Members' Rights Flashcards
Members’ 3 Rights
Apart from the crucial right to have the provisions of the constitution observed, members have 2 other important rights:
- Right to attend, speak and vote at general meetings (s180(1) CA).
These rights may be restricted by the constitution (i.e. preference shareholders have no right to vote). - Right to be treated fairly and equally.
Meetings and resolutions:
Background
- In order for a company to take a decision, a resolution has to be passed at a general meeting of the members.
Exception: 1-member coys have no such requirement as the sole member may record the resolution and sign the record (s184G(1) CA). - Where member is a corporation, the corporation’s rep duly authorised by the board may sign a minute to the effect that the resolution in question has been passed (s179(6) CA).
Meetings and resolutions:
Resolutions by written means and AGMs
Meeting must be held
- More than 1 member: generally, a meeting must be held.
Although for pte coys and unlimited public coys, resos can be passed by written means if such reso is sent to each member (s184C(1) CA). - Must have AGM every year (s175(1) CA).
a. At the AGM, routine biz is transacted (i.e. election of directors, declaration of dividends, fixing of director’s fees etc.):
- - Financial statements are to be laid before members (but no need their approval) (s201(1) CA);
- - Need to appoint auditors (ss205(2), 205A(1), 205B, 205C CA); and
- - Approval given for share issuance (s161) (usual for listed coys).
b. Constitution may specify what ordinary biz may be transacted at the AGM. - Pte coys may dispense with AGMs by unanimous consent of all voting members (s175A CA).
a. Irl, small pte coys often resorted to ‘paper’ meetings, where the coy secretary writes up minutes as a fiction when no meeting was in fact held.
b. Where AGM is dispensed with, whatever biz required to be transacted at the AGM is done by circulation of written resos (ss184A, 184B, 184C, 184D, 184E, 184F CA).
c. Only for pte coys and unlisted public coys.
d. This procedure may remove the need to apply to Court for a meeting if there is no quorum.
Meetings and resolutions:
Resolutions by written means and AGMs
Informal Assent of resolutions by members
Alternative to stat procedures for calling of meetings and passing of resos: Judge-made rule that if all members of a coy agree, that agreement (if it can be proven) is as binding on the coy as a proper reso would be.
= If everybody agrees, it is pointless to hold a meeting.
[Jimat bin Awang v Lai Wee Ngen [1995] SGCA 77 (Court of Appeal)]
Meetings and resolutions:
Resolutions by written means and AGMs
Informal Assent of resolutions by members
Jimat bin Awang v Lai Wee Ngen [1995] SGCA 77 (Court of Appeal)
Whether a General Meeting was required if all members assented during a Board meeting. Apps complained about, inter alia, the issuance of 9m shares w/o their consent.
Held: Unanimous and informal assent by all members of a coy in some manner is as effective as a reso passed at a GM, even if assent is given at diff times.
On the facts, As and Y acted in diff capacities to achieve the desired result of allotting shares during the same meeting: (1) as shareholders to given unanimous approval; and then (2) as dirs to successfully allot the shares.
** S161 CA restricted dirs from issuing shares w/o prior approval of coy; BUT, coy was not so restricted.
** Reasoning of informal assent could be extended to validate a transaction which was entered into by dirs in breach of fiduciary duty (but not yet confirmed by SG courts).
Meetings and resolutions:
EGM
4 ways to call
(1) Constitution gives the board (or even a single dir) the power to call an EGM.
(2) Members holding 10% or more of paid-up shares (or 10% of the voting rights in a guarantee coy) may serve a requisition on dirs requiring them to call an EGM. (s176 CA) Meeting must be no later than 2 months from receipt of requisition. If no meeting within 21 days of receipt, requisitionists can hold own meeting within 3 months, chargeable to coy.
Requisitionists usually require coy to circulate notice of proposed resos (s183 CA).
[Credit Development v IMO Pte Ltd: If object of the meeting is to do that which cannot legally be carried into effect or to pass a reso which is ultra vires the meeting, then dirs don’t need to convene the meeting. If meeting is held and a reso passed, dirs are not bound to comply with it. The resolution is void and of no effect.]
