When Oppressive Conducts are Expressly Laid Down in a Shareholder’s Agreement

Following the Federal Court decision of Jet-Tech Materials Sdn Bhd & Anor v Yushiro Chemical [2013] 2 MLJ 297, it has been the legal position in Malaysia that breaches of a shareholder agreement cannot be used as a basis for bringing a legal action for an oppression suit under section 181 of the Companies Act 1965 (Now section 346 of the Companies Act 2016).

This case concerns a shareholder dispute within Yushiro-Jet Chemicals Sdn Bhd, a Malaysian company established by Chen Siew Man to distribute industrial chemical products manufactured by Yushiro Chemical Industry Co Ltd. Initially a trading entity, the company later expanded into manufacturing following the entry of Yushiro as a strategic partner pursuant to a shareholders’ agreement and a concurrent technical assistance arrangement.

Following the restructuring in 1996, Jet-Tech Materials Sdn Bhd (the alter ego of Chen), Firdaos bin Azhar, and Yushiro became shareholders, with Jet-Tech holding the largest stake. The company grew successfully, leading to a proposed expansion into Thailand through a separate entity.

In 2003, Yushiro subscribed to additional shares in the company, increasing its shareholding to 51% and becoming the majority shareholder. This share allotment significantly diluted Jet-Tech’s interest and resulted in a loss of control. This change formed the crux of the dispute.

The appellants, Jet-Tech and Chen, subsequently commenced proceedings under section 181 of the Companies Act 1965, alleging that Yushiro had conducted the affairs of the company in an oppressive manner. The allegations included claims that Yushiro had misrepresented its intentions regarding the Thai expansion, diverted business opportunities, interfered with board composition, and breached the shareholders’ agreement.

The High Court found in favour of the appellants, holding that oppression had been established. It ordered Yushiro to purchase Jet-Tech’s shares and to compensate for the loss of control.

However, the Court of Appeal reversed this decision, finding no sufficient basis for oppression and holding, inter alia, that certain complaints related to breaches of the shareholders’ agreement rather than the affairs of the company.

On further appeal, the Federal Court upheld the Court of Appeal’s decision. It concluded that no acts of oppression within the meaning of section 181 had been established, emphasising that the share allotment was approved by shareholders and that the matters complained of largely concerned commercial decisions and private contractual rights rather than oppressive conduct in the management of the company.

Since then, the courts have interpreted the legal principles in Jet-Tech to mean that where the purported oppression acts is governed under a shareholder’s agreement, such act cannot be the basis of commencing an oppression suit.

Impact of Jet-Tech in the Commercial World

Regrettably, the decision in relation to Jet-Tech allowed the legal process to be abused by ill-intentioned shareholders. As it is commercially prudent that shareholders execute a shareholder’s agreement to ensure clarity governing the relationship between the shareholders, minority shareholders are often faced with agreements that they have very little say or dictate, out of fear of losing out if they do not “close the deal”. The significance of an oppressive conduct regulated under an agreement will not be felt until it happens.

To understand the significance, one must appreciate the difference between the remedy available for oppression under the Companies Act 2016 and the remedy available under contract law. Remedies available under the Companies Act 2016 under an oppression suit includes buy-out of shares. The buy-out can be ordered to be made against the shareholders themselves or even against the company. Winding-up of the company concerned and all assets distributed accordingly is also another available remedy. On the other hand, the remedy available under a contractual dispute will be either specific performance or monetary damages suffered as a result of the purported breach.

Conversion of an oppression suit into a contractual dispute gives the perpetrating shareholder an edge as it reduces the impact and exposure of his breach. All in all, minority shareholders may not be adequately compensated even if they are successful in pursuing their claim under contract. Shareholders are only entitled to dividends and it is not up to them to decide how much dividends are to be declared. Theoretically, a director is able to dictate what the minority shareholder will suffer in terms of monetary damage.

Interestingly, the Singapore Court of Appeal rejected the legal proposition of Jet-Tech in the case of Ho Yew Kong V Sakae Holdings Ltd and other matters [2018] SGCA 33, as it was of the view that such proposition that breaches of shareholders’ agreements are automatically outside oppression was too rigid.

