20 December 2018

Mukherjee Amitava v DyStar Global Holdings (Singapore) Pte Ltd & Ors [2018] SGCA 57

The Singapore Court of Appeal decision in Mukherjee Amitava v DyStar Global Holdings (Singapore) Pte Ltd & Ors has provided helpful guidance on the right of a director of a company to inspect the documents of a company pursuant to section 199 of the Companies Act. In this important decision, the apex court in Singapore has held that a director has an almost-presumptive right to inspect the documents of the company to the extent these fall within the ambit of section 199 of the Companies Act. To exercise this right, the director would not have to demonstrate any particular ground for inspection. Instead, the burden is on the company, if it resists the application to inspect, to show that such access should not be permitted because there is some abuse of process or privilege that underlies the request, such as when the director intends to use the right to inspect for purposes that are largely unconnected to the discharge of the director’s duties. The Court of Appeal explained that this is so because the director has fiduciary and statutory duties and obligations to the company and the director should not be placed in the position of having to carry out these duties and meet these obligations without being afforded access to the company’s records and documents.

Facts

The appellant, Mr Mukherjee Amitava, is a director of DyStar Global Holdings (Singapore) Pte Ltd (“Company”). The appellant was appointed as director of the Company by one of its shareholders, Kiri Industries Ltd (“Kiri Industries”). The appellant brought an application pursuant to section 199 of the Companies Act for access to and inspection of the Company’s documents (“Inspection Application”). The Company resisted the Inspection Application.

Concerns had been raised over loans that had been made by the Company to entities related to the Company’s de facto majority shareholder, Zhejiang Longsheng Group Co Ltd (“Longsheng”), without the prior knowledge and approval of the appellant and Kiri Industries. Longsheng held its interest in the Company through its subsidiaries including Senda International Capital Limited (“Senda”).

Kiri Industries commenced proceedings against Senda and the Company in the High Court, seeking relief on the ground of minority oppression. In turn, Senda counterclaimed against Kiri Industries for conspiracy and contractual breaches, including the alleged breaches of a non-competition clause.

The appellant made a series of requests for documents and information, but these requests were not addressed. The Longsheng directors refused to comply with the appellant’s requests, alleging that the appellant’s requests were made in furtherance of the minority oppression suit, and that the information sought could be used to commit further possible breaches of the non-competition clause.

The appellant filed the Inspection Application about six weeks after the Longsheng directors’ reply and less than three months after the commencement of the minority oppression suit. The appellant sought inspection of documents relating to related party transactions entered into by the Company and remuneration and bonuses paid by the Company to its directors and management. These documents were closely reflective of the documents that had been sought by Kiri Industries pursuant to a specific discovery application (“Discovery Application”) in the minority oppression suit which had failed.

The High Court judge (“Judge”) denied the appellant’s request finding that the Inspection Application had been made for the ulterior purpose of obtaining information to support Kiri Industries’ case in the minority oppression suit (which was ongoing at the time). The appellant appealed against the Judge’s decision. The minority oppression suit, which was transferred to and heard in the Singapore International Commercial Court (“SICC”), was concluded by the time the present appeal came before the Court of Appeal. The SICC found that minority oppression was made out, and ordered the buyout of Kiri Industries’ shareholding in the Company by Senda. An appeal against the decision of the SICC is pending.

Right of director to inspect company documents under section 199 of Companies Act

The Court of Appeal allowed the appeal against the Company, finding that the Inspection Application had not been brought for an ulterior purpose.

In the court’s view, a director has an almost-presumptive right to inspect the documents of the company to the extent these fall within the ambit of section 199 of the Companies Act. To exercise this right, the director would not have to demonstrate any particular ground for inspection. Instead, the burden is on the company, if it resists the application to inspect, to show that such access should not be permitted because there is some abuse of process or privilege that underlies the request, such as when the director intends to use the right to inspect for purposes that are largely unconnected to the discharge of the director’s duties. This is so because the director has fiduciary and statutory duties and obligations to the company and the director should not be placed in the position of having to carry out these duties and meet these obligations without being afforded access to the company’s records and documents.

The Court of Appeal disagreed with the contention that the Inspection Application was made with the ulterior purpose of gathering information to advance Kiri Industries’ position in the minority oppression suit. It was clear to the court that it was conceivably within the scope of the appellant’s duties as a director of the Company (for example, his duties of reasonable care and diligence pursuant to section 157(1) of the Companies Act) to find out about the related party loans and to understand the financial health of the Company. The burden then shifted to the Company to show that the Inspection Application bore no relation to any of the appellant’s duties as a director.

Although there was a similarity in the requests in the Discovery Application and the documents that the appellant sought to inspect, the Court of Appeal agreed with the appellant’s counsel that it is unsurprising, if not common, for the reasons underlying the complaints of a minority shareholder in an oppression action and that of a director appointed by that shareholder to be aligned. The Court of Appeal also agreed that there was overlap and commonality in the interests of the minority shareholder and the director in such a case. The commercial reality was that both Kiri Industries and the appellant would have overlapping concerns in relation to both the related party transactions as well as the remuneration and bonuses paid by the Company to its directors and management.

The question in the end was whether the documents were relevant to the director to enable him to perform his duties as a director, and the Court of Appeal held that that was the case here. The overlap between the requests made by the minority shareholder and by the appellant was insufficient in and of itself to establish an ulterior purpose. Further, the Court of Appeal was of the view that if there appeared any synchronicity in timing between the minority oppression suit and the Inspection Application, it was a matter of happenstance.

Accordingly, the Court of Appeal held that the Company had not shown that the appellant brought the Inspection Application for an ulterior purpose. Instead, the court found that the Inspection Application went towards the discharge of his obligations as a director of the Company.

Scope of documents for inspection under section 199 of Companies Act

The Court of Appeal also provided helpful guidance in relation to the scope of documents that might be inspected pursuant to an application under section 199 of the Companies Act.

In this regard, the Court of Appeal opined that the right to inspection would extend only to accounting and other records that are, at the material time, kept by the company and are therefore in existence. Section 199 does not contemplate or call for the generation and creation of new documents.

The Court of Appeal also considered whether the right to inspection under section 199 extended to documents belonging to subsidiaries and related companies. In the Court of Appeal’s judgment, neither possession nor ownership are always necessary or sufficient conditions in themselves. Instead, the scope of section 199 is to be ascertained by reference to the words of section 199(1) and that contemplates that the power is available in respect of records that “will sufficiently explain the transactions and financial position of the company and enable true and fair [financial statements] and any documents required to be attached thereto to be prepared from time to time”. In the present case, the Court of Appeal permitted the appellant to inspect documents in the possession of the Company even if these belonged to the subsidiaries of the company (but not other related companies), if and to the extent that these documents can be shown to be relevant and necessary to explain the transactions and financial position of the Company, and enable true and fair financial statements to be prepared.

Comment

This instructive decision has provided much needed clarity on the right of a director to inspect a company’s documents under section 199 of the Companies Act and the burden of proof of the respective parties in applications under section 199. Importantly, the court has recognised the commercial reality that there may be overlap and commonality in the interests of a minority shareholder and the director appointed by that shareholder in the context of a director’s application to access and inspect a company’s documents under section 199. This decision is also important for the court’s guidance on the scope of documents for inspection under section 199.

Allen & Gledhill Partners Dinesh Dhillon, Lim Dao Kai and Margaret Joan Ling represented the successful appellant.

 

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