Company Law

Overview

The article summarily reports Overseas Union Enterprise (OUE) selling 26.1 million shares belonging to shareholder United Overseas Bank (UOB) for $378.8 million and $282.1 million would be distributed to shareholders as special dividends. Although this is a short article, there are several points that we can highlight or bring to attention, including the law of separate entity and more importantly, the director's duties and whether there is any breach of these duties.

Separate Legal Entity

Firstly, we must recognize that OUE is a separate legal entity from its shareholders as per Cap 50 of Companies Act, which means that OUE is an artificial person created by the law and thus it has rights, obligations, liabilities, property and contracting powers all in its own name. We would not be looking at lifting the corporate veil in this case but acknowledging the fact that OUE is an artificial and separate entity in the eyes of the law would lay the foundations for our discussion later.

Since OUE is but an artificial person, we do not expect it to make decisions on its own but instead to rely on its board of directors who are appointed by its shareholders. The board generally has the authority to manage the business under Section 157A(2), and such powers generally cannot be overridden by its members. Vested with such high responsibilities, the directors do owe the company a number of duties and we shall further discuss if there is any possibility that the directors would have breached any duty in their course of selling UOB's shares.

Duty of Care

There exists both statutory and general laws for the directors of UEO to exercise due care as part of their duties. Under sec 157 of the Companies Act, the directors must at all times act honestly and use reasonable diligence in discharging his duties, which includes duties of care, skill and diligence. Similarly, the standards that apply in the general law for the duty of care include care, skill, diligence and delegation and reliance.

With this in mind, we can see that OUE had, to a significant degree, depended on BNP Paribas, the financial adviser, to arrive at a decision of the sale of its shares and a conclusion that this would boost profitability in the current financial year. Pursuant to Sec 157C, the directors do have the privilege of consulting and relying on the reports of a professional adviser in relation to the matters that require the directors' decisions. In this case, it must be reasonable for the directors to believe that BNP has the qualifications to assess and provide expert advice and information on such large scale decisions affecting more than $100 million worth of shares. For example, if BNP Paribas is a newly set-up company with no significant track record, OUE would not be in a reasonable position to draw expert advise from BNP. It might be subjective but the directors must have acted in good faith and made proper inquiry to rely on BNP Paribas to fulfill the test of reasonability. Failure to do this might mean that the directors have breached their duty of care.

Duty to Act in Good Faith and Best Interests

OUE intends to, in the article, "to optimise shareholder value for its remaining shareholder's interests in UOB." Under sec 159 of the Companies Act, directors are supposed to take into account the interests of the company's members as a whole, balancing the interests of the majority and the minority members. Directors of OUE should be aware