Minority Oppression – Section 216 or 216A?
JTJB Legal Update July 2018
Minority shareholders often experience oppression or injustice when they are unfairly outvoted by the majority at shareholder meetings. Aggrieved shareholders who wish to seek recourse can rely on Sections 216 and 216A of the Companies Act.
If the oppression is a wrong affecting them in their personal capacity, shareholders can apply under Section 216 for the Court to make orders as it thinks fit to remedy the oppression. Such orders may include prohibiting a transaction or even winding up the company.
If the oppression is a corporate wrong causing loss to the company, the shareholder can apply under Section 216A for leave from the Court to sue the directors in the name of the company. To do so, the shareholder must fulfil certain requirements, including providing prior notice to the directors and acting in good faith in the interests of the company.
Depending on the circumstances, some shareholders may prefer to sue under Section 216 in their personal capacity if, for instance, they wish to exit the company by having their shares bought out and such a remedy would not be available under Section 216A. However, as oppression usually involve both personal and corporate wrongs, the distinction is blurred as to whether such a claim should be properly pursued under Section 216 or Section 216A.
The recent Court of Appeal judgment in Ho Yew Kong v Sakae Holdings Ltd [2018] SGCA 33 is important as it provides guidance on this issue.
Background
- Sakae Holdings Ltd (“Sakae”) was the minority shareholder in a joint venture company (“Company”) which was set up to invest in property.
- Sakae commenced a Section 216 action against the defendants for oppressive conduct which constituted a personal wrong against them.
- However, the oppressive conduct involved transactions where monies were misappropriated by the defendants from the Company and also constituted a corporate wrong against the Company.
The Judgment
The Court held that the key question is whether the Plaintiff was abusing the process by bringing an action under Section 216 instead of seeking leave under Section 216A, and in determining so, the analytical framework is as follows:
(a) Injury
- What is the real injury that the Plaintiff seeks to vindicate?
- Is that injury distinct from the injury to the company and does it amount to commercial unfairness against the Plaintiff?
(b) Remedy
- What is the essential remedy that is being sought and is it a remedy that meaningfully vindicates the real injury that the Plaintiff has suffered?
- Is it a remedy that can only be obtained under section 216?
Applying the facts, the Court held that Sakae’s claims were properly pursued under Section 216:
(a) the real injury Sakae sought to vindicate was the injury to its investment in the joint venture and the breach of its legitimate expectations of how the Company’s affairs and its financial investment in the Company would be managed;
(b) the remedy that is being sought (i.e. winding up or buyout of Sakae’s shares) was the only way Sakae could exit the joint venture with as little loss as possible and vindicate the real injury it had suffered; and
(c) the aforesaid remedies could only be obtained under Section 216
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