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Equal Stake, Equal Protection: Striking Out Application Dismissed in a Minority Oppression Claim

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19 November 2024

Our Litigation Partners, Idza Hajar Ahmad Idzam and Nan Muhammad Ridhwan together with their Legal Associates, Muhammad Hibri, Aiesyah Mustafa and Pupil-in-Chambers, Saif Aslam Lokman had on 12.11.2024 acted for an administrator of an estate of an incapacitated person (“Plaintiff”), who is a 50% shareholder in a car dealership company (“2nd Defendant”), in resisting a Striking Out Application filed by the other shareholder, who holds the remaining 50% share in the 2nd Defendant, together with the 2nd Defendant (“Defendants”), in a Minority Oppression claim.

Brief Facts
The Plaintiff filed a minority oppression claim by way Originating Summons premised on instances of oppressive conducts detrimental to shareholder rights which includes:-
 
(i) withholding agreed Director’s Remuneration;
(ii) unilateral set-offs against disputed debts;
(iii) denying access to information and management; and
(iv) refusing a fair valuation of shares.

On 12.8.2024, the Defendants filed an application to strike out the Plaintiff’s minority oppression claim pursuant to Order 18 Rule 19 of the Rules of Court 2012. The Defendants alleged that the Plaintiff being a 50% minority shareholder is not entitled to be a complainant under the ambit of Section 346 of the Companies Act 2016 as it is only limited to minority shareholders. Further, considering that there are alleged factual disputes requiring viva voce evidence, the minority oppression claim should have been commenced by way of Writ. The Defendants also alleged that the Plaintiff failed to disclose a reasonable cause of action for a minority oppression claim.

Decision of the Court
The Court dismissed the Defendants’ Striking Out Application with costs as:-
 
(1) The Court highlighted that though the Plaintiff held equal stakes in the company, she had no control of the management of the company. As such, the Plaintiff is entitled to seek oppression remedies under Section 346 of the Companies Act 2016;
 
(2) Since this action is a minority oppression claim, it can only be commenced by way of an Originating Summons as prescribed under Section 346 of the Companies Act 2016; and
 
(3) The Court agreed that the Plaintiff had articulated clear instances of oppressive conduct detrimental to shareholder rights.

Key Takeaways
This decision affirms the findings in the case of Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd & Ors and another application [1994] 2 MLJ 789, which extends the protection to shareholders whom despite holding significant or equal stakes, lack the management control of the company to be allowed to pursue remedies under Section 346 of the Companies Act 2016. The decisions also confirms that a claim for minority oppression must be commenced by way of an Originating Summons, as there are procedural mechanisms provided in Order 28 Rule 4 of the Rules of Court 2012 to manage factual disputes arising in minority oppression suits.

For more insights into this area of law, please contact our Litigation Partners:
P Jayasingam
Wong Keat Ching
Thavaselvi Pararajasingam
Idza Hajar Ahmad Idzam
Nan Muhammad Ridhwan Rosnan
Nur Syafinaz Vani Abdullah

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