Poh Fu Tek v Lee Shung Guan: Minority Shareholder Oppression & Share Valuation

In Poh Fu Tek, Koh Seng Lee, and Sino Bio Energy Pte Ltd v Lee Shung Guan, Tenda Equipment & Services Pte Ltd, and Biofuel Industries Pte Ltd, the Singapore High Court addressed a claim of minority shareholder oppression under Section 216 of the Companies Act. The plaintiffs alleged that the defendants diluted their shareholding in Biofuel Industries. Justice Vinodh Coomaraswamy found the defendants liable for oppressive conduct and ordered them to purchase the plaintiffs' shares at $1.86 per share, valuing the total purchase at $3.1 million.

1. Case Overview

1.1 Court

High Court of the Republic of Singapore

1.2 Outcome

Judgment for Plaintiffs

1.3 Case Type

Civil

1.4 Judgment Type

Grounds of Decision

1.5 Jurisdiction

Singapore

1.6 Description

Singapore High Court case regarding minority shareholder oppression in Biofuel Industries. The court ordered the defendants to buy the plaintiffs' shares, valuing them at $1.86 per share.

1.7 Decision Date

2. Parties and Outcomes

Party NameRoleTypeOutcomeOutcome TypeCounsels
Poh Fu TekPlaintiffIndividualJudgment for PlaintiffWon
Koh Seng LeePlaintiffIndividualJudgment for PlaintiffWon
BIOFUEL INDUSTRIES PTE LTDDefendantCorporationNeutralNeutral
Sino Bio Energy Pte LtdPlaintiffCorporationJudgment for PlaintiffWon
Lee Shung GuanDefendantIndividualOrder to purchase sharesLost
Tenda Equipment & Services Pte LtdDefendantCorporationOrder to purchase sharesLost

3. Judges

Judge NameTitleDelivered Judgment
Vinodh CoomaraswamyJudgeYes

4. Counsels

Counsel NameOrganization
Ian LimTSMP Law Corporation
Nicole WeeTSMP Law Corporation
Grace ChanTSMP Law Corporation
Simon Dominic JonesGrays LLC

4. Facts

  1. Plaintiffs invested in Biofuel in 2007 and 2008.
  2. Plaintiffs held 25% of Biofuel's shares before the acts of oppression.
  3. Defendants allotted shares to an entity related to the first defendant without offering plaintiffs an opportunity to participate.
  4. Plaintiffs' shareholding was diluted from 25% to under 3%.
  5. The first defendant rejected the plaintiffs' offer to sell their shares for $2 million before the dilution.
  6. The court found no commercial justification for the share dilution.
  7. The first defendant failed to invite the plaintiffs to participate in the allotment of shares.

5. Formal Citations

  1. Poh Fu Tek and others v Lee Shung Guan and others, Suit No 387 of 2015, [2017] SGHC 212

6. Timeline

DateEvent
Biofuel granted a three-year licence to use the Shipyard site commencing
Biofuel was in negotiations with PT Medco Energi Internasional Tbk to agree the terms of a joint venture
Plaintiffs entered into a share subscription agreement
Biofuel solicited a further investment from the first and second plaintiffs
Convertible loan agreement was executed
Deed of Arrangement was executed
Extraordinary General Meeting of Biofuel's members took place
Plaintiffs received the minutes of the EGM
Tenda and Biofuel entered into an agreement under which Biofuel agreed to allot and issue 51,905,720 new shares to Tenda
Biofuel allotted and issued the 51,905,720 new shares to Tenda
Tenda transferred its original 5,000,000 shares to the first defendant
Tenda transferred the remaining 51,905,720 shares to the first defendant
Plaintiffs complained to the defendants formally of a breach of s 216 of the Act
Defendants offered to purchase the plaintiffs’ shares at $0.05 per share
Plaintiffs filed amended Statement of Claim
Plaintiffs served an offer to settle on the defendants
Trial commenced
Heard on costs
Judgment Date

