Re S Q Wong Holdings (Pte) Ltd

• Jurisdiction: Singapore
• Judgment Date: 28 May 1987
• Date: 28 May 1987
• Docket Number: Originating Petition No 66 of 1987
• Court: High Court (Singapore)

Re S Q Wong Holdings (Pte) Ltd

[1987] SGHC 58

Chan Sek Keong JC

Originating Petition No 66 of 1987

High Court

Companies–Directors–Duties–Directors' refusal to exercise discretion and recommend dividend on preference shares–Directors exercising discretion to maintain control of company–Whether directors' conduct amounted to oppression–Sections 216 (1) (a) and 216 (1) (b) Companies Act (Cap 50, 1985 Rev Ed)–Companies–Oppression–Articles providing that preferential shareholder would only have rights to management control if dividends not declared in respect of preferential shares–Directors' refusal to pay dividends on preferential shares in order to retain control–Whether such refusal amounted to oppressive and prejudicial conduct–Sections 216 (1) (a) and 216 (1) (b) Companies Act (Cap 50, 1985 Rev Ed)

The deceased was a wealthy man who had incorporated a company as his family holding company (“the Company”) to hold all his assets. The nominal capital was $100,000 divided into 100,000 shares of $1.00 each.

As at 31 March 1976, the deceased owned all 90,002 of the issued preference shares while his children and grandchildren together owned all 48 issued ordinary shares of the company. On 1 July 1978, the deceased made his last will and testament whereby he appointed the Hong Kong & Shanghai Bank (Singapore) Trustee Ltd (“HKSB”) as the sole executor and trustee of his will. The deceased also bequeathed his residuary estate (which included the 90,002 preference shares) to one Mabel Hudson (“Hudson”). On 8 July 1978, the deceased exercised his powers as the Company's governing director to remove Alan Wong and Joyce Liu as directors, before appointing Wong Peng Tuck (“WPT”), Hudson and Benjamin Wong as directors with WPT as his deputy.

The deceased passed away in October 1980, and WPT succeeded to the position of governing director of the Company. However, WPT later ceased to be the governing director when he resigned as a director and left Singapore.

Although HKSB had obtained the grant of probate in February 1983, the grant of probate was only extracted in September 1985. As such, the 90,002 preference shares were only registered in Hudson's name subsequently on 14 September 1985.

Prior to this, on 31 July 1985, the petitioners had requisitioned for an extraordinary general meeting of the company with a view to removing Hudson and Benjamin Wong (“the respondents”) as directors and appointing Joyce Liu and Wong Hon Ching in their place. Upon the failure of the respondents to convene the extraordinary general meeting, the petitioners convened an extraordinary meeting to be held on 21 September 1985 for the removal of the respondents.

A dispute arose at the extraordinary general meeting as to whether the 90,002 preference shares had voting rights.

Article 5 (ii) of the Company's Articles of Association conferred the right on holders of the preference shares to attend and vote at general meetings during the lifetime of the deceased. However, after the death of the deceased, preference share holders only retained such rights if the fixed cumulative preferential dividend remained unpaid for six months after the due date. During the lifetime of the deceased, no dividend was declared or paid on any of the preference or ordinary shares. However, a change of policy occurred after the death of the deceased, when the company began to pay dividends on the ordinary shares.

The petitioners filed the present petition, alleging that the respondents had exercised their powers as directors in a manner which was unfairly discriminatory and prejudicial towards them. The petitioners claimed that Hudson had: (a) obtained registration for the extraordinary shares with undue haste, for the sole purpose of ensuring that she and Benjamin Wong would not be removed as directors; and (b) deliberately withheld the payment of accumulated dividend on the preference shares, with the collateral purpose of ensuing that the preference shares had voting rights and using such rights to defeat the voting rights of the majority of ordinary shares held by the petitioners.

The respondents sought to resist the allegation of oppressive and prejudicial conduct on two main grounds. First, the respondents contended that they had managed the Company well and paid handsome dividends on the ordinary shares. Second, the respondents claimed that they were giving effect to the deceased's intentions that they should control the Company. They were thus not obliged to pay the dividends payable on the preference shares.

It was plain that the respondents' refusal to pay the unpaid dividends on the preference shares was solely motivated by their desire to retain management control. The issue was whether such conduct amounted to oppressive or prejudicial conduct under ss 216 (1) (a) and 216 (1) (b) of the Companies Act (Cap 50, 1985 Rev Ed) (“the Act”).

