Internal Management

Question 1

Company’s Constitution:

Background

Answer 1

1. Concerns the rules that govern the internal management of a company.
   S 22 CA: Requirements for constitution, e.g.:
   a. Contains a statement of the liability of the members.
   b. For CLG: Amt which each member agrees to guarantee will be set out (under s22(1)(e) CA).
   c. For shares: Statement that liability of the members is ltd, which means that they are liable for any amt unpaid on shares (under s22(3) CA).
2. S 35(3) CA: Preserves existing Articles and MnA as regs of coy post-2016.
   a. Rationale: Before the coming into force of the Companies (Amendment) Act 2014, constitutional docs were memorandum and articles of assoc. Technically 2 separate docs but invariably bound tgt in 1 booklet.
   Still in force under ss 4(1), (13)(a) CA.

Question 2

Company’s Constitution:

Ultra Vires Doctrine

Answer 2

1. Used to be necessary to specify what coy objects are; NO LONGER the case (s23 CA - “may”).
   a. Objects clause basically listed the bizs that the coy could undertake.
   b. Objects clause can be modified by way of special reso (s33 CA)
2. Prev, a coy had no capacity at common law to enter into transactions which were outside its objects clause. Such transactions were ultra vires and void.
   ** Now abolished (s25 CA)
   Constructive notice has also been abolished (would have affected directors entering into contracts on behalf of company) (s25A CA).
3. BUT, these sections do not apply to foreign companies or to other corporate entities. The ultra vires doctrine therefore still survives in these peripheral areas.

Question 3

Company’s Constitution:

Regulations for Company / Model Constitution

Answer 3

1. S 35(1) CA: Provides that regs for internal gov of coys must be contained in the constitution.
   Still encompasses coys incorporated b4 the entry into force of 2014 Amendment Act; these continue to be governed by their current arts of assoc.
2. Ss 36-37 CA: Model constitutions have been prescribed by the Minister for Finance for pte coys and coys ltd by guarantee (per Companies (Model Constitutions) Regulations 2015) for both Coy ltd by shares and CLG.

Question 4

Company’s Constitution:

Amendment of Constitution - What?

Answer 4

1. Memorandum and Articles of Assoc are a statutory contract b/w coy and its members, and among the members inter se.
S 39(1) CA: Coy’s constitution has that same effect.

Question 5

Company’s Constitution:

Amendment of Constitution - How?

Answer 5

1. Constitution can be changed by a majority vote, unlike normal contracts, by passing special reso at general meeting.

S 33(1) CA: Coy may amend its objects in the constitution by special reso.

S 33(2) CA: Written notice at least 21 days prior to meeting.

S 26(1) CA: All amendments of constitution will require a special reso.

S 184(1) CA: Special reso requires at least 75% votes of the members / proxies.

** Can entrench constitution provisions.

2. Where share capital of a coy is divided into diff classes, may be provided in the constitution that the rights of a class can only be changed with a specified majority of votes of that class.
S 74 CA: If such a variation of class-rights reso is passed, holders of 5% of the total number of issued shares of that class may apply to challenge the variation.

Question 6

Company’s Constitution:

Amendment of Constitution - Limits?

Answer 6

S 26(1AA) CA: Coy may not undermine any legal right or interests that has accrued under the constitution prior to alteration (prospective effect).

1. S 39(3) CA: Member is not bound by effects of a subsequent alteration that requires him to subscribe for more shares or contribute to coy’s share capital unless consent has been given.
   Rationale: If forced to put in money without limitations, then notion of ltd liability become illusory
2. Southern Foundries v Shirlaw: Coy cannot contract to deprive itself of statutory power to amend its constitution; alteration of an article contrary to another pre-existing article does not preclude coy from any prior accrued legal right and they will still be liable for dmgs due to breach of constitution.
3. No rules that amendments must be made bona fide in the interest of the coy.
   BUT, if an amendment to the constitution discriminates against a member or is otherwise unfair, the affected member(s) may apply for a remedy under s216 CA.

Question 7

Company’s Constitution:

Amendment of Constitution - Entrenching Provisions?

Answer 7

Section 26A(1) CA: Entrenching provision may be included in coy’s article either when founded or added through unanimous consent of all members.

1. S 26A(4) CA: Entrenching provision has effect of making other provisions in the constitution: (1) non-alterable as held in the CA, or; (2) non-alterable unless reso to alter is passed with more than 75% majority vote.
2. S 26A(2) CA: Entrenching provision itself may only be removed or altered with unanimous consent.

Question 8

Company’s Constitution:

Amendment of Constitution - Statutory Oppression Remedy based on Constitution Amendment?

