29 April 2019
Kiri Industries Ltd v Senda International Capital Ltd & Anor  SGHC(I) 02
In Kiri Industries Ltd v Senda International Capital Ltd, the Singapore International Commercial Court (“SICC”) declined to order a minority discount for lack of control in the valuation of a minority shareholder’s shareholding in a joint venture company, following the minority shareholder’s successful claim for oppression in an earlier decision of the SICC (“Main Judgment”).
In the Main Judgment, the SICC had ordered that Senda International Capital Limited (“Senda”), the majority shareholder in the joint venture company, DyStar Global Holdings (Singapore) Pte Ltd (“DyStar”), buy out the shareholding of Kiri Industries Limited (“Kiri”) based on a valuation to be assessed as of the date of the Main Judgment, and that the valuation of Kiri’s shareholding should take into account losses arising from various oppressive acts by Senda.
A case management conference was subsequently held to decide the valuation of Kiri’s shareholding for the purposes of the buyout order. A key issue was whether a discount should be factored into the valuation of Kiri’s shareholding, given that Kiri was a minority shareholder, and if so, how this should be assessed in the valuation process.
As was noted in the previous High Court decision of Thio Syn Kym Wendy & Ors v Thio Syn Pyn & Anor  SGHC 54, there are two competing considerations in assessing whether a discount should be applied. The first is that an oppressed minority shareholder should generally not be treated as having elected freely to sell his shares, and the court should ensure that the oppressor does not profit from his wrongful behaviour. The second is that a minority shareholding may be harder to dispose of, given a minority shareholder’s lack of control over the management of the company. There is no presumption or general rule as to when a minority discount ought to be applied to a company that is not a quasi-partnership. Instead, the court will apply a fact-sensitive analysis, focused on ensuring that a forced buy-out is fair, just and equitable.
Given that DyStar was not a quasi-partnership, the SICC applied a fact-sensitive approach. In this regard, the SICC ruled that no minority discount for lack of control would be ordered for two principal reasons. First, the SICC found that Senda’s oppressive conduct was directed at worsening the position of Kiri as shareholders, thus compelling them to sell out. In the Main Judgment, the SICC found that Senda had engaged in commercially unfair conduct designed to extract benefits or value out of Dystar, for the benefit of Senda and/or its associates, and at the expense of Kiri. This was evident from the improper denial of dividends to Kiri, as well as the extraction of value out of DyStar by means of related party loans, cash pooling arrangements and special incentive payments to directors nominated by Senda.
Secondly, the SICC found that Senda’s oppressive conduct was entirely responsible for precipitating the breakdown in the parties’ relationship. As was noted in the Main Judgment, there was no residual goodwill or trust left between the parties. Moreover, this result was not due to the action of Kiri or its officers and directors. Contrary to allegations that Kiri’s directors had acted in a harassing and disruptive manner, they had in fact acted reasonably and based on genuine and justifiable concerns. The SICC also declined to allow Senda to adduce further evidence on matters such as the parties’ respective contributions to DyStar and whether Kiri’s conduct contributed to the oppressive conduct complained of. This was because these matters were within the issues canvassed at trial, and had already been dealt with in the Main Judgment.
Thus, the SICC agreed with Kiri and decided that a minority discount for lack of control ought not to be applied.
This decision confirms the court’s fact-sensitive approach in assessing whether a minority discount should be applied to a company that is not a quasi-partnership. In this regard, the intent as well as the effect of the majority’s oppressive conduct are relevant factors. In particular, where the majority’s oppressive conduct was directed at worsening the minority shareholders’ position so as to compel them to sell out, and was entirely responsible for precipitating the breakdown in the parties’ relationship, the court will likely be less sympathetic to the argument that a minority discount ought to be applied.
Allen & Gledhill Partners Dinesh Dhillon, Lim Dao Kai and Margaret Joan Ling represented the successful plaintiff in this case.