Wei Fengpin v Raymond Low Tuck Loong

JurisdictionSingapore
JudgeAndrew Phang Boon Leong JCA,Steven Chong JCA,Chao Hick Tin SJ
Judgment Date12 April 2022
CourtCourt of Appeal (Singapore)
Docket NumberCivil Appeal No 63 of 2021
Wei Fengpin
and
Raymond Low Tuck Loong and others

[2022] SGCA 32

Andrew Phang Boon Leong JCA, Steven Chong JCA and Chao Hick Tin SJ

Civil Appeal No 63 of 2021

Court of Appeal

Companies — Oppression — Minority shareholders — Minority shareholder oppressed by majority shareholders in company that was eventually wound up — Whether buyout of shares should be ordered — Section 216 Companies Act (Cap 50, 2006 Rev Ed)

Companies — Shares — Lack of proper audited accounts due to majority shareholders' wrongdoings — Minority shareholder also contributing to company's demise — How shares should be valued — Whether discount should be applied

Held, allowing the appeal in part:

(1) The Judge's finding that the court could order a buyout notwithstanding the supervening insolvency of the Company was not challenged. In any event, this was also amply supported by authority: at [29].

(2) Upon the finding of oppression, the typical and almost default relief was to order a buyout of the shares of the minority shareholder: at [30].

(3) Under s 216(2) of the Companies Act, the court had a wide discretion to make various orders, including a buyout order, with a view to bringing to an end or remedying the matters complained of. The overriding consideration was that of fairness, having regard to the facts of the case. Once the court had decided that a buyout order should be made, the next step was to determine the appropriate valuation date and value of the shares. Such determination need not be in accordance with strict accounting principles, and the role of the court was to determine a price that was fair and just in the particular circumstances of the case: at [31] and [32].

(4) The Lack of Audited Accounts consideration. There was no strict requirement in law for share valuations to be carried out on the basis of fully audited accounts. While having fully audited accounts would no doubt aid the valuation exercise, the lack thereof in itself should not preclude a buyout order. The lack of financial information was the result of Low's and Sim's misconduct. To deny Wei a buyout on this basis would not be right as a matter of fairness: at [34].

(5) The Liquidators' Redress consideration. Any investigations or steps taken by the liquidators would only address corporate and not personal wrongs. Any steps which the liquidators might take would not address the personal wrongs done to Wei, which included, among other things, the deprivation of profits and exclusion from management. The remedies under s 216(2) of the Companies Act should be directed towards the wronged shareholder and not the company: at [35].

(6) The Undercutting consideration. Wrongdoing on the part of the minority shareholder could be relevant in two ways. The first way was that the minority shareholder's wrongdoing might make the prejudicial conduct of the respondent not unfair. The second way was that the minority shareholder's wrongdoing might justify the court in refusing to grant relief to the minority shareholder or might influence the choice of any relief which would otherwise be granted. Further, the court was not engaged in a balancing exercise of weighing one side's misconduct against the other, but the minority shareholder's misconduct was relevant if it had an immediate and necessary relation to the unfairly prejudicial conduct of which complaint was made. Keeping in mind the court's overriding consideration of fairness, a fair outcome would be achieved in the present case by granting a buyout order. Against the backdrop of the oppressive acts by Low and Sim against Wei, Wei's own misconduct did not preclude a buyout order. Wei's misconduct did not render Low's and Sim's oppressive conduct not unfair, and did not justify the denial of a buyout order: at [37] and [38].

(7) Valuation of the shares. The shares were to be valued based on the purchase price of US$5m paid by Wei to Seah for two reasons. First, from the very outset when Wei became a shareholder of the Company, Low and Sim had substantially and systematically excluded him from all the benefits of a shareholder and director. Secondly, the courts had in previous cases ordered a buyout of shares at their acquisition value: at [44].

(8) The fact that Wei bought the shares from Seah and not from Low and/or Sim should not affect the propriety of a buyout order based on the purchase price. As a matter of principle, the remedies to be granted under s 216(2) of the Companies Act were directed towards the wronged shareholder. Viewed from that perspective, it should not matter whether the purchase price was paid to another outgoing shareholder or the remaining majority shareholder save for a situation where the purchase price was paid with a premium which could not be readily explained or justified. Save for that exception, in either event, the harm to the minority shareholder was the same: at [45].