Answer 8

1. An alteration may be invalidated by an application made under S 216 CA.
   a. S 216(1)(a) CA: Member must show that coy affairs are being conducted or powers of the dirs are being exercised in a manner oppressive or in disregard of the member’s interest; or
   b. S 216(1)(b) CA: Member must show that some act of the coy or some proposed/passed reso unfairly discriminates/is prejudicial to the member’s interests.

Question 9

Company’s Constitution:

Amendment of Constitution - Common law test for alteration of articles -
General alterations where it is discernable that the alteration was done to benefit the coy at the expense of minority shareholders

[IN PRACTICE, will only be called upon when alteration is challenged, i.e. alteration is presumed valid UNLESS evidence of bad faith.
BOP: on person challenging the alteration to show that requirement hasn’t been met.]

Answer 9

1. Allen v Gold Reefs: An alteration must be bona fide for the benefit of the company as a whole.

Test is dominantly a subjective one: Based on what shareholders honestly believed was for the benefit of the coy (“in the opinion of the shareholders for the benefit of the company”).

2. Shuttleworth v Cox Bros: BUT, also an objective element: Based on whether reasonable man would have considered it for the benefit of the coy (subjective test based objectively).
   a. Onus on person challenging the amendment to evince bad faith behind the alteration.
   An alteration is made in bad faith if made with fraudulent / malicious intention + no reasonable basis for majority to have this view (in Sidebottom v Kershaw, alteration was made to injure a minority shareholder without regard to coy’s interest).

b. Objective test to ascertain whether any reasonable person would consider it to be for coy’s benefits since the majority, while acting in the best of intentions, may have failed to consider matters which they ought to have.
Citco situation: An alteration of class rights done for the benefit of coy’s interest, objectively ascertained.

Question 10

Company’s Constitution:

Amendment of Constitution - Common law test for alteration of articles -
Alterations that were done with no discernable interest to the coy but merely dealing with competing shareholders’ interests

[IN PRACTICE, will only be called upon when alteration is challenged, i.e. alteration is presumed valid UNLESS evidence of bad faith.
BOP: on person challenging the alteration to show that requirement hasn’t been met.]

Answer 10

1. Re Charterhouse Capital, upholding principles in Peters’ American Delicacy Co Ltd v Heath: Where there was prejudice to minority shareholder rights and it was merely an alteration b/w rights of different shareholders w no ascertainable interests to coy, onus is on aggrieved party to demo that the altering reso was fraudulent / oppressive / so extravagant that no reasonable person could believe that it was for coy’s benefit
   a. Greenhalgh v Arderne Cinemas Ltd: Consider Lord Evershed’s test, but that the end result of the test is faulty and we should still revert to the test laid out in Peters’ American Delicacy.

b. Additional principles to consider under Re Charterhouse Captial:
i. For shareholders and not Court to say whether an alteration is for the benefit of coy, but will not be for the benefit of the coy if no reasonable person would consider it to be such;
ii. Court won’t investigate the quality of the subjective views of the shareholders; and
iii. Mere fact that the amendment adversely affects, and even if it is intended to adversely affect, 1 or more minority shareholders and benefit others does not, of itself, invalidate the amendment if amendment is made in good faith in the interests of the coy.

Question 11

Membership of a company:

Statutes

Answer 11

1. Ss 19(6), 19(6A), 190(1), 196A CA: To be a member, a person (natural or artificial) must have name entered in the coy’s register of members.
   a. For CLG: Mode of becoming / ceasing to be a member will be prescribed by constitution.

b. For company ltd by shares: Becomes a member by acquiring shares (whether by allotment, gift or purchase) and registering himself as the holder.
Shareholder would have to submit an instrument of transfer (a ‘transfer form’) to the company (ss 126(1), 130(1) CA). Share transfer form must warranted by the prospective member to be genuine.

2. S 194 CA: If disputing over the ownership of shares, can apply to court to rectify the register of members. (S 196C CA applies it to electronic reg)

Question 12

Membership of a company:

*Stanley Yeung Kai Yung v HK and Shanghai Banking Corp [1981] AC 787 (PC on appeal from HK)

Answer 12

P’s (HSBC shareholder) share certificates stolen w/o his knowledge using forged share transfer deeds. Brokers completed the transfers in good faith. P sued D to restore forged transfer deeds.

Held: Coys have a statutory duty to register all valid transfers, including issuance of a fresh cert of title to the stock on transferee’s demand. BUT, breach of duty and a wrong to existing holders of stock for D to remove their names and register the stock in the name of the supposed transferee if he has no actual title to the shares.

Circumstances of brokers’ request were such that it imported a warranty by them of the genuineness of the docs submitted. Brokers were bound to indemnify the bank. Doesn’t matter whether person making the request (stockbroker) is aware of invalidity of title to make the request or could not with reasonable diligence have discovered it.

