Introduction
In the recent 2023 case of Low Cheng Teik & Ors v Low Ean Nee, the Federal Court of Malaysia delved into the nuanced differences between oppression actions and statutory derivative actions under the Companies Act 2016. This case provides a comprehensive analysis of the legal tests and principles governing these two remedies.
Brief facts of the case
The dispute arose within SNE Marketing Sdn Bhd, a multi-level marketing company, centered around allegations of oppression brought by the respondent, Low Ean Nee who held 50% shares against the appellants, who collectively held the remaining 50%. The conflict arose after the appellants assigned the company’s trademarks to SNE Global Sdn Bhd, a company controlled by the appellants for a nominal consideration of RM10.00. This assignment was made without the respondent’s knowledge or board approval, leading the respondent to file the oppression claim.
High Court Findings
The High Court dismissed the respondent’s oppression action, finding no credible evidence of forgery or misconduct by the appellants. The court concluded that the respondent’s signatures on the disputed resolutions were genuine and that the appellants’ actions did not amount to oppression under Section 346 of the Companies Act 2016.
Court of Appeal Findings
The Court of Appeal reversed the High Court’s decision, finding that the appellants’ actions were calculated to benefit themselves at the expense of the respondent. The court ordered the appellants to buy out the respondent’s shares, emphasizing the oppressive nature of the trademark assignment.
Federal Court Findings
The Appellants requested leave to appeal after being dissatisfied with the Court of Appeal’s ruling, raising important legal issues about the distinction between oppression actions and statutory derivative actions. The Federal Court ultimately allowed the appeal, concluding that the respondent’s complaint should have been pursued as a derivative action rather than an oppression action.
Federal Court Analysis
In making the decision, the Federal Court focused on the legal test to determine whether a shareholder’s complaint should be pursued as an oppression action or a statutory derivative action. The court highlighted the following key points:
- Distinction Between Oppression and Derivative Actions: The court highlighted that an oppression action under Section 346 of the Companies Act 2016 is meant to address personal harm suffered by a shareholder due to unfair conduct by the majority. In contrast, a derivative action under Section 347 is intended to address wrongs done to the company itself, allowing shareholders to bring an action on behalf of the company.
- Nature of the Wrong: The court emphasized that the wrongful act must be directed specifically against the shareholder, causing personal harm distinct from the company’s loss. The wrongful act in question was the assignment of the SNE Trademarks, which are assets of the company, to SNE Global without proper authorization. This wrongful act resulted in harm to the company, not specifically to the respondent as a shareholder.
- Reflective Loss Principle: The court reiterated that a shareholder cannot recover losses that merely reflect the company’s loss. Such claims should be pursued through a derivative action.
- Proper Plaintiff Rule: The court underscored that the company is the proper plaintiff for wrongs done to it, and shareholders should seek redress through derivative actions when the company’s interests are harmed.
Conclusion
In conclusion, this case underscores the importance of correctly identifying the nature of the wrong and the appropriate legal remedy, ensuring that shareholders and companies alike are protected under the law. Understanding the distinctions between oppression and derivative actions is essential for effectively navigating corporate disputes and safeguarding shareholder interests.
Published on 2 January 2025