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Molea v Molea [2015] SBHC 39; HCSI-CC 324 of 2012 (13 May 2015)

IN THE HIGH COURT OF SOLOMON ISLANDS
(Faukona PJ)

Civil Case No. 324 of 2012

BETWEEN:

SELSON MOLEA
Claimant

AND:

TOATA MOLEA AND HELEN MOLEA
First Defendant

AND:

DIDAO DEVELOPMENT CORPORATION LTD
Second Defendant

Date of Hearing: 7th April 2015
Date of Judgment: 13th May 2015

Mr W. Rano for the Claimant
Mr A. Rose for the Defendants

JUDGMENT

Faukona PJ: An amended claim in category A was filed on 20th December 2012. Reliefs sought in the claim are ten in all and in the nature of declarations with one order that the Registrar amend the register of the Second Defendant to reflect the Claimant's status prior to re-registration.

2. The claimant and the first named Defendant are blood brothers. The Claimant was and is at all material times a Shareholder and Director of the second Defendant and he held one (1) share.

3. The first Defendants were and are at all material time husband and wife and Shareholders and Directors of the Second Defendant. At the initial re-registration the first Defendants held one (1) share each.

4. The first named first Defendant was and is the Managing Director of the Second Defendant.

5. The Second Defendant was and is at all material times an incorporated company limited by shares and was incorporated under the Companies Act (Cap. 175), which was repealed and substituted with a new Companies Act 2009. As a legal requirement under the new Act, the second Defendant was then re-registered on 23rd March 2011. The company is a family company own by Molea family, an undisputed fact.

6. At the time of the initial incorporation of the second Defendant, the Claimant and the first Defendants were Directors and Shareholders who held one (1) share each. The nominal share capital was $10,000.00 divided into $1.00 per share. And that was aligned with the prospect conveyed by Memorandum of Association lodged on 10th August 1995. Some documents may not read to accord a true reflection in particular list of past and present members and names of directors in clause 21 of Articles of Association. However, despite certain discrepancies in the unequivocal deposed documents, the fact remains that the Claimant is one of the shareholders and director until 24th March 2011.

7. Suffice to say shareholding in this case is a lone description because there is no documentary evidence to show the formal appointments of directors apart from being reflected in the minutes of the meetings on 8th July 2010 and 26th August 2010. In fact the only document cited is the certificate of incorporation; that may not be catered for under the old Act. However, notwithstanding that, that was one of the reasons for perhaps repealing and creation of the new Act. In any case, there is no formal documentations shown as being part and partial of the incorporation accommodating who the shareholders and the directors were. What may have been done was to fast track prompt incorporation. In circumstance of haste any such appointment can be best described as ad hoc.

8. To address some for the irregularities, evidence implicated that that would materialise when accomplishing the requirements under the new Act for re-registration.

9. Meantime, in the absence of formalities the Claimant is endowed as a shareholder and a director, fact though disputed, affirm to the contrary by documentations on file.

10. After initial registration management of the Company progress forward and made arrangement for Board of Directors meetings. There were two Board of Directors meetings as reflected in the minutes filed. One was on 8th July 2010 and the other was on 26th August 2010. There was no evidence of any Annual General Meeting ever held and conducted by the management of the second Defendant.

11. In the meeting on 8th July 2010 it was proposed by the Board of Directors that the authorized share capital be increased to $100,000.00 and suggested that three more brothers of Molea family be appointed as directors. On the meeting of 26th August 2010 the propose share structure should feature as follows:

(a). Toata Molea - 50 shares

(b). Kaukui Molea - 10 shares

(c). Kaluae Molea - 10 shares

(d). Trevor Molea - 10 shares

(e). Selson Molea - 5 shares

(f). Kabe Molea - 5 shares

(g). Helen Molea - 5 shares

(h). Doreen Max - 5 shares

12. The Claimant, who was present at the meetings as a member of the Board of Directors, disagreed with the share structure and declined to vote in support. The outcome of the restructuring process is that the nominal value of each share was increased to $1,000.00 per share. And each shareholder was required to pay for his/her own shares. The Claimant has never paid for his five (5) shares.