True principle of law: A person is liable for his engagements (as for his torts) though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability.

Question 13

Membership of a company:

Shares transfer for private companies

Answer 13

1. Lodge notice of transfer with ACRA for transfer to be effective (s126(2) CA).
2. Update e-register of members (s126(3) CA).

Question 14

Membership of a company:

Shares transfer for public companies listed on SGX

Answer 14

1. Shares are immobilised by having them registered in the name of the Central Depository (CDP).
2. CDP maintains a register of depositors and these depositors are treated as members of the coy (s81SJ SFA).

Question 15

Membership of a company:

Classes of shares for private companies

Answer 15

1. S 4 CA: Definition of shares.
2. S 75 CA: Rights of preference shares must be set out clearly in constitution before issuing.
3. S 70 CA: Conditions set out in CA and in the constitution must be adhered to before preference shares can be redeemed.

Question 16

Membership of a company:

Classes of shares for public companies

Answer 16

1. S 64A CA: Special requirements for class rights for public companies.
2. S 64A(1) CA: Public coy may only issue different classes of shares if:
   a. The issue of different classes of shares is permitted under its constitution; and
   b. Rights for each class of shares are set out in the constitution.
3. Ss 64A(2), (3) CA: Public coy may issue shares with special, limited, conditional or no voting rights. BUT, such shares may only be issued with the approval of a special reso.

Question 17

Membership of a company:

Share certificates

Answer 17

1. S 130AE CA: Prescribes that coys must issue share certs within a specified period. 
S 123(1) CA: Such certs are prima facie evidence of title to the shares. 
Ss126(1), 130(1) CA: Mere delivery of the share cert to a purchaser or donee not enough. Still need proper instrument of transfer, subject to constitutional provisions of company.

2. If persons acquire shares without registering as members, transferor holds them on trust for the transferee. New owner has an equitable interest pending registration.
   [*Jimat bin Awang v Lai Wee Ngen [1995] 3 SLR(R) 496 (CA)]

Question 18

Membership of a company:

Share certificates

*Jimat bin Awang v Lai Wee Ngen [1995] 3 SLR(R) 496 (CA)

[If persons acquire shares without registering as members, transferor holds them on trust for the transferee. New owner has an equitable interest pending registration.]

Answer 18

J, Y, and LWN bid for a site, incorporated a coy to do so and became shareholders and dirs. Since J and Y not enough funds, LWN paid deposit for tender. Agreed that J and Y would repay $87,5000 each to LWN by the deadline imposed by the MnAA, failing which the interest in the project would pass to LWN – only Y did so on 9 Mar.

Resolved in board meeting that J’s 3 shares to be transferred to LWN. Biz continued, 9mil shares were issued w/o informing J. While J didn’t execute any transfer for shares originally owed by him, coy’s register of members updated to reflect a transfer of shares. LWN offered more than once to sell his shares: 1st offer was to sell J’s shares back to them, 2nd and 3rd to sell 100% of his shares to them. Time to respond to the offer of sale lapsed.

Held:
1. Having not transferred shares legal title to LWN, J had bare legal title to the shares. As LWN had eq interest in the shares, J held shares on trust for LWN pending reg. Hence, had to act in acc with LWN’s wishes – up to him whether he wanted to purchase the shares.
Change to the reg of members was improper bc essential for transferors of the shares to execute the necessary docs and for the docs to be delivered to the coy before the coy could properly register the transferees as members. Therefore, J remained legal owners of the shares.

2. Transferee wouldn’t have the capacity to execute an instrument of transfer in favour of himself.
   a. J did not remain sole beneficial owner of the 3 shares throughout the events.
   b. Since J approved in principle of the transfer of their shares to LWN, there was a transfer of equitable ownership of the 3 shares to LWN.
   c. By virtue of LWN’s offers to sell, J acquired some beneficial interest during the period of the offer. However, the moment the offer lapsed, J became bare legal title holder of the shares.
3. Until new owner registers the shares, registered member will be paid any dividends declared, subject to contrary agreement. [*Sandz Solutions (S) Pte Ltd v Strategic Worldwide Assets Ltd [2014] SGCA 27]

Question 19

Membership of a company:

Share certificates

*Pacrim Investments Pte Ltd v Tan Mui Keow Claire [2008] SGCA 16

Answer 19

A person who owns shares may generally transfer them freely in the absence of share transfer restrictions (all his rights or only a limited interest (i.e. as security for a loan)).

It is the substance of the transaction and not the label attached to it that counts in determining whether the shareholder can transfer his interests.

