In JX Holdings Inc v Singapore Airlines Ltd [2016] SGHC 212 (29 September 2016), the Singapore High Court had to consider whether the Singapore shares held by a Japanese corporation that had merged with another Japanese corporation had, under Singapore law, validly become the property of that other Japanese corporation as a result of the merger. It held that it had.
Facts
The original entity that owned the Singapore shares was Kyodo Oil Co Ltd (KOL). KOL held shares in Singapore Airlines Ltd (Shares). KOL eventually ceased to exist. For the purposes of the case, two sets of transactions are important:
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Between 1992 and July 2010, KOL went through a series of restructurings under which the Shares were eventually vested in Nippon Oil Corporation (NOC), a Japanese corporation; and
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In July 2010, NOC went through an "absorption-type split" pursuant to which the Shares were vested in JX Holdings Inc (JXH), a Japanese corporation.
Due to an oversight, the shareholders’ register was not changed to reflect either NOC or JXH, but remained KOL. When this oversight was discovered, an application was made under section 194 of the Companies Act for a rectification of the register of shareholders to reflect JXH as the proper holder of the Shares.
The issue before the Singapore High Court was whether the register should be amended to reflect NOC or JXH as the proper holder of the Shares. It was contended by Singapore Airlines Ltd that the Shares were held by NOC as no instrument of transfer to JXH had been filed and that section 130 of the Companies Act prohibits the transfer of shares unless it is effected through a proper instrument of transfer. JXH argued, on the other hand, that section 130 allowed the registration of a shareholder to whom the right to the shares had been transmitted by operation of law and that under the "absorption-type split" procedure (roughly analogous to the amalgamation procedure under section 215A of the Companies Act), it had been transmitted the Shares by operation of law.
Decision
The Singapore High Court held that this vesting of shares from NOC to JXH was a transmission and not a transfer of the shares.
Edmund Leow JC held that the doctrine of universal succession applied in Singapore; this doctrine states that where the law of incorporation recognises a succession of corporate personality from one corporate entity to another, then the law of the forum will recognise not just the changed status of the company, but also the fact that the successor has inherited the rights and liabilities of its predecessor. He then set out the following propositions as applying in Singapore:
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As a matter of first importance, the precise legal issue first has to be distilled in order that the proper law may be applied. The legal issue is not necessarily the cause of action; instead, it is the fulcrum on which the outcome of the application depends.
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If the legal issue is one which concerns the status of a foreign corporation, this will fall to be decided according to the law of incorporation. The status of the foreign corporation as it exists in its law of incorporation will be recognised in our courts out of comity.
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In some cases, the law of incorporation might recognise that an entity has the status of a "universal successor". What is usually meant by this is that the entity is seen as having inherited the legal personality of another company, with the attendant consequence that it inherits all the assets and liabilities of its predecessor. This process does not necessarily entail that there is a continuity of legal personality between the old and new entities; the process can be discontinuous, but the "essence of the transaction" is that the new entity has taken on either the whole or a part of both the assets and liabilities of its predecessor(s).
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The transfer of assets and liabilities through this process of universal succession is to be regarded as a "transmission" and not a "transfer" within the meaning of the Companies Act. For this reason, the succeeding company may be registered as a shareholder in place of the predecessor company without there being any need for a proper instrument of transfer to be prepared and delivered.
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Succession can be found even though the succeeding entity inherits only a part, rather than the whole of the patrimony of the original entity, as long as this is the position in the law of incorporation and the intent was nevertheless that the newly created entity would be the successor to that part of the assets and liabilities it received.
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Succession extends not just to the ownership of assets and liabilities. It can, in some cases, even mean the uninterrupted continuation of pending arbitration proceedings, subject to such notice requirements as might be required by the law of the forum.
He went on to state that these propositions should be adopted in Singapore for the following reasons:
The key principle underpinning the doctrine of universal succession is that of international comity, which our courts have recognised as a principle of signal importance.
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Our courts have long recognised that matters relating to substantive company law, such as the authority of agents to bind companies or matters relating to internal management fall to the governed by the law of incorporation. It would be consistent with this to recognise that the law of incorporation can also bring about a succession of corporate personality and also to recognise the changes in the ownership of assets and liabilities that attend such a process of succession.
In applying the above principles to the facts, the Court noted the following aspects of the "absorption-type split" procedure under Japanese law:
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In this procedure, part (and not all) of the rights and obligations of NOC were transferred to JXH, an existing company. NOC continued to exit and continued to hold the rights and obligations not absorbed by JXH.
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The split of the rights and obligations was set out in an agreement between the two companies.
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Japanese law clearly stated that the effect of the "absorption-type split" was that the absorbing company "succeeded" to the rights and obligations set out in the agreement.
In the view of the Court, the fact that the rights and obligations were set out in an agreement did not affect the way a Singapore court should regard the transaction. What was important was that under Japanese law, the change in ownership of the Shares took place by a process of succession and therefore the title to the Shares was transmitted to JXH by operation of law. Accordingly, no instrument of transfer was required.
