The recent major company law case over the past few days has been the Thio Keng Poon case where the founder of Malaysian Dairy Industries (MDI), a major milk distributor, sued his wife and children for removing him from his post of managing director.
Although this wife and children own the majority of the shares in the company and other family companies, he is claiming that he controls the shares until he dies, and that his family is therefore not allowed to use his shares to remove him. This raises issues of trust law - whether there is a trust over the shares with Thio Keng Poon having the life beneficial interests, and his family being merely trustees of this life interests (and therefore having restrictions on what they can do with the shares).
The family is claiming that he breached his directors' duties by double claiming for his travel expenses. If these allegations are true, they would at the very least be offences under the Companies Act or the Penal Code. As such, convictions for double claiming could be regarded as offences that might disqualify him from the position as director.
The case has just closed with the defence arguing no case to answer. This means that the defence takes a big risk - they will call no witnesses but will argue that the plaintiff cannot win based on the evidence produced so far. The benefit is the trial is shortened and the defendants do not have to submit to cross-examination by the plaintiffs' lawyers.
Wednesday, April 8, 2009
Saturday, April 4, 2009
Directors duties - more on Regal Hastings
This post will cover the breaches of directors' duties in Regal Hastings.
The company had set up a subsidiary to undertake a project. However, the directors of the holding company later found that the subsidiary did not have enough capital to undertake the project. The holding company also did not have enough additional funds to inject into the subsidiary. The holding company directors then decided to invest personally in the subsidiary. Later, these investments paid off as these directors made a good profit.
A court later found that the directors had breached their duty to the holding company. They could have injected their investment into the holding company which could then increase the capital of the subsidiary. Their method had bypassed the holding company to which they owed fiduciary duties, and thus deprived the holding company of the potential profits.
The company had set up a subsidiary to undertake a project. However, the directors of the holding company later found that the subsidiary did not have enough capital to undertake the project. The holding company also did not have enough additional funds to inject into the subsidiary. The holding company directors then decided to invest personally in the subsidiary. Later, these investments paid off as these directors made a good profit.
A court later found that the directors had breached their duty to the holding company. They could have injected their investment into the holding company which could then increase the capital of the subsidiary. Their method had bypassed the holding company to which they owed fiduciary duties, and thus deprived the holding company of the potential profits.
Thursday, April 2, 2009
Directors' duties - the Regal (Hastings) case
The Raffles Town Club is in the news again today with reports of the trial of its lawsuit just being concluded. The Club which is actually a company, is suing its past directors for breach of directors' duties. This echoes the famous (to company law students and corporate lawyers) case of Regal (Hastings) v Gulliver.
This case involved some directors who had taken an opportunity belonging to their company, being sued by the company after ownership of the company had been sold to new owners. The new board then used the company to successfully sue the former directors. The end result was that the new owners received a windfall since some of the price of buying control of the company was offset by damages recovered for breaches of directors duties.
The moral of the story is that if you are a director, before you sell control of your company to new owners, make sure that all previous actual and potential breaches of directors duties are regularised. Some of the steps might include making full and frank disclosure to the general meeting and then passing resolutions to approve past acts and to waive any breaches. Indemnities against future lawsuits might be also obtained from new owners although these indemnities may not always be effective. Legal advice should be sought to avoid problems.
It is unclear what steps the former directors of Raffles Town Club had taken to avoid a Regal Hasting situation. We eagerly await the court's written judgment for more details.
This case involved some directors who had taken an opportunity belonging to their company, being sued by the company after ownership of the company had been sold to new owners. The new board then used the company to successfully sue the former directors. The end result was that the new owners received a windfall since some of the price of buying control of the company was offset by damages recovered for breaches of directors duties.
The moral of the story is that if you are a director, before you sell control of your company to new owners, make sure that all previous actual and potential breaches of directors duties are regularised. Some of the steps might include making full and frank disclosure to the general meeting and then passing resolutions to approve past acts and to waive any breaches. Indemnities against future lawsuits might be also obtained from new owners although these indemnities may not always be effective. Legal advice should be sought to avoid problems.
It is unclear what steps the former directors of Raffles Town Club had taken to avoid a Regal Hasting situation. We eagerly await the court's written judgment for more details.
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