Question 20

Membership of a company:

Share certificates

Nemo Dat Quon Non Habet: If transferor only has a restricted interest in shares due to encumbrance, transferee cannot have better title to the shares than transferor (as share certs are not negotiable instruments).

Only exception: Owner is estopped from denying seller’s authority to transfer title.

Answer 20

*Pan-Electric Industries Ltd v OCBC [1994] 1 SLR(R) 185 (CA):
Dispute over 1.55mil shares in ACMA brought by PE’s liquidators, asserting that they were at all times absolute + beneficial owners of the shares. Shares were reg in names of their respective corporate nominees as trustees, thus legal title vested in them.

PE permitted shares to be transferred, along with the share certs, to AAS (stockbrokers). T was dir of PE and AAS. AAS deposited share certs, executed transfer of 200,000 ACMA shares to OCBC, and further 1.35m ACMA Shares as security for banking facilities extended to AAS. OCBC = bona fide lenders of PE’s interest in the shares. PE claimed they were equitable mortgagees of the shares.

Held: PE had shown they probably beneficially owned and still owned the shares at all material times. But, beneficial interest of mortgagees was unimpeachable, and PE was estopped from denying AAS’s authority to transfer title.

On the facts, PE had put AAS in a position where the latter could deal with those shares. Thus, anyone who dealt with AAS would assume AAS had authority to deal with those shares.

Conduct of PE thus gave rise to clear rep, which must be implied, that AAS had implied or ostensible authority to deal with the shares.

Thus, PE was estopped from denying AAS’s authority to transfer title of shares to OCBC.

Question 21

Share transfer restrictions:

Background

Answer 21

1. Performed via an instrument of transfer and submit it to Coy.
   a. S 18(1)(a) CA: Restrictions on share transfer for pte companies.
   b. Public coys need not, but may have such restrictions (listed coys will normally have no restrictions, as a condition for listing).
2. Other types of share transfer restrictions can take the form of pre-emptive rights or a discretion given to dirs to refuse to register a transfer.

Question 22

Share transfer restrictions:

Forms of Share Transfer Restrictions

(1) Right of first refusal (Pre-emptive Rights)

Answer 22

1. Right given to existing members to purchase shares from transferor be4 they can be offered to a non-member (third party).
2. Malayan authority that a sale in breach of such rights is void (but currently unclear if this principle will be accepted in SG).
   [*Gan Sin Tuan v Chew Kian Kor [1958] 1 MLJ 62 (CA, Fed of Malaya): A agreed to sell R his holding of shares in UT. UT is a pte coy; its Art of Assoc contained Share Transfer Restriction which both parties knew. R still handed A money, but A refused to execute the transfer of shares on basis that it was contrary to the Share Transfer Restriction. R refused to take his money back and sued for specific perf.

Held: Sale was void. No rights, legal or equitable, arose b/w parties under the contract for sale.

Dissenting judge (Thomson CJ): Agreed with TJ that while the sale was void and legal title remained with A, equitable and beneficial interest in the shares were transferred to R. The fact that purchase money was paid is evidence that A intended to assign to R beneficial interest in the shares.

Unclear if this position has been accepted in SG, but must be cited as precedence when providing advice.

Question 23

Share transfer restrictions:

Forms of Share Transfer Restrictions

(2) Director’s Discretion

Answer 23

1. Discretion must be exercised bona fide in the interests of the coy.
2. S 129(3) CA requires the coy to state the facts justifying the refusal.

Question 24

Share transfer restrictions:

Forms of Share Transfer Restrictions

(2) Director’s Discretion
* Xiamen International Bank v Sing Eng (Pte) Ltd [1993] 2 SLR(R) 176 (HC)

pWhere reasons given under s129(3) CA are misconceived or invalid, dirs must register the shares.]

Answer 24

Dirs in SE charged shares to XIB as security for guarantees (share certs, transfer forms with XIB). XIB sold shares to PIC and sought to register. MnAA of SE gave dirs absolute discretion to refuse to register any transfer of shares of persons whom they do not approve. They tried all sorts of way to refuse and delay registration.

Held: Altho dirs had discretion to refuse the transfer from, it was subject to (old) s128(2) CA (now s129(3) CA). Court was entitled to review sufficiency of reasons, whether legitimate reasons or proceeded on proper principles.

On the facts, reasons were not legit to prevent XIB from realising fruits of security. Dirs were acting for their own interests and coy refused the reg to prevent enforcement of power of sale under an equitable mortgage.

Where reasons given under s129(3) CA are misconceived or invalid, dirs must register the shares. Court had power under s194(1) CA to rectify company’s register of members.

