RMIT Classification: Trusted

Week 8
Topic 9 – The Position of Minority -
Members’ Remedies

Textbook Chapter 14
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Minority Members’ Remedies

ABC Pte Ltd

• Effects of incorporation -
SLE Minority
Majority Shareholders
• Constitution – rule book shareholder

Directors
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Recap from last week’s lecture - protecting

minority shareholders
• Why are restrictions in majority’s voting power needed?
• To stop unfair exploitation of minority shareholders by majority
• Majority members may do the following which will disadvantage minority:
• Amend constitution in a way that disadvantages minority members
(remove regulation which gives minority’s power to appoint directors;
force minority to sell shares to majority at unfair price)
• Alter the share capital to the disadvantage of minority members (issue
shares to themselves to dilute minority’s shares)
• Vote to approve sale of assets to themselves at undervalue
• Vote to approve certain benefits for themselves (loans or other financial
benefits only available to majority)
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Recap from last week – selling shares not

always an option

• Minority who are disadvantaged by majority’s actions may elect to sell

their shares and not seek remedy of wrongdoing, however, not always
possible to get a fair price for their shares.
• Restrictions to sell shares in private companies in constitution – minority
require to obtain directors’ permission; or they must first offer their shares
to other members prior to offering the shares to other persons (pre-
emptive rights) - s18(1) CA
• Thus some minority members have no choice but to seek legal solutions
(Chapter 14)
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The Rule in Foss v Harbottle

Overview of remedies

Chapter 14 -
Members’ Member’s statutory remedies

remedies
Member’s personal action

Member’s derivation action

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The Rule in It is a general principle of company

law that an individual shareholder
cannot sue for wrongs done to a

Foss v Harbottle (1843) company or complain of any

internal irregularities.
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The Rule in Foss v Harbottle

• https://www.youtube.com/watch?v=P7zWfmfjTTE
• In Foss v Harbottle (1842), two shareholders commenced legal action against
the promoters and directors of the company alleging that they had misapplied
the company assets and had improperly mortgaged the company property.
• The Court rejected the two shareholders' claim and held that a breach of duty
by the directors of the company was a wrong done to the company for which it
alone could sue. In other words, the proper plaintiff in that case was the
company and not the two individual shareholders.
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The Rule in Foss v Harbottle

This rule is derived from two general legal principles of company law.
1. a company is a legal entity separate from its shareholders – The Proper
Plaintiff Rule
2. the Court will not interfere with the internal management of companies
acting within their powers. Where an ordinary majority of members can
ratify the act, the Court will not interfere. This simply means, if the
majority can ratify an act, the minority cannot sue - The Majority Rule
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Common Law Exceptions to the Rule in

Foss v Harbottle

• The rule is very harsh, over time, the courts have developed a few exceptions
to the rule
• Members’ Derivative actions (for and on behalf of the company)
• Infringement of personal rights
• The oppression remedy
• Winding up on the just and equitable ground
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Overview of Remedies in 14-001 to 14-140

Chapter 14
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Figure 14.1 - Summary of Key Remedies Available to Minority Shareholders

Remedies for Minority Shareholders

PERSONAL - Where minority DERIVATIVE ACTION

shareholder has been oppressed, their ON BEHALF OF THE COMPANY -
interests disregarded, or they are Wrong suffered by the company
discriminated against or prejudiced ignored by controllers

Personal action to redress the Derivative action

situation through: (for benefit of company) through:
• Section 216 Oppression remedy • Common law action
• Winding-up application under ‘fraud on minority’
• Statutory injunctions s409A • Section 216A & B CA
• Members’ personal action under: • Possibly sec 216(2)(c) CA
- Express contract
- Statutory contract
- Rights under statute or general law
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Member’s statutory remedies Member’s derivative action

(s216) (s216A)
Overview of • A member commences this
legal action personally for his
• A member’s derivative
action is a legal action
remedies – own benefits as a member of
the company
commenced by a member
on behalf of the company.
difference • He suffers injustice or • The injury is done to the
between oppression or his personal
rights have been infringed.
company, only company can
sue, however, if the
member’s • If he is successful, he stands company through its’
majority or directors refuses
to receive the benefit of any
derivative order made by the court. to commence legal action,
the court will allow a
action and member to bring an action
on behalf of the company.
members’ • The company is the main
remedies beneficiary of any benefit
resulting from a derivative
action
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Members’ Statutory 14-200 to 14-260

