Lian Hwee Choo Phebe v Maxz Universal: Minority Oppression & Share Dilution

In Lian Hwee Choo Phebe and another v Maxz Universal Development Group Pte Ltd and others and another suit, the High Court of Singapore heard claims by Lian Hwee Choo Phebe and Kok Lan Choo, minority shareholders in Maxz Universal Development Group Pte Ltd, against the company and its directors for minority oppression under s 216 of the Companies Act and for unfairly diluting their shareholdings. The court, presided over by Andrew Ang J, struck down the First Rights Issue and ordered a buy-out of the plaintiffs' shares, finding that the directors had acted oppressively and unfairly. The court did not strike down the Second Rights Issue.

1. Case Overview

1.1 Court

High Court

1.2 Outcome

First Rights Issue struck down; buy-out of plaintiffs’ shares ordered.

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Minority shareholders Lian Hwee Choo Phebe and Kok Lan Choo sue Maxz Universal for oppression and unfair share dilution. The court ordered a buy-out of shares.

1.7 Decision Date

7 September 2010

2. Parties and Outcomes

Party Name	Role	Type	Outcome	Outcome Type	Counsels
Tan Boon Kian	Defendant	Individual	Buy-out of plaintiffs’ shares ordered	Lost	Harpreet Singh Nehal SC of Drew & Napier LLC Davinder Singh SC of Drew & Napier LLC Chew Kiat Jinn of Drew & Napier LLC Jackson Eng of Drew & Napier LLC Dawn Ho of Drew & Napier LLC
Maxz Universal Development Group Pte Ltd	Defendant	Corporation	First Rights Issue struck down	Lost	Lye Hui Xian of Braddell Brothers Edmund J Kronenburg of Braddell Brothers Leong Kit Wan of Braddell Brothers Joan Sim of Braddell Brothers
Seeto Keong	Defendant	Individual	Adverse findings	Lost	Siraj Omar of Premier Law LLC See Chern Yang of Premier Law LLC
Lim Kwee Wah	Defendant	Individual	Adverse findings	Lost	Goh Seow Hui of Rajah & Tann LLP Harish Kumar s/o Champaklal of Rajah & Tann LLP
Lian Hwee Choo, Phebe	Plaintiff	Individual	First Rights Issue struck down; buy-out of shares ordered	Partial	Jimmy Yap of Jimmy Yap & Co N Sreenivasan of Straits Law Practice LLC Srinivasan s/o V Namasivayam of Heong Leong & Srinivasan Rahayu bte Mahzam of Heong Leong & Srinivasan
Kok Lan Choo	Plaintiff	Individual	First Rights Issue struck down; buy-out of shares ordered	Partial	Jimmy Yap of Jimmy Yap & Co N Sreenivasan of Straits Law Practice LLC Srinivasan s/o V Namasivayam of Heong Leong & Srinivasan Rahayu bte Mahzam of Heong Leong & Srinivasan
Cairnhill Treasure Investment (S) Pte Ltd	Defendant	Corporation	Buy-out of plaintiffs’ shares ordered	Lost	Harpreet Singh Nehal SC of Drew & Napier LLC Davinder Singh SC of Drew & Napier LLC Chew Kiat Jinn of Drew & Napier LLC Jackson Eng of Drew & Napier LLC Dawn Ho of Drew & Napier LLC
Sebastian Wong Cheen Pong	Defendant	Individual	Adverse findings	Lost	Thrumurgan s/o Ramapiram @ Thiru of Thiru & Co
Loke Sau Fun	Defendant	Individual	Allegations of conspiracy dismissed	Dismissed	Thrumurgan s/o Ramapiram @ Thiru of Thiru & Co
Gwendolyn Wong Sze Wen	Defendant	Individual	Allegations of conspiracy dismissed	Dismissed	Allister Lim of Allister Lim & Thrumurgan

3. Judges

Judge Name	Title	Delivered Judgment
Andrew Ang	Judge	Yes

4. Counsels

Counsel Name	Organization
Harpreet Singh Nehal SC	Drew & Napier LLC
Davinder Singh SC	Drew & Napier LLC
Chew Kiat Jinn	Drew & Napier LLC
Jackson Eng	Drew & Napier LLC
Dawn Ho	Drew & Napier LLC
Lye Hui Xian	Braddell Brothers
Edmund J Kronenburg	Braddell Brothers
Leong Kit Wan	Braddell Brothers
Joan Sim	Braddell Brothers
Siraj Omar	Premier Law LLC
See Chern Yang	Premier Law LLC
Goh Seow Hui	Rajah & Tann LLP
Harish Kumar s/o Champaklal	Rajah & Tann LLP
Jimmy Yap	Jimmy Yap & Co
N Sreenivasan	Straits Law Practice LLC
Srinivasan s/o V Namasivayam	Heong Leong & Srinivasan
Rahayu bte Mahzam	Heong Leong & Srinivasan
Thrumurgan s/o Ramapiram @ Thiru	Thiru & Co
Allister Lim	Allister Lim & Thrumurgan