(3) 2 or more members holding 10% or more of issued shares (or 5% of the members in a guaranteed coy) may call the meeting themselves w min 14 days’ notice in writing to every member (s177 CA).
(4) Application to court may be made under s182 CA if it is otherwise impracticable to call a meeting.
[Lim Yew Ming v Aik Chuan Construction Pte Ltd [2015] SGHC 101 (HC)]
[Naseer Ahmad Akhtar v Suresh Agarwal [2015] SGHC 256 (HC)]
Meetings and resolutions:
EGM
4 ways to call
Lim Yew Ming v Aik Chuan Construction Pte Ltd [2015] SGHC 101 (HC)
There needs to be something which prevents the meeting from being conducted, though whether or not an order should be granted is for the court’s assessment of the circumstances.
Meetings and resolutions:
EGM
4 ways to call
Naseer Ahmad Akhtar v Suresh Agarwal [2015] SGHC 256 (HC)
Held that court should exercise discretion, as:
(1) quorums should not be used as de facto vetos; and
(2) majority shareholders should, by right, get to appoint directors.
Meetings and resolutions:
EGM
Special Notice for Resolutions
- Certain resos require special notice before they can be passed. Notice is to coy from the members who propose the reso, stating that they intend to move it at the AGM or EGM (as the case may be) (s185 CA).
a. Required for removal of dirs of public coys and auditors (ss152(2), 205(4) CA).
b. Might require special notice for other situations, dependent on constitution of coy.
c. Distinction b/w special notice and special reso. - Rationale behind special notice is to allow the target of the reso the opp to defend himself.
Meetings and resolutions:
Notice for Meetings
To inform the members of a meeting, the company must send them notice. This is done so that they can decide whether to attend or not.
2 aspects to this: time and content.
Meetings and resolutions:
Notice for Meetings
Time
- Notice must be sent to the members not less than 14 days before the meeting (21 days if a special reso is to be passed by a public coy) (ss177(2), 184(1) CA).
* * Constitution may specify a longer period of notice. - Exceptions:
a. Short notice possible in AGM but requires 100% unanimous consent of all members that are entitled to attend and vote: s177(3)(a) CA.
b. Short notice possible in EGM, but requires 95% of vote: s177(3)(b) CA.
c. Where dirs and members are the same, AGM can be held w/o 14 day notice: Chow Kwok Ching v Chow Kwok Chi [2008] -
As directors already approved financial statements, would be ridiculous to requisition another 14 days before the same individuals can approve as shareholders.
Meetings and resolutions:
Notice for Meetings
Content
- Notice should contain sufficient info to allow members to make an informed choice whether to attend and how to vote. Rules pertaining to board meetings are analogous (i.e. similar).
- Requires 2 items:
a. s181(2) CA: Statement informing members of the right to appoint a proxy who need not be from the company.
b. s184 CA: Any intention to propose a special reso. - If the notice is inadequate, proceedings at the meeting may be invalidated. An aggrieved member may apply for a declaration to that effect.
- Test is whether the info is enough to enable a prudent member to decide whether he will attend the meeting, send parties in his stead, or is content to let matters take their own course at the meeting. As a matter of good corporate governance, it should generally provide the proposed reso.
[Hup Seng Co Ltd v Chin Yin [1962] (MS HC)]
[Lau Ah Lang v Chan Huang Seng [2001] SGHC 178 (HC)]
Meetings and resolutions:
Notice for Meetings
Content
Hup Seng Co Ltd v Chin Yin [1962] (MS HC)
Members of coy served a requisition to call a GM. The draft reso to be discussed was sent with the requisition. Dirs failed to call a meeting in due time, so requisitionists proceeded to convene a meeting. In the notices sent out, the date, time, place of the meeting were specified, but stated only that “the business before the meeting will be to discuss and vote upon the resolutions set out in the notice of requisition”. No copy of the notice of requisition accompanied the notices calling a meeting.
Held: The notices calling the meeting failed to comply with Coy’s Arts of Assoc in that they didn’t specify the general nature of the biz to be transacted at the meeting. This was a fatal flaw to the validity of the meeting; the proceedings were void.
