Rong Airlines Case

Rong Rong Flights Pte Ltd (“RRF”) has been specialising in manufacturing and selling top quality airplanes for 5 years. It consists of 4 shareholders - Karen, Eileen, Li Rong and Emily. Both Karen and Eileen are also the directors of RRF.

Tam & Diy LP (“T&D”), consisting of 2 partners - Tammy and Diyanah, is a newly set-up business that supplies plane constituents. Tammy is actively involved in the daily operations of T&D while Diyanah is currently pursuing her education and wishes not to be physically involved in the business.

RRF wished to purchase plane constituents from T&D and the directors of RRF called up T&D to sign a contract. However, Tammy was away for an overseas business trip and Diyanah signed the contract instead, telling the

Tammy:
L: In a limited partnership, the general partner has unlimited liability and is personally liable for the debts and losses of the firm.
A&C: Hence, Tammy, being the general partner of T&D, bears unlimited liability for the losses incurred due to Diyanah’s mistake.

Diyanah:
L: If a limited partner takes part in the management of the limited partnership, he shall be liable for all debts and obligations of the limited partnership incurred while he takes part in the management as though he were a general partner.
A: Diyanah is the limited partner of T&D. Originally, she would have limited liability and will not be personally liable for the losses incurred. However, her action of signing the contract with RRF has made her a general partner with unlimited liability. Even though she had no authority to make decisions on behalf of the partnership, she gave RRF the representation that she had ostensible authority to sign the contract.
C: As a result, she will bear unlimited liability for the losses due to her mistake.

Advise Rong Rong Flights Pte Ltd, its directors and shareholders on their respective liabilities with regards to the loan from DBX Bank. [8 Marks]

The other shareholders namely, Eileen, Li Rong and Emily will not be liable. (c) Advise Karen and Eileen whether they would be successful in amending RRF’s constitution, and ultimately proceeding with the investment plan. [6 Marks]

Law
Entrenching provisions may be inserted upon formation of the company or anytime thereafter. It can only be inserted in the constitution after the formation of a company, provided all the members in the company agree.

S.26(4) CA states that an entrenching provision is a provision which stipulates that other specified provisions may not be altered in the manner provided by the CA, or may not be altered except by a majority greater than ¾ or where other specified conditions are met.

Application
With the entrenched provision, Karen and Eileen needed all the shareholders’ agreement before they could pass a special resolution to amend RRF’s constitution to expel Emily and Li Rong. However, there was no entrenched provision that stated Li Rong could not be removed from RRF. Hence, Karen and Eileen could pass a special resolution to expel Li Rong from being a shareholder of RRF.