Question 25

Share transfer restrictions:

Forms of Share Transfer Restrictions

(2) Director’s Discretion
* HSBC (Malaysia) Trustee Bhd v Soon Cheong Pte Ltd [2007] 1 SLR(R) 65 (HC)

Answer 25

T refused reg of transfer of shares because he would breach coy’s MnAA by having more than 50 members. Hence, only permitted 2 members to register. MnAA waived all formalities for refusal.

Held: Court may review sufficiency of reasons. If refusal was bona fide and legitimate (not merely fanciful), Court will not intervene.

On the facts, reasons were valid as dir acted to ensure that the family biz did not lose its status as a pte coy.

Likely that if the transfers w
ere done, there would be a scramble among existing shareholders, many of whom were elderly, to be first in time to submit their own apps for their shares to be transferred to their prospective heirs for fear that the 50-member limit would be reached.

Question 26

Share transfer restrictions:

Forms of Share Transfer Restrictions

Remedies if share transfer restrictions not complied with

Answer 26

1. If transfer hadn’t happened (and right of first refusal not complied with), member may apply to Court for injunction so that the transfer complies with the constitution.
2. If transfer is completed without the other existing members waiving their right of first refusal, then existing members can bring an action under s194 CA for the rectification of the register of members.
   Courts will then decide who shall have title to the shares.
3. Woon has given e.g. on how share transfer restrictions could be overcome:
   If XH and Y set up JV, but the shares of XH are held by XS (its wholly owned subsidiary), despite right of 1st refusal for JV shares, XH can still cash out by selling the shares that it holds in XS.

Question 27

Enforcement of the provisions of the constitution:

Contractual Aspect

Answer 27

1. A member’s principal right is to have the provisions of the constitution complied with (following s39(1) CA).
2. Any member can insist that the company and other members comply with the provisions of the constitution, even if they seem unfair. [Wong Kim Fatt v Leong and Co Sdn Bhd [1976] (HC, M’sia)]
3. Interpretation of the constitution is like interpretation of any other contract. The court may under certain circumstances construe it to include implied terms. [Sembcorp Marine v PPL Holdings [2013] (CA)]
4. Enforcement of constitution as contract: The constitution is a contract b/w cony and the members under s39 CA.
   [Teo Choon Mong Frank v Wilh Schulz GmbH [1998] SG CA]

Question 28

Enforcement of the provisions of the constitution:

Contractual Aspect

A member’s principal right is to have the provisions of the constitution complied with (following s39(1) CA).

Answer 28

1. Members’ right to restrain ultra vires transactions and breaches of CA (s25(2) CA) by seeking an injunction (s409A CA).
2. Alternatively, if constitution requires coy to do something, any member may apply to Court to have coy comply with the constitution.
   a. E.g. If constitution requires all profits are to be distributed as dividends, member may apply to Court to ensure that coy complies with the constitution, even if all other members disagree.
   b. Only way to circumvent this prov is to pass a special reso to change the constitution.

Question 29

Enforcement of the provisions of the constitution:

Contractual Aspect

Any member can insist that the company and other members comply with the provisions of the constitution, even if they seem unfair. [Wong Kim Fatt v Leong and Co Sdn Bhd [1976] (HC, M’sia)]

Answer 29

*Wong Kim Fatt v Leong and Co Sdn Bhd [1976] 1 MLJ 140 (HC, M’sia):
Company’s Arts of Assoc provided that holders of 70% of issued capital could enforce the transfer of any shares not held by the holders. P objected and brought an action claiming that the clause was unfair and should be unenforceable.

Held: Articles of Association enforceable. Fairness of the Articles of Association is not relevant in finding whether it can be enforced or not. The rights and obligations are (statutorily) contractual and P must be held to the obligations he had undertaken.

Question 30

Enforcement of the provisions of the constitution:

Contractual Aspect

Interpretation of the constitution is like interpretation of any other contract. The court may under certain circumstances construe it to include implied terms. [Sembcorp Marine v PPL Holdings [2013] (CA)]

Answer 30

*Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 (CA):
SM entered into JV with PPL to form PPLS. PPLS shares equally owned. SM bought further 35% of PPLS shares from PPL. PPL attempted to sell remainder of its shares to 3rd party. SM sued for breach of several implied terms, incl an “equity premise clause”, which allegedly provided their agreements were based on premise that equal shareholding would cease to subsist once 1 party acquired maj shareholding. Affected prov entitled both to appoint 3 dirs each to PPLS’ board as long as proportion of shares remained equal. SM argued that since they had majority stake in PPLS, they exercised effective control over it. PPL argued they still retained equal voting rights and exec control over PPLS.

