Trimester 3, 2015

Individual Assignment
Weighting: 10% of total assessment for this unit.

Name: Salesh Nand

Id# 2015133020
Referencing: Harvard Style
Word Count: 2784 words.

1. In cases of companies where there are controlling shareholders, explain why the interest of
controlling and minority shareholders may diverge, using the CK Tang case as an example.

The shareholders of the company are the financial supporters who provide finance to a
company by buying shares. This give them certain rights and roles to play as stated in the
company’s act.
 Controlling Shareholders – are majority shareholders with more than 50% of shares in
the company has the complete control over the strategy.
 Minority Shareholders – are those who have more than 5% shares and less than 50% in
a listed company. They have little influence on corporate decision.

In Tang case the major shareholders were the Tang brothers (Tang Wee Sung & Tang Wee
Kit) and 500 minority shareholders. The Tang brothers and minority shareholders bargain
over how much the company should worth in three privatization attempts over 5 years. The
Tang were successful on their third attempt but these issues were brought an argument
over the role of independent directors and their responsibilities in seeking the best
outcome for minority shareholders, particularly in a family – held company.

In CK Tang case, a privatization is proposed by the controlling shareholders to buy out the
shares held by minority shareholders.

1) Scheme of Arrangement which failed because price offered was very low.

2) Cash Offer which failed because sufficient acceptance was not receive due to
undervaluation of Tang Plaza.

3) Voluntary Delisting the resolution to privatize the company was passed with 96.25 per
cent of votes in favor of the proposal.

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The interest of minority shareholders may lie in realizing a short-term gain on their investment,
a goal which directors may conclude is not necessarily in the long term best interest of the
corporation. The interest of majority shareholders may not be the same as the interest of the
corporation. A controlling shareholder may want the corporation to take certain action that
may be in its interest but not necessarily in the best interests of the corporation.

Controlling shareholders have the power to control the property of others. They make decisions
concerning the company’s property and influence the rights of the other shareholders. As
controlling shareholders effectively control the company such that general fiduciary duty
should apply to controlling shareholders.

In order to protect minority shareholders, the Singapore Exchange requires a “reasonable” exit
offer to be made to the remaining shareholders of the company. The board of directors of a
delisting company is required to take into account the interests of all shareholders as a whole
and must ensure that the exit alternative is a reasonable proposal when making its
recommendation for a delisting. The company must appoint an independent financial advisor
on whether the exit offer is reasonable and such opinion must be clear.

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2. Should independent directors be primarily concerned with the interests of the minority
shareholders?

The independent directors primary role is not to protect the interest of the minority
shareholders, but

 Ensure that the necessary financial and human resources are in place for the company
to meet its objective.
 Review management performance and accounts of the company.
 Set the company’s values and standards and ensure that obligations to shareholders and
others are understood and met.
 Participating in boards meeting to monitor the corporate affairs and policies of a
company.

Independent director who is in definition also a non-executive director is not engaged in day to
day management of a company but expected to be vigilant guardians of the activities of the
board as whole.

The primary task of independent directors is to adopt an oversight role and to ensure that the
corporate assets are used for the company only. Where an error or negligence is discovered,
whether on the part of the board or otherwise, the independent cannot hide behind the
curtain. Independent directors cannot close his eyes to what is happening in the company and
assumes that the executive directors are performing their responsibilities to the company. The
independent directors must ask for information about the company’s operations and finances.
If he does not get it, he must take steps to pursue the matter. A drastic form of such a step
would involve obtaining an order for specific performance from court.

Indirectly we say if minority shareholders are not happy with board’s decision or controlling
shareholders decision then they can take their matter to independent directors. In CK Tang case
PwC was the external auditor and stated the Tang property is valued at $340 million but still the
minority investors were not happy. Then SIAS has to intervene and asked the regulators to
revalue. SGX’s and ministry of finance reply was that C K Tang move to delist was purely
commercial and the company had compiled with listing and delisting rules.

