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When relatives fight over a family fund worth millions

When relatives fight over a family fund worth millions

Source: Straits Times
Article Date: 21 Apr 2024
Author: Tan Ooi Boon

The bitter fight was sparked after one of them cried foul for being short-changed, even though he got over $45 million.

Even the most loving families can have their spats, but when tens of millions of dollars is thrown into the mix, things can quickly spin out of control.

Four brothers and their families who were reaping huge sums from their family’s mega pooled fund became embroiled in a bitter fight after one of them cried foul, alleging he had been short-changed.

The second brother was upset that brother number three got a huge settlement of $49 million for making a “clean break” from the family. As a result, he filed a lawsuit demanding a quarter share of the fund, even though he and the youngest brother were also given $45.5 million each in another separation deal a year later.

Such disputes would not have happened if their eldest brother, the family’s patriarch, had still been alive. Prior to his death in 2016, he alone decided who would get how much, and that each payout could vary a lot, from $820,000 to $5 million.

The patriarch’s son took over the management of the family fund and he later became known as the “Santa Claus” when it was time to make payouts. But distrust started to fester as his three uncles were unhappy with the way he managed the business.

The size of the fund was not disclosed, but profits of millions of dollars were added to it through the years from their business in the food and beverage industry, property investments and hotel management. These included profits from their family’s hotel in Vietnam and family members would fly there and carry cash in US dollars back to Singapore.

Two years after the patriarch died, the third brother drew first blood and cashed out, reaping a one-off settlement of $49 million. But this angered the second and fourth brothers, who tried to get the family to kick their nephew out of the business.

The second brother was particularly aggrieved that his nephew ran the show when he felt he should have been the rightful successor after his older brother died.

This eventually led to a “restructuring agreement” under which he and the fourth brother were each given half shares of the business. Despite this, he still sued his nephew, claiming that he also owned a quarter of the remaining family fund.

High Court Justice Audrey Lim described the case as one involving a “dissatisfied brother who thought that he deserved more”. But she noted that he and his youngest brother also obtained a sizeable share of the business, which was worth at least $91 million in 2019.

Although he claimed he was short-changed, he had received about $26 million from the family fund through the years, well above the $16 million paid to his youngest brother.

The judge dismissed his suit because he could not prove that he was entitled to a quarter share of the family fund. In any event, he would no longer have any claim on the fund due to the restructuring agreement he signed in 2019.

This case presents key points on how to avoid disputes in family businesses.

Informality breeds suspicion

Many family businesses are run informally and the patriarchs can make their own rules on how things can be done. There is nothing wrong with this, unless some members of the family start to kick up a fuss over certain transactions.

For instance, the third brother in this case once received payments amounting to $15.5 million that he thought were dividends from family companies.

He found this strange as the companies were not known to declare dividends regularly, so he asked his lawyer to seek clarification. It was found that the payments were distributions from the family fund and not company dividends.

In another episode, the second brother asked his nephew to account for around $9 million that was withdrawn but not returned to the family fund.

The nephew said the money was used as loans for their overseas operations, and that the funds were repaid and then passed on to family members as part of their regular distributions and allowances.

Who is the boss?

It goes without saying that the patriarch of the family is the boss, and those who dare to question him risk being disinherited. But a revolt can happen if the patriarch dies without a successor with the authority to run the family business.

So it may be prudent to resort to using corporate titles such as chairman and chief executive so that everyone in the family is clear who is in the driver’s seat.

In this case, the evidence showed that the family adhered to a patriarchal system where the eldest male member controlled the purse strings and decided how the business profits or the family fund would be managed.

In the lawsuit filed after the eldest brother died, the second brother claimed that he was the one who called the shots and was the “de facto chief executive officer” of the family business.

But Justice Lim disbelieved him because the evidence showed that he lacked knowledge of the companies as well as the size of the family fund, despite claiming he knew “every aspect and the nitty-gritty” of the business.

If he was truly the boss, it was odd that his nephew was managing the family fund and not him or his son.

Justice Lim noted that the second brother knew there were substantial funds in family bank accounts and that the inflow and outflow of money would be very important to him if he were calling the shots. Yet he did not ask for details relating to those accounts even after he started to distrust his nephew.

The “lack of activity” on his part proved that he was not the boss of the family, the judge noted.

Records are crucial

If you are making an important decision in a family meeting, you should ensure there is a proper record of it to avoid any disputes later.

The second brother claimed that during an overseas family gathering, everyone agreed that the money in the family fund was for the benefit of the four brothers equally and that it would be distributed equally.

But the third brother later refuted this, noting that the “informal gathering” was just like any other family get-together. More importantly, he claimed that no one said anything about any agreement that would enable the brothers to share money from the family fund equally.

Moreover, he knew nothing about how or who was managing the fund and he did not even know that profits from the family businesses were deposited in bank accounts that were maintained by his nephew.

Justice Lim found the third brother to be an honest and a credible witness, adding: “I also did not see any reason for him to lie. He was subpoenaed to testify, and he did not wish to be involved in the family dispute.”

There was also no reason for him to speak in favour of his nephew as they also had a dispute that led to him leaving the family business.

As a result, the judge dismissed the second brother’s claim for a quarter share of the family fund.

Although it is common for family businesses to run based on trust, clear and transparent rules are necessary to avoid disputes, especially when large sums of money are at stake.

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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