Held (CA): JVA silent on consequences of voting dirs should shareholdings become unequal, noted that parties had expressly agreed power to nominate was subject to each maintaining 50% shareholding.
Bc parties’ change in shareholdings had displaced earlier premise of equal shareholdings, necessary to imply a term for JVA provisions re dirs and control of board would no longer apply once equal shareholding was not maintained since change of shareholding percentages removed minority shareholder’s right to have a nominee dir on PPLS board.

The implication of terms in fact was the process by which Court filled a gap in the contract to give effect to parties’ presumed intentions. Not all gaps in a contract are “true” gaps in that they can be remedied by implication of a term.
Court would only imply a term into the contract if the gap arose because parties had not contemplated the issue.

Consideration of implication of terms involved a 3-step process:

(1) Ascertain how the gap in contract arose: Implication will be considered only if Court discerns the gap arose because parties did not contemplate it.
(2) Court then considers if it’s necessary in the biz or comm sense to imply a term to give the contract efficacy.
(3) Court then considers the specific term to be implied. Must be one where parties, having regard to need for biz efficacy, would’ve responded “Oh, of course!” had the proposed term been put to them at the time of contract.

Question 31

Enforcement of the provisions of the constitution:

Contractual Aspect

Enforcement of constitution as contract: The constitution is a contract b/w coy and the members under s39 CA.
[Teo Choon Mong Frank v Wilh Schulz GmbH [1998] SG CA]

SG Position

Answer 31

SG position: Nothing is said about member being able to enforce its right in the constitution only in its capacity as a member in s39 CA.

Question 32

Enforcement of the provisions of the constitution:

Contractual Aspect

Enforcement of constitution as contract: The constitution is a contract b/w coy and the members under s39 CA.

Teo Choon Mong Frank v Wilh Schulz GmbH [1998] SG CA

Answer 32

T entered into JV with 2 German coys; JV vehicle was F. Articles of Assoc amended to include shareholders’ agreement, pursuant to which T nominated himself to be board of F. T also appointed CEO and MD. Subsequently, German parties terminated T as CEO/MD and also called for extraordinary GM to remove T as dir. By CA, T was already removed as dir.

Held: T should be reappointed as dir. Under Arts of Assoc and shareholders’ agreement, right to remove T was vested in T alone. In removing T as dir, Germans had repudiated the r/s established by the shareholder’s agreement and Arts of Assoc and should’ve been restrained from doing so.

Comment: Thus, like in Salomon, T used his membership right to require coy to act in acc with Arts of Assoc, even though it was indirectly to protect a right which was afforded to him as dir, not as member.

Different from the judge-made rule in England that a member can only enforce rights given to him in his capacity as member under *Hickman v Kent or Romney Marsh Sheepbreeders’ Association [1915] (UKHC).

Question 33

Enforcement of the provisions of the constitution:

Contractual Aspect

Enforcement of constitution as contract: The constitution is a contract b/w coy and the members under s39 CA.

*Hickman v Kent or Romney Marsh Sheepbreeders’ Association [1915] 1 Ch 881, 896-897 per Astbury J (HC)

(Contrasting, wrong UK position)

Answer 33

“… I think that this much is clear, first, that no article can constitute a contract between the company and a third person; secondly, that no right merely purporting to be given by an article to a person, whether a member or not, in a capacity other than that of a member, as, for instance, as solicitor, promoter, director, can be enforced against the company; and, thirdly, that articles regulating the rights and obligations of the members generally as such do create rights and obligations between them and the company respectively.”

** This rule has not been explicitly adopted in SG and is wrong in principle. Inconsistent with the words of the statute.

Question 34

Enforcement of the provisions of the constitution:

Contractual Aspect

Enforcement of constitution as contract: The constitution is a contract b/w coy and the members under s39 CA.

*Malayan Banking Ltd v Raffles Hotel Ltd [1965–1967] SLR(R) 161 (Federal Court of M’sia in SG)

(Rights given to a person under the constitution who is not a member cannot be enforced by that person.)

Answer 34

** Rights given to a person under the constitution who is not a member cannot be enforced by that person.

MB was lessor of land, RH was lessee. Provided in RH’s Arts of Assoc that lessor should have the power to appoint a coy dir. MB appointed itself as a director. Coy sought a declaration that the appointment was invalid.

Held: Arts of Assoc not binding on Coy as b/w a Coy and a Third Party.

Arts of Assoc did not, as b/w Coy and a person who is not a member, constitute a contract of which that person could take advantage.

Thus, Third Party cannot take advantage of a power/benefit conferred upon him in Arts of Assoc.

Since MB was not a member, Arts of Assoc did not confer upon it any enforceable right to appoint a dir and the appt was invalid. Not being a member of the lessee company, lessor was an outsider with no standing to enforce the contract b/w lessee and its members.

