Company Law Case Update: Validity of Competing Meeting
Published March 10 2020
The High Court recently delivered its Grounds of Judgment dated 1.3.2020 in the case of Safari Alliance Sdn Bhd v Tiger Synergy Bhd and Tiger Synergy Bhd v Safari Alliance Sdn Bhd (both were heard together). You can read the written judgment here.
This case discusses on various issues under the Companies Act 2016 (“CA 2016”) including Sections 310(b), 206(3) and 322(1) of the CA 2016 as well as the concept of “competing meeting”.
Salient Facts
1. Safari Allaince Sdn Bhd (‘Safari’) holds 11.834% of the issued shares of Tiger Synergy Berhad (‘Tiger Synergy’).
2. On 2.1.2020, Safari gave notice to Tiger Synergy pursuant to Section 206(3) of CA 2016 to move resolutions to, inter alia, remove certain directors and to reconstitute the board of directors (“BOD”) of Tiger Synergy (“Safari’s Special Notice”).
3. Safari also indicated in Safari’s Special Notice that the general meeting wherein the resolutions (‘Safari Resolutions’) would be moved would be convened on 2.3.2020 (‘Safari EGM’).
4. On the same day (2.1.2020), Safari also issued the notice of extraordinary general meeting (‘Safari Notice of EGM’) of Tiger Synergy to be held on Monday, 2.3.2020 at New World Petaling Jaya Hotel (‘The Safari Venue’).
5. Safari also attached the Safari Resolutions and the consents and profiles of the 5 candidates who sought to be appointed as directors of Tiger Synergy at the Safari EGM (‘the 5 Nominated Directors’).
6. On 6.1.2020, Safari made an announcement to Bursa Malaysia Berhad (‘Bursa’) on the convening of the Safari EGM. Subsequently, Safari proceeded to prepare and arrange for the Safari EGM.
7. On 20.1.2020, Tiger Synergy issued a letter to Safari (‘Tiger Synergy Letter’) stating, inter alia, that:-
(a) Tiger Synergy’s BOD had decided to convene a competing EGM on 20.2.2020 (‘Tiger Synergy EGM’) at Crystal Crown Hotel (‘Tiger Safari Venue’) to table two additional resolutions on top of the Safari Resolutions to appoint two new Directors which was recommended by Shia Xze Chyien and Wai Choo, both of whom were not substantial shareholders of Tiger Synergy (‘The Additional Resolutions’);
(b) the objective of the Tiger Synergy EGM was to facilitate the orderly manner for the tabling of the proposed resolutions for the consideration by the shareholders in order to save time and costs of convening multiple general meetings; and
(c) asking Safari to consider withdrawing the Safari EGM ‘to avoid confusion amongst shareholders of Tiger Synergy’.
8. On 21.1.2020, Safari informed Tiger Synergy that it was not withdrawing the Safari EGM and instead demanded that Tiger Synergy to withdraw the Tiger Synergy EGM.
9. On the same day (21.1.2020), Tiger Synergy issued the notice for Tiger Synergy EGM (‘Tiger Synergy Notice of EGM’).
10. On 7.2.2020, the 5 Nominated Directors wrote to state that their consent to be nominated for appointment of directors was only for the Safari’s EGM because 29.2.2020 is the last date for Tiger Synergy to make its quarterly announcement for the results for the quarter ended 31.12.2019 and they do not wish to assume the obligations and/or responsibility for the quarterly announcement.
11. On 11.2.2020, Safari filed an action (‘Safari’s OS’) seeking, inter alia, a declaration that the Tiger Synergy Notice of EGM is invalid, a declaration that the Tiger Synergy EGM, if convened, would be invalid and void and an injunction to restrain Tiger Synergy from taking any further steps in respect of the Tiger Synergy Notice of EGM.
12. On 14.2.2020, Tiger Synergy had, in turn, filed an action (‘Tiger Synergy’s OS;) seeking inter alia, a declaration that Safari Notice of EGM to convene the Safari EGM is redundant, invalid and/or null and void and for an order that Safari be restrained from proceeding with the Safari EGM.
13. Both Safari’s OS and Tiger Synergy’s OS were heard together.
High Court’s Decision and Analysis
(i) Section 310(b) of the CA 2016The High Court allowed the Safari’s OS and dismissed the Tiger Synergy’s OS. In coming into this decision, the High Court emphasised on the great importance of Section 310(b) of the CA 2016.Section 310 of the CA 2016 reads:-
“310. Power to convene meetings of members.A meeting of members may be convened by –
(a) the Board; or
(b) any member holding at least ten per centum of the issued share capital of a company or a lower percentage as specified in the constitution or if the company has no share capital, by at least five per centum in the number of the members.