Independent directors has the impression of promoting the best interest of minority
shareholders but in real terms they promoting the interest of all shareholders as a whole. An
independent director is responsible for overall oversight of the company. He is not just the
guardian of the minority shareholders to focus on them that how they act on business practices
and with management and with major shareholders. If they start to focus on this then this
would render independent directors negligence on their duties and obligation

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3. Evaluate the independence of C.K. Tang’s board during the third privatisation attempt. Do
you think this affected the actions of the board during the privatization process?

Companies go public in order to raise funds from the market but a listing also requires a
company to continually meet its regulatory obligations. C K Tang’s third privatization attempt
was Voluntary Delisting. Under this process, the delisting is approved by more than 75 per cent
of shareholders present and voting with not more than 10 per cent of such shareholders
objecting. After the
approval of delisting an exit offer is made to the shareholders which must normally be cash or
cash alternative. If the delisting is approved, the company will be delisted whether or not
shareholders choose to accept the exit offer. A voluntary delisting is generally the route taken
by existing major shareholders seeking to privatize a company. The board of directors of a
delisting company is required to take into account the interest of all shareholders as whole and
must ensure that the exit alternative is reasonable proposal when making its recommendation
for a delisting.

In Tang’s case, third privatization was chaired by Ernest Seow, former PWC partner. There 3
other directors with finance and accounting knowledge serving as non-executive independent
directors. PWC act as their independent financial advisor. Minority shareholders were not
happy with share price which they were given. They argued that flagship store was undervalued
because they had not taken redevelopment potential into account. The board CEO disagree the
facts as irrelevant. The board retained its recommendation that property was valued by Pwc
independent financial advisor.

The board has taken the advice from their independent finance advisor and valuer on delisting
proposal that tangs flagship store is gazette as commercial use so there is no redevelopment in
future. Then minority investors went to SIAS to seek professional advise. SIAS advised minority
investors to vote against the resolution at the AGM. The resolution to privatize the company
was passed with 96.25 per cent in favor of the proposal.

The board’s action was never affected as they adopted the right practice to delist the CK Tang
Company. Boards delist proposal was assess by independent advisors and valuers. Together
with ministry of finance intervene, SIAS and IFA. All agreed that delisting was purely commercial
and that company had compiled with listing and delisting rules.

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4. Do you believe that the basis of valuation was fair? Explain.

In the fiercely debated privatization of retailer CK Tang, the Tang brothers' offer was deemed
by minority shareholders to be unfair since it did not match the company's net asset value and
did not factor in the value of the redevelopment potential of its flagship store.

Was the basis of valuation fair? In my opinion yes it was fair. A letter from independent
financial advisor PwC showed the property was valued at $340 million.
PwC report states “the valuation approach for the retail business is it’s estimated at fair market
value. Fair market value is defined as the amount for which an asset could be exchanged, or
liability settled, between knowledgeable, willing parties in an arm’s length transaction.”
Independent Property Valuer assesses the market value of the department store by using the
income capitalization approach. This method is widely accepted for the purpose of valuing
income producing properties.

Minority shareholders express their unhappiness that independent directors requesting the
property be valued based on “existing use”.C K Tangs majority shareholders have agreed that
they have no intention of ceasing the retail business or redeveloping the department store.
They have no intention of changing the business concept, which is why the property valued was
based on existing use. The value of the property can be affected by rental income, tenure,
political instability, marketing trends and the strength of the competition.

CK Tang's case - in which the offerers held a post of more than 75 per cent and thus had a far
higher chance of pushing the offer through - provides an interesting question of whether a
company's shareholding structure should be addressed to independent financial advisors (IFA)
for assessment. IFA stated that offer may not be fair but they concluded that it is reasonable.
The question is how we can define “reasonable” in Tangs Case

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5. With regards to the privatisation episode, suggest improvements that would help protect
minority shareholders in the future.

