Molea v Didao Development Corporation Ltd [2021] SBHC 18; HCSI-CC 48 of 2018 (25 February 2021)

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Case name:	Molea v Didao Development Corp Ltd

Citation:

Date of decision:	25 February 2021

Parties:	Selson Molea and Lesley Molea v Didao Development Corporation Limited, Toata Molea, Hellen Molea

Date of hearing:	18 August 2020, 22 January 2021

Court file number(s):	48 of 2018

Jurisdiction:	Civil

Place of delivery:

Judge(s):	Kouhota J

On appeal from:

Order:	I order that the company authorised an expert to determine the value of the shares of claimants taking into account the concerns raised by the court so that a fair value of claimants' shares is determined. That determination should be done within 30 days. The authorised expert’s determination of the value of shares shall be final and the 1st, 2nd and 3rd defendants shall purchase the shares of the first and the second named claimant’s in the company at the price determined by the expert. Cost for claimants to be taxed if not agreed.

Representation:	Kwaiga L: For the Claimants Taupongi J: For the 2st, 2^nd and 3^rd Defendant

Catchwords:

Words and phrases:

Legislation cited:	Companies Act 2009 Section 54 (1), 99 (1), 100, 99 (2)

Cases cited:

The claimant filed a category A against the first, second, and third defendants seeking the following relief;

This is claim is a result of a family feud within the first defendant (Didao Development Corporation Ltd) between the shareholders who are biological brothers. In 1989 the second defendant Toata Molea started a fishing business. His fishermen were his brothers. In 1995 Mr Toata Molea incorporates the Didao Development Corporation Ltd and continue with the fishing business. In 1996 he expanded the business to include the sale of fuel. Mr Toata Molea then wanted to include his brothers as shareholders and directors to assist them. He first included the first-named claimant Mr Selson Molea as a shareholder and director.

At the time of incorporation, the share capital of the company was $10,000 divided into 10,000 ordinary shares valued at $1-00 per share. There were only three shareholders at that time. (1) Toata Molea (2) his wife Helen Molea and (3) Selson Molea who is the first-named claimant in this proceeding. Each shareholder held 1 share valued at $1-00. It is unclear whether they had actually pay for the shares. These three shareholders were also the directors of the company, they still are until now. For a long time, the rest of the shares were not allotted. The second named claimant Lesley Molea was later added as a shareholder but not a director. In 2011 the company was re-registered under the Companies Act 2009 and adopted the model rules. There are four shareholders of the company and three of them are directors.

As time went by disputes arose between the four shareholders, it seems the two claimants on one side and Mr Toata Molea and his wife Helen Molea on one side. The dispute led to a civil proceeding brought to the High Court by the first-named claimant Selson Molea in High Court Civil Case No.324 of 2012 and then up to the Court of Appeal in Civil Case Appeal No.13 of 2015. The Court of Appeal upheld the present first named claimant’s appeal and directed the Registrar of Companies to correct the register to record the company as having 10,000 shares and that the four shareholders remain the shareholders. The three directors also remained directors. The COA of Appeal also said that issuing of any of the un-allotted shares needs be in accordance with the 2009 Act and the model rules adopted by the company and any increase in capital and issuing of the shares must also be in accordance with the provisions of the Act and model rules in schedule 2.

After the Court of Appeal decision, there was a purported shareholders meeting on 12^th December 2016. The meeting was arranged by the claimants and only the two claimants attended that meeting. The other two shareholders, the second and third defendant, were at that time in Australia and did not attend.

Later, a directors meeting was held on 17^th March 2017. The minute of the director's meeting of 17^th March 2017 shows that the director did not ratify the purported meeting of shareholders meeting held by the two claimants on 12^th December 2016. It is noted that only two directors attended the March 17^th meeting but that was the quorum as the company has only three directors. I think the directors were correct in refusing to ratify the meeting and resolutions passed at the 12^th December 2016 meeting. I say this because the 12^th December 2016 meeting was only attended by two of the four shareholders so there was no quorum. To form a quorum at least 3 shareholders must attend. This means that the meeting held by the two claimants on 12^th December 2016 was contrary to the rules and is therefore void. Consequently, any resolution made at the 12^th December 2016 meeting must be declared void as well.

At the directors meeting was held on 31^st Marc 2017, the directors resolved to offer the remaining un-allotted shares of 9996 equally to each of the 4 shareholders. The un-allotted shares, therefore, were offered to the 4 shareholders at a price of $1-00 per share. The offers were accepted by the 4 shareholders and paid for their shares in full. This means that each shareholder was allotted 2499 so together with the 1 shares each originally held by each director, each director now holds 2500 valued at $1.00 each so the total value of the shares held by each shareholder is $2500.00.

With the ongoing feud between the shareholders, the claimants now wish that the 1^st defendant buy their shares pursuant to sections 54 and 99 of the company Act 2009. In that regard, counsel have identified three issues for determination, they are;

I think there is a 4 issue or question and that is “whether the first defendant is obliged to purchase the claimants' shares under section 99 of the Company’s Act 2009.

There is no evidence that any of the shares in Didao Development Corporation Ltd including shares held by the claimants are redeemable shares or of any other class, the shares are all ordinary shares. In view of this, the answer to the first question must be no. The first defendant, by law, is not obliged to buy the shares held by the claimants as they are not redeemable shares. To answer the second question one only needs to consider the provisions of section 54 of the Company Act 2009. Section 54(1) states “A shareholder is entitled to require the company to purchase shares in accordance with the procedure set out in schedule 6” however, that can only happen if any of the conditions set out in section 54 of the Act and schedule 6 are present.

