Forcing Suffrage to End Suffering

One of the important ways in which the members of a company can express their views and concerns about the management of the company is at the general meetings of a company. Ordinarily however, the power to convene an extraordinary general meeting (“EGM”) vests in the directors of the company (for instance, Article 44 of Table A of the Fourth Schedule of the Companies Act 1965 (“Table A”) allows any director to convene an EGM). The members themselves do not have a common law right to compel the directors to convene an EGM.

Sections 144, 145 and 150 of the Companies Act 1965 (“the Act”) provide different mechanisms for the members to convene an EGM. In a majority of cases, such an EGM is convened to allow the members to vote on the removal and replacement of the directors. As a riposte, whether by an opposing shareholder faction or the directors themselves, legal challenges may then be made based on whether the procedural requirements have been adhered to.

This article therefore analyses the three different modes and their requirements for convening an EGM as provided for under sections 144, 145 and 150 of the Act.

SECTION 144 – SHAREHOLDERS REQUISITION DIRECTORS TO CONVENE AN EGM

Section 144 of the Act allows members, holding not less than 10% of the voting rights, to requisition the directors to convene an EGM of the company. Section 144(1) of the Act makes it clear that this statutory right of the members is preserved notwithstanding anything in the Articles of the company. The reason for the 10% shareholding threshold under section 144 of the Act, which is also present in section 145 of the Act, is necessary to prevent frivolous convening of meetings which would disrupt the administration of the company.

(i) “Members”

It is likely that notwithstanding the term “members” under section 144 of the Act, even a single member, holding not less than 10% of the voting rights, can rely on the provision. The High Court in Granasia Corporation Bhd & Ors v Choong Wye Lin & Ors and another case [2008] 4 CLJ 893 held that a single member could requisition under section 144 of the Act and the Court referred to the Australian decision in South Norseman Gold Mines No Liability v MacDonald [1937] SASR 53.

(ii) Requisition Requirements

Section 144(2) of the Act lists the requirements of the requisition notice in that it must state the objects of the meeting, it must be signed by the requisitionists and deposited at the registered office of the company. It is sufficient if the requisition is sent by post to the registered office of the company (Hup Seng Co Ltd v Chin Yin [1962] MLJ 371).

Upon the deposit of the requisition notice, the directors have 21 days from that date to issue a notice to convene the EGM (section 144(3) of the Act). Further, the EGM must be held within 2 months from the date of the deposit of the requisition notice (section 144(1) of the Act).

It is likely that a meeting requisitioned by the members cannot deal with a resolution not included in the objects for which the meeting was requisitioned (Scottish authority of Ball v Metal Industries 1957 SC 315). However, there is the alternative view that any business can be transacted at such a requisitioned meeting if sufficient notice of the necessary resolutions is given (Holmes v Life Fund of Australia Ltd [1971] 1 NSWLR 860).

(iii) Directors Fail to Convene EGM

In the event the directors fail to convene the EGM within the 21-day period from the date of requisition, then section 144(3) of the Act gives the requisitioning members a remedy of self-help in that the requisitionists themselves can convene the EGM.

Nonetheless, if the directors were to issue the notice to convene the EGM after the 21-day period and the EGM were to be held after the 2-month period from the date of requisition (without objection from the requisitionists), such an EGM would not be void. Such was the case in the High Court decision of Dato’ Hamzah Abdul Majid & Anor v Wembley Industries Holdings Bhd [1998] 4 CLJ Supp 471 where the directors who had been removed at such an EGM had tried to seek a declaration that the EGM was void for breach of section 144 of the Act. It was held that the duty on the directors to convene an EGM under section 144 of the Act was owed to the requisitionists. If the meeting was held on a late date, and the requisitionists had not sought to convene one on an earlier date, it would be because it still suited the requisitionists’ purposes. Nonetheless, holding a late EGM would still expose the directors to the general penalty provisions under section 369 of the Act.

(iv) Members Convene the EGM

In exercising their right to convene an EGM under section 144(3) of the Act, the requisitionists also face a deadline in that the EGM must be held within a period of 3 months from the date of the requisition (Court of Appeal decision of HL Nominees (Tempatan) Sdn Bhd v SJA Bhd & Anor and Another Appeal [2005] 1 CLJ 23).

The rationale for this time limit is to maintain good order in a company. The requisitionists having been conferred the power to convene the EGM, must not delay in holding the meeting (Dato’ Hamzah Abdul Majid & Anor v Wembley Industries Holdings Bhd [1998] 4 CLJ Supp 471).

As long as requisitionists holding one-half of the total voting rights of the original requisitionists convene the EGM, it is valid (section 144(3) of the Act). Therefore, the withdrawal of some of the requisitionists does not affect the right of the others to call the EGM (Canopee Investments Pte Ltd v Landmarks Holdings Bhd [1989] 2 MLJ 469).

(v) Expenses

An advantage of requisitioning a meeting under section 144 is that if the requisitionists convene the EGM, then all reasonable expenses they incur shall be paid to them by the company (section 144(4) of the Act).

SECTION 145 – MEMBERS CONVENING MEETING THEMSELVES

Section 145 of the Act allows two or more members, holding not less than 10% of the issued share capital (or if the company has no share capital, not less than 5% in number of members) to directly convene a meeting of the company.

