Family feud leads to court order to wind up Lian Huat Group’s parent company

Source: Business Times
Article Date: 30 Jul 2024
Author: Sharon See

Kho Choon Keng, executive chairman of Lian Huat Group and claimant of the case, had made a court application to wind up Lian Keng Enterprise, the ultimate holding company in the group.

Embroiled in a family feud, the parent company of property developer Lian Huat Group faces a court order to be wound up in 30 days unless its management team can reach a resolution.

Kho Choon Keng (CK), executive chairman of Lian Huat Group and claimant of the case, had made a court application to wind up Lian Keng Enterprise (LKE), the ultimate holding company in the group.

The two non-parties opposing this action are his step-siblings: group managing director Patrick Kho and non-executive director Patricia Kho.

High Court judge Hri Kumar Nair, in a written judgment delivered last Friday (Jul 26), said he found it just and equitable to wind up LKE after examining the circumstances leading up to the application.

LKE is the ultimate holding company of 59 other companies in the Lian Huat group of companies with investments and development projects in Singapore, Australia and China.

However, since the group remains viable and the liquidation of LKE would likely adversely affect its subsidiaries, Justice Nair said he will give the parties time to reach a compromise before the winding up order takes effect.

“It is usually the case that (family-run) enterprises fail, not because of financial circumstances, but the deterioration of relationships of the family members who run them,” he noted.

Building up the company

LKE was incorporated in August 1980 by the parties’ father, the late Kho Beng Kang, who had built his wealth trading nutmeg and later through real estate investments.

CK, who is also president of the Singapore Chinese Chamber of Commerce & Industry, is the firstborn son of Kho’s second wife Yap Kim Chee. Patrick and Patricia, a medical oncologist, were born to his third wife Saw Gek Hua.

In a handwritten note following a cancer diagnosis, the late Kho said he was entrusting his business to four of his sons – CK, two of his brothers, as well as Patrick.

“My only hope is to be able to protect the ‘empire’; not for you to show your filial piety towards me,” he wrote in Chinese. “Please understand that the happiness is yours to enjoy, not mine; but it will bring me comfort.”

After the elder Kho died in 1996, the four brothers managed the group “harmoniously” for at least four years, according to court documents.

The first major disagreement took place in 2001. The dispute was settled in 2005 with the group being managed primarily by CK and Patrick. The pair bought out most of the other family members’ shares in the company, resulting in each holding 49 per cent of the company.

The remaining shares were held by Saw, the third wife, at 0.8 per cent; Patricia at 1 per cent and Saw’s adopted son Philip at 0.2 per cent. Patrick later bought out Philip’s share in July 2022, making him the largest shareholder.

Justice Nair noted that the relationship between CK and Patrick was stable after the 2005 buyout, and their management of the company was characterised by consensus and compromise, but this changed in the lead-up to 2018.

Patrick became “increasingly vocal” about his views on the group, according to court documents, with more disagreements over business decisions arising between the two stepbrothers.

This includes whether to sell a piece of land in Tianjin, China, and when to sell its residential and retail units in another Tianjin project. They also could not agree on refurbishment plans for boutique hotel The Inn at Temple Street.

This came to a head on Jun 25, 2018, when CK e-mailed Patrick to set out their differences while alluding to an amicable split, although Patrick remained “non-committal” in his response.

Deepening disagreements

A key consideration in this case is whether LKE is akin to a “quasi-partnership”.

Another key issue to be determined is whether there is a breach of CK’s legitimate expectations on how the business should be run, and whether the breakdown in the two stepbrothers’ relationship would justify the winding up of LKE.

In examining how CK and Patrick worked together from 2005 to 2019, Justice Nair concluded that LKE was akin to a quasi-partnership and managed on the basis of mutual trust and confidence, with the other directors and shareholders having no say at all.

However, disagreements over whether to refurbish or sell The Inn at Temple Street drove a deeper wedge into their relationship in 2019.

That was when Patrick called for a formal board meeting for the first time in 14 years, one that CK said he could not attend “due to his other prior commitment”.

Justice Nair noted that the meeting lasted only 20 minutes, with Patrick and Patricia voting in favour of the refurbishment. The minutes of the meeting also did not record any discussion of CK’s views and preference to sell the property.

“I find that Patrick called a formal meeting because he wanted to override CK’s objections and pass the necessary resolution using Patricia’s vote”, said Justice Nair.

In another incident, Patrick and Patricia failed to “properly consider” CK’s request for dividends to be paid out during the Covid-19 pandemic.

Justice Nair added that CK and Patrick’s relationship is currently “fractured to a point that they regard each other as strangers”.

“They no longer engage in one-on-one conversations on WhatsApp, phone calls or in-person meetings; they no longer share any social gatherings; and even do not speak when they see each other in the lift,” he said.

To split or not

Justice Nair said these breaches of CK’s legitimate expectations sufficiently established the unfairness necessary to invoke the just and equitable ground to wind up a company under the Insolvency, Restructuring and Dissolution Act (IRDA) 2018.

“The unfairness arises from CK previously having an equal say in the management of LKE to effectively being relegated to a minority voice whose views are given little or no weight,” Justice Nair said in his judgment.

“It would be unfair to insist that CK remains trapped in LKE in the current circumstances where Patrick and Patricia can simply out-vote him and do as they wish, as they have done.”

However, since LKE is financially viable, Justice Nair said he is considering options other than winding up the group.

He noted that CK on Jun 27, 2022 made an open offer to Patrick and Patricia for a split – whether to sell his stake for S$155 million or for him to buy out Patrick’s stake at the same price. He also suggested having an independent valuer assess the value of the company and for him to either sell his stake or buy Patrick’s shares.

Patrick replied on Aug 8 the same year that CK’s offer of S$155 million was “grossly inflated” and that he was “not interested in selling (his) shares”.

“However, Patrick did not respond to CK’s proposal to independently value the shares – it appears that he was not willing to consider any option other than to keep CK in his minority position,” said Justice Nair.

He noted that while the IRDA gives the court the discretion to make an order for either of them to buy the other out, he found this inappropriate given the group’s structure and that many of its subsidiaries are not wholly owned.

Ordering a buyout would not result in a clean split between them, he added.

He thus ordered the company be wound up, but the order is to be stayed for 30 days.

In the absence of an amicable resolution, the order will take effect immediately after the period.

If the parties reach an agreement but cannot implement it fully, they would be able to apply for an extension. In the event that they settle their dispute, the order would cease to have effect from the date of the settlement.

Justice Nair added: “Unless the parties arrive at an amicable resolution or other circumstances prevail, LKE will join the myriad of established family businesses consigned to the history books. The pleas of the patriarch for LKE to provide for future generations of the Kho family did not survive the second generation.”