- Section 216 covers conduct that is oppressive, disregards a shareholder's interests, or is unfairly discriminatory or prejudicial.
- The test is commercial unfairness, judged against what the shareholder was entitled to expect.
- The most common remedy is a buyout of shares at a fair value.
- Where the wrong is done to the company itself, a derivative action under section 216A may be the right route.
What section 216 protects
Section 216 of the Companies Act 1967 allows a shareholder (or debenture holder) to apply to court where the company's affairs are being conducted, or the directors' powers used, in a way that is oppressive or in disregard of their interests, or where an act of the company unfairly discriminates against or prejudices them.
The common thread is commercial unfairness: a clear departure from the standards of fair dealing that a shareholder is entitled to expect. The court looks at the company's constitution and any agreements, and also at informal understandings between the shareholders.
What oppression can look like
Examples drawn from Singapore cases include:
- excluding a shareholder from management, especially where the company was run on an informal, partnership-like basis;
- withholding financial information or keeping a shareholder in the dark;
- diluting a shareholder's stake to reduce their influence;
- paying large salaries to those in control while not paying dividends;
- diverting business opportunities or assets to companies the majority controls;
- pressing a shareholder to sell out at an undervalue.
A single serious act can be enough. The court does not require a long course of conduct, although it will consider the conduct as a whole.
Companies run like partnerships
Many disputes involve a 'quasi-partnership': a company formed on mutual trust, where the shareholders expected to take part in running the business. In that setting, the court may give weight to informal understandings, such as an expectation of a role in management. Where the company is not a quasi-partnership, the court will be slower to imply rights beyond those expressly agreed.
What the court can order
The court has wide powers under section 216(2). It can, for example:
- order one side, or the company, to buy the other's shares at a fair price;
- direct or prohibit particular acts, or regulate how the company is run in future;
- authorise proceedings to be brought in the company's name;
- in serious cases, order that the company be wound up.
A buyout is the most common practical outcome. The Court of Appeal has confirmed that a buyout can still be ordered even where the majority's conduct has left the company's financial records unclear.
Wrongs to the company: section 216A
Where the wrong is done to the company rather than to a shareholder personally, for example a director diverting company money, the claim belongs to the company. If those in control will not act, a shareholder can ask the court for permission to bring a derivative action in the company's name under section 216A. Anything recovered goes to the company.
Before going to court
Shareholder disputes are often resolved by negotiation or mediation, for example at the Singapore Mediation Centre. It is also worth checking any shareholders' agreement, which may set out how disputes are to be resolved, including by arbitration.
Getting advice on your situation
Whether conduct amounts to oppression depends on the company, its documents and the understandings between the shareholders. A lawyer can review these and explain which route, if any, fits the situation.
This article is general information on Singapore law and is not legal advice. Rules and agency policies change, and every situation is different. For advice on your own circumstances, speak with one of our lawyers.
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