In the recent Kuala Lumpur High Court decision of Trudy Ranjini Ganendra v Dato’ Dennis Ganendra & Ors (Originating Summons No. WA-24NCC-551-12/2021), the firm successfully acted for 2 directors of an international engineering consultancy company (“Company”) in resisting a minority oppression suit.
Justice Wan Muhammad Amin Bin Wan Yahya dismissed the claim against all the defendants, including 2 directors of the company – one who was the former Director General of the Malaysian Public Works Department.
The Facts
The Plaintiff holds 33% shares in the Company, and is the daughter of one of the founders of the Company, which was formed 4 decades ago. The 1st Defendant is the Plaintiff’s elder brother, and holds 25.3% shares while serving as CEO since 2018. The Plaintiff was involved in various capacities within the Company since 2012. However, it was only when another sibling sold her 33% shares & exited the Company in 2019, that the Plaintiff was appointed as a director. In 2020, for various reasons, the Plaintiff was relieved of her last-held position as Chief Technology Officer of the Company. In 2022, the Plaintiff was not re-elected as a director at the Company’s AGM.
The Plaintiff’s core complaint was that, due to her 33% shareholding & the fact that the Company is a family company, she had a legitimate expectation to participate in the management of the Company. Hence, she alleged that her removal of various roles within the Company amounted to minority oppression under Section 346 of the Companies Act 2016.
The Judgment
The High Court Judge rejected the Plaintiff’s contention that the Company was a family company or a quasi-partnership, and hence no legitimate expectation exists to begin with. In the grounds of judgment, Justice Wan Amin reached such finding for the following reasons:
(a) The Memorandum & Articles of Association contain no family-specific provisions (i.e. requiring family shareholding, special voting rights for family members, etc.)
(b) Article 7 of the Articles of Association restricts shareholding to professional engineers, which showed that the company prioritised professional credentials over family ownership
(c) Third parties have historically held shares in the Company
(d) The Board of Directors (“BOD”) have consistently comprised of more non-family members than family members
(e) There was proper corporate governance, whereby the company operates on a collective decision-making process via a BOD, BOD meeting minutes were documented & BOD committees were established (such as a Remuneration & Nomination Committee)
The High Court further found that, even if it was a family company, a legitimate expectation to participate in the company’s management required clear evidence beyond mere family relationships. Namely, the Court must examine the understanding or agreement between parties, the course of dealing between parties & the nature of the company’s operations (following Ebrahimi v Westbourne Galleries [1973] AC 360). Applying these principles, Justice Wan Amin found that no such legitimate expectation existed for the following reasons:
(a) The Plaintiff’s involvement in management was not permanent & conditional upon performance evaluation;
(b) The Plaintiff had not raised any complaints from 2012-2019, and only raised the issue of oppression after the other sibling’s lucrative RM46million exit. The timing suggests that the Plaintiff’s complaints were motivated by financial considerations, rather than genuine long-standing concerns of oppression.
(c) Management decisions were made by BOD, and not made by the 1st Defendant as CEO unilaterally
The High Court followed past precedents in deciding that removal from directorship does not constitute oppression unless it affects the member’s rights as a shareholder. This is because the Court must distinguish between rights as a director (which are contractual and can be terminated) and rights as a member (which flow from shareholding and cannot be improperly interfered with).
In the end, the High Court found that mere reliance on one’s status as a family member & being a 33% shareholder of a company is insufficient to establish legitimate expectation to partake in management.
As for the 3rd & 4th Defendants specifically, they were joined as defendants in the suit on the allegation that they were nominee shareholders of the 1st Defendant. The High Court found no liability against them, as there were no express allegations made or remedies prayed against them.
Key Takeaways
First, company founders should be very conscious at the outset (or even after the company has been formed) in deciding whether they wish their company to operate as a family company, or otherwise. It is not unusual for Asian businesspersons to involve their immediate family members or children in the management of the company, or being appointed shareholders. However, if the boundaries are unclear & the patriarch/matriarch has departed, certain family member shareholders may claim they have a legitimate expectation to be part of the company’s management, and then a dispute arises.
Second, if company founders do not wish for the company to be exclusive to the family, the setting-up & operation of the company has to reflect this clearly – to avoid claims of breach of legitimate expectation by certain family members. For example, this means the company’s constitution should not grant preferences to family members, a BOD comprising of non-family professionals should be formed & all major decisions are to be decided by a BOD through proper corporate governance processes instead of a select group of family members.
Third, minority shareholders who believe they are oppressed should be wary on the timing of their complaint, as it is an important factor for the Court to determine if such claims of oppression are genuine. Hence, if a complaint only arose immediately after a certain event (such as the buy-out of another shareholder at a lucrative figure, in this case), it brings into question the veracity of the oppression claim to begin with. Generally, any oppression complaint must be raised at the earliest time possible & be well-documented.
Our Lim Wei Jiet & Nevyn Vinosh Venudran acted for the 3rd & 4th Defendant directors. The 1st Defendant was represented by Dato’ Malik Imtiaz Sarwar (Arthur Ng Wei Meng, Wong Ming Yen, Nur Fathin Amira Binti Sapawi and Abby Si Xin Yi (pupil-in-chambers) together with him), and the 2nd Defendant Company was represented by Saritha Devi Kirupalani (Nur Ainnabila Binti Rosdi and Nabila Binti Roslee together with her)