Held, granting the petition:

(1) The purpose of Art 5 (ii) was clear. The deceased had intended to control the Company during his lifetime as a preference shareholder whether or not the preference dividends remained unpaid. However, the deceased did not wish to give the same rights in respect of the preference shares to his successor in title after his death. Such a successor would have voting rights only when no dividend had been paid for six months or more on such shares: at [28].

(2) In law, the directors had a discretion whether to recommend a dividend, even on the preference shares. However, this discretion had to be exercised fairly and honestly in the Company's interests. They would not be acting honestly or fairly if the discretion were exercised to deny the preferential shareholders their right for a collateral purpose. The respondents as shareholders had deliberately made use of Art 5 (ii) for a purpose for which it was never intended. The respondents had acted purely out of self-interest: at [29] and [31].

(3) The respondents' claim that a shareholder was entitled to exercise his voting rights in whatever manner he thought fit was an untenable one. The respondents should not use the preference shares to maintain control but, where the circumstances were appropriate, to discontinue control in accordance with the purpose of Art 5. The circumstances here were appropriate as there was no question of the company not having made sufficient profits in each year to pay the preferential dividends. As such, there was a visible departure from the standards of fair dealing and a violation of fair play which the petitioners were entitled to expect from the respondents: at [35].

(4) The respondents had used Art 5 to entrench themselves in permanent control contrary to the whole purpose of Art 5. An act in breach of a company's Articles of Association could amount to oppression, when the motive for not acting in accordance with the articles was in order to deprive the majority ordinary shareholders of their rights. Such deprivation or attempted deprivation of majority control by directors out of self-interest or for personal advantage was the classic form of oppression: at [36] and [37].

(5) The petitioners had made out a case of oppression and prejudicial conduct under ss 216 (1) (a) and 216 (1) (b) of the Act respectively. The Company would thus be ordered to pay all unpaid dividends payable on the cumulative preference shares of the Company. The directors would also be required to convene an extraordinary general meeting of the Company and elect new directors: at [38]and [39].

Australian Metropolitan Life Assurance Co Ltd, The v Ure (1923) 33 CLR 199 (refd)

Burland v Earle [1902] AC 83 (refd)

Chi Liung & Son Ltd,Re; Tong Chong Fah v Tong Lee Hwa [1968] 1 MLJ 97 (refd)

Clemens v Clemens Brothers Ltd [1976] 2 All ER 268 (refd)

Greenhalgh v Arderne Cinemas Ltd [1946] 1 All ER 512 (folld)

Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821; [1974] 1 All ER 1126 (refd)

Kong Thai Sawmill (Miri) Sdn Bhd,Re; Kong Thai Sawmill (Miri) Sdn Bhd v Ling Beng Sung [1978] 2 MLJ 227 (refd)

Companies Act (Cap 50,1985Rev Ed)ss 216 (1) (a), 216 (1) (b) (consd);ss 4,180 (2),180 (3)

Davinder Singh (Drew & Napier) for the petitioners

Leslie Chew (Khattar Wong & Partners) for the respondents.

Judgement reserved.

Chan Sek Keong JC

1 Dato S Q Wong (“the deceased”) was a wealthy man on May 18, 1973, when he caused to be incorporated a company called S Q Wong Holdings (Private) Ltd as his family holding company to hold all his assets. The nominal capital was $100,000 divided into 100,000 shares of $1.00 each. Two subscriber shares were issued, one each to two sons viz Wong Peng Tuck (“WPT”) and Wong Peng Onn (“WPO”).

2 The first directors were Dato Wong and WPT. Dato Wong was also appointed by the Articles of Association as the governing director for life with powers to: (a) determine the amount of his own remuneration from time to time; (b) exercise all the powers, authorities and discretions which by the Articles of Association or the Companies Act are vested in the directors generally; (c) appoint a deputy director and the other directors and to remove them; and (d) veto any board resolution.

3 On 2 May 1974, the directors of the company resolved to accept the offer of Dato Wong to sell to the company all his securities and properties as set out in the board resolution for $8,763,704, the consideration to be paid as and when Dato Wong made a request for payment. No evidence was given as to the date when this transaction was completed.

4 At a general meeting of the members on 1 March 1976, Art 5 of the Articles of Association was deleted and a new Art 3 was substituted therefor as follows:

The capital of the Company is $100,00 divided into 90,002 Cumulative Preference shares of $1/- each and 9,998 Ordinary shares of $1/- each. The Cumulative Preference shares shall confer on the holders thereof the following rights and privileges and be...