In the complex world of corporate governance, shareholders hold a crucial position in driving the success of a company. Unfortunately, there are instances where shareholders face unfair treatment, known as shareholder oppression, which can disrupt the balance of power within an organisation. In Singapore, a renowned global financial hub and business centre, it is essential to address shareholder oppression and provide appropriate remedies to uphold investor confidence and ensure a fair and transparent corporate environment.
This article aims to shed light on the concept of shareholder oppression in Singapore, focusing on its various forms and the challenges faced by minority shareholders. From a legal perspective, we will examine the framework in Singapore, exploring the remedies available to shareholders who have been subjected to oppression. Additionally, we will discuss recent developments and noteworthy cases that have influenced the protection of shareholders’ rights.
Shareholder oppression is frequently perpetrated as part of a scheme by majority shareholders to compel minority shareholders to “sell their interest in an enterprise at unfairly low prices, known as a squeeze-out, or to deprive minority shareholders of any rights or advantages associated with being a shareholder, known as a freeze out.
Minority shareholders, being shareholders with non-controlling ownership of a company (i.e., holding less than 50% of a company’s voting shares), are susceptible to abuse or oppression by the majority or controlling shareholders. Such vulnerability stems from the fact that minority shareholders do not have a definitive say in the conduct of the company’s affairs.
Mere disagreements between majority and minority shareholders are usually insufficient to demonstrate oppression. Instead, oppression manifests itself when majority shareholders use their dominant power to advance their interests at the expense of the minority. Whether the complaint is one of unfair prejudice, oppression, discrimination or disregard for minorities’ interests, ultimately, the touchstone in establishing oppression under section 216 of the Companies Act is unfairness.
While the law provides minority shareholders with remedies against oppression under the Companies Act, several legal requirements must be met for relief to be granted.
Law related to Oppression
- 216(1) of the Act allows members of a company to bring an action against the company if there is the oppression of a member or where a member’s interests are disregarded. It can also be used by members if a resolution or act of the company unfairly discriminates against or is otherwise prejudicial to a member.
- 216(2) of the Act allows the court, if satisfied that the grounds have been established, to grant remedies which include an order cancelling the resolution or transaction, an order to regulate the conduct of the company’s affairs in the future, an order authorising a derivative action, an order providing for the purchase of shares, an order providing for the reduction of a company’s capital and a winding up order.
A claim for minority oppression falls under Section 216 of the Companies Act (Cap. 50) of Singapore. The Singapore High Court recently reiterated that Section 216 has four limbs:
- Disregard of a shareholder’s interests;
- Unfair discrimination; and
These four limbs guide the Singapore Courts when deciding whether a claimant should succeed in a claim for minority oppression.
Unlike certain jurisdictions, such as the Cayman Islands, there is no minority buy-out right or appraisal right for minority shareholders in Singapore. Shareholders of private companies may have appraisal rights only if these are expressly provided for in the Constitution or a shareholders’ agreement.
It should be noted that there is no inconsistency between S. 216 and the rule in Foss v Harbottle (1843), which prevents a member from suing to enforce a company’s rights. A member suing under S. 216 is enforcing his personal right to be treated fairly (for example, suing under a contract made with a member or a tort committed against a member by the company). To understand S. 216 of the Act, it may be useful to explain the meaning of the word ‘oppression’, ‘disregard’, ‘unfairly discriminate’ and ‘prejudice’. A S. 216 claim need not also be based on a corporate wrong.
A complainant can pursue an oppression action based on mismanagement of a company’s assets if this act evidence how the wrongdoer has conducted the company’s affairs in disregard of the complainant’s interest as a minority shareholder and where a derivative action cannot adequately address this complaint.
Prerequisite for Section 216 to operate:
- Domination and Control: Relief under S. 216 can be obtained against persons holding the ‘dominant power’ in the company and is not confined to majority shareholders. This is because majority shareholders, for a variety of reasons, may sometimes not be in control of the management of the company or the board.
- Mismanagement May Not Be Actionable: A member cannot seek relief under S. 216 merely because the majority exercises its voting power in favour of a policy or management resolution which the member disagrees with. The rationale for this is the Business Judgement Rule, which prevents the courts from inquiring into the rationality or prudence of a business decision unless there is fraud. However, the court in Ng Chee Kong v Ng Teong Kiat Highlands Plantation Ltd (1980) held that if the directors display complete indifference to the commercial interests of the company and let the business deteriorate to the point of inactivity, that might amount to oppressive conduct.
