72. Validation of shares improperly issued Flashcards
- Validation of shares improperly issued
General overview
[72.01] An invalid allotment, issue or creation of shares can be validated by the court, upon the application of the company or a creditor or holder/mortgagee of those invalid shares, when it is satisfied that it is just and equitable to do so in the circumstances.
Invalid allotment, issue and creation of shares
[72.02] The court has power, upon application by the company or a holder or mortgagee of those invalid shares or a creditor of the company, to make an order validating the shares, when it is satisfied that in all circumstances it is just and equitable to do so. Whether an allotment or issue of shares is illegal depends on the intention of the parties and the purpose of the transaction: Koon Seng Construction Pte Ltd v Chenab Contractor Pte Ltd & Anor [2008] 1 SLR(R) 375; [2007] SGHC 196, HC. On the point of illegality, see per Chao Hick Tin JA in Siow Soon Kim v Lim Eng Beng alias Lim Jia Le [2004] SGCA 4 at [39] where he noted the dicta of L P Thean J (as he then was) in Suntoso Jacob v Kong Miao Ming [1985–1986] SLR(R) 524 ; Suntoso Jacob might be distinguished from Tinsley v Milligan [1994] 1 AC 340 . In the latter case, the majority decision was firmly founded on a property right and the ability to claim it without being “forced to plead or rely on illegality”. An allotment of bonus shares was irregular due to common mistake, but the irregularity was not so fundamental as to vitiate the contract
Court’s exercise of discretion
[72.03] Where innocent shareholders were misled into taking up the shares and would be prejudiced by the court’s refusal to validate the shares, the shares would not be validated: Re Swan Brewery Co Ltd (No 2) (1976) 3 ACLR 168, SC. Where there is no directors’ approval to issue the shares, the court will not validate the shares under s 72: Milheim v Barewa Oil and Mining NL [1971] WAR 65, SC ; applied in Kelapa Sauit (Teluk Anson) Sdn Bhd v Yeoh Kim Leng [1991] 1 MLJ 301, SC ; cf shares issued by persons whose status as directors were doubtful were validated: Re Rural Chemical Industries Pty Ltd (1984) 9 ACLR 176, SC. Where the shares issued deliberately flouted the statutory provision, the court would not validate it: Re Hatfield Enterprises Pty Ltd (1982) 6 ACLR 494. For English cases, see improper exercise of directors’ power to issue shares: Bamford & Anor v Bamford & Ors [1970] 1 Ch 212, CA ; Hogg v Cramphorn Ltd [1967] Ch 254; [1966] 3 WLR 995; [1966] 3 All ER 420 approved; Salmon v Quin & Axtens Ltd [1909] 1 Ch 311, CA; [1909] AC 442, HL distinguished. An improper exercise of the directors’ power to issue shares is an infringement of a “personal right” within the rule in Foss v Harbottle (below), so that a member may sue in the name of the company against the directors