7. Legal Issues

  1. Oppression of Minority Shareholders
    • Outcome: The court found that the defendants' conduct amounted to oppression of the minority shareholders within the meaning of s 216 of the Companies Act.
    • Category: Substantive
    • Sub-Issues:
      • Dilution of shareholding
      • Breach of legitimate expectations
      • Failure to invite participation in new share issues
  2. Valuation of Shares
    • Outcome: The court determined the fair value of the plaintiffs' shares to be $1.86 per share, based on a discounted cash flow analysis with adjustments for risks.
    • Category: Substantive
    • Sub-Issues:
      • Discounted cash flow analysis
      • Terminal value calculation
      • Risk assessment
      • Cost of equity
      • Small stock risk premium
  3. Offer to Settle
    • Outcome: The court found that the plaintiffs' offer to settle was a genuine attempt to compromise and that the plaintiffs have beaten their offer.
    • Category: Procedural
    • Sub-Issues:
      • Late offer
      • Genuine attempt to compromise

8. Remedies Sought

  1. Order for the purchase of shares
  2. Winding up of the company
  3. Damages
  4. Equitable compensation
  5. Account of profits

9. Cause of Actions

  • Oppression of Minority Shareholders

10. Practice Areas

  • Commercial Litigation
  • Corporate Law

11. Industries

  • Biofuel
  • Waste Management

12. Cited Cases

Case NameCourtAffirmedCitationJurisdictionSignificance
Lim Kok Wah and others v Lim Boh Yong and others and other mattersHigh CourtYes[2015] 5 SLR 307SingaporeCited for the principle that equitable considerations can make it unfair for those conducting a company's affairs to rely on their strict legal powers to defeat legitimate expectations of shareholders.
Re Cumana LtdN/AYes[1986] BCLC 430England and WalesCited for the principle that conduct breaching a shareholder's legitimate expectation amounts to oppressive conduct.
Over & Over Ltd v Bonvests Holdings Ltd and anotherCourt of AppealYes[2010] 2 SLR 776SingaporeCited for the definition of oppressive conduct and the principle that the dominant purpose of diluting a shareholding can constitute oppressive conduct.
Lim Swee Khiang and another v Borden Co (Pte) Ltd and othersHigh CourtYes[2005] 4 SLR(R) 141SingaporeCited for the principle that an unreasonable offer to buy a minority's shares does not negate prior acts of oppression.
Lian Hwee Choo Phebe and another v Maxz Universal Development Group Pte Ltd and others and another suitHigh CourtYes[2010] SGHC 268SingaporeCited for the principle that minority shareholders should not be made to choose between having their shareholding unfairly diluted and selling their shareholding at what I find to be a gross undervalue.
Yeo Hung Khiang v Dickson Investments (Singapore) Pte Ltd and othersCourt of AppealYes[1999] 1 SLR(R) 773SingaporeCited for the principle that the court's role is to determine a price that is fair and just in the particular circumstances of the case, even if those adjustments do not accord with strict accounting principles.
Koh Keng Chew and others v Liew Kit Fah and othersHigh CourtYes[2017] SGHC 52SingaporeCited for the principle that the price should be fair, just and equitable as between the parties, and the court's discretion is otherwise unfettered.
Lim Swee Khiang and another v Borden Co (Pte) Ltd and othersHigh CourtYes[2006] 4 SLR(R) 745SingaporeCited as an example where the court's determination of what is fair, just and equitable is contained in the terms of reference framed by the court for an independent valuer.
Lim Chee Twang v Chan Shuk Kuen Helina and othersHigh CourtYes[2010] 2 SLR 209SingaporeCited as an example where the court's determination of what is fair, just and equitable is contained in the terms of reference framed by the court for an independent valuer.
Asia Hotel Investments Ltd v Starwood Asia Pacific Management Pte Ltd and anotherHigh CourtYes[2007] SGHC 50SingaporeCited for the principle that the court must take a substantive view on conflicting expert evidence, which inevitably involves undertaking an analysis of a technical and mathematical nature.
CVC/Opportunity Equity Partners Ltd and another v Demarco AlmeidaN/AYes[2002] 2 BCLC 108England and WalesCited for the three possible bases on which a minority holding of shares in an unquoted company can be valued.
