Problem Set 3, No. 7

Name : Punithemalar HariaratnamMatrick No. : GP01285Date : 4 August 2012 (Saturday)Lecturers : Prof Madya Dr Hasani Mohd Ali

Prof Dr Aishah Bidin

UK6043 Undang-Undang dan Amalan Syarikat

Problem Set 3, No. 7

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?

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

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Subco’s ordinary shareholders are:

Listco Berhad: 73% Tommy Tang 10% Rufus Tang 5% 6 other Tang family shareholders 12%

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Management structure

The five directors of Subco are:1. Mr Frank Fearless (Managing Director and CEO of Listco Group)2. Mr Barry Boon3. Ms Jenny, Managing Director of Subco Berhad4. Mr Tommy Tang5. Ms Sally Stevens

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

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Problem Set 3, No. 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.

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

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The Memorandum of Association contains

The Name of the Company Object clause Authorized share capital Full particulars of the initial promoters and director

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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

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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

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Protection of minority shareholders

May enforce their rights under common law or statute

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

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Protection of minority shareholders

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

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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

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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

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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

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What is an EGM?

Extraordinary General Meeting

Convened to transact any resolution that is too urgent to wait until the next AGM

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

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Convening of extraordinary general meeting on requisitionThere 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

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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 one-half 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

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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

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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

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