4. Facts

Lian Hwee Choo Phebe and Kok Lan Choo were minority shareholders in Maxz Universal Development Group Pte Ltd.
The plaintiffs alleged that the directors and majority shareholders of MDG had conducted the company's affairs under a shroud of secrecy.
LHC was removed from directorship of MDG by a group of shareholders at an Extraordinary General Meeting.
Rodney Tan invested in MDG through his wholly-owned British Virgin Islands corporate vehicle Roscent Group Ltd.
MDG held an EGM to consider the First Rights Issue Resolution for the issue of 6.9 million new shares at $1 per share.
The plaintiffs sought to restrain MDG from proceeding with the rights issue and, in the alternative, to have the First Rights Issue Resolution declared void.
The plaintiffs were offered new MDG shares based on their reduced shareholding of 2.77%.

5. Formal Citations

Lian Hwee Choo Phebe and another v Maxz Universal Development Group Pte Ltd and others and another suit, Suits Nos 536 and 75 of 2008, [2010] SGHC 268
Lian Hwee Choo Phebe and another v Maxz Universal Development Group Pte Ltd and others and another suit, Civil Appeal No 61 of 2008, Civil Appeal No 61 of 2008

6. Timeline

Date	Event
2008-01-08	Originating Summons No 18 of 2008 filed
2008-01-29	Originating Summons No 18 of 2008 converted to Suit No 75 of 2008
2008-08-01	Suit No 536 of 2008 filed
2009-07-01	Hearing of both actions commenced
2009-10-01	Hearing of both actions concluded
2010-02-01	First Rights Issue struck down; buy-out of plaintiffs’ shares ordered
2010-09-08	Written grounds rendered
2010-11-12	Supplementary Grounds of Decision

7. Legal Issues

Minority Oppression
- Outcome: The court found that the directors had acted oppressively towards the minority shareholders.
- Category: Substantive
- Sub-Issues:
  - Denial of access to information
  - Unfair dilution of shareholding
  - Breach of directors' duties
Share Dilution
- Outcome: The court struck down the First Rights Issue, finding that it was conducted with the predominant purpose of diluting the plaintiffs' shareholding.
- Category: Substantive
- Sub-Issues:
  - Rights issue
  - Pre-emption rights
  - Undervalued shares
Breach of Directors' Duties
- Outcome: The court found that some directors had breached their duties by failing to disclose conflicts of interest and misappropriating funds.
- Category: Substantive
- Sub-Issues:
  - Failure to disclose conflicts of interest
  - Misappropriation of funds
  - Failure to keep proper accounts
Access to Information
- Outcome: The court found that the plaintiffs were unfairly denied access to information.
- Category: Procedural

8. Remedies Sought

Injunction
Declaration that First Rights Issue Resolution is void
Relief under s 216 of the Companies Act

