Tutorial Question

Question 6 (Seas Sdn. Bhd.)

a) The issue in the question is whether there is any oppression done towards Dol hence
entitling him to request the court to order the company or the majority shareholders to
buy out his shares under the oppression remedy?
Sec 181(1) of the Companies Act provides that any member of a company may
apply to the Court for an order under this section where (a) the affairs of the company or
the powers of the director is exercised either in oppressive manner to the members or in
disregard of members interest. Section 181(1) (b) covers the situation where some act or
proposed act or the resolution or proposed resolution of the company is either
discriminatory or prejudicial to the members. The application for order under this section
can be made by a member who is directly or indirectly affected by the oppressive
conduct. The term oppressive is nowhere defined in the Act, the Court will normally
look whether there is any oppressive conduct in the sense that it is unfair to the member
through the breach of legitimate expectations of the member. Hence, the reference to the
case law is relevant to understand what constitutes oppression.
Improper exclusion from management
In the case of Hogg v Dymock, a company was established on the basis that the
plaintiff who was the executive director and the defendants who were also directors
would be partners in the company and share equally in the management of the company
as directors. Upon disagreement between all of them, the defendants voted for the
plaintiff to be dismissed and appointed themselves as the managing directors. The court
held that there was oppression since there had been a continuous expectation of
continuing involvement by the plaintiff.
In the Australian case of Thomas v H W Thomas Ltd, the financial management
of the company had been conservative since it was established where it did not borrow
capital and distributed small dividends although it held substantial amount of property.
The plaintiff suggested in a motion at annual general meeting for some of the property of
the company to be sold and the proceeds to be invested to increase the dividends. When
his motion was unsuccessful, he brought an oppression action. The court noted that the

other members of the company were contended with the way the company was run and it
was not unreasonable for Dol to comply with the expectation of the majority members.
Based on the facts of the question, Dol felt that he was oppressed and had no say
in the companys management after his suggestion for the higher percentage of the profits
to be distributed as dividends and for the business of the company to be diversified failed.
However, the expectation on behalf of Dol for the company to follow his suggestion was
not legitimate since he was the minority shareholder who must also consider the opinion
of the majority. Hence, there was no breach of legitimate expectation of Dol and it was
not unreasonable for Dol to comply with the expectation of the majority members who
were contended with the way the company was run. Besides, the mere rejection of
suggestion cannot amount to oppressive conduct.
Failure of directors to act in the best interest of the company
In the case of Chiew Sze Sun, the petitioners applied for an order, among others
for the company to be wound up on the grounds of mismanagement of the affairs of the
company, oppressive conduct and disregard of the interest of the petitioners. The facts of
the case were that there was a delay in submitting audited accounts to the shareholders
and to the Department of Inland Revenue resulting into penalty and high tax being
imposed on the company and that there was a misappropriation of a sum of money by the
respondent and the conduct of the others in protecting him and their lack of interest to
recover from him a company motor vehicle in his possession or the proceeds of its sale.
The court held that there was oppression. Although the court held that a winding up order
was too drastic, it allowed for a company auditor be appointed to examine the accounts
and records of the company and to prepare proper accounts and reports for shareholders.
Based on the facts of the current case, Dol alleged that the companys fund had
been improperly managed in the sense that it was not audited and that the consultant fees
were paid by Chow not to the consultant but to his relatives. He also alleged that Chow
had approved loans to himself. If all the allegations of Dol have a strong basis, hence,
applying the above case to the current facts, Dol can bring an action for oppression
remedy.
Oppressive conduct of board meetings or general meetings
In the case of John J Starr, the plaintiff alleged that the board meetings of the
company were conducted in an oppressive manner whereby the managing director among

others, had restricted the time speaking available to directors at board meetings when
significant matters needed to be discussed and made major decisions without reference to
the board of directors.

