Was it a simple management change or coordinated effort to oust the directors?
The General Division of the High Court of Singapore recently dealt with a case where two former directors claimed they were forced out of their positions through what they described as a coordinated effort by venture capital investors and other parties.
The former directors argued that what started as regular business loan agreements turned into a calculated plan to remove them from their management positions, strip them of their control over the organisation they helped build, and ultimately led to their bankruptcy.
The case raised questions about the line between legitimate business decisions and coordinated actions in corporate restructuring.
Background of the case
The organisation, established in 1991, specialised in professional accountancy education and training. In 2015, it entered into two major loan agreements - one for US$3 million and another for S$4.5 million - with venture capital firms.
These loans included specific terms about interest rates, starting at 6% per annum with potential increases to 9% under certain circumstances. The venture capital firms also received rights to convert their loans into shares and had their representatives appointed to the organisation's board.
When payment issues arose, the venture capital firms began enforcement actions. By late 2016, the organisation had entered into several additional agreements to restructure these loans, which the former directors later said contained increasingly demanding terms.
Change in management’s structure
The situation shifted significantly in early 2017. The Court noted: "On 19 April 2017, [the company] passed another directors' resolution wherein, inter alia... [the former directors] were removed as directors of several of [the company's] subsidiaries and their powers as directors of [the company] were revoked. They were also removed as bank signatories of [the company] and several of its subsidiaries."
This marked the beginning of major changes in the organisation's leadership. Within days, another resolution followed that completely removed the former directors from their management roles.
Directors’ claims against the investors
The former directors maintained that these changes weren't simply about business.
They argued that the venture capital firms and other parties had worked together from the start to gain control of the organisation through loan agreements and subsequent enforcement actions.
They pointed to various communications and actions that they said showed a coordinated effort to pressure them into accepting increasingly difficult terms, ultimately leading to their removal from all positions of authority.
‘Normal business decisions’ or ‘coordinated effort’?
The Court examined whether the actions constituted normal business decisions or showed evidence of coordination. It found that the venture capital firms appeared to be primarily focused on protecting their investments.
This was reflected in the Court's observation: "[The venture capital firms] each pursued their individual commercial objectives of maximising financial returns and managing the performance and risk of their investments."
The Court also clarified important points about shareholder rights, stating: "[a] shareholder does not lose its shareholding simply upon a liquidation of the company. The shareholder remains a shareholder, maintains his interest in the company throughout the liquidation process, and at the end of which, may be entitled to any surplus."
Court’s decision
In its conclusion, the Court found insufficient evidence to support the former directors' claims. A key finding was that: "[The former directors'] written submissions did not address this, and as such, I am unable to find that such loss was indeed occasioned by the alleged conspiracy."
The Court ultimately dismissed all claims, stating: "I therefore dismiss [the former directors'] claims in both unlawful and lawful means conspiracy, and in misrepresentation."
This decision helped clarify the distinction between legitimate business decisions and coordinated actions in corporate restructuring, particularly in situations involving venture capital investments and management changes.