Remedies
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The oppression remedy – s216 CA

on just and equitable ground s254(i) CA

Winding up the company – on grounds of directors’ acting in their

Overview of own interests 254(1)(f) CA

personal Statutory Injunction –

to stop from engaging conduct that
contravenes CA – s409A(1) CA

remedies -
to compel person to comply with
provisions of CA – s409(2) CA

Statute Right to inspect books

Right to prevent a variation of any rights attached to

the shares of the member – s74 CA
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Diversion of business opportunities (Scottish Co-Op case)

Improper exclusion from management (Tullio v Maoro)

Unfair schemes devised to retain control (Re SQ Wong Holdings)

S216(1)(a) – ongoing
conduct;

Member’s S216(1)(b) – act done or

resolution
Unfairly restricting dividends (Low Peng Boon v Low Janie)

Statutory Oppressive conduct in board meetings (John Starr v Robert Andrew)

Remedies
Issue shares to dilute voting control
(Kokotovich Construction v Wallington)

Failure of directors to act in the interests of the company (Low Peng

Oppression remedy – Boon v Low Janie; Lim Swee Khiang v Borden Co)
s216

(a) direct or prohibit any act or cancel or vary any transaction

or resolution;

(b) regulate the conduct of the affairs of the company in

future;

(c) 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;

s216(2) Remedies

(d) 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;*

(e) in the case of a purchase of shares by the company provide

Member’s statutory for a reduction accordingly of the company’s capital; or
remedies

s254(1)(f) - directors
acting in their own
(f) provide that the company be wound up.**
interests that is unfair or
unjust to members
Winding up

s254(1)(i) - just and

Grounds - deadlock, fraud or misconduct, failure of substratum,
equitable grounds to
breakdown in mutual trust and confidence
wind up

s409A(1) – to prevent
from contravening CA

Injunction

S409(2) – to compel
compliance with CA

To inspect books; s177

(general meeting); s183
Personal rights (propose resolution);
s181 (proxy); s189 CA
(inspect books)
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Personal remedies in cases of oppression or injustice

216(1) Any member or holder of a debenture of a company
or, in the case of a declared company under Part IX, the
Minister may apply to the Court for an order under this
section on the ground —
(a) that the affairs of the company are being conducted or
The the powers of the directors are being exercised in a
manner oppressive to one or more of the members or
oppression holders of debentures including himself or in disregard
of his or their interests as members, shareholders or
remedy – holders of debentures of the company; or
(b) that some act of the company has been done or is
s216 CA threatened or that some resolution of the members,
holders of debentures or any class of them has been
passed or is proposed which unfairly discriminates
against or is otherwise prejudicial to one or more of
the members or holders of debentures (including
himself).
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• Types of companies for s216 CA:

• Applies to all types of companies
• Usually used by small companies because
The members may have more at risk than just
the capital they have invested, they may be
oppression directors of the company being fired by
remedy – majority
• Oppressed members in small companies
s216 CA might not be able to sell their shares
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• Who can apply?

• Member of the company
• Debenture holder
• The Minister
The • Generally, a person who brings the action must be a
member, unless he is not yet a registered member by reason
oppression of oppression his name was not entered into the register of
members.
remedy – • The oppression can apply to the member in a capacity other
than a member – a senior manager who is also a member of
s216 CA the company was ousted because of falling out between
family members. The other members/directors declared
huge bonuses to themselves and not declared dividends,
thus depriving the senior manager dividend as member and
loss of bonus as officer of the company (Re Chi Liung & Son
Ltd)
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• Two limbs:
(1)(a) Relates to situations of ongoing conduct that is
oppressive in nature or in disregard of a member’s
The interest
(1)(b) Specifically to an ‘‘act done’’ or ‘‘resolution
oppression passed’’ that discriminates or unfairly
discriminates or is otherwise prejudicial against
remedy – the member

s216 CA The court will look at how the majority acts in a manner
that shows a visible departure from the proper standard of
commercial fairness and the standards of fair dealing and
the conditions of fair play, affecting the commercial
interests of the oppressed member (Re Kong Thai Sawmill)
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• Not all minority complaint will amount to oppression.