The provisions of section 54 and schedule 6 to the Act are relates to the purchase of shares held by a minority shareholder. In the present case, each of the claimants holds 25 percent of total shares in the company so together both claimants hold 50 percent of the total shares in the company. I, therefore, find that the first and second named claimants are not minority shareholders. The answer to the second question therefore must be no.

Before I proceed to consider the 3^rd question or issue for determination I think it is appropriate to consider the 4^th issue the court identified that is; whether the first defendant is obliged to purchase the claimants' shares under section 99 of the company’s Act 2009”.

Section 99 (1) of the Act states. “A shareholder or a former shareholder of a company may apply to the court for an order under subsection (2) if the shareholder considers that the affairs of the company have been, or are being, or likely to be, conduct in a manner that is, or any act or acts of the company have been, or are likely oppressive, unfairly discriminatory, or prejudice to him in that capacity or in any other capacity.”

Counsel Taupongi for the defendants submitted that claimants are not prejudicing shareholders. He submits they have not pleaded or particularised the prejudicial conduct on part of the defendants. Counsel also submits that any prejudicial conduct must fall within one of the types described in section 100. I respectfully disagree, my view is section 99 is not wholly subject to section 100 of the Act, the two sections are severable. Section 100 in my view sets out examples of conduct which are deemed prejudicial but it is not exclusive or restrictive. Section 99 is broad enough to cover conducts and acts the shareholder considers prejudice or oppressive or unfairly discriminatory even if such acts or conduct are not set out in section 100 of the Act.

I had considered the materials before the court in support of the claimants claim that the first defendant is obliged to purchase their shares, and in paragraphs 4-7 of the further sworn statement of the first-named claimant filed on 5^th February 2020 there is evidence that the affairs of the company have been or likely to be conducted in manner or acts of the company that is likely to be oppressive or unfairly discriminatory to the claimants. There is clearly dissatisfaction by the claimants with the manner in which the managing director of Didao who is the second defendant is conducting the affairs of the company. These include obtaining major loans in the name of the company without consultation seeking the agreement of the claimants before the loan is taken, allocation of shares to new shareholders and Toata treating the company as his own as evident in his oral testimony in court where he says that “Didao and Toata are one.” In these circumstances, the court finds the action of the company under the directorship and management of the second defendant and third defendant falls within the provision of section 99 of the Company’s Act. As the directors are the brain of the company, the company is liable for actions of its directors. The answer to the 4^th question must be yes hence the court may make any of the orders set out in section 99 (2) of the Act. But before the court makes any orders, it must be satisfied with the value of the claimant’s shares.

The claimants had engaged Systek Accountants to answer this question. Systek Accountants came up with a valuation using the Net Tangible Assets method. It determined that the value of each claimant’s shares is $2,137,987.50 (see annexure SM4) to sworn statement of Selson Molea filed on 7^th August 2018. While I am not questioning the professional qualification of the Firm or the method used, I feel there are pertinent matters that should also be taken into consideration. They include the fact that prior to 31^st March 2017 each shareholder only holds one share valued at 1.00 per share. This means if the four shareholders had paid their shares, the money the company had received for the shares would only be four dollars so how was Didao able to trade with only $4-00 unless there are other sources from which money is coming into the company or unless it already has other assets before incorporation. The second issue which concerns me is that claimants, as well as the other two shareholders who are the 1st and 2nd defendants, were only allocated the majority of the shares in the company after 17^th March 2017 just a few months before the claimants filed this proceeding. This raises the question of how does $2500.00 paid by each shareholder quickly makes a profit of more than 2 million dollars in a period of about 12 months. The company may have assets previously but I think the $2500 paid by each shareholder does not contribute to the acquisition of those assets. So the question is, should those matters be taken into account as well the contribution of the shareholders to the company especially the claimants. I say this because the evidence shows that it was the second defendant who started the company and continues to build the company with little no monetary contribution by other shareholders. Legally they are shareholders but they can be described as shareholders in name only without any financial contribution to the company. This leads to the question, are these shareholders entitled to equal distribution of the value of the company. For analogy purposes let us consider National Provident Fund when a member withdraws his contribution from the Fund. I may be wrong but I believe the value of NPF assets is never taken into account when NFP calculated how much to pay members who withdraw their contributions from the Fund. I am not saying that NPF method is correct or should be adopted, I mentioned this for comparison purposes only. I am not sure if the same principle is applicable to shares of a company when a shareholder wishes to sell his shares, the method may be different. These are matters which the authorised expert needs to take into consideration so a fair and equitable value of the claimant’s shares could be determined. In the absence of any such consideration, it is my humble view the true and fair value of the claimants' shares cannot be determined.

The material also shows that directors had not given their approval to the Accountant engaged by the claimants to determine the value of the shares of the company. As such, I feel the court is not obliged to rely on a valuation that was not authorised by the directors. In view of this, I order that the company authorised an expert to determine the value of the shares of claimants taking into account the concerns raised by the court so that a fair value of claimants' shares is determined. That determination should be done within 30 days. The authorised expert’s determination of the value of shares shall be final and the 1^st, 2^nd and 3^rd defendants shall purchase the shares of the first and the second named claimant’s in the company at the price determined by the expert. Cost for claimants to be taxed if not agreed.

High Court of Solomon Islands

Molea v Didao Development Corporation Ltd [2021] SBHC 18; HCSI-CC 48 of 2018 (25 February 2021)