By Boo Kok Chuon

Yesterday, on my flight back to Singapore from Kuala Lumpur, I found myself with some time to kill.

I had originally intended to bring along a book on the succession politics of the Kangxi Emperor. Unfortunately, after squeezing two days’ worth of clothes into my laptop bag, there was no longer room for it. So I did what any perfectly normal person would do on a short flight: I downloaded a judgment from Singapore Law Watch and spent the journey reading about the latest judicial application of Caparo Industries plc v Dickman.

It reminded me of a matter involving Noble Group which I worked on about two years ago.

Never mind. That is a story for another day.

This morning, still operating in what I would generously describe as Friday-brained, just-returned-from-overseas mode, I opened my news feed and saw that True Fitness and True Yoga had closed their Singapore operations and were heading towards liquidation.

Now this was interesting.

There is plenty that can be analysed from the reported numbers: the losses, the liabilities, the parent company’s financial support, the viability of the Singapore operations and ultimately whether liquidation was commercially inevitable. However, my brain was not prepared for that much work on a Friday morning. Instead, I found myself asking a much simpler question:

If I were a minority shareholder, and this notice landed in my inbox, what would I do?

My answer took perhaps thirty seconds: I would write to the board a letter that would probably be no longer than three paragraphs.

Paragraph One: Put This Resolution Before the Members

The figure that immediately caught my attention was the substantial amount reportedly owed by the Singapore operations to their parent company.

So rather than beginning with accusations about how the business had been managed, I would propose an alternative transaction.

I would formally request that the agenda of the forthcoming extraordinary general meeting include a special resolution to capitalise the shareholder debt, subject of course to the precise corporate structure, applicable legal requirements and necessary consequential resolutions.

That is all.

I am not saying that capitalising the shareholder debt would save True Fitness.

It may not.

A debt-to-equity conversion does not put one additional dollar into the company’s bank account. It does not pay an overdue landlord. It does not make an unprofitable gym profitable. And if the underlying business cannot generate sufficient cash to survive, changing the right-hand side of the balance sheet will not magically cure that problem.

But that is precisely why I would want the proposition placed before the members.

If liquidation is truly the best available outcome, let us examine it against the alternative.

Capitalise the shareholder debt.

Show us the resulting balance sheet.

Show us the cash-flow position.

Then explain why the business nevertheless remains incapable of continuing as a going concern.

Perhaps the answer will be compelling.

As a minority shareholder, I would simply like to hear it.

Paragraph Two: Let the Shareholders Decide

My second paragraph would be equally short.

I would ask the board to confirm that the proposed resolution will be included in the EGM agenda and circulated to members in accordance with the applicable requirements.

There is an important distinction here.

I am not demanding that the board accept my commercial judgment.

I am asking that the proposition be put before the shareholders.

Those are very different things.

The controlling shareholder may ultimately vote against it. There may be compelling legal, financial or commercial reasons why the proposed capitalisation cannot or should not proceed. The resolution may fail spectacularly.

So be it.

But there would then be a record of the alternative having been proposed, considered and decided upon.

Paragraph Three: Hygiene

Then comes the boring lawyerly paragraph.

Something along these lines:

“For the avoidance of doubt, I reserve all my rights in relation to the foregoing matters, including without limitation any rights and remedies available to me under section 216 of the Companies Act 1967 and otherwise at law.”

One sentence.

Nothing more.

I would not allege oppression.

I would not accuse anyone of acting in bad faith.

I would certainly not threaten that unless my resolution were accepted, proceedings would follow.

That would completely miss the point.

The reference to section 216 is there for a different reason.

Suppose my proposed resolution never reaches the EGM.

Perhaps the board declines to include it. Perhaps the company secretary identifies some procedural deficiency. Perhaps I have used the wrong mechanism, missed some statutory requirement or failed to satisfy some threshold. There may be perfectly legitimate reasons why my little resolution cannot simply be inserted into the agenda.

Fair enough.

But once section 216 has been expressly reserved, everyone advising the company knows that the procedural history may someday matter.

The question is no longer merely:

“Are we technically entitled to reject this request?”

There is now another question sitting quietly beside it:

“If we do, what will the entire sequence of events look like if a court is subsequently asked to examine whether the affairs of the company were conducted in a manner unfairly prejudicial to the minority?”

That does not make an otherwise lawful decision oppressive.

It does not give a minority shareholder a veto over liquidation.

And it certainly does not transform section 216 into some magical incantation which compels the board to table whatever resolution a shareholder happens to dream up over breakfast.

But it changes the hygiene of the decision.

If the request is procedurally defective, tell me why.

If there is another proper procedure, identify it.

If the proposal is legally impossible, explain the impediment.

If capitalising the shareholder debt would still leave the company commercially insolvent, show the shareholders the numbers.

And if liquidation remains overwhelmingly the sensible course after all of that, then proceed.

That is perfectly capable of being the right answer.

A Small Piece of Good News

Perhaps this is also why the True Fitness story caught my attention at this particular moment.

This week, one of our accounting clients, a minority shareholder, succeeded in striking out an aggressive set of shareholder proceedings brought against him. It was supposed to be “bad news” for me as originally, I was slated to serve as the valuation expert witness, but since the success, my service is no longer required. But I remained genuinely happy.

I cannot discuss the facts. Nor should anyone infer anything about the identity of the parties or the issues from this article.

But I can say this much: the proceedings were not a minor disagreement dressed up in formal language. They were an aggressive attempt to turn a shareholder dispute into personal litigation against a minority shareholder.

The court did not allow that to continue.

For the client, it was a significant result.

For me, it was also a useful reminder that minority shareholders are not merely people who wait for the majority to decide what happens to the company. They may have rights, remedies and procedural tools of their own. But those tools must be used carefully.

There is a difference between asking that a genuine alternative be considered and making allegations merely because one dislikes the commercial outcome.

There is a difference between reserving rights and issuing threats.

There is a difference between protecting a minority position and turning every corporate disagreement into litigation.

And, as the recent result reminded me, there is also a difference between a properly arguable shareholder claim and an aggressive proceeding which should never have been allowed to run its course.

Minority Shareholders Are Not Merely Spectators

Perhaps this is why the True Fitness story caught my attention:

This week, one of our corporate finance clients, a minority shareholder, succeeded in striking out aggressive shareholder proceedings brought against him in the High Court. Ironically, that was supposed to be “bad news” for me: I had originally been slated to serve as the valuation expert witness, and my services are now no longer required. I was nevertheless genuinely happy with the result.

I cannot discuss the facts or parties. But the case was a useful reminder that minority shareholders are not merely spectators. They have rights, remedies and procedural tools of their own, but those tools must be used carefully.

There is a difference between proposing a genuine alternative and making allegations because one dislikes the commercial outcome; between reserving rights and issuing threats; and between protecting a minority position and turning every corporate disagreement into litigation.

The result was also a reminder that a properly arguable shareholder claim is quite different from aggressive proceedings that should never have been allowed to run their course.