Instead of relying on the section 144 mechanism which necessitates waiting for the directors to decide to call an EGM, section 145 of the Act gives the advantage of allowing the members to call for such a meeting themselves and this route can be a lot faster. However, section 145 of the Act does not give the members a right to be repaid any expenses incurred by them in holding such a meeting.

(i) “Two or more members”

While it is likely that a single member can rely on section 144 of the Act, section 145 makes it clear that two or more members are required in order to convene a meeting under this provision.

(ii) Statutory Right?

Section 145 of the Act does not contain the wording “notwithstanding anything in its articles” which is present in section 144 of the Act. A question arises as to whether there can be a contracting out of section 145 of the Act i.e. whether the Articles can exclude members relying on section 145 of the Act.

The Court of Appeal in Indian Corridor Sdn Bhd & Anor v Golden Plus Holdings Bhd [2008] 3 MLJ 653 (“Indian Corridor”) had to deal with a question related to such an issue. The facts involved the two appellant-shareholders convening an EGM pursuant to section 145 of the Act and the respondent-company challenging the convening of the EGM. Article 55 in the respondent’s Articles provided that the directors may convene an EGM and that EGMs “shall also be convened on such requisition, or, in default, may be convened by such requisitionist, as provided by Section 144 of the Act.” One of the main issues in the appeal was whether Article 55 had the effect of contracting out of section 145 of the Act.

The Court of Appeal held that on a construction of Article 55, there had been no contracting out of section 145 of the Act. The wording of Article 55 did not state that the shareholders shall not resort to their right under section 145 of the Act.

Nonetheless, the decision leaves open the question if the Articles of a company expressly exclude members from seeking recourse to section 145 e.g. the inclusion of a phrase along the lines of “EGMs may be convened by such requisitionist only by way of section 144 of the Act and section 145 of the Act is expressly excluded.”

The Court of Appeal in Indian Corridor distinguished the equivalent Australian provision (section 242(1) of the Australian Companies Code) as that section has the wordings “so far as the articles do not make other provision” which the Australian courts have held allow for the contracting out of the statutory provision (LC O’Neil Enterprise Pty Ltd v Toxis Treatments Ltd [1986] 10 ACLR 337). The Court of Appeal found that while the Australian provision permits a contracting out of its provisions, section 145 of the Act has no equivalent. This question may therefore still be open to interpretation by the courts.

(iii) Notice Period

Section 145(2) of the Act makes clear that in relation to a meeting of a company, the minimum notice in writing must be not less than 14 days or such longer period as provided in the Articles. In the specific case of the convening of an annual general meeting of a public company, section 145(2A) of the Act requires that notice in writing of not less than 21 days or such longer period as provided in the Articles.

(iv) Service of Notice

Section 145(4) of the Act also requires that if the Articles do not make provision for service of the notice on every member having a right to attend and vote at the meeting, then the notice must be served in accordance with Table A.

Unlike under section 144 of the Act, where the primary obligation is on the directors to issue the notices to call for the EGM, the members relying on section 145 of the Act must carry out the issuance of the notices themselves. In planning the calling of a meeting under section 145, the members can rely on section 160 of the Act to inspect or to obtain a copy of the register of members of the company to obtain the names and addresses of all the members.

SECTION 150 – COURT ORDERED EGM

There may be situations where it is difficult or almost impossible to hold a meeting of the company, even if there is reliance on sections 144 or 145 of the Act. For example, an opposing shareholder may refuse to attend the meeting and the quorum requirement under the Articles cannot be met. The Court is empowered under section 150 of the Act to order a meeting of a company to be called where it is impracticable to call or to conduct a meeting in the manner prescribed by the Articles or the Act.

(i) Applicant

The Court may make an order to convene a meeting on its own motion or on the application of a director or any member who is entitled to vote or the personal representative of such a member.

(ii) “Impracticable”

The onus is on the applicant to show that it is impracticable to call for a meeting of the company in any manner whatsoever or to conduct the meting in the manner prescribed by the Articles or the Act. The word ‘impracticable’ is not synonymous with impossible (Re El Sombrero Ltd [1958] Ch 900 at 904).

The Court can also exercise its power under section 150 if the meeting cannot be conducted properly, even though it may be called. In both the High Court cases of Low Son Siang v Lee Kim Yong [1999] 1 CLJ 529 and Phuar Kong Seng v Lim Hua [2005] 2 MLJ 338, there were only two shareholders and the quorum requirement for a meeting was two. There had been a failure on the part of one of the shareholders to attend the EGM and the Court allowed the application under section 150 of the Act to call for an EGM and directed that the quorum at the meeting be one member.

(iii) Requirement to Attempt to Requisition Meeting under Section 144 or Section 145 first?

Before applying to the Court under section 150 of the Act, members who wish to convene a meeting of the company may have to try to resort to section 144 or section 145 of the Act first. In the High Court case of Kemunting Tin Dredging (M) Bhd & Ors v Baharuddin Ma’arof & Ors [1985] 1 CLJ 442, the Court dismissed the application under section 150 and held that it was not impracticable for the members to call a general meeting. It was held that the members still had two avenues open to them, either in reliance of the procedures under section 144 or section 145 of the Act.

CONCLUSION

The statutory right for members to call for meetings allows members to express their views and to influence corporate governance. Where the members wish to replace the directors, they then need not rely on those same directors to call for the necessary meeting. The right to call for meetings is therefore a safeguard to corporate democracy in allowing members the opportunity to vote on company matters.

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