S’pore companies Act and protecting minority interest

The Business Times

By Zakaria Othman

MEASURES to protect minority interest could refer to the “proper plaintiff rule” in the Singapore Companies (Amendment) Act.

Advocate and solicitor Roger Tan Kor Mee said the Singapore Companies (Amendment) Act is the first model of a Companies Act that touches on the “proper plaintiff rule”, which lays down the principle that members can take action if the transaction is ultra-vires the Singapore Companies (Amendment) Act or there is fraud committed against minority shareholders.

“Fraud in this case means any abuse or misuse of power by the majority shareholders,” he told Business Times after the “Corporate Management & Directorship conference” held recently.

Under Section 216A of the Singapore Companies (Amendment) Act, any member who is called the complainant under Subsection 1, can bring an action on behalf of the company, if he can satisfy Subsection 3.

Subsection 1 states that a complainant means any member of the company, the Minister or any other person who in the view of the court, is proper to make application under this section.

As stipulated in Subsection 3, the court will allow a member to take action if he can give reasonable notice to the directors of the company of his intention to apply to the court for derivative action.

The complainant, he added must be acting in good faith and the action taken must appear to be prima facie.

According to Tan, the interesting part of the Singapore Companies (Amendment) Act is that under Subsection 4, the court may order the company to pay the legal fees and costs, whereas under the proper plaintiff rule, the costs incurred are borne by the complainant.

An addition, Section 216B of the Singapore Companies (Amendment) Act states that majority shareholders cannot convene a general meeting to stop or act against such derivative actions.

However, Tan said the Singapore Companies (Amendment) Act has its drawbacks too. The notice to directors can be misused by minority shareholders in bringing certain matters to court.

Tan said if Malaysia were to adopt these provisions, there should be an additional section that says the court may take action if it subsequently finds that the application by the minority shareholders is made with “mala fide” or bad faith.

The other alternative for minority shareholders to overcome problems of having oppressed by majority shareholders is to withdraw from the company.

Under section 67 of the Companies Act 1985, a company generally cannot buy back its own shares but Section 181 says that it can, provided the court allow it.

Perhaps, Tan said, we can amend Section 67 to allow minority shareholders in private companies to sell the shares to the company if the company is interested.

He proposed that any acquisition of a company’s own shares should be funded from the company’s profit or reserves or the company can only acquire up to a certain percentage, like 10 to 15 percent of the total issued share capital.