Based on the question, should the allegation of Dol that the

companys general meetings were just mere formality as the majority shareholders often
makes decision amongst themselves prior to the meeting was not a baseless allegation,
Dol can therefore bring an action under oppression remedy.
In conclusion, Dol can request the court to order the company or the majority
shareholders to buy out his shares under the oppression remedy as provided in sec 181(2)
(c) of the Act as well as other remedies as provided under sec 181(2) (a) and (b).
b) The issue in the question is whether Dol can sue Chow on behalf of the company under
the Companies Act?
Statutory Derivate Action
Sec 181A of the Act provides that a member can bring an action on behalf of the
company known as the members derivative action. Sec 181B provides the procedure to
bring an action, among others is to first give thirty days notice in writing to the directors
informing his intention to bring an action under sec181A. Before the court can grant the
leave, there are few criteria to be met.
In the case of Mohd Shuaib bin Ishak v Celcom (Malaysia) Berhad, the
plaintiff in the case applied to sue the directors of Celcom, Telekom Malaysia Bhd and a
few others. Celcom and DeTeAsia agreed that Celcom would not merge its business or
accept new shareholders without the latters consent. Telekom which had control over
Celcom wished to take over Celcom, and in furtherance of that objective, caused Celcom
to enter into agreement resulting into a transaction to be entered in breach of the first
agreement with DeTeAsia. DeTeAsia brought a claim against Celcom for breach. The
main beneficiaries of the wrongdoings have been Telekom and other parties as they
succeeded in taking over Celcom at a relatively low price and the burden to pay
DeTeAsia was passed on to Celcom. The main losers have been Celcom, which had to
pay substantial damages to DeTeAsia and the shareholders of Celcom who should have
received RM7.00 per share instead of RM2.75.

In the case, the court held that first the requirement that the plaintiff must be a
complainant within the meaning of section 181A(4) was satisfied as he is a former
shareholder who ceased to be a shareholder as he had been compelled to sell all his shares
at undervalue to Telekom. The second requirement that the Plaintiff must have given 30
days written notice to the directors of his intention to apply for leave of Court under
section 181A was also satisfied. The third requirement that the Plaintiff must be acting in
good faith was also satisfied since the Plaintiff was acting in good faith as he sought to
remedy what he genuinely believed to be unlawful and illegal actions of those who have
caused Celcom to suffer loss. The Court noted that although the Plaintiff may be acting
out of self-interest to maximise the value of his shares in Celcom, such self-interest did
not mean that the Plaintiff was acting in bad faith. The Court observed that anything
which benefits the company will indirectly benefit the shareholders by increasing the
share value and that it is not wrong for a shareholder to have any self-interest in wanting
the company to prosecute an action which is in its interest to prosecute. In respect of the
fourth requirement that it appears prima facie to be in the best interest of the company
that leave be granted, the Court took the stand for the purpose of granting leave, it is
sufficient to show a prima facie arguable case that it is in the best interest of the company
to file the proposed action. The Plaintiff need not show that the proposed action is likely
to succeed.
Common Law derivative Action
Sec 181A of the Act also provides that the right to bring a derivate action under the
common law is not abrogated. Under the common law, the derivative action is treated as
the exception to the general rule laid in down in the case of Foss v Harbottle where it
was held that a proper plaintiff to bring action to enforce the companys right is the
company itself. The exception applies in a few situations, one of which is when there is a
fraud on the minority. In order for a member of a company to take a derivative action
under the common law, there are few requirements to be fulfilled.
The first requirement is that, there must be a wrongdoer control in the company.
in the case of Ting Choong Ma, the court held that there was a wrongdoer control of the
company when the defendant had obtained secret profit by diverting the companys
business to his own firm because the wrongdoer had a management control over the

