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The Court of Appeal in Kiri Industries Ltd v Senda International Capital Ltd 1 SLR 114 confirmed that discretionary enhancement of the amount payable in a buy-out order for minority oppression, to account for delays in carrying out the order, is permissible.
In a minority oppression dispute between Senda, a majority shareholder, and Kiri, a minority shareholder, Senda was ordered to buy out Kiri’s minority stake in the company at the valuation of US$603.8 million (Valuation Amount) on 3 March 2023.
As Senda was unable to complete the buy out for the Valuation Amount, Kiri applied for and was granted substitute relief. Ultimately, the Singapore International Commercial Court (SICC) ordered that, in lieu of Senda’s buy-out, Kiri and Senda would sell all their shares in an en bloc sale to a third party and Kiri would receive the Valuation Amount from the net proceeds of that sale.
Kiri argued that it was entitled to interest on the Valuation Amount, running from 3 April 2023 (1 month from the date of valuation) until the date Kiri receives the Valuation Amount. The SICC denied this claim, as the Valuation Amount is substantial and it was not reasonable to expect Senda to complete the buy-out in 1 month from the issuance date of the valuation. In any event, the buy-out order was already replaced by the en bloc sale order. In addition, the SICC opined that the timely completion of the en bloc sale now depended on both parties, unlike a buy-out order, so it would not be fair for Senda alone to bear the consequence of the delay.
Kiri appealed the SICC’s ruling and argued that at the very least, it is entitled to interest at 5.33% per annum, the statutory interest rate in Singapore.
The Court of Appeal (CA) ordered a discretionary enhancement on the Valuation Amount which Kiri would receive in priority from the en bloc sale, calculated at 5.33% per annum but only running from 3 September 2023 (6 months after the date of the valuation).
First, the CA confirmed that the claim for a buy-out remedy is not in the nature of a claim for debt or damages, and so was not a judgment debt on which the court may award post-judgement interest.
However, the court is guided by fairness in exercising its remedial discretion to determine appropriate relief in minority oppression cases under section 216(2) of the Companies Act 1967. This includes ordering a discretionary enhancement of the amount to be paid to Kiri to account for the delay in the realisation of the value of its shares.
Because the delay of the sale resulted from external factors and both parties’ conduct, the discretionary enhancement did not need to fully compensate Kiri for the delay in its receipt of the Valuation Amount. The court chose the rate of 5.33% per annum based on the circumstances, which was the lowest reference rate debated by the parties.
Though a buy-out relief is not a judgment debt, this case confirms that a court may order a discretionary enhancement, calculated in the same way as interest. However, as this discretion appears to be broader than the court’s power to award post-judgment interest, it remains to be seen how the court will continue to exercise it in crafting a fair remedy.
Therefore, purchasers should push for timely completion of a buy-out order to minimise the risk of a discretionary enhancement. On the other hand, oppressed shareholders should note that while they may seek discretionary enhancement, any delays caused by them will be taken into account in determining the enhancement to be granted.
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Disclaimer: This article is for general information only and does not constitute legal advice.
