The Malayan Diariy/Vitagen case

A recent lawsuit concerning the shareholders of several companies including Malayan Diary Industries Pte Ltd which sells well known brand Vitagen resulted in the founder losing his claim (case name - Thio Keng Poon v Thio Syn Pyn).

The founder, Thio Keng Poon, sued his wife and 6 sons and daughters over his dismissal as director of several family owned companies. Among his claims was oppression under section 216 of the Companies Act. This section is often known as the oppression or unfair prejudice section. What is oppression? It covers a wide range of situations such as

a) acts of the company being unfairly discriminatory;
b) affairs of the company are being conducted in an oppressive manner; and
c) acts of the company are prejudicial against the member.

(Note that there are several other situations not mentioned in this posting).

The main theme behind all these situations is unfairness.

The alleged unfairness here was the breach of an understanding between the founder and his family that he would not be removed as director of the companies. Unfortunately, in court, his evidence was so weak that he was not able to prove his claims and the defendants won the case without even having to testify in court. A comment on this alleged understanding - for there to be an understanding, the express or implied agreement between the parties does not have to reach the legal status of a contract (which has rules regarding its formation, eg offer, acceptance, consideration, intention to create legal relations). There is therefore a far lower threshold which the founder failed to meet.

The facts on the case also showed that the founder was dismissed as director because of alleged breaches of director's duties in that he double claimed his travel expenses - eg for one trip, he would claim his travel expenses from more than 1 company in the family group. This fact would normally lead to removal of any director in any company, but this point was not fully canvassed in the court's decision.

One important point - for founders and controlling shareholders of companies, do not give your shares to your children before your death, for they may well remove you as director. However, giving shares to them is often necessary to show your love and to motivate them to work for the company. But there are ways to give them shares while protecting your own position.