Company Law - Problem Set, Resolutions Implementation

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Company Law - Problem Set, Resolutions Implementation

  1. 1. UK6043 Undang-Undang dan Amalan Syarikat Problem Set 3, No. 7 Name Matrick No. Date Lecturers : : : : Punithemalar Hariaratnam GP01285 4 August 2012 (Saturday) Prof Madya Dr Hasani Mohd Ali Prof Dr Aishah Bidin
  2. 2. Rufus Tang who has just returned from a “Save the Earth” summit in Brazil, believes that company should only sell food products that are environmentally friendly in its supermarkets. He wants the board of Subco to change the company’s business but the board refused to entertain his request. He wants to call a general meeting to resolve that the company focuses on environmentally-friendly food products. Can the general meeting instruct the board to implement its resolution on this matter? Problem Set 3, No. 7
  3. 3. Background  Subco Berhad is a non-listed public company  Owns and operates a chain of supermarkets and specialty food and beverage stores throughout Malaysia and Singapore  Listco Berhad owns 73% of the ordinary shares in Subco Problem Set 3, No. 7
  4. 4. Subco’s ordinary shareholders are:     Listco Berhad: Tommy Tang Rufus Tang 6 other Tang family shareholders 73% 10% 5% 12% Problem Set 3, No. 7
  5. 5. Management structure The five directors of Subco are: 1. Mr Frank Fearless (Managing Director and CEO of Listco Group) 2. Mr Barry Boon 3. Ms Jenny, Managing Director of Subco Berhad 4. Mr Tommy Tang 5. Ms Sally Stevens Problem Set 3, No. 7
  6. 6. The case and application of the Law  Rufus Tang  Minority shareholder - 5% of Subco share  Proposes the Company sells only products that are environmentally friendly  Object clause of the company has to be amended in the Memorandum of Association (M&A) of Subco Berhad  The amendment processes must strictly be in compliance with the Malaysian Companies Act 1965 Problem Set 3, No. 7
  7. 7. Since the board refused to entertain his request Rufus has no other option but to convene An Extraordinary General Meeting (EGM) A special resolution has to be passed in a General Meeting by way of three-fourth majority. Problem Set 3, No. 7
  8. 8. Memorandum of Article of Association – Definition  Is the primary legal document of a company determining the conduct of its daily business  Cannot ultra-vires Section (20) or over-ride provisions and requirements of the Companies Act, 1965 or any other relevant legislation Problem Set 3, No. 7
  9. 9. The Memorandum of Association contains     The Name of the Company Object clause Authorized share capital Full particulars of the initial promoters and director Problem Set 3, No. 7
  10. 10. The M&AA is the key component document that has to be filed with the Companies Commission of Malaysia (CCM) at the time of incorporation and thereafter the Company must duly notify the CCM on any changes made to the M&AA Problem Set 3, No. 7
  11. 11. According to Section 31 of Companies Act, 1965, M&AA is freely alterable by special resolution, provided the following 3 conditions are fulfilled:(i) The alteration of M&AA must be bona fide for the best interest of the Company (ii) It does not contradict with the M&AA (iii) It does not ultra vires the CA 1965 Problem Set 3, No. 7
  12. 12. Protection of minority shareholders May enforce their rights under common law or statute Problem Set 3, No. 7
  13. 13. Protection of minority shareholders Shareholders may file a petition for cessation of or a remedy against oppression of the minority under Section 181 of the Companies Act where:  The company’s affairs are being exercised in a manner oppressive to member(s) or in disregard of the interests of shareholders; or  A resolution of the shareholders, debenture holders or any class thereof has been passed or is proposed, or an act of the company has been executed or is threatened, which is unfairly discriminatory or prejudicial to one or more shareholders Problem Set 3, No. 7
  14. 14. The test used by the courts on protection on minority is “unfairly discriminatory” as in the case of :  Greenhalgh v Arderne Cinemas Ltd [1951] 1 Ch 286  Jaya Medical Consultants Sdn Bhd v Island Peninsular Bhd & 13 Ors [1994] 1 MLJ 520  Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 Problem Set 3, No. 7
  15. 15. The Remedy  Derivative action  Enables a shareholder to bring an action for the benefit of the company in certain circumstances  Rufus cannot call for the EGM by himself Problem Set 3, No. 7
  16. 16.  Section 145 only allows two or more members, holding not less than 10% of the issued share capital to directly convene a meeting of the company  Section 144 and 145 aims to prevent frivolous convening of meetings that would disrupt the administration of the company Problem Set 3, No. 7
  17. 17. Rufus therefore needs to “lobby” to have not less than 10% of shareholders to support his motion  He can either get Tommy Tang - 10%  or the other Tang family members who owns 12% If he succeeds, then he and the fellow shareholders jointly holding not less than 10% may jointly call for the EGM Problem Set 3, No. 7
  18. 18. What is an EGM? Extraordinary General Meeting Convened to transact any resolution that is too urgent to wait until the next AGM Problem Set 3, No. 7
  19. 19. The M&AA allows the directors to convene an EGM Members of the company - on requisition provided that the member calling for the EGM holds not less than 10% of the paid-up capital that has the right to vote at the general meeting Problem Set 3, No. 7
  20. 20. Convening of extraordinary general meeting on requisition There are two ways in which the EGM  First, pursuant to s 144(1) of the Act the directors of the company shall forthwith proceed duly to convene the EGM upon the deposit of the requisitionThe EGM shall be held as soon as practicable but shall not be held later than two (2) months after the receipt by the company of the requisition  The EGM shall be held as soon as practicable but shall not be held later than two (2) months after the receipt by the company of the requisition Problem Set 3, No. 7
  21. 21.  Secondly, in the event that the directors of the company fail to convene the EGM within twenty-one (21) days  Requisitionists or any of them representing more than onehalf of the total voting rights of all of them, may themselves, pursuant to s 144(3) of the Act convene the EGM in the same manner Problem Set 3, No. 7
  22. 22. Section 150 (court-ordered EGMs)  Impossible to hold a meeting of the company, even if there is reliance on Section 144 or 145 or to carry through any resolutions due to lack of majority support  In 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 Problem Set 3, No. 7
  23. 23. Conclusion     The General Meeting can implement its resolution Provided passed by a majority of at ¾ of the members Rufus has a mountain to climb! Rufus and his fellow requisitionists must take heed of this section seriously and consider the cost versus the benefits should they wish to proceed to convene an EGM Problem Set 3, No. 7

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