Mark Lee Chambers Law Corporation (“ML Chambers”) directors Mark Lee and Sarah Yeo recently advised a founder, who was both a minority shareholder and a director, of a Singapore-incorporated joint venture company in a cross-border shareholder and boardroom dispute spanning multiple jurisdictions.
Without a single court filing, our team manoeuvred our client from facing a majority-driven plan to wind up the joint venture company, remove him from the board and divert its assets to the majority shareholder, to gaining the upper hand in negotiations for a structured exit through a share buy-out at fair value.
The Joint Venture Dispute
The joint venture company (the “JV”) was incorporated in Singapore, ran a manufacturing facility in Country B through a local subsidiary, and was bankrolled by a financial institution based in Country C, with our client providing personal guarantees for the banking facilities. Our client, who is from Country D, was the JV’s co-founder; he held a significant minority stake and sat on its two-member board of directors. The other shareholders were the majority shareholder, a publicly listed corporate group controlled by the other director on the board, and a second minority investor based in Country E, who had bought into the JV much later and held no executive position.
Under the shareholders’ agreement, which was governed by Singapore law, the majority shareholder was responsible for the JV’s finances, while our client took charge of its day-to-day operations as Chief Operating Officer. Over time, however, the majority shareholder gradually took control of the JV’s operations and relegated our client to a sales role.
The majority shareholder then began building a cash-flow shortage narrative, made questionable capital calls and, using the financial pressure this created, attempted to strong-arm our client into signing a new shareholders’ agreement that would have given it near-total control of the JV. When that failed, it convened an extraordinary general meeting (EGM) with resolutions to (a) wind up the JV; (b) sell the JV’s largest assets; and (c) redirect the JV’s customers to the majority shareholder.
In short, this was a majority shareholder seeking to unwind a bargain it had come to regret, and to strip the company of its assets without paying the minority shareholders fair value for their shares – the kind of conduct that typically gives rise to minority shareholder oppression concerns.
Our Strategy and Results
1. Holding the line at the EGM
Swift and decisive intervention by our team at the EGM itself enabled our client to turn the tide and block the majority shareholder’s attempt to wind up the JV, relying on the reserved matters in the shareholders’ agreement.
2. Using information rights strategically
As a director, our client had statutory and common law rights to inspect the company’s records. Demanding indiscriminate access to every record, line by line, would have left him running a forensic audit he was not equipped for. Instead, we framed targeted information requests designed to show how the JV had been managed.
3. Turning the insolvency narrative on its head
A clear understanding of directors’ duties was equally important. It allowed our client to turn the “insolvency” narrative contrived by the majority shareholder against it, by reminding the board that directors must also consider the interests of creditors when a company is in financial distress.
4. Negotiating a clean exit
Left with no choice, the majority shareholder had to come to the negotiating table and agree to a fair, properly negotiated share buy-out. Staying alert until the very end was crucial: robust negotiations secured our client’s release from the bank guarantees, backed by an indemnity, together with mutual releases between the parties.
Key Takeaways
1. Know your reserved matters and your rights as a shareholder before you walk into a general meeting. A minority stake can carry a veto worth far more than its percentage. Read your shareholders’ agreement and the company’s constitution carefully, and plan how you will vote.
2. Directors’ duties cut both ways. When a majority bloc claims insolvency to pressure a minority, the directors’ duty to consider creditors’ interests, and the scrutiny that comes with a potential liquidator (who has investigative powers), can become the minority’s strongest leverage.
3. The buy-out price is not everything in a corporate divorce. Parties often fixate on the share buy-out quantum and treat everything else as ancillary. That is a serious mistake. Parties should weigh their wider financial and commercial interests, both in the present dispute and after they exit the company – including personal guarantees, indemnities, releases and post-exit restrictions.
If you are a shareholder or director facing a shareholder dispute, boardroom deadlock or joint venture dispute, whether in Singapore or across borders, speak to Mark Lee (mark.lee@mlclaw.com.sg) or Sarah Yeo (sarah.yeo@mlclaw.com.sg). General enquiries: contactus@mlclaw.com.sg | +65 6860 0360.