Directors' power to allot shares must be exercised for proper purposes, not to unjustly dilute minority shareholders' interests, per s 346 of the Companies Act.

Introduction

[1] As a general rule, the Court will not interfere with the decision of directors of a company on the way they wish to conduct the business of the company. This is popularly known as the 'business judgment' rule. Thus, decisions made by directors proposing rights issue as a means to raise working capital for the company will fall within the business judgment rule.

[2] However, where the proposed rights issue is motivated not in the interest of the company but with the objective of diluting the shareholdings of the minority shareholder(s) or for other improper purpose, the Court will intervene. Such a dilution can be the basis for an oppression claim.

[3] This case involves an evaluation of the motivation behind 4 proposed rights issues and whether the said proposed rights issues were engineered for the purpose of diluting the shares of the Plaintiff or were in fact bona fide in the interest of the company or for a proper purpose.

[4] The facts in this case are unique in that the Plaintiff, the alleged oppressed party, had held 80.93% of the shares in the 1st Defendant and the 2nd Defendant, the alleged oppressor, had held only 19.07% of the shares but had full control of the management of the 1st Defendant.

Background Facts

[5] The Plaintiff ('Chiptar') and the 2nd to 4th Defendants ('TTT', 'CFH' and 'CNM' respectively) are the current shareholders of 1st Defendant (THC Rice).

[6] Chiptar was an 80.93% majority shareholder of THC Rice. The balance 19.07% was held by TTT. As an overview, the pie chart below is a visual depiction of the relationship between Chiptar, THC Rice and its respective shareholders:

[7] As can be seen from the foregoing, Chiptar and THC Rice are essentially family-owned companies ('the Ter Family'). Both companies were founded and led by one Ter Swee Leong ('TSL'), the patriarch of the Ter Family. TSL passed away on 11 February 2020.

[8] During his lifetime, TSL was primarily assisted by TTT in terms of the day to day running of Chiptar and THC Rice. TSL reposed faith and confidence in TTT and would rely on him to faithfully translate and explain documents which needed to be executed.

[9] During TSL's lifetime, he allocated shares in Chiptar in such proportions as he deemed fit. This was to ensure that a representative from each of his marital unions had a direct interest in Chiptar. The respective representatives from each of TSL's unions are as follows:

(1) Ter Chin Heng ('TCH'), the eldest son from TSL's first union with Chia Pek Lim;

(2) TTT, as the son of TSL's second union with the 4th Defendant;

(3) Ter Wei Hong (TWH'), TSL's son from his third union with Chan Yin Seng; and

(4) Li Yu Hua ('LYH'), TSL's 4th union.

[10] Prior to TSL's passing, all of the representatives from each of TSL's unions were made directors of Chiptar, save and except for TWH. Thus, the directors of Chiptar prior to TSL's passing were TSL, TTT, TCH and LYH. However, TCH and LYH played little roles in the management of Chiptar.

[11] As regards THC Rice, during TSL's lifetime, he was primarily assisted by TTT in the management and affairs of THC Rice. TTT was in turn assisted by CFH, his wife. Thus, prior to TSL's passing, the directors of THC Rice were TSL, TTT and CFH.

[12] At all material times, TSL remained in sole management control of both Chiptar and THC Rice and by reason of TSL's passing, the immediate management and affairs of Chiptar and THC Rice naturally devolved upon TTT.

[13] In this regard, TTT and, by extension, CFH were the only individuals that the remaining Chiptar directors, namely TCH and LYH could look to in order to be appraised of the management and affairs of Chiptar and THC Rice.

[14] With the passing of TSL, the shareholders of Chiptar quite naturall