Perennial (Capitol) Pte Ltd v Capitol Investment Holdings Pte Ltd [2018] SGCA 11 involved an application to wind up three companies, Capitol Investment Holdings Pte Ltd, Capitol Hotel Management Pte Ltd and Capitol Retail Management Pte Ltd (the respondents). The respondents had been set up as part of a joint venture to develop and run an integrated development project comprising a theatre, a hotel and a retail mall.

Breakdown of the joint venture

The joint venture parties were unable to reach agreement on the Joint Venture Agreement and various other management agreements required to take the joint venture forward. At the time of the dispute, the shareholders of the respondents were:

  • Perennial (Capitol) Pte Ltd and New Capitol Pte Ltd (the applicants), both part of the same group of companies, holding 50% of the shares; and
  • Chesham Properties Pte Ltd, holding the other 50% of the shares.

As a result of breakdown of the joint venture and resulting deadlock, the applicants applied to the Singapore courts to wind up each of the respondents. The application was made pursuant to section 254 of the Companies Act. This section allows for shareholders to apply for their company to be wound up on the basis that it would be just and equitable to do so. Alternatively, the applicants sought an order also under section 254 for the court to order Chesham Properties Pte Ltd to buy out their shares in the respondents.

Articles providing for notice of transfer

The articles of the constitutions of the respondents each contained a pre-emption article. Under that article, a shareholder that intended to transfer its shares in the company had to give a notice to the company of its intent. The effect of the notice would be to appoint the company’s directors to be the shareholder’s agent for the sale of its shares to the other shareholders. The directors would be empowered to agree a price with the other shareholders. In the event that an agreement on price could not be reached, the company’s auditor would certify what would be a fair price for the shares.

The respondents argued that, following the earlier Court of Appeal decision in Ting Shwu Ping v Scanone Pte Ltd (2016), that since the pre-emption article provided the applicant with an exit mechanism, the application for a just and equitable winding up should not be granted. The Court of Appeal agreed. The pre-emption article meant that the applicants had a contractually enforceable option to be bought out of the company at fair value: “If there is a ready and available means of ensuring that a party who wishes to exit is able to do so on fair terms, then there would be no basis for the court to order a winding-up on the ground of unfairness.”

The Court also adopted a pragmatic commercial approach, noting that the respondents were solvent and viable. Courts would generally be reluctant to order the drastic remedy of winding up a company that is otherwise a going concern.

Comment

The case is a useful reminder of the importance of including buyout clauses particularly in joint venture situations. It is notable that in this case, as the parties were unable to reach agreement on the Joint Venture Agreement, more detailed clauses dealing with deadlock had not been included in the articles of association as would be usual in the circumstances. Where an article providing for an independent third party to provide a fair valuation is to be included, it would also be useful to specify the matters that the third party should take into account or, conversely, should not take into account.