13. Prior to Board meeting on 8th July 2010 there had already been disagreement between the Claimant and the management over the issue of director's benefits and privileges to borrow monies from the Company. Brewed from that was a strain relationship that envision through the years which consequently resulted in the filing of this claim. In addition the rift had torn apart the fabric of the Molea family from being knitted together in a vibrant co-existence relationship. That had been marred even to a level of confrontation in a criminal court.

14. Cumulative of nasty events attributed to hostility and rejection, but the gist remain as a claim for depravity of Claimants proprietary interest which he had in the Company as shares –see Hwang Shu Fen V NBSI (2011) SBHC 29; HCSI CC 364 of 2008 (5th May 2011). This issue can be best emulated by addressing the whole range of factors from background history, incorporation, and functions of the Board of directors, meetings and re-incorporation.

15. I noted for sure, and by implication of names that DIDAO Development Corporation is an incorporated Company owned by the Molea family in particular the siblings. As such it is expected that management, directorship and shareholding positons be taken up by members of the family working together to achieve the prime theme that they should all benefit from the business. Because of the large size of the family it could not be possible to appoint all eleven siblings to be directors and shareholders. Hence, from the date of the inception three were chosen as directors, at the same time shareholders on behalf of all. Work began to commence and business progress forward. It ought to be noted that the brain behind DIDAO Development Corporation is the first named Defendant. Two other board members and shareholders were on paper to fulfil the requirements of the incorporation.

16. At some stage fifteen years after incorporation, it was proposed by the board in a meeting on 8th July 2010 that restructuring exercise for the Company is significantly necessary. At that meeting authorised share capital should stand at $100,000.00 and three more members of the family be appointed as Directors? At the meeting on 26th August 2010 a propose allotment of shares and nominal value of each share is $1,000.00. The rational, as can be gleaned is to extend responsibility, involvement and decision making to other siblings. By limiting involvement and decision making to three could be perceived as selfish and not sharing.

17. The Claimant did not agree to the share structure and decline to vote in favour. The resolution was passed and adopted by vote of 2 to 1, – see Articles 17-19. Now the Claimant comes to Court and question whether the Directors can extinguish his share without his consent as a shareholder, and whether the value of shares can be increased by the Board without his consent. The argument is that any alteration in share capital can only be done by resolution in an Annual General Meeting. Further, that the power to increase share capital is vested on Annual General Meeting and not in Directors meeting. In reading the Articles of Association in depth, clause 6 restricts the Company from transferring of shares, but may be done by the Directors provided reason is registered and their decision is final. Clause 4 vested power on the Directors to control, allot and dispose of shares to any person. Clauses 8 and 9 provides for consolidation, division, conversion, subdivision and increase of share capital; are activities which form part and partial of the agendas to be discussed at an Annual General Meeting. Clause 15 generally spells out that business at AGM shall be to transact any business. Conclusively the argument relies on by the Counsel advocate by the Claimant is correct and carries validity.

18. Amidst the arguments restructuring of a business is a normal business transaction; after evaluating its performances over the past years. It is normally done by practice or by way of convention. In any event, restructuring is necessary to alleviate or address certain business issues, which hamper or retardate free flow of business progress which negatively impacted business to thrive to achieve its goal to make profit. Records show that DIDAO was not making profit at all, if not very little, something not contemplated. And so the management thought that it would be in the best interest of business to keep it afloat is to restructure by increasing the share per value. That would mean a new level of authorised capital to boost business activities.

19. Of course any change of business activity is always regulated by the Articles of Association and Memorandum of Association. The Claimant argues that the proposal for restructure was not authorized. That the Board does not have the authority to increase shares except the power to transfer shares.

20. It is pertinent to view the issue through the eye of a perceptible person, who would able to see the logic in order to arrive at a justifiable determination? Here we have a management who admitted that there were irregularities which adamantly be rectified at the occasion of re-registration. One of the issues is in regards to conducting of AGM meetings which the company had never had one previously.

