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Oppression: Minority shareholder [2014] 5 CLJ 726

The first defendant (‘the company’) owned certain premises and its sole business was the letting of the premises. Through a director’s resolution, the premises were sold off for RM25 million. The plaintiff, a minority shareholder, wanted to dispose of its shares and subsequently, attempted to sell the shares to the second defendant, the majority shareholder. However, the offer to sell was not accepted. The plaintiff proceeded to file originating summons under s. 181 of the Companies Act 1965 against the company and the second defendant for an order that the shares be purchased by the second defendant or the company. The plaintiff further sought that in the event the company purchases the shares, there would be a reduction of capital of the company or the company would be wound up. It was the plaintiff’s contention that it became the shareholder of the company as it had the intention of being involved in the letting of premises but since the premises had been sold off, there was no longer such business. The plaintiff further submitted that to be forced to continue with any other business that the company might venture into, would be an act of oppression as well as in disregard of the plaintiff’s interest. Against the second defendant, the plaintiff’s complaints were that (i) as a majority shareholder, the second defendant had failed to indicate what were the businesses being contemplated to be ventured into by the company; and (ii) the second defendant had thwarted even the attempt to sell the plaintiff’s shares to persons or other companies other than the existing shareholders and immediate family of persons registered as shareholders.

Held:

(1) An affidavit sworn and affirmed by a director and shareholder of the second defendant showed that the second defendant had acted in disregard of the plaintiff’s interest and had acted in an oppressive manner against the plaintiff. In the face of this clear admission, it would be wrong for the court to find that the plaintiff’s interest had not been disregarded and that there were no actions which were oppressive against the plaintiff. (paras 23 & 25)

(2) The directors of the second defendants themselves were in disagreement and the episodes of disagreements showed that they were not minor disagreements but were serious in nature that could affect the operation of the company and had in any event affected the interest of the plaintiff as a minority shareholder of the company. The incidents were not isolated cases that would not materially affect the operation of the company but taken as a whole, the instances of serious disputes and disagreements among the directors of the second defendant could seriously hamper the smooth-running of the company and in any event, the plaintiff should not be burdened and be caught unnecessarily in these disputes. (paras 36 & 37)

(3) In an extraordinary general meeting of the company, the plaintiff had enquired what business venture would the company undertake in the future after the premises for letting had been disposed of. This meeting was held more than one year since the shareholder’s resolution to sell the premises. Yet, in this meeting, the directors representing the second defendant did not answer the question what was the business which the company wanted to be involved in but merely said that there were many businesses the company could venture into as stated in the clauses of the company. (paras 40, 41 & 42)

(4) The decision of the plaintiff was reasonable and fair in wanting to leave the company as the company itself was no longer involved in any business. It was not reasonable for the company to let the plaintiff be guessing for so long on the business it wants to be involved in. There was element of oppression for the company to still insist that the plaintiff remain as shareholder when the company itself had not decided on whatever business venture it wants to be involved in. The plaintiff could not be expected to remain as the shareholder of the company indefinitely after the successful disposal of the premises and the company could no longer demand the participation of the plaintiff if it could not itself determine its future direction in terms of business. (paras 45, 46 & 47)

(5) There was, on the balance of probabilities, evidence of oppression suffered by the plaintiff in the hands of the company in the turning down of the request by the plaintiff to sell its entire shares to any person or company other than the existing shareholders and immediate family of persons registered as shareholders. The rejection by the company was evidence of oppression on the part of the company against the plaintiff as it was fully-aware that it was not engaging in any business at that point of time yet it refused the reasonable proposal by the plaintiff to sell its shares. (paras 52 & 54)

(6) The plaintiff, as a substantial shareholder, had every right to reap the rewards of the profitable sale of the premises and exit the company or use that proceeds to venture into other business on its own. The plaintiff was deprived of these opportunities when the company took longer than the reasonable time to decide on its new business. (para 62)

Source: Rahya Trading Sdn Bhd v. Tong Khin Company Sdn Bhd & Anor [2014] 5 CLJ 726. High Court Kuala Lumpur. Abu Bakar Jais JC

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Oppression – Minority shareholder – Company solely involved in business of letting of premises – Premises sold off – Minority shareholder attempted to dispose of and sell shares to majority shareholder – Offer to sell shares not accepted by company – Minority shareholder forced to continue with any other business company might venture into – Whether amounted to minority oppression – Whether disregard of minor shareholder’s interest – Companies Act 1965 s. 181

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