Legal News & Analysis – Asia Pacific – Singapore – Dispute Resolution

A gift of shares in a company pursuant to a will did not fail because the company was being wound up at the time the estate was administered; instead the legatees of the shares gained an interest in the liquidation surplus:

— Lee Koon (by her attorneys Seah Teong Kang and Seah Chiew Tee) v Seah Yong Chwan (executor of the estate of Seah Eng Teow, deceased) [2013] SGHC 285 (Singapore, High Court, 30 December 2013)

Facts

The plaintiff’s late husband had held shares in a family-owned and -run company (“Company”). He had willed those shares to the plaintiff and two of his children. His will (“Will”) also provided that any residual assets in his estate would go to the plaintiff, his wife. Shortly before his Will was executed, the shareholders of the Company applied to wind up the Company. The shareholders of the Company were to receive 15.488 cents per share upon the liquidation.

If the bequest of the shares in the Will was effective, the plaintiff would receive a total of S$15,488, being her share of the liquidation surplus for the shares bequeathed to her. If however the bequest was defeated by the winding up of the Company, the full amount of the liquidation surplus payable in respect of the deceased’s shares would become part of the residual assets of the estate. This sum, a total of S$177,550.95, would then go to the plaintiff.

Decision

The Singapore High Court held that the surplus did not fall into the residuary estate, and that the plaintiff was therefore only entitled to that part of the liquidation surplus distributable for the shares specifically bequeathed to her.

The Court first noted that a share does not confer in the holder either legal or beneficial interest in the property of the company; what the shareholder gets instead is a bundle of rights or choses in action such as the right to participate in the company in accordance with the memorandum and articles of association. When a company is wound up, what the shareholder has is a right to participate in the distribution of the assets of the company after all its debts have been paid.

On the demise of the shareholder, this right devolves in the normal way to the specific legatee who has been bequeathed the shares under a will. This is not a transfer and accordingly section 259 of the Companies Act which voids the transfer of shares after the commencement of winding up by the court does not apply.

At the time of the deceased’s death, therefore, the deceased held, as a shareholder of the Company, a right to participate in an aliquot share in the distribution of the liquidation surplus. This included the right to compel the liquidator to pay out the ascertained surplus and consequently the right to receive the fruits of the distribution of this surplus in aliquot shares. This right devolved to the personal representative of the deceased, to be dealt with in accordance with the terms of the deceased’s Will. As the deceased passed away when the Company was in the process of winding up, the Court inferred that the deceased intended to give to the legatees the shares along with whatever rights that came with ownership thereof, including the interest in the liquidation surplus.

The Court therefore held that the liquidation surplus of the shares was therefore validly disposed of, and it followed that it did not fall into the residuary estate. The specific bequest therefore did not fail, and the plaintiff and her two children would receive their share of the liquidation surplus referable to the shares bequeathed to them.

Our Comments / Analysis

This case provides a timely reminder of the need to ensure that up-to-date information regarding the property and assets which are bequeathed in a will are duly and accurately reflected in the will. In this case, the Court noted that the application to wind up the Company was made shortly before the Will was executed such that on one interpretation, it was possible to read the Will as devising to the specific legatees their aliquot shares to be paid in cash out of the liquidation surplus of the Company rather than a gift of the shares in specie. Without this factual context, it is arguable whether a court faced with the same terms in a will, may nevertheless conclude that the bequeathed shares in the Company includes the liquidation surplus arising from the shares specifically bequeathed.

For further information, please contact:

Bock Eng Sim, Partner, WongPartnership

[email protected]

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