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Company Law 101: Oppression in a Family Company

Need to consult with our Business Lawyer regarding family company?

What is a family company?

Family companies are often characterized by having family members as shareholders and directors with the aim of carrying out the family business. However, more often than not, there appears to be a lack of proper succession planning among family-owned businesses in Malaysia1. This factor alone has led to a lot of dispute between the family members once the founder of the company is gone and can be seen in cases below (where the founder has passed away):

  1. In Re Gee Hoe Chan Trading Co Pte Ltd2, the shares in the company were owned by the Ng family. Following a dispute between two groups, one faction of the Ng family within the company started a lawsuit against the other faction of the Ng family in the company on the grounds that they had received very little returns on the shareholding while the other faction had received substantial returns in the form of directors’ fees.
  2. In Theow Say Kow @ Teoh Kiang Seng, henry v Graceful Frontier Sdn Bhd & Ors3 there are three appeals all stemming from bitter disputes between two brothers, over the shares and landed properties of their family companies.
  3. In Yap Yong Huat & Anor v Yap Yoke Beng & Ors4, both husband and wife are shareholders of a company that is owned jointly by the husband and the husband’s brothers. They jointly hold approximately 26.75% of the total issued and paid-up shares in the company. They have initiated this action alleging minority oppression committed by the rest of the brothers in relation to the management of the company.
oppression in family company, family company, company law

The problem(s) with a family company

  1. As mentioned earlier, there appears to be a lack of proper succession planning among family-owned businesses. While they might have it, it is either very informal (in the head) or it is not documented properly. While this might not be a problem at face value, it might impact the business in the long run as successors might not be trained and equipped adequately to face the future when the founder of the company passes away.
  2. Siblings rivalry. It could be emotional rivalry, where siblings compete for their parents’ (i.e. founders’) approval or recognition or strategic rivalry, where siblings have conflicting values and business styles towards risk management. This could potentially devastate the family business especially when the founder has passed away and is not there to mediate the disputes between the siblings5.
  3. It might create a culture of entitlement amongst the next-generation heirs. However, more often than not, the reality is that this sense of entitlement usually stems from the founder’s beliefs, patterns and behaviors i.e. the founders may feel it is their right to control operations or run the business in an iron first and autocratic manner until they die, or sometimes even beyond death. This sense of entitlement might eventually impact the relationships within the business and family, creating conflict that can contribute to the demise of the company6.

What are the factors that need to be raised in order to successfully claim oppression in a family company

In order to raise oppression (normally), the court in Re Kong Thai Sawmill (Miri) Sdn Bhd7 held that there must be identifiable conduct that is deemed to be unfair against the minority shareholder before that conduct is deemed to be oppressive against the minority and that the oppression must not be a past oppression i.e. it must be a present one that continued on to the day of the proceedings.

However, courts have pointed out that the concept of fairness might not apply equally in the context of an oppression claim in a family company. In Yap Yong Huat & Anor v Yap Yoke Beng & Ors8, the court noted that:

The content of fairness in family companies may go beyond pure commercial gains. This is because the dynamics of the relationship between the parties are different from those in normal commercial undertakings. In some societies with familial business culture, the commercial undertakings of a company may well be the personal or commercial extension of the founder in which he is seen to use resources flowing from the corporate form established by him to ensure the safety and security of the members of his family. In such type of family companies, a sense of co-adventure between the founder and his children is usually lacking in that the latter did not contribute to capital but received their shares as a gift. Though the children are usually appointed as directors, and also work as employees, it might well be that no expectations in equity were intended to be created. Though these types of ‘iron bowl’ family companies are fast fading, determination of the content of fairness in such companies may require different treatment.”

Some of the consideration that can be seen above are:

  1. The equitable considerations/ circumstances surrounding a family company;
  2. Was the share given to the founder’s children as a gift?;
  3. Why was the company founded- for commercial gains or for the benefit of the children?

In light of what has been mentioned above, it can be noted that the concept of unfairness (that ultimately leads to oppression) is different from that of oppression in a normal situation. Not all family companies are created with the single goal of benefiting the future generation and vice versa. Therefore (as mentioned), the courts will dive into the intricacies of a family company on a case to case to decide whether there are any factors that could lead to oppression in a family company.

Need to consult with our Business Lawyer regarding family company?

1.  The Star: Family Business in Malaysia Lack Succession Planning.

2. [1991] 3 MLJ 137

3. [2020] MLJU 57.

4. [2015] MLJU 1190.

5. Fiducia Partners: Sibling Rivalry In The Family Business.

6. Forbes: Family Business Challenges; The 3 Issues Families Can’t Ignore.

7. [1978] 2 MLJ 227.

8. [2015] MLJU 1190.