Suying Design Pte Ltd v Ng Kian Huan Edmund and Other Appeals [2020] SGCA 46: The distinction between S216 and S216A of Companies Act. (Photo credits: Rikvin)

Section 216 allows a shareholder to apply to court to seek relief on the ground that the affairs of the company are conducted oppressively. If oppression is made out, the shareholder’s remedies include an order that his shares be bought out or that the company be wound up. 

Section 216A allows a shareholder to apply for leave to bring an action in the name and on behalf of the company against another party (usually, though not invariably, a director whose actions vis a vis the company the shareholder challenges). 

It is settled law that while s 216 deals with personal wrongs inflicted on the shareholder, s 216A on the other hand involves wrongs perpetrated on the company, ie, corporate wrongs. In the latter situation, the proper plaintiff is the company and not the shareholder as the shareholder’s “loss” (if any) is merely reflective of the company’s loss. Recognising however that the company may for various reasons not wish to commence action to seek redress for the wrong it suffered (for example, the wrongdoer was a director of the company), s 216A offers an avenue for a shareholder to take the lead in commencing the action against the wrongdoer. 

However, the distinction between the 2 wrongs can sometimes get blurred as there may be an overlap between them. Thus, with a view towards removing the blurred lines, the Court of Appeal in Ho Yew Kong v Sakae Holdings Ltd and another appeal and other matters [2018] SLR 333 (“Sakae”) set out the following analytical framework to ascertain whether it is an abuse of process for a particular claim to be brought under s 216 (when it should be brought under s 216A):  

(a) Injury
i. What is the real injury that the plaintiff seeks to vindicate
ii. Is that injury distinct from the injury to the company and does it amount to commercial unfairness against the plaintiff?

(b) Remedy
i. What is the essential remedy that is being sought and is it a remedy that meaningfully vindicates the real injury that the plaintiff has suffered?
ii. Is it a remedy that can only be obtained under s 216 (eg, a winding-up order or a share buyout order) and not under s 216A? 

However, even with the framework, the confusion as to which section to proceed under continues to plague practitioners as the case below demonstrates. 

CASE SUMMARY

In Suying Design Pte Ltd v Ng Kian Huan Edmund and Other Appeals [2020] SGCA 46 (“Suying“), one Mr Ng and Ms Tan were shareholders of a company, SMSPL. Mr Ng commenced an action under s 216 complaining that he was the victim of Ms Tan’s oppressive conduct. Mr Ng cited various acts which constituted the necessary oppression. For our present purposes, we need concern ourselves only with one specific act. 

Mr Ng asserted that Ms Tan had unlawfully withdrawn from SMSPL a total sum of $1,164,580 which she regarded as her gratuity payment (“the Gratuity Payment”) (she later refunded the sum of $492,580 on the ground that it was an accidental overpayment but retained the balance $672,000). Mr Ng challenged her entitlement to the Gratuity Payment.  

THE HIGH COURT’S DECISION

The High Court Judge (“the Judge”) accepted that Mr Ng had made out a case of minority oppression based on various acts of Ms Tan, including her conduct in relation to the Gratuity Payment. The Judge was of the view that Ms Tan was not entitled to the said sum. 

In concluding that the episode surrounding the Gratuity Payment was oppressive to Mr Ng, the Judge was cognizant of the personal wrong-corporate wrong dichotomy as elucidated in Sakae. Nonetheless, the Judge held that the injury Mr Ng sought to vindicate was the injury to his investment in SMSPL caused by Ms Tan’s breaches. The Gratuity Payments involved her misappropriating money belonging to SMSPL and this was in breach of Mr Ng’s legitimate expectation as a shareholder that SMSPL’s funds would not be siphoned away. 

Ms Tan appealed the Judge’s decision that Mr Ng had made out a case of minority oppression. 

THE CA’S DECISION

The CA allowed Ms Tan’s appeal on various grounds. For our purposes, our focus is again on the Gratuity Payment.

To begin, the CA agreed with the Judge that there was no justification for Ms Tan to have made the Gratuity Payment to herself, that is, there was indeed a wrongdoing on her part. Notwithstanding that, the CA held that the Judge erred in his application of the Sakae framework to the facts as Ms Tan’s conduct constituted a corporate wrong for which the correct procedure was that provided under s 216A. In the CA’s view: 

“113 ……these baseline expectations [which Mr Ng relied on] do not provide a sufficient basis on which to find that Mr Ng has suffered a distinct personal injury which would amount to commercial unfairness. To find otherwise would, in our view, suggest that any misappropriation of moneys by a director would constitute a distinct injury to a shareholder. This would be too broad a construction of the framework the Court of Appeal set out in Sakae and make impermissible inroads into the proper plaintiff rule. This simply cannot be the case. Further, the breach of this expectation would be remedied by the recovery of the misappropriated moneys by the company in a corporate action. The Companies Act provides s 216A for this purpose.

114 As such, in our judgment, while Mr Ng may have been entitled to expect that SMSPL’s funds would not be siphoned away, the breach of this expectation did not in itself constitute a distinct injury under s 216 of the Companies Act. In any event, even if there was a distinct injury, it does not necessarily follow that it would be commercially unfair to Mr Ng if the breaches are not remedied. The claim in respect of the Gratuity Payment therefore should not have been brought under s 216. This is not to say that there was no wrongdoing, but rather, that any such wrong was one done to the company, and should therefore have been pursued under a different cause of action – such as a derivative action under s 216A.”

CONCLUDING REMARKS

This decision demonstrates that it is vitally important that lawyers whose opinions are sought by shareholders complaining of the actions of the directors first identify whether the wrong complained of is a personal or corporate wrong. If it is the latter and s 216 is resorted to, that would constitute an abuse of process.

To read the full judgment, click here.