Court rejects 'tactical move' to trigger buyout

A judge has made it clear that a winding-up application of a company cannot be used to trigger a court-ordered buyout, under new laws that kicked in last year.

Judicial Commissioner Edmund Leow dismissed a woman's bid to fold two companies that her late husband co-owned with another partner, after talks to sell hers and her husband's shares back stalled.

Under changes to the Companies Act, the court can order a buyout in lieu of a winding up, but in this case - the first reported since the change - the court saw the woman's application as a tactical move and abuse of process.

"A clear line has to be drawn between bona fide and bad-faith winding-up applications, to sieve out potential vexatious applications," wrote the judge in judgment grounds released recently.

He explained that an application may be started as "a tactical manoeuvre" to leverage on the potential disruption, and pressure the other party to accept a buyout.

"Such concerns should shape the court's assessment of the limits of its own remedial discretion in the context of assessing winding-up applications," he added.

Madam Ting Shwu Ping had applied in August last year to wind up two companies owned and managed by her late husband Chng Koon Seng, together with Mr Chan Key Siang.

After her husband's death in April 2014, she had taken over the administration of his estate and become a director of the two companies, Autopack and Scanone. The former deals in wholesale computer accessories and machinery, while the latter's main revenue comes from property rent. Madam Ting and the wife of Mr Chan each had 20 per cent of the shares in Autopack.

Talks commenced in August 2014 between Mr Chan and Madam Ting on a buyout of shares owned by her and her late husband in the companies, but they could not come to an agreement on price.

Madam Ting was prepared to sell at a price assessed by a mutually agreed valuer, but Mr Chan said that, under company rules, a company auditor should value the shares. Madam Ting refused and applied to wind up the companies.

Her lawyer, Senior Counsel N. Sreenivasan, argued that Autopack was in effect a partnership and Mr Chng's death should lead to the dissolution of the partnership, among other things.

However, her main aim was to get the court to use its discretion to order a buyout in lieu of winding up.

The defendants' lawyer, Mr Vikram Nair from Rajah & Tann, countered that the claim should not be allowed as she had applied for the "collateral purpose" of allowing her to exit from the companies, as well as get around the buyout mechanism provided for under the companies' articles and memoranda of understanding.

The judicial commissioner found that Madam Ting had admitted, several times, that her aim was to sell the shares and not become a director or run the companies. He held that the dispute is about share value and not whether the companies should be wound up.

He pointed out that winding up is not in either side's interests and, if ordered, the "break-up" value would be much lower than if the companies were valued as going concerns.

The application was started shortly after the relevant law came into force and this was "not a coincidence", he added.

He doubted if Madam Ting would have made the application if there was no change in the law, which amounted to an abuse of process.

The judge accepted that she had been left in a difficult position by her husband's sudden and unfortunate death. However, that did not exempt her from the companies' rules for the sale of shares, which provides for an auditor in the event of a dispute.

A version of this article appeared in the print edition of The Straits Times on February 11, 2016, with the headline 'Court rejects 'tactical move' to trigger buyout'. Print Edition | Subscribe