UOB Venture Investments Ltd v Tong Garden Holdings Pte Ltd and Others

• Jurisdiction: Singapore
• Judge: G P Selvam J
• Judgment Date: 10 November 2000
• Neutral Citation: [2000] SGHC 228
• Docket Number: Suit No 84 of 2000 (Registrar's
• Date: 10 November 2000
• Year: 2000
• Published date: 19 September 2003
• Plaintiff Counsel: Ng Hwee Chong (Rodyk & Davidson)
• Citation: [2000] SGHC 228
• Defendant Counsel: Tan Cheng Yew (Tan Cheng Yew & Partners)
• Court: High Court (Singapore)
• Subject Matter: Shares,s 70(3) Companies Act (Cap 50),Remedies of preference shareholder,Joint and several liability of directors to redeem,Companies,Whether lack of profits to redeem valid excuse,Redeemable preference shares,Contractual obligation of company to redeem,Redemption at shareholder's discretion

: The march of events

The plaintiffs are a company incorporated in Singapore. Their business, as the name suggests, is venture capital investment.

They brought this action against four defendants. The first defendants, Tong Garden Holdings Pte Ltd (`the company defendants` or `the first defendants`) are a company incorporated in Singapore. They are a holding company of several subsidiaries engaged in the business of nut processing and packaging.

The second, third and fourth defendants were at all material times directors of the first defendants. By name they are Ong Leong Chuan, Ong Teck Chuan and Ong Heng Chuan. The second defendant ceased to be a director in November 1999. The second, third and fourth defendants were also at all material times shareholders of Tong Guan Food Products Pte Ltd (`TGFP`), a shareholder of the company defendants. The expression `director defendants` in this judgment shall refer to these three individual defendants.

By an investment agreement dated 12 December 1995 (`the Investment Agreement`) entered into between the plaintiffs, the four defendants and TGFP, the plaintiffs agreed to invest a sum of $3,500,000 in the company defendants by subscribing for redeemable convertible preference shares (`the preference shares`) in the capital of the company defendants. That amount was comprised of 1,000,000 redeemable convertible preference shares of the par value of $0.01 each (yielding $10,000) and a premium of $3,490,000.

Clause 6 of the investment agreement provided that the preference shares shall be redeemed at the investors` absolute discretion upon certain contingencies. One of them was the company defendants` non-listing on the Stock Exchange of Singapore Limited (`the SES`) by 31 December 1998. This dateline could be extended, inter alia, to 30 June 1999 provided that the investors were satisfied with certain circumstances.

It was also provided in the investment agreement that on the happening of an event of default the investors (ie the plaintiffs) had the absolute discretion by written notice to the company defendants and/or TGFP to require the company defendants to redeem the preference shares held by the investors. The event of default was the non-listing of the company defendants.

The completion of the redemption was to take place within six months from the date of the written notice issued by the investors to the company defendants or TGFP.

The price of the redemption of the preference shares arising from the event of default was the sum of $3,500,000 plus interest calculated with effect from 5 December 1995, or such other date as the parties may agree up to the date of redemption at the rate of 10% per annum on a yearly rests basis and compounded annually less any dividends paid to the investors. If the company defendants failed to redeem the preference shares on or before the stipulated completion date the investors were entitled, inter alia, to demand the payment of the redemption price payable from the director defendants. The director defendants jointly and severally covenanted in the investment agreement to pay the redemption price to the plaintiffs in exchange for the preference share certificates.

The company defendants were not listed as stipulated. In the result the plaintiffs issued a written notice dated 26 August 1999 to the company defendants for the redemption of the preference shares. They paid $1,000,0000 in November 1999 and $260,000 in March 2000. The company defendants failed to pay the balance of the redemption price and the interest on it within six months of the plaintiffs` notice, that is by 25 February 2000.

On 3 March 2000 the plaintiffs demanded payment of the redemption price due to them inclusive of the 10% per annum contractual interest rate. The defendants failed to comply with the demand.

The action

In the result the plaintiffs issued the writ in this action. They claimed against the company defendants a declaration that the first defendants were in breach of their contractual obligation to redeem the preference shares under the investment agreement dated 12 December 1995. They further sought an order that the first defendants take the necessary steps to complete the redemption of the preference shares plus interest.

As against the director defendants the plaintiffs sought judgment for the balance redemption price, that is $2,240,000. They further sought interest at 10% per annum of a yearly rests basis compounded annually from 5 December 1995 up to the date of full payment of the redemption sum.

The plaintiffs then filed applications for summary judgment against all defendants. The second defendant had his own legal representation. The first, third and fourth defendants were jointly represented by another legal firm.

Summary judgment applications and appeals

The senior assistant registrar gave the company defendants unconditional leave to defend. The plaintiffs appealed against this decision by way of RA 27/2000. He gave the second, third and fourth defendants conditional leave to defend. The third and fourth defendants (`the appellant defendants`) appealed against the decision by RA 26/2000. They wanted unconditional leave to defend. The second defendant has not appealed. In the meantime, however, judgments have been entered against all three director defendants.

The law

The appeals concern an ingenious point of law raised by the appellant defendants. They based it on s 70(3) of the Companies Act (Cap 50). They cited in support a decision of the Australian Federal Court: Federal Commissioner of Taxation v Coppleson [1981] 6 ACLR 428. The facts of this case in brief were these: Warrawanda Ltd was incorporated on 17 June 1976. Within a week of incorporation the company issued 39,990 $1 redeemable preference shares to Copston Securities Pty Ltd. On the same day, that is 23 June 1976, Dr Coppleson purchased those shares from Copston Securities. Two days later, Dr Coppleson donated the shares to Royal Prince Alfred Hospital. One of the articles of association of Warrawanda Ltd provided that `Redeemable Shares may be redeemed at the option of the holder thereof within six months of the date of allotment of the Redeemable Shares to be redeemed, by such holder giving the Company not less than thirty days notice requiring redemption`. This was a strange provision. But there it was. It was there for a special purpose. The article further stated that `Subject to the provisions of the Companies Ordinance the Company shall be bound to redeem Redeemable Shares in...