Meetings and resolutions:
Notice for Meetings
Content
Lau Ah Lang v Chan Huang Seng [2001] SGHC 178 (HC)
Mgmt comm of an association was dissolved at an EGM and a replacement comm, consisting of the Dirs, was elected pursuant to resos passed by members in attendance. As the notice calling for the meeting did not state that such actions would be taken, Ps sought a declaration that Dirs’ appt was void, and that the mgmt comm was still duly elected and effective.
Held: Declaration granted to Ps. The notice didn’t specify with sufficient particularity the matters to be discussed and resolved.
No indication to Ps that there would be a motion to replace the mgmt comm. Since Ps were unaware of the purpose of the meeting, they could not make an informed decision as to whether attend.
Consequently, they were deprived of their right to attend and contribute to the discussion and participate in the voting that took place when they failed to attend.
Meetings and resolutions:
Mode of Communication
Electronic means allowed
- Companies may send notice and documents by electronic means rather than snail-mail (ss387A, 387B, 387C CA).
- Companies may also post notices and docs on their websites, but this is for convenience only and does not constitute notice (since it is impossible to prove that a member has read them).
- BUT, posting on the website constitutes sufficient notice if the member has agreed in writing to this in accordance with s387B(2) CA.
Meetings and resolutions:
Mode of Communication
Conduct of Meetings
- s178 (Right to demand a poll) and s179 (Quorum, chairman, voting, etc. at meetings) CA govern the conduct of meetings.
- This might also be prescribed within the constitution (which may in some instances override statutory provisions in CA).
a. Quorum: Note s179(1) CA: Requires min of 2 members to form quorum.
b. Voting: Number of votes that a member has depends on the constitution.
** General rule is that each share carries one vote (s64(1) CA).
BUT, coys may issue diff classes of shares carrying diff voting rights (in the case of public coys, s64A CA).
E.g. common to issue preference shares that carry no voting rights; (and in return, the holders of such shares get priority in payment of dividends (assuming profits exist to allow such payment)).
** s64 and s64A clarify that companies may issue non-voting shares or shares that carry multiple votes. - For directors’ meetings, procedure is governed in the constitution.
Irregularities in proceedings:
General
- Most coys do not play strictly ‘by the book’ when conducting meetings. In most cases, there are instances of non-compliance w notice reqs or procedure. Most of these are too trivial to complain of.
In general, Courts are not sympathetic to members who bring proceedings about irregularities that can be cured by a simple majority of the coy. - Known as the rule in *Mozley v Alston (1847) 1 Ph 790, and explained by Mellish LJ in *MacDougall v Gardiner (1875) 1 Ch D 13, 25: If something is done irregularly or illegally that can be done regularly or legally which a majority of the Co is entitled to do, then a meeting has to be called, and ultimately the majority will get its wishes.
- BUT, where the irregularity causes injustice, a person affected may apply for an injunction to prevent it happening (if he can do so in time), or a declaration to the effect that there has been an irregularity in a proceeding or reso (generally after the event) and consequential relief (usually, setting aside the resos or decisions made at that meeting).
Irregularities in proceedings:
How to validate irregularity
- D may apply under s392 CA to have the court validate the irregularity.
A. Procedural irregularities listed under s392(1) CA:
a. Absence of quorum; and
b. Defect, irregularity or deficiency in notice or time.
B. General meetings are also proceedings for the purposes of s392 CA (per Welch v Britannia Industries).
a. s392(1) CA: Applies to directors’ and creditors’ meetings on top of general meetings.
b. s392(2) CA: Savings provision for procedural irregularities, where A applies to court to save a reso tarnished by procedural irregularities. Has the effect of correcting procedural irregularities that fall within s392(1) CA unless they have caused, or may cause substantial injustice that cannot be remedied by any order of the court.
- Thio Keng Poon v Thio Syn Pyn [2010] 3 SLR 143 (CA): 2 stage inquiry for the application of s392(2) CA.
- Chang Benety v Tang Kin Fei [2012] 1 SLR 274 (CA): 3 principles in determining substantial injustice.
