Case Update: Passing of a Members’ Written Resolution under the Companies Act 2016 with “More than Half of Such Members”

The High Court in the case of  Mohamed Zain Yon Bin Mohamed Fuad v Jason Jonathan Lo & Ors issued its Grounds of Judgment dated 6 March 2019. The case clarifies the interpretation of the new members’ written resolution provision of the Companies Act 2016 (CA 2016). More than half the number of shareholding of the members is required to pass the members’ written resolution. It is not more than half the number of the shareholders. Further, the case also emphasised how the CA 2016 applies even to companies which still retain the Table A Articles of Association under the Companies Act 1965 (CA 1965).

Brief Facts

The company in question is Fat Boys Records Sdn Bhd. Mohamed Zahid (the Plaintiff) and Wong (the Second Defendant) are the only shareholders and directors of the company. Mohamed Zahid held 40% of the shareholding while Wong held the remaining 60%.

On or around 7 January 2019, Wong signed a directors’ resolution and a members’ resolution appointing Jason Lo (the First Defendant) as a director of the company. Mohamed Zahid did not sign the resolutions.

Mohamed Zahid challenged the validity of the appointment of Jason Lo as a director of the company. Mohamed Zahid filed the Originating Summons and a Notice of Application to declare the appointment of the director on 7 January 2019 as ineffective, void and invalid. Further, for an injunction to restrain Jason Lo from holding himself out as a director of the company.

Findings of the Court

The High Court dismissed the action. The focus of the decision was on the validity of the members’ resolution. It was not in dispute that the directors’ resolution was invalid to appoint the director because the articles of association of the company required such a resolution to be signed by all the directors.

First, the Court considered the contention that the CA 2016 did not apply to the company as the memorandum and articles of association adopted the 4th Schedule of the CA 1965. Mohamed Zahid’s argument was that the previous laws and provisions of the CA 1965 applied. This was because the rights and obligations of the parties arose under the CA 1965. Therefore, a members’ resolution in writing under section 152A of the CA 1965 required all the members to sign the resolution.

The Court disagreed with this argument. It held that the CA 2016 applied since the members’ resolution was passed subsequent to the coming into force of the CA 2016. Mohamed Zahid could not be said to have acquired any right, privilege, obligation or liability under section 152A of the CA 1965 before the coming into force of the CA 2016. Otherwise, the provisions in the CA 2016 on members’ written resolutions would never be applicable.

Further, section 619(3) of the CA 2016 also provides that memorandum and articles of association of an existing company shall have effect as if made or adopted under the CA 2016, unless otherwise resolved by the company.

Secondly, the Court next assessed whether the members’ written resolution required more than half of the shareholding of the members or more than half of the number of members. Section 291(1) of the CA 2016 provides that:

(1) An ordinary resolution of the members or a class of members of a company means a resolution passed by a simple majority of more than half of such members

(a) who are entitled to vote and do vote in person, or where proxies are allowed, by proxy at a meeting of members; or

(b) who are entitled to vote on a written resolution.

 

Further, section 293(1) sets out that every member shall have one vote in respect of each share when voting on a written resolution:

(1) Unless otherwise provided in the constitution-

(a) in the case of a company having a share capital-

(i) on a vote on a written resolution, every member shall have one vote in respect of each share or stock held by him;

 

The High Court held that the words “more than half of such members” must be read as meaning more than half the number of shareholding of the members and not more than half the number of the shareholders.

With the resolution in writing, Mohamed Zahid, the 40% shareholder, could not stop Wong, the 60% shareholder, from passing the members’ written resolution as the written resolution signed only by Wong would be a valid ordinary resolution.

Comments

First, I agree with the reasoning in purposively interpreting section 291 of the CA 2016 to allow the majority in shareholding to pass a written resolution. Section 291’s reference to  “half of such members” would have literally meant half of the number of such members but that would frustrate the purpose behind allowing such written resolutions for private companies.

Secondly, section 291 of the CA 2016 could have been phrased more clearly like section 184A of the Singapore Companies Act which also deals with passing resolutions by written means. Section 184A(4) of the Singapore Companies Act allows for the passing of an ordinary resolution by written means by “a majority … of the total voting rights of all the members …” This wording makes it clear that it is the majority of the voting rights and not a majority of the members that gives effect to a written resolution.

Thirdly, I am concerned whether Wong in this case complied with the other requirements under the CA 2016 for the passing of the members’ written resolution. Those requirements are generally found at sections 297 to 308 of the CA 2016.  This was not made clear in the grounds of judgment.

As a shareholder, Wong would not have been able to simply sign a members’ written resolution and then treat it as valid. Such a written resolution would either have to be proposed by the Board or any member (section 297). Thereafter, the written resolution would be circulated (either section 301, 302 or 303). There is a procedure for signifying agreement to the written resolution (section 306) and within a set period (section 307).

 

 

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