Recent Development in the Law

The Federal Court was given the opportunity to re-visit the legal principles laid down in Jet-Tech in the case of ISM Sendirian Bhd v Queensway Nominees (Asing) Sdn Bhd & Ors and another appeal [2026] MLJU 1467.

This case concerns a dispute arising out of a joint venture between ISM Sendirian Berhad (“ISM”) and MPHB Capital Berhad (“MPHB”) for the development of a large mixed-use commercial project in the Jalan Imbi area of Kuala Lumpur (the “Imbi Project”). The appeal to the Federal Court centred on whether the conduct complained of by ISM amounted to minority oppression under section 181 of the Companies Act 1965.

ISM, controlled by Dato’ Ray Cheah and his wife, entered into a joint venture arrangement with MPHB under which several special purpose vehicles were incorporated to acquire and hold parcels of land for the project. It was common ground that ISM would hold 30% equity in these joint venture companies, while MPHB would hold the remaining 70%.

Although a draft shareholders’ agreement was prepared, no formal agreement was executed. Nevertheless, the parties proceeded on the basis of an oral agreement, the terms of which became central to the dispute—particularly in respect of funding obligations. ISM maintained that it was only required to contribute 30% of the “cash portion” of funding (effectively about 9% of total project costs), whereas MPHB contended that ISM was obliged to contribute 30% of the total funding in line with its shareholding.

The relationship between the parties deteriorated, resulting in ISM filing multiple suits alleging minority oppression. The complaints were grouped into five principal grounds: first, that MPHB wrongfully demanded that ISM contribute 30% of the total acquisition price for certain project lands; second, that rights issues in several joint venture companies diluted ISM’s shareholding; third, that MPHB improperly imposed interest on shareholder advances; fourth, that ISM’s nominee was not re-elected as a director; and fifth, that certain shares were transferred to a third party.

At first instance, the High Court accepted that an oral shareholders’ agreement existed and found that ISM had established oppression on several grounds relating primarily to funding and financing arrangements. Relief was granted in ISM’s favour.

However, the Court of Appeal overturned the High Court’s decision. It held that the dispute was fundamentally one arising from the parties’ private arrangements, particularly their oral shareholders’ agreement, rather than the conduct of the affairs of the companies. As such, the statutory remedy for minority oppression was not engaged.

The Federal Court affirmed the decision of the Court of Appeal and dismissed ISM’s appeal. In doing so, the Court emphasised that a claim under section 181 must be grounded in conduct relating to the “affairs of the company”, as required by the statute. While the expression is broad, it does not extend to purely private disputes between shareholders unless such disputes manifest in conduct affecting the company’s affairs.

Significance of the Federal Court’s Decision on ISM

The decision made clear that the legal principle set down in Jet-Tech is not a hard-exclusion rule. With ISM, the Court clarified the proper interpretation of the earlier decision in Jet-Tech whereby it rejected the argument that any breach of a shareholders’ agreement could shut the door to an oppression claim. Even if there is a private contract, if the disputes manifest in a conduct that affects the company’s affair, it may give rise to an oppression claim.

This decision underscores the centrality of the requirement that the complained-of conduct must relate to the affairs of the company. It also clarifies that not every dispute arising between shareholders—particularly those grounded in contractual disagreements—will give rise to a remedy in minority oppression.

Whilst the ISM judgement did not overrule the decision in Jet-Tech, it refines the legal principle set out in the latter. It is expected that the refinement will be welcomed to minority shareholders in Malaysia as it gives much needed clarity as to what extent can an agreement govern the management of a company’s affairs and the impact it has on a potential oppression claim. With the refinement, it also makes our legal position more in line with the legal position currently adopted by Singapore, without the need of overruling Jet-Tech. With it, it appears that the apex court recognises the purpose and intent of section 346 of the Companies Act 2016 and ensure that no amount of manoeuvring by way of private agreements can sideline the protection accorded under a statute.

How can Evalon Group Law Practice Help?

If you are shareholder of a company and are anticipating potential disputes involving allegations of infringement of rights as a shareholder, share with us your concerns and set an appointment to have a conversation about how our team can assist you in navigating around the issues.