Ting Shwu Ping (Administrator of the estate of Chng Koon Seng, deceased) v Scanone Pte Ltd and another appeal

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 29 November 2016
• Neutral Citation: [2016] SGCA 65
• Plaintiff Counsel: N Sreenivasan SC, Valerie Freda Ang Mei-Ling and Tan Xin Ya (Straits Law Practice LLC)
• Docket Number: Civil Appeals Nos 12 and 17 of 2016
• Date: 29 November 2016
• Hearing Date: 07 September 2016
• Subject Matter: Companies-Winding Up
• Year: 2016
• Defendant Counsel: Vikram Nair, Amy Seow and Tan Ruo Yu(Rajah & Tann Singapore LLP)
• Court: Court of Appeal (Singapore)
• Citation: [2016] SGCA 65
• Published date: 07 December 2016

Judith Prakash JA (delivering the judgment of the court): Introduction

These appeals are the first cases invoking the court’s power to wind up a company on the “just and equitable” ground to come before us since the recent amendment to s 254 of the Companies Act (Cap 50, 2006 Rev Ed) (“the Act”). That amendment introduced a new sub-section, s 254(2A), which has empowered the court to order a shareholder buy-out as an alternative to making a winding up order. The question that arises is whether the additional remedy now available should affect the approach the court takes to an application made to wind up a company on the “just and equitable” ground.

The appeals before us arise from winding up applications filed in respect of Autopack Pte Ltd (“Autopack”) and Scanone Pte Ltd (“Scanone”) (together, “the Companies”). Autopack was incorporated in 1989 and is still an active company carrying on business as a wholesaler of graphic equipment and barcode products. Scanone, incorporated in 1997, has been dormant since the mid-2000s, but owns property which it rents out to Autopack. The Companies are the respondents in the appeals.

Autopack was started by Chng Koon Seng (“Chng”), Chan Key Siang (“Chan”) and Yeo Seng Poh (“Yeo”). In 1996, Yeo withdrew from the business. Thereafter, the Companies were run by Chng and Chan jointly until Chng’s death in 2014. At that time, the shares of Scanone were held in equal proportions by Chan and Chng whilst the shares of Autopack were held equally amongst Chng and his wife (Mdm Ting Shwu Ping) (“Mdm Ting”) on the one part and Chan and his wife on the other. It was common ground that the two wives derived their respective shareholdings from their husbands and played no part in the business of the Companies.

Mdm Ting is the administrator of Chng’s estate (“the Estate”) and is the appellant in these appeals. In relation to the appeal involving Autopack, she acts in two capacities: for herself and as administrator of the Estate. In relation to the appeal involving Scanone, she is acting solely as administrator of the Estate.

In August 2015, Mdm Ting applied to wind up the Companies under s 254(1)(i) of the Act asserting that it would be “just and equitable” to do so. The factual and legal bases of both applications were the same. Mdm Ting also indicated that, as an alternative to a winding up order, the court could exercise the power newly given to it under s 254(2A) of the Act to compel Chan to buy the shares belonging to herself and the Estate (“the Shares”). The applications were successfully opposed by the Companies acting under the direction of Chan. The first instance judge (“the Judge”) held that the applications were an abuse of process as an attempt to accomplish an exit at will and that, further, Mdm Ting had not been able to establish any of the grounds that would make it just and equitable to wind up the Companies (see Ting Shwu Ping and another v Autopack Pte Ltd and another matter [2016] 2 SLR 152 (“the Judgment”)).

Mdm Ting has brought these appeals essentially on the contention that the Companies were quasi-partnerships. She says that, therefore, the death of Chng had certain consequences for the continued existence of the Companies such that with his demise it would be just and equitable to wind them up. While the Companies do not contest the quasi-partnership description, they emphasise that they are incorporated bodies under the Act, not partnerships, and therefore the death of a shareholder cannot have the same consequence for them that the death of a partner would have for a true partnership.

Background The situation during Chng’s lifetime

Contemporaneously with the incorporation of Autopack on 1 September 1989, Chng, Chan and Yeo entered into a Memorandum of Understanding (“the MOU”) in which they set out their agreement as to how Autopack was to be run. On Yeo’s departure, Chan and Chng acquired his shares in equal proportions and thereafter they were the sole directors of the Companies. They agreed, however, that the salaries they were entitled to draw should be divided between themselves and their wives. The total remuneration of both sides was equal. Only salaries were taken from the Companies; no dividends were paid at any point. As stated, the wives did not work in the Companies and their salaries were, in essence, part of their respective husbands’ remuneration.