company. The second requirement under the common law is that, the wrongdoer must
obtained benefit at the expense of the company. In the case of Cooks v Deeks, the
majority shareholders diverted the business of the company to another company which
they formed. The minority shareholder sued them for the profit that they have made and
the court held that this was the fraud on minority. The third requirement is that, it must be
shown that there is a possibility of the majority shareholder to prevent the proceedings
being brought against them. This requirement is indirectly fulfilled where the other two
requirements are fulfilled.
Based on the facts of the question, it can be concluded that Dol as a member of
the company does come within the definition of complainant under the Act. Besides, he
is acting in good faith since the facts do not reveal any bad motives on behalf of Dol so as
to induce him to take action although he might have his own personal interest by taking
the action such as to preserve his own self-interest as a shareholder. Due to the fact that
there was a mismanagement of the companys fund, it is therefore for the benefit of the
company that the action must be taken. Hence, it is likely for Dol to sue on behalf of the
company bearing in mind that Dol must give thirty days written notice to the directors of
his intention to apply for leave of Court. Besides, the elements of the existence of the
wrongdoer control and benefit obtained by the wrongdoer are also fulfilled based on the
fact that Chow as the managing director had used the consultant fees to pay his relatives.

Question 6 (Gargle Bhd)

a) The issue in the question is whether the minority shareholders can bring a derivative
action behalf of the company?
Statutory Derivate Action
Sec 181A of the Act provides that a member can bring an action on behalf of the
company known as the members derivative action. Sec 181B provides the procedure to
bring an action, among others is to first give thirty days notice in writing to the directors
informing his intention to bring an action under sec181A. Before the court can grant the
leave, there are few criteria to be met.

In the case of Mohd Shuaib bin Ishak v Celcom (Malaysia) Berhad, the
plaintiff in the case applied to sue the directors of Celcom, Telekom Malaysia Bhd and a
few others. Celcom and DeTeAsia agreed that Celcom would not merge its business or
accept new shareholders without the latters consent. Telekom which had control over
Celcom wished to take over Celcom, and in furtherance of that objective, caused Celcom
to enter into agreement resulting into a transaction to be entered in breach of the first
agreement with DeTeAsia. DeTeAsia brought a claim against Celcom for breach. The
main beneficiaries of the wrongdoings have been Telekom and other parties as they
succeeded in taking over Celcom at a relatively low price and the burden to pay
DeTeAsia was passed on to Celcom. The main losers have been Celcom, which had to
pay substantial damages to DeTeAsia and the shareholders of Celcom who should have
received RM7.00 per share instead of RM2.75.
In the case, the court held that first the requirement that the plaintiff must be a
complainant within the meaning of section 181A(4) was satisfied as he is a former
shareholder who ceased to be a shareholder as he had been compelled to sell all his shares
at undervalue to Telekom. The second requirement that the Plaintiff must have given
thirty days written notice to the directors of his intention to apply for leave of Court under
section 181A was also satisfied. The third requirement that the Plaintiff must be acting in
good faith was also satisfied since the Plaintiff was acting in good faith as he sought to
remedy what he genuinely believed to be unlawful and illegal actions of those who have
caused Celcom to suffer loss. The Court noted that although the Plaintiff may be acting
out of self-interest to maximise the value of his shares in Celcom, such self-interest did
not mean that the Plaintiff was acting in bad faith. The Court observed that anything
which benefits the company will indirectly benefit the shareholders by increasing the
share value and that it is not wrong for a shareholder to have any self-interest in wanting
the company to prosecute an action which is in its interest to prosecute. In respect of the
fourth requirement that it appears prima facie to be in the best interest of the company
that leave be granted, the Court took the stand for the purpose of granting leave, it is
sufficient to show a prima facie arguable case that it is in the best interest of the company
to file the proposed action. The Plaintiff need not show that the proposed action is likely
to succeed.

