SINGAPORE MANAGEMENT UNIVERSITY CORPORATE LAW READING LIST WEEK 12 CORPORATE GROUPS Reading materia !

" G#$er and Da%ie!& Principles of Modern Company Law& 't( ed& )) 22'*2+,& ,1,* ,1-. W##n& )) +/,*+/' For the cases cited in this reading list, please read them in either Sealy or Lawnet. Pey-Woan Lee, 0Ser%ing T$# Ma!ter! T(e D1a L#2a tie! #3 t(e N#minee Dire4t#r in C#r)#rate Gr#1)!0 52//+6 7.8.L. 99: La$ and Reg1 ati#n!" Companies Act P#$er)#int ! ide! Powerpoint slides are on SMU Vista. here are no case st!dies "or this Seminar. 1. Intr#d14ti#n #n this seminar, we consider the speci"ic iss!es relating to corporate gro!ps. Corporate gro!ps ha$e gained in importance in the "orm o" cond!cting %!siness. &owe$er the law and reg!latory "ramewor' contin!e to wor' on the premise that %!sinesses are cond!cted thro!gh indi$id!al entities rather than collecti$e enterprises. he pro%lem is that there is a dichotomy %etween the law and commercial reality( the law treats each company within the gro!p as a separate entity while the controllers o" the corporate gro!p treat the enterprise as a single !nit as %asis "or decision ma'ing. 2. Se)arate ega entit2 and n#n*re4#gniti#n #3 gr#1) de4i!i#n ma;ing As in the case o" U), the Singapore approach still regards the separateness o" companies within gro!ps. he theory is still that managers m!st "oc!s only on the company they are ser$ing at the moment o" decision ma'ing. *$en tho!gh "or acco!nting p!rposes, gro!ps o" companies are treated as one !nit, the co!rts are rel!ctant to admit the reality o" interrelated companies acting in any other way

than as a n!m%er o" separate entities tied together %y their relationship as signi"icant shareholders. he go$ernance o" gro!ps th!s depends on the way the reg!latory "ramewor' deal with general company law impact on gro!ps. We now consider the important r!les in this category+ o he capacity o" the co!rt to li"t the corporate $eil o he protection o" creditors o ,irectors- d!ties o Minority shareholders 2.1 Li3ting #3 4#r)#rate %ei The approach of the UK and Singapore courts is that the holding company has no direct proprietary interests in the assets of the subsidiary company. The acts of a company will not be imputed to another company within the group. The courts have not developed a notion of enterprise law. The only exception is where there is a fraudulent misuse of the corporate veil. Read Public Prosecutor v Lew Syn Pau & Anor !"##$% S&'( )*$ 2.2 Pr#te4ti#n #3 4redit#r! here are some attempts to ameliorate the di""ic!lties arising "rom the irresponsi%le !se o" the limited lia%ility. here are pro$isions on claw-%ac' "or transactions at an !nder$al!e and !n"air pre"erences. See s ./0 o" the Companies Act, read with ss 01, 00, 233 and 232 o" the 4an'r!ptcy Act. o here may %e third party lia%ility "or %reach o" "id!ciary d!ty arising !nder the common law doctrine o" Royal Brunei Airlines v Tan 520067 / AC .81. 9o! are not e:pected to read the case. We are not co$ering third party lia%ility "or %reach o" "id!ciary d!ties in this co!rse in detail ;which is an e:tremely complicated topic<( this wo!ld %e co$ered in the co!rse on *=!ity and r!sts. o 2.+ Dire4t#r!< d1tie! >ne means %y which a parent company can e:ercise control o$er gro!p companies in order to implement its strategies and esta%lish channels o" comm!nication %etween gro!p companies and the parent is thro!gh the appointment o" nominee directors to manage each company. See para . %elow. 2.9 Min#rit2 !(are(# der!

Where a s!%sidiary is partly owned, additional legal restraints apply in order to protect the interests o" the minority shareholders. Altho!gh the integration o" gro!p acti$ities may %e the most e""icient !se o" the gro!p-s reso!rces, this can harm the interests o" the minority shareholders in gro!p companies who do not share in the pro"its o" the enterprise. Where the s!%sidiary iss listed, most stoc' e:changes ha$e stringent r!les "or dealing with related party transactions, in $iew o" the potential "or a%!se %y directors and controlling shareholders. he listing man!al o" Singapore *:change ;Listing Man!al< does not only go$ern transactions %etween directors and the listed company %!t also %etween certain shareholders and the listed company. hese are 'nown as ?interested person transactions@ !nder the Listing Man!al. See Listing Man!al, Chapter 0, a$aila%le at www.sg:.com. Which transactions are ca!ght !nder the ?interested person transactions@A What are the re=!irements that m!st %e complied withA #" shareholders- appro$al is re=!ired, certain shareholders are %arred "rom $oting. Who are theyA

Bead also Thanakharn Kasikorn Thai Chamkat (Manachon) v Akai Holdings, FACV Co. 2D o" /330 and FACV Co. 0 o" /323, 1 Co$em%er /323 5A$aila%le on Le:is7 Please "oc!s only the iss!es relating to corporate %ene"it to A'ai &oldings. +. N#minee dire4t#r! #n the corporate gro!p conte:t, the appointment o" nominee directors generates partic!lar legal pro%lems+ de"ining their "id!ciary d!ties, partic!larly the e:tent to which they may acti$ely promote the interests o" the enterprise< and identi"ying whether they can legitimately comm!nicate in"ormation to the parent ;see also para E %elow<. Consider how a nominee director sho!ld act in the light o" the "ollowing d!ties+ o o he d!ty to e:ercise independent F!dgment he d!ty to act %ona "ide in the interest o" the company

he starting point is still that directors o" a partic!lar gro!p company are not entitled to sacri"ice the interest o" that company. &owe$er, i" the directors ha$e in "act acted in the %est interest o" that company, the "act that they act!ally considered the interests o" the gro!p as a whole wo!ld not p!t them in %reach o" d!ty. See Charterbridge Corp v loyds Bank td 520837 Ch D/ ;decision on ultra vires %!t tho!ght to apply "or %reach o" directors- d!ties<. Bead+

!cottish Co"operative !ociety v Meyer 520607 AC ./E C" Re Broadcasting !tation #B $ty td 520DE-67 CSWB 2DE1 +.1 Di!4 #!1re #3 in3#rmati#n t# n#minating 4#m)anie! See s 261 o" the Companies Act. Section 261 creates a n!m%er o" practical iss!es in relation to the disclos!re o" in"ormation %y nominee directors to their appointing entities. Consider the steps that are re=!ired to %e ta'en "or the nominee director to disclose in"ormation to his appointing entity. 9. Attem)t! at re3#rm! U) has loo'ed at the iss!e relating to whether it is "easi%le to replace the c!rrent regime with a separate regime go$erning corporate gro!ps. &owe$er it was !ltimately reFected.2

Company Law Be$iew Steering Gro!p, Modern Company Law "or a Competiti$e *conomy+ Final Beport o" the Company Law Be$iew Steering Gro!p ;, #, UBC 32H0E/ and 32H0E., I!ly /8, /332<, paras 1./.-1./1. 9o! are n#t re=!ired to read the %inal Report.