For decades, Malaysian company law has given minority shareholders two very different tools when a dispute breaks out within a company: the oppression remedy under section 346 of the Companies Act 2016 (“CA 2016“) and the statutory derivative action under section 347 of the CA 2016. Business owners often assume the two are interchangeable or reach for whichever seems procedurally easier (usually the oppression remedy), because it requires no leave of court and can lead to a forced share buy-out. For reference, “leave of court” refers to the formal permission granted by a court allowing a party to take a particular legal action or commence certain legal proceedings where prior court approval is required under the Rules of Court 2012 or other applicable statutory provisions.
The decision of the Federal Court in Low Cheng Teik & Ors v Low Ean Nee [2024] MLJU 2174 firmly sets out a structured test for choosing the correct remedy and confirms that getting it wrong can be fatal to an otherwise meritorious claim.
Case Background
SNE Marketing Sdn Bhd (“Company“) is a multi-level marketing company built around the registered “SNE” trademarks. The Respondent held 50% of the Company’s shares but had taken no part in its management since 2003. The remaining 50% was held collectively by three Appellants (i.e. the Company’s chairman, his son, and an unrelated third director) who ran the business.
In 2018, the chairman (the First Appellant) personally executed a Deed of Assignment transferring the Company’s trademarks to a related company he had co-founded, for a nominal RM10.00, without any board resolution authorising the transfer.
The Respondent responded in two stages. First, she issued a statutory notice signalling her intention to seek leave to bring a derivative action on the Company’s behalf over the assignment. She then never filed it. Instead, she filed an oppression action under section 346 of the CA 2016, raising eight separate grievances (including the trademark assignment, alleged forged board resolutions, competing businesses, and misuse of company funds), and asked the court to order the Appellants to buy out her shares.
Separately, the Company itself sued to recover the trademarks, and by consent order the assignment was cancelled and the Company restored as registered proprietor. This means that the underlying wrong had already been undone at the corporate level well before this appeal was decided.
Decisions of the Lower Courts
- High Court: dismissed all eight grounds. The trademark assignment, it held, was a wrong done to the Company not to the Respondent personally and the correct route was a derivative action (brought on behalf of the Company), not oppression (against the individual shareholder).
- Court of Appeal: upheld the High Court’s dismissal of seven grounds but reversed the High Court’s decision on the trademark assignment, finding it amounted to oppression and ordering a share buy-out on the basis that the First Appellant’s assignment of the Company’s trademarks to a family-linked entity for a nominal RM10 unfairly benefited the Appellants at the Respondent’s expense and disregarded her interests as a 50% shareholder (a finding the Federal Court later overturned), holding that the loss belonged to the Company (not the Respondent personally) and should have been pursued through a derivative action instead.
- This divergence ultimately brought the matter before the Federal Court.
Findings of the Federal Court
The Federal Court emphasised that the starting point is to identify who has suffered the legal injury. Where the injury is suffered personally by a shareholder, the appropriate remedy is an oppression action under section 346 of the CA 2016. Conversely, where the injury is suffered by the company, the claim must be pursued by way of a statutory derivative action under section 347 of the CA 2016.
In distinguishing between oppression and derivative actions, the Federal Court identified five key considerations:
- What is the act or omission complained of;
- whether the conduct is oppressive, unfairly discriminatory or otherwise prejudicial;
- whether the cause of action belongs to the shareholder or the company;
- who has suffered the legal loss; and
- whether the shareholder’s loss is separate and distinct, or merely reflective of the company’s loss.
Applying this framework, the Federal Court found that the trademarks were assets belonging to the Company. Any loss arising from their wrongful assignment was therefore suffered by the Company rather than by the Respondent personally. As the Respondent’s alleged loss merely reflected the diminution in the Company’s value, it was insufficient to support an oppression claim. The proper remedy was a statutory derivative action under section 347 of the CA 2016.
How to Choose the Correct Remedy
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Section 346 of the CA 2016: Oppression Action |
Section 347 of the CA 2016: Statutory Derivative Action |
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Protects the shareholder’s personal interests where the shareholder suffers direct and personal harm, such as unfairly prejudicial or discriminatory conduct directed at the shareholder, as opposed to harm suffered by the Company as a whole |
Protects the company’s interests where the company itself suffers harm, such as through a director’s breach of fiduciary duties, misappropriation of company assets or diversion of business opportunities. The shareholder brings the action on behalf of the company, rather than to recover losses suffered personally. |
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Cause of action belongs to the shareholder |
Cause of action belongs to the company |
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Shareholder must prove a loss suffered that is separate and distinct from the company’s loss (i.e. personal loss) |
The company suffers the legal injury or loss |
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Appropriate where the shareholder suffers personal prejudice (e.g. exclusion from management or unfair dilution of shares) |
Appropriate where the company suffers the wrong (e.g. diversion of company assets or breach of directors’ duties) |
Practical Takeaway
(i) Choose the right legal remedy
Not every wrongdoing against the company gives a shareholder a personal oppression claim. Bringing the wrong type of claim can result in the case being dismissed and significant costs.
(ii) Maintain proper board processes
Significant transactions, particularly disposals of company assets and related-party transactions, should be properly approved by the board and documented.
(iii) Put a shareholders’ agreement in place
Clear provisions on governance, related-party transactions, deadlocks and exit mechanisms can help prevent disputes from escalating into costly litigation.
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This article was written by Jocelyn Lier (Associate) with the assistance of Sonia Lim (Intern) from Donovan & Ho’s corporate practice.
Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds. Feel free to contact us if you have any queries.