Based on the fact of the question, the minority shareholders can bring an action
since they come within the definition of complainant under the Act, by first giving the
thirty days written notice to the directors of their intention to take action. The third
requirement that the plaintiff must be acting in good faith was satisfied since the minority
shareholders are planning to take action in order to remedy the actions of the majority
shareholders which may cause the company to suffer loss to the detriment of the
members of the company such as the act of not paying dividends in order to use the funds
to invest in another company owned by the majority shareholders. Hence, it can be
proven that there is a prima facie arguable case to file an action.
Common Law derivative Action
Sec 181A of the Act also provides that the right to bring a derivate action under the
common law is not abrogated. Under the common law, the derivative action is treated as
the exception to the general rule laid in down in the case of Foss v Harbottle where it
was held that a proper plaintiff to bring action to enforce the companys right is the
company itself. The exception applies in a few situations, one of which is when there is a
fraud on the minority. In order for a member of a company to take a derivative action
under the common law, there are few requirements to be fulfilled.
The first requirement is that, there must be a wrongdoer control in the company.
In the case of Ting Choong Ma, the court held that there was a wrongdoer control of the
company when the defendant had obtained secret profit by diverting the companys
business to his own firm because the wrongdoer had a management control over the
company. The second requirement under the common law is that, the wrongdoer must
obtained benefit at the expense of the company. In the case of Cooks v Deeks, the
majority shareholders diverted the business of the company to another company which
they formed. The minority shareholder sued them for the profit that they have made and
the court held that this was the fraud on minority. The third requirement is that, it must be
shown that there is a possibility of the majority shareholder to prevent the proceedings
being brought against them. This requirement is indirectly fulfilled where the other two
requirements are fulfilled.

Based on the facts of the present case, there was a control by the majority
shareholders who are the wrongdoer in this case. Secondly, the wrongdoer had also
obtained benefit should the allegation that they had used the companys fund to invest in
a business owned by themselves is true.
In conclusion, it is possible for the minority shareholders to bring a derivative
action on behalf of the company under both statutory derivative action and common law
derivative action.
b) The issue in the question is whether the minority shareholders can apply for an order for
the majority shareholders to buy out their shares?
Sec 181(1) of the Companies Act provides that any member of a company may
apply to the Court for an order under this section where (a) the affairs of the company or
the powers of the director is exercised either in oppressive manner to the members or in
disregard of members interest. Section 181(1) (b) covers the situation where some act or
proposed act or the resolution or proposed resolution of the company is either
discriminatory or prejudicial to the members. The application for order under this section
can be made by a member who is directly or indirectly affected by the oppressive
conduct. The term oppressive is nowhere defined in the Act, the Court will normally
look whether there is any oppressive conduct in the sense that it is unfair to the member
through the breach of legitimate expectations of the member. Hence, the reference to the
case law is relevant to understand what constitutes oppression.
Unfairly restricting dividens
In the case of Re Colieum Stand Car Service, the respondent director managed
the business himself and did not consult the shareholders or the other directors of the
company. There was no declaration of dividends even though the company had profits.
Instead, he authorized loans by the company to himself and his son. It was held by the
court that there was oppression and disregard of members interest.
Based on the fact of the present case, the action of the directors to pay dividends
in form of shares instead of cash payment in order to settle the companys debts is not in
itself amounting to oppression. However, since it is coupled by the act of investing the

funds in a business owned by the majority shareholders, it does amount to oppression

since it is done for an improper purpose.
Oppressive conduct of board meetings or general meetings
In the case of John J Starr, the plaintiff alleged that the board meetings of the
company were conducted in an oppressive manner whereby the managing director among
others, had restricted the time speaking available to directors at board meetings when
significant matters needed to be discussed and made major decisions without reference to
the board of directors.
Based on the fact of the question, it can be seen that there was an unfair conduct
of general meetings where Mona and minority shareholders did not receive notice of the
meeting. Therefore, there was oppression by the majority shareholders.
In conclusion, the minority shareholders can apply for an order for the majority
shareholders to buy out their shares under the oppression remedy as provided in sec
181(2) (c) of the Act.