The • The court will respect the right of the majority to exercise
their vote freely against the complaint.
oppression • Thomas v H W Thomas Ltd (1984) ACLC

remedy – Facts: a family company adopted a conservative financial

policy, it did not borrow capital and thus paid low
dividend. A member moved a motion at AGM that some
s216 CA – of the property holding be sold and that the proceeds of
the sale be invested in income-earning investments that
court respect would increase dividends to members. His motion failed.
He brought an oppression action.
company’s • Held: The court noted that all the other members were
content with the way the company was run and it was
policy not unreasonable for the member to comply with the
expectations of the majority
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• Usually occur in small companies with few shareholders, many of whom involved
in the management of the company.
• There is usually a falling out with each other.
• The court will look at the conduct of the controllers of the company as a whole,

The how they are acting in disregard of the minority shareholders’ interests.
• Examples:

oppression • Diversion of business opportunities: Scottish Co-operative Wholesale

Society Ltd v Meyer [1959]

remedy – • Improper exclusion from management: Tullio v Maoro [1994]

• Unfair schemes devised to retain control: Re SQ Wong Holdings Pte Ltd

s216 CA - [1987]
• Unfairly restricting dividends: Low Peng Boon v Low Janie & Ors [1999]
• Oppressive conduct of board meetings: John J Starr Pty Ltd v Robert R
Examples Andrew Pty Ltd (1991)
• Issue shares to dilute voting control: Kokotovich Constructions Pty Ltd v
Wallington (1995)
• Failure of directors to act in the interests of the company: Low Peng Boon v
Low Janie & Ors [1999]; Lim Swee Khiang & Anor v Borden Co (Pte) & Ors
[2006]
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• What is meant by oppressive conduct?

• When shareholders, having a dominant power in a
company either:
The (1) Exercise that power to procure that something is done
or not done in the conduct of the company’s affairs or
oppression (2) Procure by an express or implicit threat of an exercise
remedy – of that power that something is not done in the
conduct of the company’s affairs; and
s216 CA when such conduct is unfair or ‘‘burdensome, harsh and
wrongful’’ to the other members of the company or some
of them, and lacks that degree of probity which they are
entitled to expect in the conduct of the company’s affairs
(Low Peng Boon v Low Janie & Ors [1999] 1 SLR 761)
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Diversion of business opportunities

Scottish Co-operative Wholesale Society Ltd v Meyer [1959]
Meyer and Lucas were minority members holding 49% in a company,

The they have the required licences to purchase yarn to produce cloth.
The Society holds 51% and had three directors on the board. Meyer
and Lucas would purchase yarn for the Society to weave into cloth at
oppression its mill and then sell the cloth to the company.
Dispute occurred and requirement for licence to purchase yarn
remedy – ended. The society obtained their own yarn and no longer supply
cloth to the company. This led to the decline in business in the
s216 CA company.
Minority shareholders/directors (49%) brought action against
example majority shareholders/directors (51%) for allowing the company’s
business to decline, diverting the business to their own parent
company.
Court held that there was oppression and the Society was ordered to
purchase the shares of the minority shareholders at a price set by the
court.
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Improper exclusion from management

• If the minority member has a reasonable expectation of
continued participation in management, then the
The removal of the minority member will be oppressive.
• Tullio v Maoro [1994]
oppression M asked T to re-activate a dormant company. T bought
shares in the dormant company with the expectation to
remedy – manage it, though there was no formal agreement to this
effect. M refused to pass resolution to appoint T to the
s216 CA - board, did not let him be a co-signatory and did not
proceed to procure employment pass for T.
example The court held that there was oppression as T as being
excluded from the management of the company in breach
of an understanding that he was to do so, relief under
s216 granted.
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Unfair schemes devised to retain control

Re SQ Wong Holdings Pte Ltd [1987]
One director M held all preference shares (90,002) and 2/48

The ordinary shares.

The constitution provided that preference shareholders were
oppression not permitted to vote unless the dividends were in arrears.
M did not declare preference dividend to preference shares
remedy – even though there were profits to do so, in fact, dividends
were paid to ordinary shareholders.
s216 CA - The court found that while directors had discretion to

example recommend or not recommend dividend, M refused to

recommend preferential dividend for the collateral purpose
of granting to the preferential shareholders voting rights on
the general affairs of the company – this was not an honest
exercise and ordinary shareholders could obtain a remedy
under s216.
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Unfairly restricting dividends

Low Peng Boon v Low Janie & Ors [1999]
The The majority members and directors in a family
oppression company declared no dividends but paid
themselves excessive remuneration out of the
remedy – profits that could otherwise be paid as
dividends to all the members.
s216 CA - The court found that there was oppression
example under s216 CA
There was also breaches of directors’ duties, see
later.
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Oppressive conduct of board meetings

