KUALA LUMPUR: The Federal Court denied the challenge by Concrete Parade Sdn Bhd, a dissenting minority shareholder of Apex Equity Holding Bhd, after ruling that a 2018 proposed merger between JF Apex Securities Bhd and Mercury Securities Sdn Bhd was lawful and did not oppress them.
A three-member apex court bench led by Chief Justice Tun Tengku Maimun Tuan Mat set aside the decision by the Court of Appeal and reinstated the decision by the High Court.
The two other members of the bench were Federal Court judges Tan Sri Nallini Pathmanathan and Datuk Rhozariah Bujang.
Concrete Parade had, among its seven questions of law, sought a declaration that the heads of agreement signed between Apex and Mercury on Sept 21, 2018 and a business merger agreement signed between JF Apex and Mercury Securities on Dec 28, 2018 were illegal, unlawful and void due to oppression of minority shareholders rights.
To a question on whether the use of the oppression provision was the proper way to remedy Concrete Parade's grievances, the bench answered in the negative.
"The Court of Appeal erred in concluding that the merger would 'unfairly prejudice' Concrete Parade as a shareholder because the value of its investments in Apex Equity would diminish.
"It failed to comprehend that the shareholders at a general meeting had voted in favour of the merger. If the majority approved the merger, how then was Concrete Parade unfairly prejudiced? All shareholders would have suffered the same fate.
"More importantly, it is majority rule that prevails. The fundamental principle of governance in companies is the majority rule. As stated by the High Court, while Section 346 of the Companies Act 2016 represents a statutory intrusion into that rule, it is fundamental that unfairly prejudicial conduct must be established.
"Section 346, or the cry of oppression, cannot be utilised in an attempt to circumvent a situation where majority rule prevails bona fide, as is the case here," it said, referring to the section which provides for the statutory remedy on oppression.
The bench said no attempt has been made to explain how Concrete Parade was unfairly prejudiced in its capacity as a minority shareholder as a consequence of the proposed merger and the alleged contraventions any more than any other shareholder.
It said the fact of the share buy-back transactions being ultra vires (beyond the powers) Apex Equity's constitution does not necessarily equate to an illegality.
"Secondly, and more importantly, Concrete Parade has failed to establish how the fact of the share buyback transactions being ultra vires the constitution unfairly prejudices it as a minority shareholder. What is the damage that it has suffered qua (in the capacity of) shareholder?
"Given that all the shareholders of Apex Equity were equally affected by these transactions, how is Concrete Parade alone singularly and unfairly prejudiced as compared to the majority of the shareholders of Apex Equity?"
The bench said the Court of Appeal had erred in, among others, concluding with certainty that the ultra vires transactions comprised an illegality under the relevant sections.
It said the Court of Appeal also erred when concluding that such ultra vires transactions, which involved the entirety of the shareholders of Apex Equity, resulted in unfairly prejudicial conduct against Concrete Parade as a minority shareholder.
The Court of Appeal also failed to consider that all the shareholders would be equally affected by the share buyback transactions and to consider that Concrete Parade itself had approved the transactions from 2013 or 2014 onwards when it became a shareholder, the bench said.
"In these circumstances, we are satisfied that oppression has not been made out and that the Court of Appeal erred in so concluding in respect of the share buyback transactions.
"The decision of the High Court is correct and is preferred."