9. Cause of Actions

Minority Oppression
Breach of Fiduciary Duty

10. Practice Areas

Commercial Litigation
Corporate Law
Shareholder Disputes

11. Industries

Property Development

12. Cited Cases

Case Name	Court	Affirmed	Citation	Jurisdiction	Significance
Over & Over Ltd v Bonvests Holdings Ltd	Court of Appeal	Yes	[2010] 2 SLR 776	Singapore	Cited for the principle that unfairness underpins s 216 of the Companies Act and that a collateral purpose behind a rights issue could amount to oppression of the minority.
Re Tri-Circle Investment Pte Ltd	High Court	No	[1993] 1 SLR(R) 441	Singapore	Cited for the principle that the court should not act as arbiter of management decisions unless there is evidence of improper purpose or bad faith.
Lim Swee Khiang v Borden Co (Pte) Ltd	High Court	No	[2006] 4 SLR(R) 745	Singapore	Cited for the principle that minority shareholders participate in a commercial enterprise knowing they are subject to majority rule, but this does not give the majority carte blanche.
Elder v Elder & Watson Ltd	Court of Session	No	1952 SC 49	Scotland	Cited for the principle that a visible departure from fair dealing and a violation of fair play entitles a shareholder to relief against oppression.
Re Kong Thai Sawmill (Miri) Sdn Bhd	Federal Court	No	[1978] 2 MLJ 227	Malaysia	Cited for the principle that a visible departure from fair dealing and a violation of fair play entitles a shareholder to relief against oppression.
Kumagai Gumi Co Ltd v Zenecon Pte Ltd	High Court	No	[1995] 2 SLR(R) 304	Singapore	Cited for the principle that not every breach of directors’ duties or shareholders’ agreements amounts to oppressive conduct.
Ng Sing King v PSA International Pte Ltd	High Court	No	[2005] 2 SLR(R) 56	Singapore	Cited for the principle that the court should consider whether a breach was deliberate, significant, and caused detriment.
Thio Keng Poon v Thio Syn Pyn	Court of Appeal	No	[2010] SGCA 16	Singapore	Cited for the principle that breaches of the Companies Act attract separate sanctions and are not necessarily minority oppression unless something more is shown.
Re a Company (No 007623 of 1986)	High Court	No	[1986] BCLC 362	England and Wales	Cited for the principle that dilution of a minority shareholder is not in itself oppressive conduct.
Re Cumana Ltd	High Court	Yes	[1986] BCLC 430	England and Wales	Cited for the principle that a rights issue conducted with the purpose of diluting an impecunious shareholder was unfairly prejudicial because the dilution attempt was in breach of the informal understanding between the parties that there would be no such attempt.
Howard Smith Ltd v Ampol Petroleum Ltd	Privy Council	No	[1974] AC 821	Australia	Cited for the principle that the issue of shares for any reason other than to raise capital amounts to a breach of fiduciary duties by the directors of the company and may be set aside by the court.
Polybuilding (S) Pte Ltd v Lim Heng Lee	High Court	No	[2001] 2 SLR(R) 12	Singapore	Cited for the principle that if directors representing majority shareholders abuse voting powers by voting in bad faith or for a collateral purpose, oppression can be said to have been established.
Lim Cheng Huat Raymond v Teoh Siang Teik	Court of Appeal	No	[1996] 3 SLR(R) 371	Singapore	Cited for the principle that there was insufficient evidence to support the allegation that a minority shareholder and director had been oppressed by the majority’s denial of information and documents.
Re Regional Airports	High Court	Yes	[1999] 2 BCLC 30	England and Wales	Cited for the principle that the shareholders had a common assumption that each of the shareholders was to be on the board, and entitled to a reasonable flow of management information concerning the company and any trading subsidiaries and to be consulted on broad strategic issues.
Lonrho Ltd v Shell Petroleum Co Ltd	House of Lords	No	[1980] 1 WLR 627	United Kingdom	Cited for the principle that shareholders as such have no legal right to inspect or to take copies of company documents.
Re Dernacourt Investments Pty Ltd	Supreme Court of New South Wales	No	(1990) 20 NSWLR 588	Australia	Cited for the principle that shareholders will not have the right to inspect financial records unless it has been expressly provided for in the articles of association of the company.
Burn v The London and South Wales Coal Co	Court of Appeal	No	[1890] 7 TLR 118	England and Wales	Cited for the principle that shareholders will not have the right to inspect financial records unless it has been expressly provided for in the articles of association of the company.
Edman v Ross	Supreme Court of New South Wales	No	(1922) 22 SR (NSW) 351	Australia	Cited for the principle that shareholders may be allowed access if sufficient cause can be shown that the documents to be inspected are necessary with reference to a specific dispute.
Dato Ting Check Sii v Datuk Haji Mohamad Tufail bin Mahmud	High Court	No	[2007] 7 MLJ 618	Malaysia	Cited as an example of a Malaysian case.

13. Applicable Rules

Rule Name
No applicable rules

14. Applicable Statutes

Statute Name	Jurisdiction
Companies Act (Cap 50, 2006 Rev Ed)	Singapore

15. Key Terms and Keywords

15.1 Key Terms

Minority oppression
Share dilution
Rights issue
De facto director
Beneficial owner
First Rights Issue
Second Rights Issue
Companies Act
SBLC
CLA
EGM
AGM

15.2 Keywords

Minority oppression
Share dilution
Rights issue
Companies Act
Singapore
Corporate governance
Fiduciary duty

17. Areas of Law

Area Name	Relevance Score
Minority Oppression	95
Company Law	90
Fiduciary Duties	70
Corporate Governance	65
Commercial Disputes	60
Contract Law	50
Civil Procedure	30

16. Subjects

Company Law
Corporate Law
Shareholder Rights
Commercial Litigation