Lavania & Balan Chambers

Abstract

The High Court's decision in Soon Lai Tiong v Lim Tian Fei & Ors provides an important reaffirmation of the equitable foundations of minority shareholder protection under Section 346 of the Companies Act 2016 (“CA 2016”). The case illustrates the continued relevance of quasi partnership principles in closely held companies and clarifies how oppressive conduct may arise through exclusion from management and denial of statutory rights, even in the absence of formal removal as a director. This article examines the court’s reasoning on quasi partnerships, oppression, and the appropriateness of a buyout remedy.

Introduction

Section 346 CA 2016 empowers the court to grant relief where a company’s affairs are conducted in a manner that is oppressive, unfairly prejudicial, or disregards the interests of its members. While the provision is often invoked in shareholder disputes, its application remains highly fact sensitive and grounded in equitable considerations.

In Soon Lai Tiong v Lim Tian Fei & Ors, the High Court of Malaya (Johor Bahru) was confronted with a breakdown in a long-standing business relationship within in companies. The dispute turned on whether the plaintiff, a 25% shareholder and director, had been unlawfully excluded from management in breach of legitimate expectations arising from a quasi-partnership arrangement.

Factual Background

 

The fourth defendant company, A.K.K. Hardware Sdn Bhd, was incorporated in 1990 with four equal shareholders, each holding 25% of the issued shares. All shareholders were also directors, and the company was managed informally on the basis of mutual trust rather than strict corporate formalities for more than three decades.

 

From around 2010, the plaintiff’s wife managed the company’s daily operations with the knowledge and consent of all directors. This arrangement persisted until March 2025, when the plaintiff’s access to company information was abruptly restricted. In April 2025, allegations were made that the plaintiff’s wife had misappropriated RM500,000, resulting in her resignation shortly thereafter. Notably, no formal investigation, audit, or police report was initiated.

 

Following these events, the plaintiff was denied access to company documents, excluded from operational communications, and marginalised from the management of the company. An Extraordinary General Meeting convened by the plaintiff in June 2025 resulted in a deadlock, after which no meaningful steps were taken by the majority shareholders to resolve the impasse. The plaintiff subsequently commenced proceedings under Section 346 CA 2016.

 

Issues Before the Court

 

The High Court identified three central issues for determination:

 

i.    Whether the company was a quasi-partnership giving rise to legitimate expectations beyond strict legal rights;

 

ii.   Whether the conduct of the defendants amounted to oppression, unfair prejudice, or disregard of the plaintiff’s interests under Section 346 CA 2016; and

 

iii.  If oppression was established, what constituted the appropriate remedy.

 

 

i. Quasi-Partnership and Legitimate Expectations

 

Although the defendants raised a procedural objection that quasi partnership had not been expressly pleaded, the court adopted a substance over form approach, finding that the factual matrix clearly supported the claim. Relying on Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, the court reiterated that equitable considerations may intervene where a company operates as a quasi-partnership.

 

The court found that the following features were present:

 

•        A long standing personal and commercial relationship spanning over 30 years;

 

•       Equal shareholding suggesting parity rather than hierarchy;

 

•       An understanding that all shareholders would participate in management; and

 

•       Informal governance practices founded on mutual confidence.

 

More importantly, the court adopted a flexible interpretation of the Ebrahimi criteria, holding that not all elements need be rigidly satisfied in every case. This approach underscores that oppression remains a doctrine rooted in equity and fairness, rather than technical compliance.

 

 

ii. Oppression under Section 346 CA 2016

 

Applying the Federal Court’s guidance in Low Cheng Teik & Ors v Low Ean Nee [2024] 5 MLJ 580, the court examined whether the defendants’ conduct was targeted at the plaintiff and caused direct prejudice.

 

Three cumulative acts were found to constitute oppression:

 

1.   Denial of statutory rights – The plaintiff was expressly denied access to company documents, contrary to his statutory rights as a director under the CA 2016. Such rights, the court emphasised, cannot be unilaterally curtailed by majority shareholders.

 

2.  Exclusion from management – The plaintiff was effectively frozen out of the company’s affairs, removed from communication channels, and replaced operationally without consultation or resolution at board or shareholder level.

 

3.  Entrenchment through deadlock – The EGM stalemate placed the plaintiff in an inescapable position, with no genuine attempt by the majority to resolve the dispute, thereby perpetuating his marginalisation.

 

The court further accepted that the treatment of the plaintiff’s wife, including unsubstantiated allegations of misconduct, formed part of the broader pattern of exclusion and unfair treatment.

 

Viewed cumulatively, the defendants’ conduct amounted to a clear departure from standards of fair dealing, satisfying the statutory threshold for oppression.

 

 

iii. Appropriate Remedy: Buyout over Winding Up

 

Having established oppression, the court turned to the appropriate remedy under Section 346(2) CA 2016. Guided by Auspicious Journey Sdn Bhd v Ebony Ritz Sdn Bhd [2021] 3 MLJ 549, the court emphasised that relief should bring an end to the matters complained of.

 

Rather than ordering a winding up, the court held that a buyout of the plaintiff’s shares at fair value was the most proportionate and commercially sensible remedy. The decision aligns with authorities such as Karen Thomas v Santhi a/p Shanmugam [2010] MLJU 1311, which recognise that a buyout is preferable where the relationship has broken down irretrievably but the business remains viable.

 

Accordingly, the defendants were ordered to purchase the plaintiff’s 82,500 shares at fair value, to be determined by an independent valuer, together with costs.

 

Conclusion

 

Soon Lai Tiong v Lim Tian Fei & Ors reaffirms that Section 346 CA 2016 is a powerful remedial tool designed to uphold fairness in closely held companies. The decision highlights three key takeaways:

 

•   Quasi partnership principles remain highly relevant in modern corporate disputes;

 

•   Oppression may arise through exclusion and denial of participation, even absent formal removal; and

 

•    Buy out relief is often the most effective means of resolving irreparable breakdowns in shareholder relationships.

 

 

This article is authored by Lavinia Kumaraendran (Partner) and Raja Karim Adli Bin Raja Amin (Paralegal) of the Commercial Litigation Practice of Lavania & Balan Chambers. It contains general information only. The contents are not intended to constitute legal advice on any specific matter nor is it an expression of legal opinion and should not be relied upon as such.