Irregularities in proceedings:
How to validate irregularity
Thio Keng Poon v Thio Syn Pyn [2010] 3 SLR 143 (CA) -
2 stage inquiry for the application of s392(2) CA
(1) Whether the irregularity is substantive or procedural. (If substantive, s392(2) CA is not available to save the reso/meeting)
(2) Where it is procedural, there must have been no substantial injustice to the affected parties in order for the resolution/meeting to be valid.
[A was founder, dir, MD and chairman of both M’sia Dairy (“MaDa”) and Modern Dairy (“MoDa”) under the “Thio Group”. Audit unveiled A had made double expense claims from MaDa and Moda. A contended his removal was contrary to Arts of Assoc of the Coys. Notice for the meeting of Board of Dirs at MaDa was given to all dirs except A who was overseas. At the meeting, A was removed as a dir. The reso was ratified by members at AGM. Under MnAA, a request had to be made to A to resign as a dir.
Held: s392 CA couldn’t apply to validate the board meeting because the irregularity was not of a procedural nature. Moreover, found that non-compliance with the article had caused A substantial injustice.
a. A may not have been removed as a dir had he been able to present his case.
b. Fact that Coy was family-owned and operated was significant.
c. Fact that sons had waited till A was away before making their move was significant.]
Irregularities in proceedings:
How to validate irregularity
Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex Pte Ltd [2007] 1 SLR(R) 940 (CA)
GV was a JV coy set up by GH and VR. Each entitled under SHA to nominate 3 dirs to the Board, VR entitled to appoint the Chairman w a casting vote. At a meeting, GH dirs objected to a VR dir being appted Chairman because the SHA giving VR the right to appoint the Chairman hadn’t been incorporated into the MnAA. VR dir still proceeded with the meeting, GH dirs walked out. Remaining VR dirs passed the reso. GH claimed that the self-appt was irregular and that GH had suffered substantial injustice as a result.
Held: No substantial injustice in the appt as meeting had been completed with a quorum (quorum is only needed at commencement).
In any event, even if procedure was irregular, GH had not suffered substantial injustice and so Court would validate the irregularity.
Must have a nexus b/w the irregularity and the injustice that has accrued. It is the procedural irregularity that must have caused the injustice, not the resos themselves: but for the irregularity, a different result would probably have followed at the meeting so that the irregularities had caused, or might cause, substantial injustice.
On the facts, even though chairman didn’t have to use his casting vote, had the GH dirs stayed, he would’ve had to use the vote; the nexus would’ve been established.
Nonetheless, s392 CA failed: any substantial injustice was perpetrated by GH against GV rather than the other way.
a. Intention of GH dirs in walking out was to deprive GV of its opp to have its case heard under the main action.
b. GH had previously agreed to allow the VR dir to chair all dirs’ meetings.
c. As GH’s nominee dirs, their primary duty was to protect the interest of GV and not GH. In determining the application of s392(2) CA, R’s (GV) perspective is also relevant in addition to A’s perspective.
Where proper procedure has not 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.
** Exception to the general rule that third parties are not privy to the constitution, viz statutory contract b/w members and the Co.
Irregularities in proceedings:
How to validate irregularity
Chang Benety v Tang Kin Fei [2012] 1 SLR 274 (CA)
Shareholders of PPLS are SML and PPL. C and T were dirs, C being PPL’s nominees and T being SML’s nominees. Dispute arose b/w SML and PPL re beneficial ownership of shares of Coy. C had breached their duties to the Coy by disclosing confidential info to X. The Company’s Arts of Assoc and SHA provided that more than 1 of PPL’s Nominee Ds had to be present to constitute a quorum for a board meeting. As a defensive tactic, C declined to attend the meetings, resulting in the lack of quorum. Nonetheless, T passed the resos and commenced an action to validate them under s392(2) CA.
Held: Appeal allowed. Quorum requirement was a procedural irregularity that led to substantial injustice.
Re quorum irregularity, where such a quorum req is breached, there will be prima facie substantial injustice to the side which exercised its deadlock rights.
Validation of the resos had the effect of overriding an agreement which T had made with C regarding the scope of X’s appt; this was a substantial injustice because C was deprived of the bargain that they had struck with T and X.
Irregularities in proceedings:
How to validate irregularity
Chang Benety v Tang Kin Fei [2012] 1 SLR 274 (CA)
3 principles determining substantial justice
- There must be a direct link between the procedural irregularity in question and the injustice suffered.
