A decade-long dispute between two siblings over a house was so bitter that it almost resulted in the closure of the family business.
The unfortunate dispute involved a woman suing her brother for ownership of the family home in return for her stake in their hardware business. This provoked the brother to counter her move and go for broke by applying to wind up the business since the house was bought with company funds.
Both sides took their fight to the High Court after being unable to reconcile their differences over a long period, but hit a stalemate when the court dismissed both their cases.
The judge noted that it might be better for the siblings to settle their difference out of court by working out a compromise but he feared that the initial court setback would instead push them to spend more time and money on legal battles.
True enough, the siblings chose to have their day in the Court of Appeal, with the sister pressing on with her claim for the house and her brother still insisting on getting an order to wind up the family business.
This time, the court ruled in favour of the sister, upholding her claim that the siblings had made an earlier agreement for her to own the house in exchange for giving up her stake in the family business.
Although the validity of this agreement was contested in the initial hearing, the court found that the siblings’ subsequent conduct showed that the deal was binding.
Since the sister would give up her stake in the company, the court found that there was no basis in issuing an order to wind up the firm with her departure. It dismissed the brother’s application, noting that if he still insisted on closing the company, he could do so on his own as the majority shareholder without any intervention from the court.
How the family structured their assets
The family’s patriarch had started their wholesale business of general hardware and the retail sale of vehicle spare parts and accessories in 1987, naming his eldest daughter and his son as the sole shareholders and directors.
Although the father had no legal stake in the company that he founded, he continued to make all the decisions, such as using surplus funds to buy the house in 1991. He named the son and eldest daughter as co-owners but they would hold the house for their company.
Years later, two other daughters were also given stakes in the company. After their parents died, the son was left as the biggest shareholder with a 33.7 per cent stake while the three daughters each held 22.1 per cent.
By early 2007, the eldest daughter had resigned and ceased to be involved in the family business but she still retained her shareholding and directorship.
Sometime in 2014, she called a family meeting to announce her intention to take full ownership of the house in return for her shares in the company. Although nothing was decided, the subsequent fallout was so serious that the company’s primary operations in heavy machinery and vehicles came to a halt.
Conduct of the parties
The lawyers acting for the two siblings were negotiating for an agreement in which the brother transferred his entire interest in the house to his sister in exchange for her giving up her shares and exiting the company. The million-dollar question was whether this proposal by the brother was accepted by his sister.
The court found that there was a valid agreement and this was reinforced by the parties’ subsequent conduct.
For instance, the brother handed over the house key to a family friend who then gave it to the sister within a month after the agreement. She took possession of the house and even renovated it using her own funds so that she could live there.
She also transferred all her shares in the family firm to her brother and accompanied him to the bank to close a joint account so that the money could be deposited in his own account.
The court noted that all these transactions were consistent with the terms of the agreement.
As a result, the brother was ordered to take all necessary steps to ensure that the house was transferred to his sister. Likewise, the sister was told to fulfil her part of the bargain, which was to relinquish her right to the family business.
Majority shareholders can wind up company
If you already hold a controlling stake in a company, you can certainly shut down the business on your own without the intervention of a court.
In this case, the court saw no reason to intervene because the brother and his other two sisters who were aligned with him could have proceeded with a voluntary winding up.
Indeed, there are no cases involving applications by majority shareholders to wind up their companies because such disputes are usually brought by a minority or equal shareholder.
But the brother argued that although he represented the majority, he should not be barred from applying for such an order because there were instances when his sister “was difficult to deal with”.
He added that a court-ordered winding up conducted by a court-appointed liquidator would be the better option instead of a voluntary winding up because this would make it less likely for his sister to “adopt a hostile and antagonistic stance”.
But the court noted that such a suggestion would be speculative because regardless of whether a voluntary or court-ordered winding up was to be pursued, the sister would still be entitled to raise queries as a shareholder.
In the absence of any other evidence that a voluntary winding up was not viable, the court upheld the earlier decision in dismissing the brother’s petition on the grounds that he ought to have pursued a voluntary winding up instead of seeking a court order.
This case provides another compelling cautionary tale for owners of family businesses, notably that it is prudent to plan for succession properly if they want to prevent fights from erupting. Giving every beneficiary an almost equal share in the business can be a recipe for disaster as no one has an upper hand against the others, so a deadlock is bound to happen if a dispute flares.
Moreover, parents should realise that not all their children share the same passion as them and giving them stakes in a business they are not keen on may cause problems to other shareholders.
For instance, if the parents had granted the daughter’s wish to own the house before they died and that a majority shareholding be given to the son, the dispute might never have arisen.
Finally, if you love your children, it should never be taboo to talk about succession and legacy planning with them so that you can plan properly after knowing what they want.
“Source:[When a property dispute nearly ended a family’s business] © Singapore Press Holdings Limited. Permission required for reproduction”
