Ting Shwu Ping and another v Autopack Pte Ltd and another matter

• Jurisdiction: Singapore
• Judge: Edmund Leow JC
• Judgment Date: 22 January 2016
• Neutral Citation: [2016] SGHC 7
• Plaintiff Counsel: N Sreenivasan, SC, Ang Mei-Ling Valerie Freda and Tan Xin Ya (Straits Law Practice LLC)
• Docket Number: Companies Winding Up Nos 178 and 179 of 2015
• Date: 22 January 2016
• Hearing Date: 04 November 2015,28 October 2015,14 October 2015
• Subject Matter: Companies-Winding Up
• Published date: 09 December 2016
• Citation: [2016] SGHC 7
• Defendant Counsel: Vikram Nair, Seow Wai Peng Amy and Tan Ruo Yu (Rajah & Tann Singapore LLP)
• Court: High Court (Singapore)
• Year: 2016

Edmund Leow JC: Introduction

It used to be a somewhat curious anomaly that the court was able to order a buy-out in cases of minority oppression, but not under a winding-up application, especially in light of the drastic effect of granting an order to wind up a company. In 2011, the Steering Committee appointed by the Ministry of Finance, in its report entitled Report of the Steering Committee for Review of the Companies Act (June 2011) (“Steering Committee Report”) recommended that the Companies Act (Cap 50, 2006 Rev Ed) should be amended to allow a court hearing a winding-up application to order a buy-out where it is just and equitable to do so, instead of ordering that the company be wound up. This recommendation was accepted and enacted by Parliament by way of the Companies (Amendment) Act 2014 (No 36 of 2014). With effect from 1 July 2015, courts have the power, in the context of a winding up application commenced on the just and equitable ground (under s 254(1)(i) of the Companies Act), or a winding-up application commenced on the basis that the directors have acted in a manner that is unfair or unjust to the other members (under s 254(1)(f) of the Companies Act), to order the interests in shares of one or more members to be purchased by the company or one or more of the company’s members under s 254(2A) of the Companies Act, if it is just and equitable to do so (hereafter referred to as the “Buy-out Provision”).

The present case concerns two separate applications to wind up two companies (hereafter referred to as the “Defendants”) owned and managed by Chng Koon Seng (“Mr Chng”) and Chan Key Siang (“Mr Chan”), on the just and equitable ground. As this case involved a recent amendment to the Companies Act, I write this judgment to explain how the provisions apply to the present case and my reasons for dismissing the application.

Facts

The first plaintiff is the administrator of the estate of Mr Chng. At the time of his demise on 7 April 2014, Mr Chng and the first plaintiff were husband and wife. Prior to that date, Mr Chng was a shareholder of Autopack (Pte) Ltd (“Autopack”), a limited exempt private company incorporated on 1 September 1989 and in the business of the wholesale of computer accessories and other machinery. Mr Chng, Mr Chan, and Yeo Seng Poh (“Mr Yeo”) were the sole directors and shareholders of Autopack at the time of its incorporation. The Memorandum of Understanding (“MOU”) signed by Mr Chng, Mr Chan and Mr Yeo states that the number of partners in Autopack will not be increased, and should a partner decide to sell his shares, the remaining two partners are to decide whether a new partner is to take over the shares of the withdrawing partner. If no agreement is reached on the admission of a new partner, none will be admitted, and the withdrawing partner must offer his shares to be bought by the remaining two partners. Autopack’s Articles of Association (“Articles”) also provide that existing members of the company have a right of pre-emption to purchase the shares of other shareholders who wish to withdraw from the company. The relevant articles which govern the valuation of the shares are material to the dispute and set out below:

Article 29 … the person proposing to transfer any shares … shall specify the sum he fixes as the fair value and shall constitute the Company his agents for the sale of the share to any member of the Company … at the price so fixed or at the option of the purchaser, at the fair value to be fixed by the auditor in accordance with these articles …

Article 31 In case any difference arises between the proposing transferor and the purchasing member as to the fair value of a share, the auditor shall, on the application of either party certify in writing the sum which in his opinion is the fair value, and such sum shall be deemed to be the fair value …

[Emphasis added]

It is apparent from the Articles that in the event that a dispute arises as to the value of the shares for a share transfer, the fair value of the shares is to be fixed by the auditor. The MOU and the Articles also do not give the first plaintiff an automatic right to become a partner or even a director of the Defendants on her husband’s death. Following from Mr Yeo’s departure from the company on 1 April 1996, Mr Chng and Mr Chan bought Mr Yeo’s shares and became the only directors and shareholders in Autopack with equal shareholdings. It is undisputed that Mr Chng and Mr Chan decided sometime in 1999 that salaries would be paid to their wives, which would be deducted from their own salaries, even though their wives were not involved in the business of Autopack. On 28 May 2001, Mr Chng and Mr Chan each transferred 20% of his shareholding to his respective spouse, and continued to hold 30% of the shares in Autopack respectively.