Before elaborating on the protection of minority shareholders in the Singapore, it will be useful to
make some short remarks on why minority shareholders should receive protection and what the
ultimate goal of this protection should be. At least three different reasons justifying minority
protection come to mind.

First, if the Singapore legal system does not provide adequate protection of minority
shareholders compared with foreign legal systems, foreign investors will not invest in Singapore
companies and Singapore investors will increase their investments in foreign companies.

Second, and related to the first point, weak protection of minority shareholders increases the
average cost of capital for a company, putting it at a competitive disadvantage with foreign
companies.

A final reason for an adequate protection of minority shareholders equals rights is more
normative. There seems to be no good reason why it should be considered fair and equitable to
disproportionately disadvantage minority shareholders compared with larger shareholders, only
on the grounds that they hold fewer shares.

In our opinion, all shareholders, large or small, should receive adequate protection from the law

Rules protecting minority shareholders

Methods of protection of minority shareholders

In company law, rules protecting minority shareholders are mainly but not exclusively statutory in
nature. As a result of the fact that minority shareholder protection has never received much
attention, protection provisions are found scattered over several sources, both in hard law and in
soft law. Another distinction that can be made is between provisions that provide minority
protection in the narrow sense, usually giving shareholders certain rights and a remedy to
effectuate these rights, and rules that are primarily directed at improving the availability of
information and of market transparency. This second set of rules usually has as a side-effect an
improvement in the position of minority shareholders. The eight sources of minority shareholder
protection.

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1 The Civil Code

The Civil Code which regulates the legal persons, such as the private limited company and the
public limited company, may be regarded as the most important source for minority shareholders
protection. It can be characterised as hard law and provides protection in the narrow sense.
Perhaps its most fundamental provision offering protection for minority shareholders which
provides for equal protection of the shareholders.

A company limited by shares must treat shareholders and holders of depository receipts whose
circumstances are equal in the same manner.

Other important provisions for the protection of minority shareholders about the nullification of
resolutions, about the right for shareholders who together hold a certain percentage of the
shares to convene a general meeting of shareholders, providing a shareholder an exit-opportunity
in case the continuation of his shareholding can no longer be reasonably expected of him due to
the conduct of other shareholders and about the right to demand an inquiry.

2 The Civil Code; class action

The Civil Code, on property law in general, contains several important provisions for minority
shareholders. This section allows minority shareholders to organise into an association or a
foundation and to have the entity bring an action against the company for the benefit of the
collective. It is not possible for the entity to sue for damages but it is able to request a declaratory
judgement. With this declaratory judgement, the individuals involved can then sue for damages.
An association or foundation is entitled to initiate a class action if the association or foundation,
according to its articles of association and in practice, protects the same interest as the interest of
the individuals that has been violated and that the interests are fit for bundling.
Representativeness is not a condition or a hurdle, especially not when the association or
foundation limits its actions to its members. A reduces the cost of litigation. These costs can be
high, caused among other things by the obligation to be represented by counsel and the danger
of being ordered to also pay the other partys legal costs.

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3 Code of Civil Procedure

This contains three relevant sets of provisions for the protection of minority shareholders. These
are first, which concern the annual accounts, the annual report and the information that has to
be added to the accounts and the report. Any affected party can demand that the company alter
the aforementioned documents and bring them into line with a legal injunction, provided by the
Enterprise Section of the Court of Appeal. Refusal to do so is a criminal offence. Second, offers
minority shareholders the opportunity to request a provisional examination of witnesses in
preparation for proceedings which are being considered. Finally, a offers minority shareholders
the opportunity to demand in court that they will be allowed to inspect a private instrument.

4 Commercial Code

The Commercial Code contains two provisions that can be applied to protect the interests of a
minority shareholder. It gives a minority shareholder the right to ask the court to demand the
disclosure of the books and documents that the company is obliged to keep by law during legal
proceedings. The Commercial Code contains the obligation to submit the entire accounts to the
other party in legal proceedings. This obligation to submit is restricted in the sense that it only
exists with regard to partners, while it is uncertain at best whether a minority shareholder
qualifies as a partner.

