Case Update: Shareholders’ Oppression Action Extends to Group of Companies

The Malaysian High Court in Tob Chee Hoong v Tob Chee Choong & Ors [2017] MLJU 1303 has confirmed that the shareholders’ oppression remedy (section 181 of the Companies Act 1965, and section 346 of the Companies Act 2016) would extend to both the holding company and the subsidiary company.

An aggrieved shareholder may be a member of only the holding company but the oppressive conduct may only be at the subsidiary level. In line with other jurisdictions, this High Court decision confirms that the aggrieved shareholder can still seek relief.

Brief Facts

The Plaintiff in this case was a 30% shareholder of the investment holding company, Teletone Enterprise Sdn Bhd. In turn, Tele-tone Enterprise wholly owned Orchard Circle Sdn Bhd, which is a property development company. The Plaintiff alleged oppression against the other shareholders of the holding company, who is the Plaintiff’s brother and two nephews. Many of the Plaintiff’s complaints centred on the affairs of Orchard Circle and not that of the holding company.

Decision

One of the primary issues that the Court had to decide on was whether the oppression action could be maintained in relation to the complaints concerning Orchard Circle. This is since the statutory provision on oppression firstly requires the aggrieved party to be “a member … of a company” and that “the affairs of the company” are being conducted in an oppressive manner. Therefore, the Defendants argued that the “company” in question must be the holding company alone. The Plaintiff in this case was merely a shareholder of the holding company, Teletone Enterprise, and the Plaintiff was not a shareholder of Orchard Circle.

The Court held that the phrase “affairs of the company” can be interpreted widely. This would allow the oppression remedy to be extended to a group of companies. The affairs of the wholly-owned subsidiary in this case should justifiably be taken into account when such affairs impact or affect its holding company. Teletone Enterprise, as an investment holding company, was purely carrying an investment holding status since its business is entirely comprising the operations of its wholly-owned subsidiary, Orchard Circle.

In assessing the underlying allegations of oppressive conduct, the Court allowed the oppression remedy. Although there was a prayer for winding up, the Court held that winding up should only be of last resort. With Teletone and Orchard Circle still carrying on business, the Court instead ordered a share buyout order with the Plaintiff’s shares to be bought out at a fair value.

Comments

To my knowledge, this is the first Malaysian decision that has confirmed the Malaysian position that the oppression remedy can be extended to a group of companies. This brings Malaysia in line with other common law decisions such as the UK decision in Nicholas v Soundcraft [1993] BCLC 360 and the Singapore decision in Ng Kek Wee v Sim City Technology Ltd [2014] SGCA 47.

As emphasised by the Court, the underlying rationale for the wider reading of the oppression remedy is to do justice. The complexities of varying corporate structures should not stand in the way of redressing a wrong. This is especially significant with increasing complex holding and subsidiary level structures of companies.

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