deaths of Mr Chow and his wife (“Mrs Chow”), the companies were run by their three sons - Chi, Chow Kwok Chuen (“Chuen”) and Chow Kwok Ching (“Ching”), each of whom was a director of the companies and held shares therein both directly and through his interests in the estates of the parents. Their sister was not a director and had no direct shareholding but she had an interest in the companies' shares through her interest in Mrs Chow's estate.

The brothers did not get along with one another. Each brother had a very different view of how the companies and the family fortunes should be dealt with. Lee Tung's three employees who conducted the day-to-day running of the companies after Mrs Lee's death acted on the instructions of the directors, which meant, for the most part, that they acted on the instructions of Chi and Chuen who could usually agree on what needed to be done, while Ching would be in the minority. Ching became increasingly vocal about his unhappiness with his elder brothers.

Ching commenced suits against Chi and Chuen for oppression. The main relief he sought was the compulsory winding up of each of the companies. Subsequently, Chuen filed three sets of originating summonses in which he asked for leave to commence an action in the name and on behalf of each of the companies against Mr Chow's estate to recover loans allegedly owed by the estate to the companies. Some three months later, Chi filed these winding-up applications. Chuen was most strongly opposed to the winding-up applications. Ching also opposed them because he considered that if the companies were to be wound up, it should be on the ground of the alleged oppressive conduct of Chi and Chuen in relation to him.

In the course of the proceedings, it became clear that the loss or abandonment of the substratum of the companies could not be a ground for winding up because the object and purpose of the companies could still be achieved. The three issues that the court had to consider in deciding if a winding-up order was justified were: (a) whether there was a deadlock or other difficulty in the management of the companies; (b) whether a clean break was necessary and if so, whether winding up was the best way to achieve it; and (c) whether the difficulties encountered in administering the estates of Mr and Mrs Chow were relevant considerations.

Held, granting the application to wind up the defendant company:

(1) A deadlock in the management of these companies would be a ground for winding them up because a family company, like a quasi-partnership, was a paradigm case for the application of equitable considerations to modify or restrain the exercise of legal rights: at [34].

(2) This was not a typical winding-up application brought by a minority against a majority. The question of unfairness had to be addressed in terms of the consequences of not granting the winding-up order - whether it would be fair to allow the companies to continue functioning at a completely meaningless and operational level, or it would be “fairer” to order a winding up and allow the parties to go their own way: at [57].

(3) On the evidence, there was no complete deadlock in the management of the companies since in the majority of cases, Chuen and Chi had been able to agree and resolutions had been passed. However that meant that Ching was consistently left out of management decisions. Now that Chi and Chuen were also in opposition, it was difficult to envisage any improvement in the situation. Besides these proceedings before the Singapore courts, the Chow family had been involved in numerous suits during the ten years that had passed since Mr Chow's death. If the companies continued to exist with the brothers holding the same positions, there would be serious squabbles such that even if the companies continued to be run by the senior management and turn a profit, they would be, essentially, rudderless: at [37], [42] and [43].

(4) If Chi was the cause of the deadlock, he should not be allowed to obtain a winding-up order. On the evidence, all the brothers contributed to the poor state of their relations with each other, and Chi should not be deprived of the remedy he sought simply because he was one of the causes of the current state of affairs: at [39] and [40].

(5) Chuen argued that Chi could not obtain a just and equitable winding-up order because Chi had not alleged lack of probity or good faith by Chuen in how the latter had run the companies. Lack of probity could be a significant factor but the absence thereof was not a factor in the current application because Chi did not commence it on the basis that he was being sidestepped by the majority but that it was in everyone's interest: at [44].

(6) Even if the companies' articles of association provided for a right of sale to non-members, it was difficult to imagine any third-party purchaser willing to buy any of the member's shares if a winding up was not ordered. Although the desire for a clean break was not an established ground for a winding-up application, in this situation, a clean break would not only benefit the brothers but would take into account the sister's interest in the companies as a beneficiary of her mother: at [46] to [50].

(7) The estate of Mr Chow had been unadministered for the past ten years, even after the court appointed a certified public accountant (“Mr Loong”) as the independent administrator, because the brothers could not agree on any of the solutions that Mr Loong proposed. The expeditious completion of the administration of the estate of Mr Chow and the involvement of an independent third party to make decisions on rational grounds, in the best interests of the companies and the shareholders, weighed in favour of putting the companies into liquidation: at [56].

(8) Little injustice, if any, would be caused to Chuen or Ching if a winding up was ordered. Given the litigation history of the parties in this case, it did not make sense for the courts to stand aside and allow the situation to deteriorate further: at [58] and [60].

Baxted v Warkentin Estate [2006] MJ No 376 (distd)

Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (folld)

Goodwealth Trading Pte Ltd, Re [1990] 2 SLR (R) 691; [1990] SLR 1239 (refd)

Ng Eng Hiam v Ng Kee Wei [1965] 1 MLJ 238 (refd)

Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR (R) 827; [2006] 3 SLR 827 (refd)

Yenidje Tobacco Company, Limited, In re [1916] 2 Ch 426 (refd)

Companies Act (Cap 50,2006 Rev Ed)s 254 (1) (i) (consd);s 257

Jimmy Yim SC, Abraham Vergis and Clive Myint Soe (Drew & Napier LLC) for the plaintiff

Ang Cheng Hock, Tan Xeauwei and Jacqueline Lee (Allen & Gledhill) for Chow Kwok Chuen

Peter Cuthbert Low (instructed), Robert Yu, See Tow Soo Ling and Wong Shyen Sook (Colin Ng & Partners) for Chow Kwok Ching.

Judgment reserved.

Judith Prakash J

Introduction

1 This application to wind up the defendant company, Lee Tung Company (Private) Limited (“Lee Tung”), was heard together with similar applications that had been filed by the same plaintiff in which he sought the winding up of two other companies, Associated Development Private Limited (“ADPL”) (Companies Winding Up Originating Summons No 56 of 2007) and Chow Cho Poon (Private) Limited (“CCPL”) (Companies Winding Up Originating Summons No 57 of 2007) (Lee Tung, ADPL and CCPL are collectively known as “the companies”). Whilst, strictly, there are three separate and independent applications, the ground on which winding up is sought is the same in each case and the evidence that was presented was practically identical as well. The plaintiff seeks to have each of the companies wound up on the basis that it would be just and equitable for the court to make such an order. This judgment gives the reasons for my decision in each of the three cases.

Background

2 This is basically a family dispute. All three companies were set up by the plaintiff's father, Chow Cho Poon (“Mr Chow”), to hold the wealth that he had accumulated over the years. Now that Mr Chow and his wife, Grace Chow (“Mrs Chow”), are dead, their sons are running the companies and, in a sad but all too commonly encountered situation, have, despite the advantages of education and wealth, fallen out with each other, and may end up dismantling their father's legacy.

3 The plaintiff herein, Chow Kwok Chi (“Chi”), is the eldest son. The second son is Chow Kwok Chuen (“Chuen”) and the youngest son is Chow Kwok...