Singapore: restrictions on the transfer of shares

Where shareholders in a listed company agree not to sell, assign or dispose of their shares for a given period of time, does this agreement prevent them from using their shares as security? It does not according to Pacrim Investments Pte Ltd v Tan Mui Keow Claire [2008] SGCA 16, a decision of the Court of Appeal in Singapore.

The court's decision is noteworthy because the facts concerned a listed company (restrictions on the transfer of shares are more common in closely held companies) and also because it provides a good example of the approach taken by courts in many jurisdictions when interpreting provisions which purport to limit the transferability of shares. 

The court stated, with reference to the late Robert Pennington's textbook on English company law, that "[the] freedom of a shareholder to deal with his shares should generally be given a broad, rather than narrow, interpretation" and cited with approval the following principle enunciated by Lord Greene MR in the English case Greenhalgh v Mallard [1943] 2 All ER 234 at 237:

Questions of construction of this kind are always difficult, but in the case of the restriction of transfer of shares I think it is right for the court to remember that a share, being personal property, is prima facie transferable, although the conditions of the transfer are to be found in the terms laid down in the articles. If the right of transfer, which is inherent in property of this kind, is to be taken away or cut down, it seems to me that it should be done by language of sufficient clarity to make it apparent that that was the intention".

In the view of the Singapore Court of Appeal, there was no reason why this principle should not apply to agreements between the company and its shareholders made outside of the company's memorandum and articles of association.