What can I do if I’m being oppressed as a minority shareholder?

Shareholders are the owners of a company. The degree of influence that a shareholder can exert over a company varies according to his shareholding. A minority shareholder is one who holds less than half (i.e. less than 50%) of the company’s issued and paid up share capital.

Every minority shareholder has the right to be protected. When a minority shareholder allege that he has been oppressed by the majority, he may seek legal redress under the Companies Act.

Section 346 of the Companies Act 2016 (‘S 346 of the CA 2016’) (previously known as s 181 of the Companies Act 1965) is a statutory remedy accorded to minority shareholder as a personal action to apply for relief from oppression or unfair conduct of the majority who has control of the company. The aim of the statutory remedy is to protect the minority and to ensure that the behaviour of the majority does not result in the oppression or unduly prejudicial results adversely affecting the interest of the minority.

Who may petition for a remedy under Section 346?

Under S 346(1) of the CA 2016, an application to Court for an order can be made by:

1. Any member (i.e. shareholder) of the company; and
   

2. Any debenture holder of the company.
   

As such, the applicant must be a members or debenture holder of the company AND the conduct of which they complain must affect them in their capacity as member or debenture holder.

However, one who is in control of the management or affairs of the company cannot convincingly allege to have been oppressed: Re Sin Lee Sang Sawmill Sdn Bhd [1990] 1 MLJ 250.

What are the grounds for petition to Court?

There are 2 main grounds of petition provided under S 346(1) of the CA 2016 namely:

1. That the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or debenture holders including himself or in disregard of his or their interests as members, shareholders or debenture holders of the company; or

2. That some act of the company has been done or is threatened or that some resolution of the members, debenture holders or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or debenture holders, including himself.

What amount to Oppression?

The term ‘oppression’ is not defined in statute and has no universal definition. Case law has established that it is quite impossible to lay down categories of conduct considered to be oppressive and as such each case has to be examined in the light of its own particular facts.

In Dato’ Shabaruddin bin Ibrahim v Dato’ Ruslan bin Ali Omar & Ors [2020] MLJU 1744, it was held that for there to be oppressive, there must be a visible departure from the standard of fair dealing or fair play or where the oppressed is constrained to submit to some overbearing act or attitude on the part of the oppressor.

Oppressive Conduct and Conduct in Disregard of Interest

In Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227, the Privy Council held that for the case to be brought within the statutory remedy at all, the complainant must identify and prove "oppression" or "disregard". Similarly "disregard" involved something more than a failure to take account of the minority's interest: there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure.

Unfair Discriminatory Conduct or Prejudicial Conduct

It was also held in Re Kong Thai Sawmill (supra) that the question of unfairness is one of fact and degree which requires the court to determine. The test of unfairness is objective. Mere discrimination against or prejudice to such a member is insufficient to attract the court's jurisdiction to intervene.

In other words, the injury to the minority shareholder cannot merely reflect the injury suffered by the company. It must further be shown that the distinct injury amounts to commercial unfairness against the affected minority shareholder. Commercial unfairness is assessed against the behaviour the complainant is entitled to expect or rely on, whether this expectation arises from a formal document (such as a Shareholder Agreement or the Articles of Association / Constitution) or an informal understanding.

What are some examples of oppressive situations?

The following are some examples of possible oppressive, disregard of members’ interests and unfairly discriminatory conduct:

1. Diversion of company’s assets or opportunity;

2. Diversion of company’s profits;

3. Company’s shares capital issued for improper purposes;

4. Directors’ failure to act in the interest of the company / abuse of power;

5. No dividend or inadequate dividend is paid; and

6. Payment of excessive remuneration to directors.

Remedies

The Court is vested with a wide discretionary power to make such appropriate order as it deems fit with a view to bringing to an end or remedying the matters complained of. S 346(2) of the CA 2016 provides a non-exhaustive list of relief that the Court may order such as:

1. Order directing or prohibiting any act or to cancel or vary any transaction or resolution. This would include an order preventing a person from engaging or doing a specified thing. Such order would be appropriate where an act or conduct which is oppressive, unfairly prejudicial or discriminatory has been proposed but has yet to be carried out or where the act or conduct is of an ongoing nature;

2. Order regulating the future conduct of the affairs of the company;

3. Order to purchase the shares or debentures of the company by other members or debenture holders of the company or by the company itself;

4. In the case of a purchase of shares by the company itself, order for a reduction of capital of the company accordingly;

5. Order that the company be wound up.

Can a director or a third party be made personally liable under Section 346?

In the recent Federal Court decision of Auspicious Journey Sdn Bhd v Ebony Ritz Sdn Bhd & Ors [2021] 3 MLJ 549, it was held that the language of S 346 of the CA 2016 was wide enough to encompass compensatory relief against directors and third parties in an appropriate case depending on the facts and circumstances.

The legal test in assessing whether liability ought to be extended to a director or third party, is as follows:

1. Firstly, there should be evidence of deliberate involvement or participation in, or a sufficiently close nexus to the oppressive or detrimental or prejudicial conduct that the minority complains of, to warrant the attribution of liability to a director or third party;

2. The imposition of liability should be fair or just in all the circumstances of the particular case;

3. In assessing whether the imposition of such liability is fair or just, the Court should be satisfied that the remedy results in fairness to the parties concerned as a whole. Such an assessment is undertaken on an objective basis;

4. The attribution or imposition of liability should be circumspect, going no further than is necessary to remedy the breach complained of or to stop the oppressive or prejudicial conduct;

5. Such imposition of liability must be reasonable, and serve to alleviate the legitimate concerns of the shareholders of the company in question;

6. In exercising its powers under s 346 of the CA 2016 the court should bear in mind general corporate law principles, such that director liability does not become a substitute for other statutory relief or under the common law; and

7. In summary, the question for the court is whether in the context of s 346 of the CA 2016 the defendant was so connected to the oppressive, detrimental or prejudicial conduct that it would be fair and just to impose liability against him for such conduct.

It was also held that a personal claim may only be brought by a member against the directors of a company where he can demonstrate:

1. a breach of duty owed to him personally; and

2. personal loss separate and distinct from that suffered by the company. Thus, no action lies at the suit of a member suing in that capacity to make good a diminution in the value of his shareholding, where it is merely a reflection of the loss suffered by the company.

This article is only intended to provide general information to our Firm's clients and it should not be regarded as professional legal advice. Should you require any professional legal advice, you are advised to consult us.