The parties have relied on the MOU and, more so in the case of the Companies, the terms of their respective Articles of Association (“the Articles”), to indicate what the agreement and expectations were when Autopack was incorporated. In the MOU, a very brief document drawn up without the aid of lawyers, it is stated that the number of partners in Autopack would be three and this number was not to be increased. Each partner was to have an equal number of shares and was allowed to transfer shares only to his spouse. Particularly important in the present context are cll 9 and 10 which deal with the withdrawal of a partner. They state: 9) Should a partner decide to withdraw from AUTOPACK PTE LTD, he may either:- a) remain as a sleeping partner provided both the remaining partners agree to this; or b) sell of [sic] all the shares held under his name and that of his spouse. 10) Should a partner decide to sell off his shares in accordance to Clause 9(b) of this Memorandum, a decision is to be made by the remaining 2 partners whether they want a new partner to take over the shares of the withdrawing partner. …

In the event of a disagreement on the admission of a new partner, the withdrawing partner must offer his shares to be bought by the remaining 2 partners. …

The Articles also regulate the transfer of the shares in the Companies. The relevant Articles are common to both Companies. Essentially, they state that remaining members have a right of pre-emption if an existing shareholder wishes to transfer his shares (Art 28), and that the price of the shares is to be determined by the company’s auditor if there is a dispute between the transferor and transferee as to the fair value of the shares (Arts 31 and 33) (these apply equally if the transfer arises because of the death of a member – Art 36): 28. Shares may be freely transferred by a member or other person entitled to transfer to any existing member selected by the transferor; but save as aforesaid and save as provided by Article 33 hereof, no share shall be transferred to a person who is not a member so long as any member or any person selected by the directors as on whom it is desirable in the interest of the Company to admit to membership is willing to purchase the same at the fair value. 29. Except where the transfer is made pursuant to Article 33 hereof the person proposing to transfer any shares (hereinafter called “the proposing transferor”) shall give notice in writing (hereinafter called “the transfer notice”) to the Company that he desires to transfer the same. Such notice 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 or persons selected as aforesaid, 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. A transfer notice may include several shares, and in such case shall operate as if it were a separate notice in respect of each. The transfer notice shall not be revocable except with the sanction of the directors.

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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, and in so certifying the auditor shall be considered to be acting as an expert and not as an arbitrator; accordingly, Arbitration Act. Cap. 10 shall not apply.

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33. If the directors shall not, within the space of three months after service of a sale notice, find a purchasing member of all or any of the shares comprised therein and give notice in manner aforesaid, or if through no default of the retiring member, the purchase of any shares in respect of which such last-mentioned notice shall be given shall not be completed within twenty-one days from the service of such notice the retiring member shall, at any time within six months thereafter, be at liberty to sell and transfer the shares comprised in his sale notice (or such of them as shall not have been sold to a purchasing member) to any person and at any price.

[emphasis added in italics and bold italics]

Events after Chng’s death

Chng died on 7 April 2014. Thereafter, up to about August 2015, the parties interacted on the basis that Mdm Ting would be selling the Shares to Chan. The problem was with fixing the price. Several offers and counter-offers were made without agreement being reached. As time went on, the parties’ initially amicable relationship became strained and, in the ultimate result, Mdm Ting gave up the negotiations and filed the applications for winding up.

Events were set in motion on 16 April 2014, when Mdm Ting and her brother-in-law (who we shall refer to as “CKB”) met Chan to discuss the future of the Companies. Mdm Ting made it clear that she did not want to be involved in the business but was looking towards selling the Shares. Shortly thereafter, Mdm Ting was appointed as a director of Autopack. Sometime later, she was also put on the board of Scanone. The parties disagree as to the reason for Mdm Ting’s appointment – Mdm Ting claims that it was so that she could evaluate whether to continue her involvement in the business as Chan’s partner, while Chan claims that she was appointed for the sole purpose of facilitating the sale of the Shares. Mdm Ting was also made...