The John J Starr Pty Ltd v Robert R Andrew Pty Ltd

(1991)
oppression The court held that there was oppressive
remedy – conduct of board meetings when the MD
refused to provide proper budgets, brought
s216 CA - forward matters without sufficient notice,
restricted speaking time to other directors, and
example made major decisions without reference to the
board of directors.
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Issue shares where the main purpose is to reduce

member’s ownership interest
The Kokotovich Constructions Pty Ltd v Wallington
(1995)
oppression W and K were the only two shareholders in a
remedy – company. K had a governing director’s share
with special voting rights. K voted to remove W
s216 CA - as director and secretary and also issued shares
to himself and his family members.
example The court found that the purpose of the share
issue was to reduce W’s ownership interest in
the company, and this was oppressive.
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Failure of directors to act in the interests of the company

• Low Peng Boon v Low Janie & Ors [1999]
Minority shareholder alleged that the majority directors
used company funds for personal purposes like travels,
The petrol etc.

oppression A relief under s216 was granted – court ordered the

company to be wound up and directors ordered to make
restitution to the company in respect of the breaches of
remedy – their duties.

s216 CA - • Lim Swee Khiang & Anor v Borden Co (Pte) & Ors [2006]

example Failure to collect royalties (use of the trademark “Eagle

Brand” medicated oil) from a company associated with a
majority shareholder and the settlement of an action
against that company were oppressive conduct under
s216(1)(a) CA.
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s216(2) if there is oppression under s216(1), the court will grant

remedy to
(a) direct or prohibit any act or cancel or vary any transaction or
resolution;

The (b) regulate the conduct of the affairs of the company in future;
(c) authorise civil proceedings to be brought in the name of or on
oppression behalf of the company by such person or persons and on such
terms as the Court may direct;
(d) provide for the purchase of the shares or debentures of the
remedy – company by other members or holders of debentures of the
company or by the company itself;*
s216(2)CA (e) in the case of a purchase of shares by the company provide for a
reduction accordingly of the company’s capital; or

Remedies (f) provide that the company be wound up.**

*Court will favour majority buying minority’s shares

** Court does not like to wind up operational and successful
companies unless no other remedy is available.
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• Winding up the company:

• Reasons for winding up
• Insolvency (Chapter 22)
• No longer serves its purpose (Chapter 22)
Winding up • Grounds for winding up
the company • S216(2)(f) CA – oppressive remedy
as a member’s • S254(1)(i) CA – just and equitable to do so
• S254(1)(f) CA – directors acting in their own
remedy interests rather than in the company’s
interests or are acting in a way that is unfair
or unjust to members
• Court is reluctant to wind up a solvent company
with a future, will only do so as a last resort.
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Who can apply for the company to be wound up –

s253(1) CA:
Winding up • The company
• A member of the company
the company • Creditor of the company
as a member’s • Liquidator of the company
• Judicial manager of the company
remedy • Minister of Finance
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The just and equitable ground (s254(1)(i) CA:

Situations when the courts have wound up the companies
under this ground include:
• Deadlock – typically in a small company with few
members;
Winding up • Fraud or misconduct – company was established to
the company commit fraud on investors or there is misconduct in its
operations, like withholding financial information so that
as a member’s majority could buy out minority at below market value;

remedy • Failure of substratum (foundation or basis) – when

controlling member changed the original intention of the
company to do something else
• Breakdown in mutual trust and confidence that are
“quasi-partnerships” ; and
• Where the minority shareholders have been treated
unfairly. (note an overlap with s216 remedy)
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The case of the Roast Goose

Hong Kong Yung Kee Restaurant ordered by court to wind-up due
to sibling squabbles …16 Dec 2015

Is the minority share (45%) worth HK$1.1 billion (HK$1.1 billion in cash and
almost HK$100 million worth of assets) or HK$1.3 billion (US$168m)?
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An injunction is an order of the court which requires a

person to do, or stop doing, a particular act

s409A(1) the court has the power to grant an injunction to stop any person
from engaging in conduct that contravenes the CA, especially if there is a
Statutory continuing conduct like director taking advantage of corporate opportunities;
or a director has taken company’s property to sell

injunction –
s409A CA Under s409A(2) – the court has the power to compel any
person to do any act that he is required to do under CA to
do – to file annual returns or maintain registers

The Registrar of Companies

Who can apply: A person whose interest have been or would be
affected by the conduct – creditor, member
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Statutory right to inspect books of the

company
Members do not have automatic right to inspect every book of the company.