- The Unfairness Must Affect the Petitioning Member in His Capacity as Member: In order to get relief under S. 216, a member has to be affected by acts or decisions of the company as a member and not in some other capacity, such as a beneficiary under a family trust. In other words, the conduct complained of must have some connection with the company’s affairs.
- Continuing State of Affairs: the oppression or disregard to a member’s interest complained of has to be continuing at the time the action is brought. A member is not entitled to relief for oppression or disregard that has ceased. However, a petition under S. 216 may be based on a single act of which its consequences are several and continuing.
- Relief to be Sought Expeditiously: A petitioner should seek relief as soon as possible. Any delay may be construed by the court as a ratification of the acts or resolutions complained of.
- The burden of Proof: The petitioner has to prove to the court on a balance of probabilities the acts complained of. The more serious the allegations, the higher the standard of proof necessary to make good such allegations. Likewise, the more serious the relief sought (such as a winding up order), the heavier the burden would be on the petitioner to establish a case for relief.
Who may claim Minority Oppression?
Generally, minority shareholders—those who possess less than 50% of the company’s shares—are subject to tyranny. Equal shareholders, or those who possess 50% of the company’s shares, are not, however, unable to make a claim of minority persecution. Instead of the percentage of shares they possessed, the determining factor in claims of minority oppression is whether the aggrieved party lacked the ability to halt the oppressive act.
In Ascend Field Pte Ltd v Tee Wee Sien  SGCA 14, the plaintiff was an equal shareholder and started a claim for minority oppression. According to the Singapore Court of Appeal (SGCA), his standing as an equal stakeholder did not exclude him from making a claim. Instead, to determine that Section 216 of the Companies Act applied to his case, the Court underlined that he lacked the necessary majority voting power to remove the oppressor from his position as a company director and could not participate in significant decision-making. As a result, a party with 50% of the company’s shares but no influence over its operations is more likely to demonstrate that it was unable to halt the oppression. They may be allowed to claim minority oppression despite not being a minority shareholder.
What may constitute Oppression?
A wide range of actions taken by the oppressing party might constitute minorities being oppressed. Generally speaking, the party claiming minority persecution must demonstrate that the oppressive party’s wrongdoing was a personal wrong. This indicates that they were impacted since they were a minority shareholder. This differs from corporate wrongs, which are wrongs committed against the corporation.
Corporate wrongs may occasionally morph into personal wrongs. Then, it must be demonstrated that the shareholder’s harm was different from the harm experienced by the corporation. Also, the oppressor has to have committed unfair business practices.
A company may occasionally be run in a manner resembling a quasi-partnership. This indicates that the company’s affairs are managed based on mutual confidence and trust. There cannot be a formal agreement governing shareholders’ rights. It may be difficult to tell if they were wronged in their position as a minority stakeholder as a result. The reasonable expectations a stakeholder in the quasi-partnership should have been highlighted by the Singapore Courts in such circumstances. Minority oppression is more likely to be discovered if such legitimate expectations have been violated.
The oppressor party may be involved in instances of oppressive acts:
- not operating in the best interests of the firm or in good faith.
- stealing money from the firm.
- lowering the value of shares owned by another shareholder.
- hiding facts about the firm from a shareholder on purpose.
- giving possibilities for business to entities owned by the repressive party.
- removing other shareholders without justification from the management.
Remedies available for Minority Oppression
The remedies for minority oppression are set out in Section 216(2) of the Companies Act. If a claim for minority oppression succeeds, the Court may issue an order to do any of the following:”
- Direct or prohibit any act or cancel or vary any transaction or resolution;
- Regulate the conduct of the affairs of the company in future;
- Authorise civil proceedings to be brought in the name of or on behalf of the company by such person or persons and on such terms as the Court may direct;
- Provide for the purchase of the shares or debentures of the company by other members or holders of debentures of the company or by the company itself;
- In the case of a purchase of shares by the company, provide for a reduction accordingly of the company’s capital; or
- Provide that the company be wound up.
Ultimately, the remedies available for minority oppression aim to restore fairness and protect the rights of minority shareholders. By ensuring these remedies are accessible and effective, Singapore can continue to foster a corporate landscape that promotes accountability, transparency, and equitable treatment for all shareholders.
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Contributions to this article were made by the following lawyers:
Siraj Shaik Aziz