(9) Fairness of the valuation. Valuation based on the purchase price of US$5m was fair for three reasons. First, this provided the best available objective valuation of the Company because this was in fact the actual value paid by Wei to Seah. It was not some hypothetical value. Secondly, Seah's estimation of the share value based on the projected turnover of the Company was supported by reports commissioned by Low and Sim. Thirdly, although adopting the purchase price might not be the ideal way to value the shares, the court's task was ultimately to arrive at a valuation which was fair and sound in principle. In this regard, the court could not ignore the reality that the accounts were in an unsatisfactory state. While it was true that the unsatisfactory state was caused by Low and Sim, that did not alter the undeniable fact that the accounts remained unsatisfactory. That fact was relevant to prevent Low and Sim from arguing that no buyout should be ordered: at [46].

(10) Discount to the share valuation. There was no need to factor any discount to the eventual valuation on account of Wei's undercutting since that occurred way after the operative valuation date: at [47].

(11) Wei's breach of fiduciary duties. The case of Tokuhon (Pte) Ltd v Seow Kang Hong[2003] 4 SLR(R) 414 (“Tokuhon”), which Wei relied on to argue that the Company was never run in a manner which suited its interests independently from those of its shareholders, could be distinguished. In applying the principles espoused in Tokuhon, there had to be “a shared expectation regarding the conduct of directors” and the norm had to be one that was specific and with defined limits. There was no such expectation or norm in the present case. The cases of In Plus Group Ltd v Pyke[2002] EWCA Civ 370 and Re Via Servis Ltd Skala v Via Sevis Ltd[2014] EWHC 3069 (Ch) could also be distinguished, as the present case was one where a director, having substantial influence over the supply chain, went behind the company's back and attempted to take over its business: at [54].

Case(s) referred to

DyStar Global Holdings (Singapore) Pte Ltd v Kiri Industries Ltd [2018] 5 SLR 1 (folld)

In Plus Group Ltd v Pyke [2002] EWCA Civ 370 (distd)

Interactive Technology Corp Ltd v Ferster [2016] EWHC 2896 (Ch) (refd)

Kumagai Gumi Co Ltd v Zenecon Pte Ltd [1995] 2 SLR(R) 304; [1995] 2 SLR 297 (refd)

Sakae Holdings Ltd v Gryphon Real Estate Investment Corp Pte Ltd [2017] SGHC 73 (folld)

Suying Design Pte Ltd v Ng Kian Huan Edmund [2020] 2 SLR 221 (refd)

Tan Yong San v Neo Kok Eng [2011] SGHC 30 (refd)

Tokuhon (Pte) Ltd v Seow Kang Hong [2003] 4 SLR(R) 414; [2003] 4 SLR 414 (distd)

Tullio Planeta v Maoro Andrea G [1994] 2 SLR(R) 501; [1994] 2 SLR 489 (folld)

Via Servis Ltd Skala v Via Sevis Ltd, Re [2014] EWHC 3069 (Ch) (distd)

Yeo Hung Khiang v Dickson Investment (Singapore) Pte Ltd [1999] 1 SLR(R) 773; [1999] 2 SLR 129 (folld)

Facts

Lateral Solutions Pte Ltd (“the Company”) was a company that sourced and supplied polymer parts (“the Parts”) to Apple Inc. Prior to December 2014, the first and second respondents (“Low” and “Sim” respectively) and one Edwin Seah (“Seah”) were directors and shareholders of the Company. By around 2014, the Company's suppliers of the Parts included three companies in which the appellant (“Wei”) had a substantial interest. In December 2014, Wei bought Seah's shares in the Company for US$5m and was registered as a shareholder and director in January 2015.

In March 2017, Wei commenced an action under s 216 of the Companies Act (Cap 50, 2006 Rev Ed) (“Companies Act”) against Low and Sim, claiming that they had acted in a manner that was unfair, oppressive or prejudicial to him. About four months before the trial, Low and Sim applied to wind up the Company on the basis that the Company was insolvent and was unable to pay its debts. Wei did not object to the application and the Company was wound up before the trial took place.

The judge below (“the Judge”) found that Low and Sim had conducted the affairs of the Company in a manner that was oppressive to Wei, and the acts which they had caused the Company to take also unfairly discriminated against or were prejudicial to Wei. The Judge found that a buyout order could be made notwithstanding the supervening insolvency of the Company. However, the Judge did not make a buyout order and cited three key considerations. First, the Company's accounts had not been audited since financial year 2015 and were unlikely to be audited given that the Company had already been wound up (“the Lack of Audited Accounts consideration”). Any attempts at determination of the fair value of the shares as at the date of the decision or as at April 2016 (as sought by Wei) would likely be time-consuming and expensive. Secondly, the liquidators might carry out investigations and take appropriate steps to redress any wrongs committed by its directors to the Company (“the Liquidators' Redress consideration”). Finally, Wei also contributed to the Company's demise when he diverted business from the Company to a company...

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