21. In this case it is not an issue that three persons who were directors were also shareholders. Any Board of Directors meeting or any Annual General Meetings is expected to be attended by the same three persons. If for instance, the issue of restructuring becomes an agenda in the Board Meeting, would the decision be different as in an annual General Meeting? The same three persons will attend; the same resolution will be arrived at, with the same voting ratio. At the end of the day it serves no interest to Molea family to be static about the Articles and the Memorandum. In fact, the facts and the circumstances of this case do not warrant a severe differentiation. Whether it is a Board Meeting or Annual General Meeting the prospect outcome is expected to be the same. One can label the headings of minutes as Board or AGM meetings but the outcome will never change any decision.

22. That is perfectly the case; the Claimant had attended those two Board meetings; he was given privilege to comment, he did, and voted which he did. In any voting process the majority rules and that is perfectly upholding democratic process adopted by this country. It would be out of course and context to say that the shares were increased per value, and transferred without the Claimant's consent. He has to accept the democratic process as majority rule after he had participated fully by attending and casting his vote.

23. I noted the authorised of share capital can be increased by resolution of shareholders in an Annual General Meeting. That would perfectly operate in normal circumstances. Where shareholders and board members are only three, and of one family the important is; there was a meeting which all attended and voted on the resolutions. One can label whatever he wants. The fact is that resolution proposed was passed by majority vote which represent those who present. The Claimant was not absent at any of those two important meetings. He was well versed with the proposal and he casted his vote, that alone speaks wholly on his behalf as a Shareholder and a Board Member. Further to that it would appear that the management of the company is not well versed with the Articles of Association. Nothing can be expected from the first named first Defendant as the Managing Director who was educated and qualified in a different discipline and not law.

24. Of course there is prospect of increase in share capital before they were actually transferred to propose shareholders. That is aligning with the principle upheld in the case of Morris V Tori[1] That had been done accordingly.

Re-registration:

25. For some reason the proposed agenda resolved in the meeting on 26th August 2010 was not reflected and entrenched in the re-registration. There are difference in total number of shares and the number of proposed shareholders. The number of shareholders was decrease to four from eight as in the restructure proposal, the same in the number of directors. In this case the focus is on the Claimant's case alone.

26. One reason which may deter the management not to include the Claimant as a Director and Shareholder at re-registration is because of the strain relationship with the Managing Director. Further reason which seems to take precedent is because of non-payment of his five shares. It does not matter now, that all others including the Claimant whose shares subsequently were not re-registered for reasons the management alone will provide an answer. In the mean-time, three others whose share was not registered seem to consent to the distribution records and have nothing to oppose.

27. What may have left now is the realisation that the activities and progress of DIDAO Development Incorporation rests on one person, the first named first Defendant. He only requires co-operative responses from all the siblings that will drive the Company forward to achieve its goals.

28. The paramount consideration is that it must be acknowledge this case is pivoted on a significant fact that the Company is a family company, with the vision to provide all siblings beneficiary interest in terms of revenue support and others, and to bring about sustenance in their families. Disagreement and diverse thinking are normal experiences in family business setting. However to resolve family issues and differences, the court is not a proper avenue to sort things out. I noted 20% share is still remaining not taken up. That may depend on whatever the result this Court resumes to; in any event is not an end. There is room open for the family to iron out their indifferences and co-operate with conscious mind of supporting one another into the future in all endeavours to achieve what the family had started.

29. Restructuring effort in my opinion underpins the social school and mind that binds the family together in sharing and having equitable distribution of resources and benefits to all. It is this philosophy that guide prosperity in harmony into the future.

30. In all that I say, premise on the balance of probability, justice ought to prevail by dismissing the amended claim.

Orders:

1. Order for declaration from reliefs 1 to 10, refused. .

2. Relief 11, for Registrar to amend register to reflect status of second Defendant prior to registration, refused to grant.

3. Cost be in the cause.

The Court.

^[1] SBHC 28; HC-CC 037 of 2000 (23 May 2001)