The Malaysian Lawyer

As 2019 draws to a close, I wanted to feature five interesting Malaysian company law cases during the year.

I have drawn from Malaysian decisions that advanced interesting points of law and has helped to develop company law and also the interpretation of the Companies Act 2016 (CA 2016). These cases range from the CEO’s fiduciary duty, the doctrine of a universal successor entity, and the chairman’s adjournment of general meetings.

This post is part of a 2019 trilogy that also features restructuring & insolvency cases, and arbitration cases.

I set out the five cases below.

#1: Symbion – CEO’s Fiduciary Duties to the Company

(Symbion International Sdn Bhd & 3 others)

Judge: Wong Chee Lin J (grounds of judgment)

Why is the case important?

This case reiterated that a chief executive officer (CEO) owes fiduciary duties to the company. It is not only a director who owes such fiduciary duties to a company. A CEO would fall into the category of very senior employees who are in a position of special trust and responsibility with regard to the management of the organisation and assets.

Further, section 210 of the CA 2016 also interprets the definition of a director to include the position of a CEO. Therefore, it is clear that the CEO owes fiduciary duties to the company.

Flowing from that, a case for knowing receipt can be established against other parties if there is disposal of assets in breach of fiduciary duty, the assets are traceable, and knowledge on the part of the parties that the assets are traceable to the breach of fiduciary duty.

 

#2: United Renewable Energy – Universal Succession

(United Renewable Energy Co Ltd v TS Solartech Sdn Bhd [2019] 8 CLJ 721, HC)

Judge: Ong Chee Kwan JC (grounds of judgment).

Why is the case important?

It is the first Malaysian decision that recognised the doctrine of a universal successor entity when companies have undergone a corporate exercise like a merger. This doctrine of a universal successor is common in certain foreign jurisdictions. If the predecessor entity held shares in the Malaysian company, this case recognised that these shares would be transmitted by operation of law to the successor entity.

Foreign companies seeking to undertake mergers in their countries will have comfort that such mergers are likely to be recognised in Malaysia by virtue of the doctrine of universal succession. The assumption of all assets, liabilities, obligations and rights by the successor entity will be recognised as a consequence of such mergers.

I have written about this case here.

 

#3: Blackstream – Powers of the Chairman of a Meeting

(Blackstream Investments Pte Ltd & Anor v D’Nonce Technology Bhd [2019] MLJU 923, HC)

Judge: Ong Chee Kwan JC (grounds of judgment).

Why is the case important?

The case deals with important points of law regarding shareholder meetings.

First, the power of the chairman of the meeting to adjourn the meeting. In a shareholders’ dispute, or a contentious meeting where directors may be removed, the adjournment of the meeting can be critical to cut the legs out from a particular faction.

Under the company’s constitution, it will be common to have an express provision to allow for the chairman to adjourn the meeting. This is typically in the form of Article 50 of the Table A: “[t]he chairman may, with the consent of any meeting at which a quorum is present (and if so directed by the meeting), adjourn the meeting from time to time and from place to place.” But, independent of this express constitution provision, a chairman will have the common law power to adjourn.

In this case, the chairman had adjourned the meeting but the Court found such an adjournment to be invalid. The chairman had failed to meet the necessary legal test for the common law power to adjourn the meeting. The chairman had adjourned the meeting without any valid reasons at all.

Second, the Court also found that the chairman had wrongly decided that the decision on adjournment was to be voted by way of poll. This was wrong. It should have been just by way of show of hands.

Third, the chairman was also wrong in excluding the proxy holders from voting on the resolution for the adjournment. Proxy holders are allowed to vote on the question of adjournment.

Fourth, there is the natural legal repercussion of an invalid exercise of the power to adjourn. The meeting could continue on and resolutions properly passed. Therefore, the shareholders who continue to stay on in the meeting. Assuming quorum continues to be met, the shareholders can still press ahead with the resolutions and pass them. And this is what occurred here. The shareholders continued on with the resolutions to remove certain directors and to appoint new directors.

 

#4: Mohd Radwan – Director Appointment by Written Resolution

(Mohd Radwan Alami v Ibrahim bin Mohd Yusof & Ors [2019] 10 MLJ 761, HC)

Judge: Ahmad Fairuz JC (grounds of judgment)

Why is the case important?

This case has significance in the application of the Companies Act 2016 written members’ resolution procedure. If a private company has adopted Table A as its constitution, it may face issues if appointing an additional director by way of the written members’ resolution.

First, the written members’ resolution procedure is provided for private companies. The relevant provisions are in sections 297 to 308 of the CA 2016. Written members’ resolutions can be passed, except for removing auditors or removing directors.

Further to this, a written members’ resolution cannot be inconsistent with the company’s constitution (section 302(2)(a) of the CA 2016).

Second, Article 67 of Table A provides that the company may “by ordinary resolution passed at a general meeting” increase or reduce the number of directors.

The Court held that the application of Article 67 requires the appointment of directors to be done at a general meeting. Reading Article 67 along with section 302(2)(a) gave primacy to this requirement of an ordinary resolution at a general meeting to appoint additional directors. Therefore, the written members’ resolution alone appointing the additional director was held to be invalid.

 

#5: Seacera – General Meeting of a Public Company

(Seacera Group Berhad v Dato’ Tan Wei Lian & Ors [2019] MLJU 470, HC)

Judge: Ong Chee Kwan JC (grounds of judgment)

Why is the case important?

The case fleshes out important legal issues on notice of a general meeting of a public company. The importance of these issues would determine whether the extraordinary general meeting could be held and whether the voting could proceed. If there is a dispute on these issues, then just like in this case, the company may be faced with an injunction to restrain the holding of the meeting or to restrain the voting of the resolutions.

Especially for a public listed company, who are the members of the company entitled to be given notice of the general meeting? The record of depositors is not static and subject to regular updating, and with shares being traded.

The legal position is that the members who are entitled to be given notice of the general meeting are those whose names appear in the record of depositors as at the date the notice issued for the general meeting to be convened is deposited with the company, i.e the requisition date.

The identities of these members of the company can be determined with certainty and without any difficulty. Once the relevant record of depositors is provided, the convener can then make the necessary arrangement to post the notice to these members at an appropriate date that would permit the notice to be given within the applicable notice period stipulated in the company’s constitution.

There is a direct nexus between the date of record of depositors and the notice of the general meeting. As a matter of good practice, the company should, as far as possible, make the request to the Central Depository on the same day the requisition by the shareholder is deposited. The convener can also request for the relevant record of depositors in advance of the requisition date to ensure that the relevant record of depositors is available by the time the requisition notice is deposited with the company.