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In our previous articles, we have discussed what amounts to oppression in company law. We will be continuing on that trend in this article. Without further delay, let us get down to business.
Read our previous article here:
In this article, let us assume for a moment that a company has been mismanaged (i.e. controlled/ handled badly intentionally/ unintentionally) by the management of the company. Can the shareholders sue for oppression?
What is oppression?
First and foremost, what is oppression? Simply put, oppression (as defined under Section 346 of the Companies Act1) is an act whereby the action of the company (against their shareholders) departs from the standard of fair dealing and violates the conditions of fair play which a shareholder of the company is entitled to expect as a shareholder of the company.
However, the courts usually do not intervene with how the company is being run unless there is a clear indication that the company shareholders are being oppressed by the company. This has always been the court’s stance. In fact, in Tong Eng Sdn Bhd (Loh Loon Keng, Petitioner)2, the court noted that:
“Mismanagement of the company does not necessarily constitute oppression or disregard of a member’s interests. Nor, indeed, does the fact that a member is consistently outvoted mean that he is oppressed or that his interests are being disregarded. It should be remembered that the majority also has rights. Section 216 (the Singapore counterpart of Section 346 of our Companies Act) does not give jurisdiction to the court to interfere with the internal management of companies which are being managed honestly and in accordance with the law.”
Does it mean that mismanagement of the company = oppression?
Yes and no.
Let us first deal with the latter- as mentioned above, courts are usually very reluctant to entertain a plea of oppression in cases where a company has been mismanaged by the individuals who are in control of the company. Why? There are probably multiple (but not exhaustive) factors behind the court’s stance:
- The individuals who are running the company should be allowed to run the affairs of the company according to the best of their capabilities without the need to have constantly worried about whether they will get sued just because they made a mistake while managing the company;
- Losses resulting from managerial shortcomings are part of the total mix of commercial risks which shareholders have to accept3;
- The courts have no jurisdiction to intervene with the internal management of the company so as long as they are otherwise being managed in accordance with the law4;
- Just because there was mismanagement in the company does not automatically mean that the company has departed from the standard of fair dealing and violated the conditions of fair play which a shareholder of the company is entitled to expect as a shareholder of the company. Simply put, mismanagement does not equate to the fact that a shareholder has been dealt with unfairly by the company5.
So when does mismanagement constitute an act of oppression?
Let us now deal with the former- even though courts are generally reluctant to intervene even if there is an actual finding of mismanagement, there are circumstances in which the court will hold those who are managing the company responsible for their mismanagement of the company.
However, there is only one pathway that a complainant can thread in order to successfully raise oppression in this regard. As noted by the courts6, in order to raise oppression, a complainant must be able to show that those who are managing the company have seriously mismanaged the company.
What amounts to serious mismanagement of the company? As of now, the court has limited to instances where the conduct of those managing the company has breached the standard of care and skill which are expected from the management7. For example, the standard of care was breached when:
- The value of the shares of the shareholder was seriously diminished or at least seriously jeopardized by reason of a course of conduct on the part of those who are in control of the company8;
- The management of the company has put the business and assets of the company into jeopardy within the ambit of section 346 of the Act9;
- The management of the company allowed the company to deteriorate from a profitable concern to one of near insolvency10.
So what can an aggrieved party turn to in the event there is only “mismanagement” and not “serious mismanagement”?
An aggrieved party (usually the shareholder) can rely on Section 347 and 348 of the Act to institute a derivative action against the company. However, this is another story for another day.
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2.  1 MLJ 451.
3. Khoo Peng Lai v Tan Ah Hin & Ors  10 CLJ 347.
4. See Hua Realty Bhd v See Hua News Holding Sdn Bhd & Ors  7 MLJ 525.
5. Re Five Minute Car Wash Service Ltd  1 All ER 242.
6. Khoo Peng Lai v Tan Ah Hin & Ors  10 CLJ 347 and Re Elgindata Ltd  BCLC 959.
7. Khoo Peng Lai v Tan Ah Hin & Ors  10 CLJ 347.
8. Re Elgindata Ltd  BCLC 959.
9. Khoo Peng Lai v Tan Ah Hin & Ors  10 CLJ 347.
10. Ng Chee Keong v Ng Teong Kiat Highlands Plantations Ltd  1 MLJ 45.
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