Mar 2017
BERMUDA
COURT OF APPEAL
SHAREHOLDER DISPUTES – THE DUTY TO NEGOTIATE WITH SHAREHOLDERS – MINORITY OPPRESSION – SECTION 111 COMPANIES ACT, 1981
Minority shareholders angry with the conduct of their company have limited rights of redress other than to sell their shares. One of the weapons at their disposal is the minority oppression action which empowers the Court to issue buy-out orders (at a price set by the Court) where the minority has been unfairly prejudiced by the majority. This power is contained in Section 111 of the Bermuda Companies Act, 1981 and Section 994 of the English Companies Act, 2006.
There are few instances of successful minority oppression actions even against private companies. Against listed companies, the number of successful petitions drops to zero. This is why the 2015 first instance decision in Annity Re -v- Kingboard [2015] SC (Bda) 76 Comm created a stir. It was the first known case anywhere of a minority oppression petition succeeding against a listed company. Further, the Bermuda Supreme Court had ruled that companies, and their majority shareholders, could have a duty to negotiate with the minority if the company was considering action which adversely impacted them. This was a potentially dramatic shift in power dynamics between shareholders and management.
In this Judgment, the Bermuda Court of Appeal overturned the first instance decision of the Bermuda Supreme Court and reasserted traditional notions of a company’s relationship with shareholders.
Kingboard concerned a vertically integrated group of companies. One of those companies, Kingboard Copper Foil Holdings Limited (the “Company”), a company domiciled in Bermuda, but whose operations were in China, produced copper foil which was sold predominately to group companies. The Company was listed on the Singapore Stock Exchange (the “SGX”), but the majority of the shares were held by affiliated group companies. The ownership structure created an inherent conflict of interest: it was potentially in the interests of the group companies for the foil to be sold cheaply. This could benefit the majority shareholders, as purchasers of the copper foil, even though it was at the expense of the Company.