Federal Court Formulates Test for Oppression Actions and Statutory Derivative Actions Under the Companies Act 2016

by MH Law | September 8, 2024 | Case Study

Overview

On 28 August 2024, the Federal Court overturned the Court of Appeal's decision in Low Cheng Teik & Ors v Low Ean Nee. This case revolved around the improper transfer of trademarks belonging to SNE Marketing Sdn Bhd, sparking a debate on whether the Respondent's claims should be addressed as an oppression claim under section 346 or as a derivative action under section 347 of the Companies Act 2016 (CA 2016).

---

Case Background

The Respondent, holding 50% of the company shares, argued that transferring the trademarks to an unrelated entity for RM10 was oppressive. The High Court rejected this, noting that the loss was suffered by the company as a whole, not uniquely by the Respondent. The Court of Appeal reversed this decision, but the Federal Court reinstated the High Court's judgment, providing a clear legal framework.

---

Federal Court’s Legal Test

To differentiate between oppression and derivative action, the Federal Court established these key questions:

1. Who suffered the loss—an individual shareholder or the company?

2. Is the harm distinct or shared by all shareholders?

3. Does the claim align with the shareholder's rights or the company’s interests?

The Court concluded that the trademark transfer harmed the company equally, making a derivative action the appropriate remedy.

---

Key Takeaways

The judgment affirms that oppression claims under section 346 must demonstrate distinct harm to minority shareholders, while derivative actions under section 347 address harm to the company. This ruling ensures shareholders and legal practitioners have clear guidance in pursuing the correct legal remedy.

****

Have a question? Contact us at info@munhoelaw.com