5 Securities Transaction Supervision

This statute provides protection in the broad sense. For the purposes of minority shareholder
protection, three aspects seem relevant. First, prohibit the issue of shares to the public unless the
company has made sure that adequate information is available to the investors. Second, regulate
the control and supervision of the securities markets by the Minister of Finance, or by other
entities after delegation; the Minister of Finance has delegated his powers to the Securities
Investors Association or to SGX. Finally make insider trading a criminal offence. Recently, rules
relating to a public offer have been incorporated into the Securities Transaction Supervision Act.

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The purpose of these rules is to ensure that shareholders receive adequate and timely
information about the public bid.

6 Disclosure of Major Holdings in Listed Companies

This statute provides protection to minority shareholders through the improvement of market
transparency and information provision. This statute obliges anyone who passes certain
shareholding thresholds in either direction to report this to the company and the Minister of
Finance, who will make the information available to the public. Again, the Minister of Finance has
delegated his powers under this statute to the Securities Investors Association or to SGX.

7 Listing and Issuing Rules

These are rules developed by the Singapore Exchange, to which a company that seeks a listing is
bound through the listing agreement it enters into with the exchange. They can therefore be
characterised as legally binding, but only in the relationship between the listed company and the
exchange. The rules contain several provisions that protect minority shareholders. Examples are,
which contain the obligation to make a prospectus available when issuing securities and that give
detailed information on what to include in the prospectus. A second example, which explicitly
states that the issuing company is obliged to treat all shareholders who are in equal
circumstances in an equal manner. Finally, is an important section, giving a detailed overview of
the information that the issuing company has to provide to the public. It contains the general
obligation to make available all the facilities and information necessary for the shareholders to be
able to exercise their rights. The most important, more specific, obligation to immediately make
available a publication on every fact or event concerning the issuing company that can be
expected to significantly influence the price of the companys stock.

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 Reference
 Word Press, (2015). CK Tang is undervalued, claim some shareholders. [online] Available at: 
https://bensnews.wordpress.com/2009/07/14/14-jul-bt-ck-tang-is-undervalued-claim-some-
shareholders/ [Accessed 19 Sep. 2015].
 Forums.condosingapore.com, (2011). Redevelopment may lower CK Tang revalued NTA. [online]
Available at: http://forums.condosingapore.com/showthread.php/12197-Redevelopment-may-
lower-CK-Tang-revalued-NTA [Accessed 15 Oct. 2015].
 C. K. Tang Limited, (2009). Announcement. [online] Available at:
http://www.finanznachrichten.de/pdf/20090714_185503_C01_6F71A788526E2D9B482575F30
039BF5A.1.pdf [Accessed 21 Sep. 2015].
 Who's Who Legal, (2015). Options and Considerations For Privatisations in Singapore - The Latest
Legal Features, Research and Legal Profiles - Who's Who Legal. [online] Available at:
http://whoswholegal.com/news/features/article/28918/options-considerations-privatisations-
singapore [Accessed 10 Oct. 2015].
 Singapore Real Estate Highlights, (2011). Delisted C.K. Tang dangles fresh carrot. [online]
Available at: https://singaporepropertyhighlights.wordpress.com/2011/08/19/delisted-c-k-tang-
dangles-fresh-carrot/ [Accessed 11 Oct. 2015].
 Kih, S. (2011). S-CHIPS privatization offers: Issues you should consider, be aware of. [online]
Nextinsight.net. Available at: http://www.nextinsight.net/index.php/story-archive-mainmenu-
60/912-2011/4454-s-chips-privatization-offer-to-accept-or-not [Accessed 14 Oct. 2015].
 Singapore Institute of directors, (2007). The Role, Duties and Responsibilities of the Independent
Director. 7. pp.1-5.

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