Question 35

Enforcement of the provisions of the constitution:

Contractual Aspect

Enforcement of constitution as contract: The constitution is a contract b/w coy and the members under s39 CA.

*Independent State of Papua New Guinea v PNG Sustainable Development Program Ltd [2016] SGHC 19

(Rights given to a person under the constitution who is not a member cannot be enforced by that person.)

Answer 35

Non-members had no common law right to enforce a company’s MnA.

Question 36

Enforcement of the provisions of the constitution:

Contractual Aspect

Enforcement of constitution as contract: The constitution is a contract b/w coy and the members under s39 CA.

*Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701 (HL)

(Company cannot justify the breach of a contract with a third party by amending its constitution.)

Answer 36

S appted MD of SF for 10 yrs in a written agreement. 3 years after S’s appt, SF was taken over by F. F (as shareholder) amended Arts of Assoc of SF to confer upon itself the power to remove dirs of SF. SF then exercised this power, removed S as dir. S sued SF for breach of contract.

Held: In favour of S. Even when coy is free to amend its constitution, it is not always free to act upon the amendment. Such a situation may arise if coy were bound by a prior contractual undertaking that it would breach by acting on the altered constitution.

Question 37

Enforcement of the provisions of the constitution:

Constitutional Aspect (irregularities in proceedings)

Answer 37

** Constitution has to be complied with when it comes to whether there has been any irregularity in the appt and removal of dirs or the conduct of meetings. Has nothing to do with enforcement of the statutory contract.

1. Where proper procedure hasn’t been complied with, a person affected may apply to court for a declaration to that effect and consequential relief, even if he is not a member.
2. Right to ensure compliance with constitution is a fundamental right for members.
3. Members have a right to restrain ultra vires transactions and breaches of Companies Act (ss 25(2) and 409A CA).

Question 38

Enforcement of the provisions of the constitution:

Constitutional Aspect (irregularities in proceedings)

Where proper procedure hasn’t been complied with, a person affected may apply to court for a declaration to that effect and consequential relief, even if he is not a member.

Answer 38

1. Right to ensure compliance with constitution is a fundamental right for members.
   BUT, in practical terms, if issue is smth that most members can do by exercising majority vote, little point in bringing an action. [s392(2) CA where the courts have no power to regulate procedural irregularities if there is no injustice done to anyone.]
2. E.g., constitution may provide for certain procedures to be followed when appointing and removing dirs. But some dirs can only be removed by a specific member per the constitution. If such dir is removed, any member may apply to Court under S 392 CA bc removal of such dir is irregular.
3. Rationale: C is not seeking to enforce the terms of the constitution for his own benefit, but he is just seeking a declaration that what was done was not constitutional. Court may grant declarations to reinstate dir.
4. Members have a right to restrain ultra vires transactions and breaches of the Companies Act (ss25(2), 409A CA).

Question 39

Enforcement of the provisions of the constitution:

Constitutional Aspect (irregularities in proceedings)

Where proper procedure hasn’t been complied with, a person affected may apply to court for a declaration to that effect and consequential relief, even if he is not a member.

*Thio Keng Poon v Thio Syn Pyn [2010] 3 SLR 143 (CA)

Answer 39

F was founder, dir, MD, and chairman of both M’sia Dairy (“MaDA”) and Modern Dairy (“MoDa”), which, tgt with other coys, constituted the “Thio Grp”. F was removed from his position following an audit which unveiled F had made double expense claims from MaDA and another Thio Group coy. F claimed this removal was in breach of Arts of Assoc of both coys. TJ held that F had no standing to sue under s216 CA with ref to MoDa bc he was not a member.

Held: Although F wasn’t a shareholder of MoDa and wouldn’t have standing to argue that he be served a 14 days’ notice (provided in Arts of Assoc), he had an equitable right to be given timely notice of a proposal to remove him as a dir.

Question 40

Enforcement of the provisions of the constitution:

Constitutional Aspect (irregularities in proceedings)

Where proper procedure hasn’t been complied with, a person affected may apply to court for a declaration to that effect and consequential relief, even if he is not a member.

*Chang Benety v Tang Kin Fei [2012] 1 SLR 274 (CA)

Answer 40

Shareholders of PPLS are SML and PPL. Cs and Ts were coy dirs, Cs being PPL’s nominees and Ts SML’s nominees. Dispute arose b/w SML and PPL regarding beneficial ownership of coy shares. Cs had breached their duties to coy by disclosing confidential info to X. Coy’s Arts of Assoc + Shareholders’ Agreement provided that more than 1 of PPL’s Nominee dirs had to be present to constitute a quorum for a board meeting. As a defensive tactic, Cs declined to attend meetings, resulting in lack of quorum. Nonetheless, Ts passed resos and commenced an action to validate them under s392(2) CA.