Gillatt v Sky Television LtdN/AYes[2000] 2 BCLC 103England and WalesCited for the principle that a combination of both approaches may be employed to value shares in a private company.
Low Janie v Low Peng Boon and othersHigh CourtYes[1998] 2 SLR(R) 154SingaporeCited for the general rule that the court will not apply a discount for non-marketability when making a share purchase order under s 216(2) of the Act.
In re Bird Precision Bellows LtdN/AYes[1986] Ch 658England and WalesCited for the principle that an oppressed minority should not be treated as having elected freely to sell his shares to a party external to the company.
Maniach Pte Ltd v L Capital Jones Ltd and anotherCourt of AppealYes[2016] 3 SLR 801SingaporeCited for the principle that an order for a buy-out on terms is an exercise of the coercive power of the court.
Re a Company (No 00314 of 1989), ex parte Estate Acquisition and Development Ltd and othersN/AYes[1991] BCLC 154England and WalesCited for the remedial distinction between a share purchase order and a winding up order.
Scottish Co-operative Wholesale Society v MeyerHouse of LordsYes[1959] AC 324United KingdomCited for the practice of valuing the shares as if the oppressive conduct had not taken place by choosing a date of valuation shortly before the oppressive conduct began.
Re OC (Transport) Services LtdN/AYes[1984] BCLC 251England and WalesCited for the practice of valuing the shares as if the oppressive conduct had not taken place by choosing a date of valuation shortly before the oppressive conduct began.
Profinance Trust SA v GladstoneN/AYes[2002] 1 BCLC 141England and WalesCited for the starting point for valuing a company which is a going concern is the date on which the buy-out order is made.
In re HoltN/ANo[1953] 1 WLR 1488England and WalesCited for the basic rule in valuing shares is to reject hindsight information and consider only what a hypothetical purchaser would pay on a hypothetical sale in the open market on the valuation date.
Joiner and another v George and othersCourt of AppealNo[2002] EWCA Civ 160England and WalesCited for the basic rule in valuing shares is to reject hindsight information and consider only what a hypothetical purchaser would pay on a hypothetical sale in the open market on the valuation date.
JSI Shipping (S) Pte Ltd v Teofoongwonglcloong (a firm)Court of AppealYes[2007] 4 SLR(R) 460SingaporeCited for the court’s duty to assess the reasonableness of an expert’s opinion.
Singapore Finance v Lim Kah Ngam (S’pore) Pte Ltd (Eugene HL Chan Associates, third party)High CourtYes[1983-1984] SLR(R) 403SingaporeCited for the approach in evaluating conflicting experts’ evidence.
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA (trading as Rabobank International), Singapore Branch v Motorola Electronics Pte LtdCourt of AppealYes[2011] 2 SLR 63SingaporeCited for the evidential burden of proof or the “tactical onus to contradict, weaken or explain away the evidence that has been led”.
Hum Weng Fong v Koh Siang HongCourt of AppealYes[2008] 3 SLR(R) 1137SingaporeCited for the court's entitlement to ask questions.
Jones v National Coal BoardN/AYes[1957] 2 QB 55England and WalesCited for the court's entitlement to intervene at any stage of a witness’s evidence.
CCM Industrial Pte Ltd v Uniquetech Pte LtdCourt of AppealNo[2009] 2 SLR(R) 20SingaporeCited for the argument that an offer to settle is not a genuine attempt to compromise simply because it is served shortly before the trial and regardless of the content of the offer.

13. Applicable Rules

Rule Name
Rules of Court (Cap 322, R 5, 2014 Ed)

14. Applicable Statutes

Statute NameJurisdiction
Companies Act (Cap 50, 2006 Rev Ed)Singapore
Evidence Act (Cap 97, 1997 Rev Ed)Singapore

15. Key Terms and Keywords

15.1 Key Terms

  • Oppression
  • Minority shareholders
  • Share valuation
  • Discounted cash flow
  • Terminal value
  • Small stock risk premium
  • Dilution
  • Legitimate expectation
  • Fair value
  • Weighted average cost of capital

15.2 Keywords

  • minority shareholder oppression
  • share valuation
  • discounted cash flow
  • companies act
  • singapore
  • biofuel industries

17. Areas of Law

Area NameRelevance Score
Minority Oppression90
Minority Shareholder Rights85
Company Law75
Valuation of Shares70
Shares65
Offer to Settle60
Civil Procedure50

16. Subjects

  • Company Law
  • Shareholder Rights
  • Corporate Governance
  • Valuation