Scanone (Pte) Ltd (“Scanone”) is a limited exempt private company incorporated on 11 November 1997 with Mr Chng and Mr Chan as its only directors and shareholders with equal shareholdings. It was incorporated with the objective of representing agencies which were in competition with the agencies which Autopack held, but as the market became more receptive to Autopack carrying competing products in the mid-2000s, Scanone has become a dormant company. At present, its main revenue comes from rent which it collects from property held in its name. Scanone’s Articles of Association which are relevant to the issues in this dispute are the same as Autopack’s.

Following from Mr Chng’s demise on 7 April 2014, the first plaintiff became a director of the Defendants, the reasons for which were initially disputed. According to the first plaintiff, she wished to become a director to learn about the company to ascertain whether she would be able to carry on the “partnership”, and to earn a living. According to the Defendants (through their representative, Mr Chan), however, it was with the aim of allowing the first plaintiff to make a proper offer on the shares owned by herself and Mr Chng (hereafter referred to as the “Shares”) that Mr Chan had agreed to appoint the first plaintiff as director of the Defendants. Becoming a director would allow the first plaintiff to be able to access confidential and sensitive financial information to make a proper offer for the sale of the Shares. After the first plaintiff was appointed as director of the Defendants, Mr Chan agreed to the first plaintiff’s request for her brother-in-law, Chng Koon Beng, to assist the first plaintiff in her review of the documents of the Defendants to arrive at a fair value for the sale of the Shares.

It is undisputed that Mr Chan and the first plaintiff entered into negotiations on the buy-out of the Shares from as early as August 2014, but have not been able to come to an agreement on the value of the shares since. Negotiations between parties continued up to the commencement of winding-up proceedings on 23 August 2015. For example, on 3 July 2015, the first plaintiff stated in a letter to the Defendants that she was prepared to sell the Shares to the Defendants at a “value to be determined by a valuer” agreed to by both parties. The first plaintiff also proposed that cost of such valuation would be borne by both parties equally. Mr Chan responded by stating that the Articles state that the company auditor is to value the shares and this would be a more expeditious and less costly process. The first plaintiff has continued to express doubts, however, about the impartiality of the company auditor and refuses to submit to the buy-out mechanism set out in the Articles. The first plaintiff was subsequently removed as a director of the Defendants.

The first plaintiff then proceeded to issue a statutory demand on 21 July 2015 against the Defendants, demanding immediate payment of certain shareholder loans, failing which she expressed her intention that she may commence winding-up applications against the Defendants. Consequently, on 23 August 2015, the first plaintiff applied for the winding-up of the Defendants on the just and equitable ground, bringing an action against Autopack in her own name, and as an administrator of the estate of Mr Chng, and against Scanone as an administrator of the estate of Mr Chng (collectively referred to as the “Plaintiffs”).

The Plaintiffs’ arguments

The Plaintiffs’ application to wind up Autopack on the just and equitable ground is premised on its submission that the nature of the company was that of a partnership. The death of Mr Chng should thus lead to the dissolution of the partnership (pursuant to s 33(1) of the Partnership Act (Cap 391, 1994 Rev Ed)) and even the Defendants which were the vehicles through which the partnership did its business. Since what would happen in the event of the death of a partner was not covered within the MOU, “the law should step in and the partnership should be dissolved”. The Plaintiffs further submit that Mr Chan has acted unfairly as the first plaintiff’s brother-in-law and herself had not been given sufficient opportunity to inspect the documents even though she had been appointed as a director of the Defendants, and that the first plaintiff had not been paid her salary even though Mr Chan’s wife continued to receive hers. But the primary relief which the Plaintiffs seek in the closing submissions is not the winding-up of the Defendants, but for the court to order a buy-out under s 254(2A) of the Companies Act. As the Plaintiffs are seeking a buy-out, they further assert that this should be...