”The Learned High Court Judge referred to his own comments in his earlier case of Seacera Group Berhad v Dato’ Tan Wei Lian & Ors [2019] 4 AMR 491 that a shareholder’s right to convene a general meeting under Section 310(b) of the CA 2016 is an essential right for a shareholder to invoke the internal democratic process of the company and a Court should be slow in granting injunction to prevent shareholders from holding general meetings. Moreover, once a members’ meeting is convened under section 310(b) of the CA 2016, the company should not be taking any action to interfere with the meeting.
(ii) Competing Meeting
The High Court defines a competing meeting as one which involves tabling before the members identical and/or substantially identical resolutions as the members’ meeting.
In relation to competing meeting, the High Court held that:-
(a) once a member’s meeting is convened under section 310(b) of the CA 2016, the company should not be taking any action to interfere with the meeting unless the company can show compelling/good reasons to convene a competing meeting either prior to or subsequent to the members’ meeting;
(b) The onus is on the company to show that the exercise of its power to convene the competing meeting had not been made mala fide or for and improper purpose;
(c) The Court possesses supervisory oversight over the exercise of powers by the directors of the company when convening a general meeting is established;
(d) Once a general meeting has been properly convened under section 310(b) of the CA 2016, there is an overriding duty on the directors of the company not to deliberately call another competing general meeting on a date, especially an anterior date to the meeting that had been called.
The High Court held that such rule and principle on competing meeting is to prevent any confusion and/or inconvenience being caused to the shareholders and/or disrupting the convened general meeting and/or interfering with the member’s statutory right to convene a members’ meeting. The calling of such a competing meeting would be considered as improper and by reason thereof invalid.
(iii) Abuse of Power by BOD
The High Court was of the view that the decision by Tiger Synergy to call the Tiger Synergy EGM is a clear and blatant improper exercise of powers by its BOD coupled with the fact that the BOD seeks to convene such competing meeting on a date anterior to the Safari EGM as well as the company’s move to invalidate the Safari EGM by reason of its competing meeting.
In other words, to allow the competing meeting to proceed would effectively hijack the Safari EGM and interfered with Safari’s statutory right under Section 310(b) of the CA 2016.
It was further highlighted by the High Court that if the company is permitted to render a members’ meeting redundant or invalid by calling a competing meeting prior to the members’ meeting, this will deter members from exercising their statutory rights as the costs and expenses that the members will incur can easily be put to waste by the company as a strategy to frustrate attempts to remove its directors and this cannot and should not be the case.
(iv) Special Notice Requirement – Section 206(3) & Section 322(1) of CA 2016
Section 206(3) of CA 2016 reads:-
“(3) Special notice is required of a resolution to remove a director under this section or to appoint another person instead of the director at the same meeting.
”Section 322(1) of CA 2016 reads:-
“(1) Where special notice is require of a resolution under any provision of this Act, the resolution shall not be effective unless notice of the intention to move it has been given to the company at least twenty-eight days before the meeting at which it is moved.
”Even though it was submitted by Tiger Synergy that the Company can just rely on the Safari Special Notice for the Tiger Synergy EGM and there was no need to issue another special notice of intention to move the Tiger Synergy Resolutions at the Tiger Synergy EGM under section 206(3) of CA 2016, the High Court rejected this argument.
This is because Safari Special Notice expressly stated that only Safari Resolutions are to be moved at the Safari EGM and as such the Safari Special Notice cannot in law be relied upon by the BOD of Tiger Synergy to move the Tiger Synergy Resolutions are a meeting fixed on a different date, venue and time. As such, based on Section 322(1) of CA 2016, Tiger Synergy Resolutions would not be effective.
Commentary
This judgment further fortifies a company’s members’ rights to convene meetings under Section 310(b) of CA 2016 and that such statutory right should not be overridden unless compelling reason is shown to the Court. Further, companies out there can take note of the following (gist of which I summarized): -
(a) Sections 206(3) and 322(1) of CA 2016 shall be strictly adhered to and complied with in that failure to give such special notice would render a meeting futile and hence any purported resolutions to be passed would also be rendered ineffective; and
(b) In order to call for a competing meeting, the company must show that the exercise of such power was not made in mala fide or for an improper purpose and mere reason like ‘to save time and costs from convening multiple EGMs’ would not satisfy the threshold.
Published by Chuar Kia Lin
Partner of Pierre Chuah & Associates
