The High Court issued its grounds of judgment in Safari Alliance Sdn Bhd v Tiger Synergy Berhad (Grounds of Judgment dated 1 March 2020).
The case dealt with the statutory right of a shareholder under section 310(b) of the Companies Act 2016 (CA 2016) to hold a general meeting of the company. This right is especially significant here since the general meeting was to replace the directors of the public-listed company, Tiger Synergy Berhad.
Summary of the Decision and Significance
This case serves as a reminder that directors should not take steps to frustrate the shareholders’ exercise of their right to hold a general meeting. This is where the shareholders had met all the procedural requirements necessary for the tabling of resolutions at the general meeting.
The company in question is a public listed company, Tiger Synergy Berhad (Tiger Synergy). A 11% shareholder, Safari Alliance Sdn Bhd (Safari), called for a general meeting of Tiger Synergy to be held on 2 March 2020. Safari relied on section 310(b) of the CA 2016 that allows any member holding at least 10% of the issued share capital of a company to convene a meeting of members.
The general meeting scheduled on 2 March 2020 was to table resolutions to remove the directors of Tiger Synergy, and to appoint new directors (Safari Resolutions).
Around two weeks later, Tiger Synergy’s board of directors caused the issuance of its own notice of general meeting. But this Tiger Synergy-initiated general meeting was now scheduled to be held earlier on 20 February 2020. It would be a competing general meeting, with this meeting also setting out the Safari Resolutions but two additional resolutions to appoint two other directors.
The Court found that the notice of meeting for the Tiger Synergy-initiated general meeting was invalid. The Court found that the Tiger Synergy board of directors had exercised their powers for an improper purpose. The Tiger Synergy notice of meeting was made mala fide.
Tiger Synergy is a public listed company on the Main Board of Bursa Malaysia.
Safari holds 11.834% of the issued shares of Tiger Synergy.
On 2 January 2020, Safari gave notice to Tiger Synergy of its intention to move resolutions to essentially remove certain directors of the company and to appoint five new directors. The necessary 28-day special notice was given and where Safari had exercised its right under section 310(b) of the CA 2016. The Safari-instituted general meeting would be held on 2 March 2020.
More than two weeks later, on 20 January 2020, Tiger Synergy issued a letter to Safari. The letter stated that Tiger Synergy’s board of directors had decided to convene a competing general meeting. This would be held on 20 February 2020, earlier than the Safari scheduled general meeting on 2 March 2020. The Tiger Synergy competing general meeting would repeat the Safari resolutions in Safari’s notice but also contained two additional resolutions for the appointment of two directors.
Tiger Synergy explained that the board of directors had received multiple requests for the appointment or removal of directors from various shareholders. Tiger Synergy would facilitate the orderly manner for the tabling of the proposed resolutions. Tiger Synergy requested Safari to consider withdrawing its Safari-initiated general meeting. Safari did not agree and demanded that Tiger Synergy withdraw its Tiger Synergy-initiated general meeting instead.
On 21 January 2020, Tiger Synergy issued its notice of general meeting for the scheduled 20 February 2020 date. Tiger Synergy’s notice did not provide a fresh special notice.
This led to both Safari and Tiger Synergy filing legal actions. Safari applied for a court declaration that the Tiger Synergy notice of general meeting was invalid and to restrain Tiger Synergy from taking any further steps in relation to the notice of general meeting. In turn, Tiger Synergy applied for a declaration that the Safari notice of general meeting was redundant, invalid or null and void.
Underpinning Safari’s move to hold a general meeting were allegations on several unexplained discrepancies.
The Court allowed Safari’s application and declared that the Tiger Synergy notice of general meeting was null and void.
First, the Court held that 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. The company must show compelling or good reasons when it seeks to convene a competing meeting either prior to or subsequent to the members’ meeting. The company bears the burden to show that the exercise of its power to hold the competing meeting had not been made mala fide or for an improper purpose.
Second, it was an even more compelling case of an abuse of power by the Tiger Synergy board of directors when the competing meeting was scheduled to be held earlier to the Safari-initiated general meeting. The position was further compounded when Tiger Synergy moved to invalidate the Safari members’ meeting by reason of its competing meeting.
Third, Tiger Synergy’s attempt to hold the competing general meeting had the effect of taking away or rendering impotent Safari’s exercise of its right under section 310(b) of the CA 2016 to convene a members’ meeting. Tiger Synergy had effectively hijacked the Safari general meeting and interfered with Safari’s statutory right.
Fourth, the Tiger Synergy general meeting ought to be restrained since there was no special notice of the intention to move the resolutions for the removal of directors. Tiger Synergy could not rely on the Safari special notice that had been given. This was because the Safari special notice was given only for the meeting to be held on 2 March 2020. The Safari special notice cannot in law be relied upon by Tiger Synergy to move the Tiger Synergy resolutions at a meeting fixed on a different date, venue and time.
The Court emphasised the important statutory right under section 310(b) of the CA 2016. This provision allows for any member holding at least 10% of the issued share capital of a company to directly hold a general meeting of the company.
In contrast, there is also another route under section 311 of the CA 2016. This allows members representing at least 10% of the paid up capital of the company to request the directors to hold the general meeting, and so the company bears the costs. If the directors fail to issue the notice of general meeting within the required time, then the members can continue to hold the general meeting at the company’s expense.
One interesting aspect of this Tiger Synergy decision is that there is no doubt that Safari, with more 10% shareholding, could exercise this section 310(b) power. Section 310(b) refers to “any member holding at least ten per centum of the issued share capital.”
However, could collective shareholders of an aggregate of 10% or more exercise the section 310(b) power? The section 310(b) wording may not be entirely clear, and there may be legal arguments about whether the reference to “any member” could also be both the singular and the plural.
The section 311 route would clearly allow for the collective aggregate of shareholding, since section 311(3)(a) refers to “members representing at least ten per centum of the paid up capital of the company“.
A look at various public listed companies announcements show that there have been a few instances where a single member holding more than 10% had exercised the section 310(b) power. There are also other instances where there had to be a collective group of shareholdings holding an aggregate of more than 10% which exercised the section 310(b) power.
Safari Alliance did succeed in achieving its aim of proceedings with its general meeting that it called. But as a postscript, on 2 March 2020, Safari Alliance still lost. Safari Alliance’s resolutions for removal of the directors were all eventually defeated at around 35%-65% of the shareholders’ vote.