S399 CA - where a member believes that the directors are not giving sufficient information, the
member can seek to inspect some records:
• registers maintained by the company – s190
• minutes of members’ meetings – s189
• instruments that create registrable charges over the company’s property – s138(3)
• a copy of the audited financial statements of the company and other documents that are to be laid before it at the
AGM – s203

Note that members do not have the rights to inspect minutes of directors’ meetings and
accounting records
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Members’ Personal 14-300 to 14-310

Action
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Member’s personal action

A member may be given a personal right:

• As part of an express contract between the member

and other members, or between the member and the
company
• Arising from the right to enforce the constitution as a
statutory contract under s39 CA; or
• By statute or general law
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Express contract (shareholder’s agreement):

• If an attempt is made to amend the contract to take away personal

rights without consent of member, he can bring legal action to
enforce the contract
• For example – to amend to remove member’s right to appoint a
nominee director or to dilute their voting power

Statutory contract under s39 in relation to the

Member’s constitution:
• Members can bring legal action to enforce the provisions of the
personal company’s constitution (chapter 5)
• For example, member cannot sell shares to outsiders before offering
them to existing members first
action
Personal rights given by statute or general law:

• Members can bring action to enforce rights accorded to them under

statute or the general law
• S177 CA – two or more holding at least 10% share capital can call a
general meeting
• S183 CA – member with at least 5% voting right can propose
resolution
• S181 CA – member’s right to appoint proxy to attend meeting
• S189 CA – member’s right to inspect some company books
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Member’s Derivative 14-400 to 14-420

Action – s216A CA

Member’s derivative action — general law
What is a derivative action?
An action brought by a member based
on a cause of action which the
company has, rather than a cause of
action belonging to the member
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The “proper plaintiff rule”
The proper plaintiff is the party who
suffered the wrong — the company
The board has the power to decide on
litigation matters as they are in better
position to do so.
But what if the wrongdoer is a director
or a controlling member and they
decided not to pursue legal action
against the wrongdoer?
Derivative action:
Procedural device that enable members
to bring action on behalf of company
The courts in Singapore have
recognised that the proper plaintiff rule
should not be used by those in control
of the company to commit a ‘‘fraud on
the minority’’
Generally, the member bringing the
derivative action is responsible for the
cost of the action; but court may order
the company to indemnify the member
for such costs.
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Member’s derivative action — s216A CA

Statutory derivative action – s216A Who can apply?

CA and s216B CA
Member may apply to the Court for leave to Member
bring an action or arbitration in the name and on The Minister
behalf of the company or intervene in an action Any other person who, in the discretion of the
or arbitration to which the company is a party for court, is a proper person to make an application
the purpose of prosecuting, defending or under this section – member, ex-member,
discontinuing the action or arbitration on behalf auditor, officer
of the company.
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Member’s derivative action — s216A CA

• Legal action under s216A – criteria used by the court:

• Wrong suffered by the company;
• The complainant has given 14 days’ notice to the directors of the company of
his intention to apply to the court under s216A(2) if the directors of the
company do not bring, diligently prosecute or defend or discontinue the
action
• The complainant is acting in good faith; and
• It appears to be prima facie in the interests of the company that the action be
brought, prosecuted, defended or discontinued – directors may have
legitimate reasons for not prosecuting, not worth the time or money etc
• Court authorises the commencement of action
• Complainant brings action on behalf of company
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Member’s derivative action — s216A CA

• Situations for which the court may grant leave under s216A:
• Purpose of s216A:
• To allow the complainant to bring an action on behalf of a company
• To stand in for the company, the actual merits of the case will need to be
heard by the court and decided after the standing is granted
• Allows the court to also order that a person be permitted to intervene in an
action to which the company is a party for the purpose of prosecuting, defending
or discontinuing the action on behalf of the company – e.g. – to settle the
matters with the other party rather than bringing action
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Member’s derivative action — s216A CA

• Permission to discontinue or settle proceedings – s216B(2)

• complainants who commenced action under s216A must seek permission from the court to
discontinue or settle proceedings, to prevent collusion between complainant and defendants
at the company’s expense.
• Effect of ratification by members - s216B(1)
• court will not dismiss application brought under s216A by reason of ratification by members.
• Power of court to make orders regarding costs – s216B(3)
• court may order the company to pay interim costs of the complainant, but if there is no case
to call, then complainant may bear the cost.
• Relationship with the general law derivative action
• Generally, the member bringing the derivative action is responsible for the cost of the action;
but court may order the company to indemnify the member for such costs.
• Under statutory law s216B(3) may grant order for interim costs to be borne by company, so
member is likely to prefer to commence action under statutory derivative action.
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