Held: Allowed appeal. Quorum requirement was a procedural irregularity that led to substantial injustice.

Question 41

Enforcement of the provisions of the constitution:

Constitutional Aspect (irregularities in proceedings)

Where proper procedure hasn’t been complied with, a person affected may apply to court for a declaration to that effect and consequential relief, even if he is not a member.

*Chang Benety v Tang Kin Fei [2012] 1 SLR 274 (CA)

Test for procedural irregularity

[Test for substantial injustice]

Answer 41

1. What is a “procedural irregularity” will be ascertained by first determining what is “the thing to be done” which the procedure is to regulate (i.e. aim or object of requirement not complied with).
   a. If there is an irregularity which changes the substance of “the thing to be done” the irregularity will be substantive;
   b. If the irregularity merely departs from the prescribed manner in which the thing is to be done without changing the substance of the thing, the irregularity is procedural.
2. Focus should not be on whether the non-compliance was accidental or intentional, but whether it caused substantial injustice.
   a. If the irregularity is only procedural and not substantive, the court will validate the resolution.

Question 42

Enforcement of the provisions of the constitution:

Constitutional Aspect (irregularities in proceedings)

Where proper procedure hasn’t been complied with, a person affected may apply to court for a declaration to that effect and consequential relief, even if he is not a member.

*Chang Benety v Tang Kin Fei [2012] 1 SLR 274 (CA)

[Test for procedural irregularity]

Test for substantial injustice

Answer 42

Holistic weighing and balancing of the various interests of all relevant parties.

(1) Must have a direct link between the procedural irregularity in qn and the injustice suffered;
(2) Injustice must be real and not merely theoretical or fanciful; and
(3) Aggrieved party must show that there may or could have been a diff result if not for the occurrence of the procedural irregularity.

If there is substantial injustice, Court will invalidate the reso.

Question 43

Reserve powers where the board is deadlocked:

General

Answer 43

1. In general, division of powers b/w the board and the general meeting of members is prescribed in coy’s constitution.
   a. Reg 77 Model Constitution (which mirrors the wording of s157A CA) provides that biz of coy is managed by dirs, and dirs may exercise all powers of a coy except any power that the CA or constitution requires the coy to exercise in a general meeting of members.
2. BUT, the board may be deadlocked in some limited circumstances. Members may then authorise transactions where this is necessary in the interests of the coy.
   This reserve power is a restricted one.

Question 44

Reserve powers where the board is deadlocked:

Chan Siew Lee v TYC Investment Pte Ltd [2015] 5 SLR 409, CA

Answer 44

Coy’s board was deadlocked. 1 of the 2 warring dirs (Tay) called a general meeting, and with the support of another shareholder, purported to authorise Tay to appoint solicitors to commence proceedings to determine the relative positions of the parties, incl obligations of the other dir (Chan), and to make certain payments on coy’s behalf. Constitution, as a result of a series of interlocking agreements, mandated the agreement of both dirs before any payment could be made by coy. Chan had withheld her approval for certain payments, incl payments to Tay’s solicitors. Constitution adopted the text of s157A CA.

Held: Coy’s shareholders had implied reserve power to authorise Tay to unilaterally sign, on Coy’s behalf, cheques for payment of Coy’s creditors (incl fees owed to solicitors appointed).

Payments to creditors were approved even in absence of Chan’s consent, as bona fide services were performed and payment was warranted.

BUT, solicitors not permitted to recover any fees relating to coy’s claims against Chan for breach of fiduciary duty. This was a managerial decision more properly brought under s216A CA (personal remedies in cases of oppression and injustice).

Question 45

Reserve powers where the board is deadlocked:

Chan Siew Lee v TYC Investment Pte Ltd [2015] 5 SLR 409, CA

2 Requirements before general meeting of members has reserve powers to act

Answer 45

(1) The matter in respect of which the general meeting is intervening must relate to “the performance of a bona fide obligation owed by the coy to a third party”; and
(2) There is nothing to indicate that it would be otherwise than in coy’s interests that the obligation is honoured”.

On the facts, dirs were deadlocked and it was clear not only that coy was obliged to make the payments in question, but also that it was in coy’s interests to do so.
Thus, this was a proper case for an implication of a reserve power to make that decision.

Question 46

Reserve powers where the board is deadlocked:

When are reserve powers pointless?

Answer 46

If the votes are equally split, which would be the usual situation when the board is deadlocked.

Therefore, recourse to the general meeting would only be useful in the very rare case where the board cannot act but the members are not deadlocked.

The usual solution to break a deadlock is for the members to remove the recalcitrant dirs, appoint more dirs, and/or change the constitution. Where these courses of action are available, Court will not intervene.