- The injustice must be real, and not merely theoretical or fanciful.
- The aggrieved party must show that there may or could have been a different result if not for the occurrence of the procedural irregularity.
Irregularities in proceedings:
How to validate irregularity
Sum Hong Kum v Li Pin Furniture Industries [1996] 2 SLR 488
Coy was incorporated to take over biz of the partnership and 3 OG partners continued as dirs and shareholders. P fell out with the other 2 shareholders and was removed at an AGM. The constitution provided for a quorum of 3 and this quorum was not satisfied.
Held: In considering s392 CA, courts held that the agreement was to form a partnership of equal partners and interpreted the relevant quorum provision as to requiring all 3 founding director-shareholders to be present before a quorum is constituted.
Absence of P in the circumstances meant that P was deprived of this right, and the lack of quorum was thus a defect that would cause substantial injustice to P and could not be cured by the section.
Irregularities in proceedings:
Minority oppression
Sometimes persistent breach of the constitution and the Act may be evidence that the majority is treating the minority unfairly. This can be remedied by an action under s216 CA.
Note that a breach of constitution, provided that it has not and will not lead to substantial injustice, will, if it is a procedural irregularity under s392 CA, not invalidate the acts of the members or dirs.
Moreover, even if the breach is more serious, it may nevertheless be validated by court order, provided again that is has not and will not lead to substantial injustice.
Irregularities in proceedings:
Remedies
Court may, on the application of the person concerned, make any of the following orders:
(1) Declare any act, matter or thing to be done, any proceeding instituted to be valid: s392(4)(a) CA;
(2) Rectify a register kept by the Registrar under the Act: s392(4)(b) CA;
(3) Relieve a person in whole or in part from any civil liability arising from the act: s392(4)(c) CA;
(4) Extend the period of time for doing any act or instituting any proceeding under the Act: s392(4)(d) CA; and
(5) Any consequential or ancillary orders as the court thinks fit.
The right to require compliance with the constitution is a fundamental right for all members.
However, in practical terms, if what is complained of is something that the majority may do through an exercise of majority votes, there is little point in suing.
The court has power under s392 CA to validate procedural irregularities if no injustice is done to anyone.
Voting:
Fundamental right to vote
A right of property, to be exercised as member sees fit (under s180 CA).
*North-West Transportation Co Ltd v Beatty (1887) 12 App Cas 589 (PC on appeal from Canada): D (shareholder) caused the Coy to buy a steam ship (price was not unreasonable and steam ship was the only one suited for the role needed at that time). D also had the contract ratified by a majority of shareholders, but he held a large portion of the shares that voted for the ratification. Whether D could ratify a transaction that breaches his fiduciary duty and act as SH and vote regarding ratification of that impugned transaction.
Held: When voting, member owes no duty to the coy and may vote as he wishes, even if the member may have a personal interest differing from that of the Coy.
Voting:
Member may enter into a contract restricting his power to vote in certain ways
Such shareholders’ agreements are enforceable by injunction.
Russell v Northern Bank Development Corporation Ltd [1992] 1 WLR 588 (HL) [accepted as good law in Singapore] -
Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] (SG CA)
Voting:
Member may enter into a contract restricting his power to vote in certain ways
Russell v Northern Bank Development Corporation Ltd [1992] 1 WLR 588 (HL)
Shareholders undertook an agreement to not further create share capital w/o written consent of all shareholders party to the SHA. EGM was held and considered a proposal to increase the share capital. P sought an injunction to prevent other shareholding party to the agreement from voting on the proposal.
Held: Granted injunction. An agreement amongst the shareholders was enforceable as a personal contract. As all the shareholders were party to the agreement, this had the same effect as if the coy were bound by agreement in that the shareholders would have been in breach had it voted to increase share capital.
While a provision in a Coy’s Arts of Assoc which restricts its stat power to alter those articles is invalid, an agreement that does not include the articles b/w shareholders as to how they shall exercise their voting rights on a reso to alter the articles is not necessarily so.
A private SHA could bind the voting rights of those party to the SHA where the SHA related to such voting rights.
