• First Authority on the Application of Section 254(2A) of the Companies Act - Just and Equitable Alternative to Winding-up
  • January 17, 2017 | Author: Harry Zheng
  • Law Firm: Duane Morris & Selvam LLP - Singapore Office
  • On 1 July 2015, the Companies Act (Cap 50) was amended by, amongst other things, the inclusion of section 254(2A) of the Companies Act, which empowered the court to order a shareholder buy-out as an alternative to making a winding-up order when:
    • the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner that appears to be unfair or unjust to other members (Section 254(1)(f)).
    • the court is of opinion that it is just and equitable that the company be wound up (Section 254(1)(i)).
    The Court of Appeal has now, in Ting Shwu Ping (Administrator of the estate of Chng Koon Seng, deceased) v Scanone Pte Ltd and another appeal [2016] SGCA 65 (“Ting Shwu Ping”), released a judgment that provides clarity on the exercise of the court’s discretion under section 254(2A) and when the remedy it provides for can be applied.

    The first key point to note is the relationship of sections 254 and 216 of the Companies Act. Section 216 of the Companies Act, which relates to remedies for an action for oppression, already had a provision that granted the court the discretion to order the remedy of a buy-out of shares by one or more members of a company by another member or members. An order for winding-up under section 216 is the last resort.

    The main difference between sections 254 and 216 is that the circumstances that may give rise to a section 216 remedy are narrower than the circumstances for an application for an order to wind up the company.

    Previously, in Sim Yong Kim v Evenstar Investments Pte Ltd [2006] 3 SLR(R) 827, the Court of Appeal held that the degree of unfairness to invoke winding-up under section 216 is the same as ordering a winding-up under the just and equitable ground under section 254(1). In Ting Shwu Ping, the Court of Appeal clarified that this position remains unchanged even after the enactment of section 254(2A).

    The second point clarified by the Court of Appeal is that it is not enough to apply for a winding-up order under section 254(1)(f) and (i), but the applicant must first satisfy the court that it is eligible for the winding-up order before the court can exercise its discretion under section 254(2A).

    Given that the enactment of section 254(2A) creates similarities in terms of the remedies available to an oppressed minority, the Court of Appeal in Ting Shwu Ping were particularly concerned on whether an application for a section 254(2A) remedy could constitute an abuse of process, whereby an applicant chooses to make an application under section 254 rather than one under section 216.

    Finally, the Court of Appeal in Ting Shwu Ping held that the discretion to order a section 254(2A) remedy depends on whether it is more equitable to allow a buy-out rather than to order a winding-up of the company, even though the applicant is entitled to one. Considerations that would be taken into account include:
    • whether the company is still a going concern (e., the viability and profitability of the company) and
    • the consequence of an order to wind up the company as opposed to an order to buy out.
    On this note, the Court of Appeal noted that the development of further principles would be more appropriate when other factual patterns come before the courts.