This article kickstarts the series of the Top 5 cases for the year 2020. This follows last year’s Top 5 Company Law Cases in Malaysia for 2019, restructuring and insolvency cases, and arbitration cases. This year’s series will cover five areas: company law, tax, construction, restructuring and insolvency, and arbitration cases in Malaysia.
We start with this year’s top company law cases in Malaysia. I will do things a bit differently as there were a number of interesting company law decisions. So I group the cases (which are more than five) into five areas of company law issues.
#1: Rozilawati – High Court Decision on Notice of Board Meeting
(Rozilawati binti Haji Basir v Nationwide Express Holdings Berhad & Ors [2020] MLJU 1198. HC with the grounds of judgment dated 18 August 2020)
Judge: Ong Chee Kwan JC
Why is the case important?
The full case update is here. This case establishes two important points.
First, the High Court clarified that there was no legal requirement for a board meeting notice to contain the matters or particulars of the business to be transacted at the meeting. Such requirement was, at most, best practice. This is unless expressly required in the relevant company’s constitution.
Second, it is not necessary for a deliberation or a formal voting process in relation to the subject matter in question before a resolution relating to the said matter can be validly passed.
However, do consider the impact of having the Third Schedule of the Companies Act 2016 (CA 2016) apply to your company. Paragraph 4 of the Third Schedule will require the notice to contain “the matters to be discussed.”
#2: Bank of Nova Scotia – First Time Court Decides on a Debenture Holder Bringing Oppression
(The Bank of Nova Scotia Berhad and another v Lion DRI Sdn Bhd and others [2020] MLJU 1987, HC with grounds of judgment dated 26 October 2020)
Judge: Ong Chee Kwan JC
Why is the case important?
This is the first known decision to interpret the term “debenture holder” in the context of the oppression provision in section 346 of the CA 2016. This term was also present in the previous section 181 of the Companies Act 1965.
It was always unusual that an oppression provision relating to shareholder remedies included a reference to “debenture holder“. Only Malaysia, Singapore and Ghana has this reference. So this is the first decision in these jurisdictions on a debenture holder bringing an oppression action.
This decision made two points.
First, the interpretation of the term debenture and debenture holder for the purposes of section 346 of the CA 2016. The term ‘debenture’ in this context refers to debt or financial instruments issued for fundraising or arising from instruments effected in the money market. It did not mean a debenture being a form of charge over assets in respect of commercial loans. The latter interpretation would open the flood gates to permit creditors of the company to file oppression acts.
Second, a debenture holder within section 346 must be a member of a class of debenture holders. This is just as the section applies to protect a person who is a member of a class of shareholders. It does not include a person who is a sole debenture holder.
This decision is presently on appeal.
#3: Golden Plus Cases – Court of Appeal and High Court Decisions on Removal of Directors
(Golden Plus Holdings Berhad v Teo Sung Giap with Court of Appeal grounds of judgment dated 20 July 2020)
Judges: Suraya Othman JCA, Vazeer Alam Mydin Meera JCA, and S. Nantha Balan JCA
(Golden Plus Holdings Berhad v Teo Kim Hui and others [2020] MLJU 1049, HC with grounds of judgment dated 10 April 2020)
Judge: Ahmad Fairuz bin Zainol Abidin J
(Low Thiam Hoe and another v Sri Serdang Sdn Bhd & Ors [2020] 4 CLJ 618, HC with grounds of judgment dated 14 January 2020)
Judge: Darryl Goon J
Why are the cases important?
A series of three cases from the various litigation relating to the Golden Plus Holdings Berhad group of companies. These cases fleshed out important issues relating to removal of directors and holding of general meetings.
In the first case, the Court of Appeal emphasised the distinction between decisions made at the holding company level and at the subsidiaries level. The board of directors at the holding company passed a board resolution to remove an individual who had been appointed as legal representative and corporate representative at the holding company’s subsidiaries.
Hence, the legal issue was whether the holding company (through the holding company’s Board) could terminate the individual’s position in those subsidiaries without the Board of those subsidiaries doing so. It was argued that this could be validly done provided that the holding company showed that as the ultimate shareholder of the subsidiaries, its decisions would have been subsequently ratified.
Both the High Court and the Court of Appeal essentially held that the Board of the holding company could not act in that way. The holding company could not, by remote control, try to carry out acts that only the subsidiaries could do.
In the second case, the High Court interpreted section 310(b) of the CA 2016. Section 310(b) is unique to the CA 2016. The section allows a meeting of members to be convened by “any member holding at least ten per centum of the issued share capital of the company ...”
Would “any member” mean an aggregate of members holding at least the 10% of shares? Or did it mean that only a single member holding at least the 10% of shares? This was important since it was an aggregate of members that convened the general meeting to remove the directors.
The High Court held that “any member” could be both the singular and the plural. Hence, an aggregate of members holding at least the 10% of shares could convene the general meeting.
In third case, the High Court interpreted the removal of a director and whether section 206 of the CA 2016 would always apply. I have written a case update on this decision before.
The section 206 mechanism sets out a few parts. In relation to a private company being the case at hand, subject to the constitution, a private company director may be removed by ordinary resolution. Next, special notice is required of a resolution to remove a director “under this section“. Therefore, the special notice requirement is only needed if the removal of the director was made under the section 206 mechanism.
But in this case, the removal of the director was made under the specific procedure and requirements spelled out in the subsidiaries’ constitution. The constitution merely required a removal by either special resolution or ordinary resolution. There was no constitution requirement of special notice. Thus, it was a proper removal under the constitution and it was not a removal of a director under section 206.
#4: Dato’ Gue See Sew and ISM – High Court Explains Shareholders’ Agreements and Oppression
(Dato’ Gue See Sew and others v Heng Tang Hai and others [2020] MLJU 46, HC with grounds of judgment dated 2 January 2020).
Judge: Ong Chee Kwan JC
(ISM Sendirian Berhad v Queensway Nominees (Asing) Sdn Bhd and others [2020] MLJU 388; [2020] 1 LNS 322, HC)
Judge: Azizul Azmi Adnan J
Why is the case important?
Both these cases assist in clarifying that disputes among shareholders under a shareholders’ agreement can still fall within the oppression relief under section 346 of the CA 2016. This distinguishes the Federal Court decision in Jet-Tech.
The High Court decided that breaches were not mere breaches of shareholders’ rights simpliciter as contained in the shareholders’ agreement. The breaches were in relation to the manner in which the affairs of the company were being conducted or how the powers of the directors are being exercised. Where the contended breach relates solely to matters between the shareholders inter see, that claim for breach must be pursued in contract and not under oppression.
However, even where the matter pertains to the affairs of the company, that does not mean the Court will permit an oppression action. Where the shareholders’ agreement provides for an alternative remedy, the Court would unlikely make a finding of oppression. It is only if the contractually alternative remedy is not adequate or appropriate that the Court will permit an oppression action.
#5: Yee Teck Fah – High Court Decides Company Secretary Owes A Duty of Care to Intended Transferee of Shares
(Yee Teck Fah and another v Wong Ngiap Lim and another with grounds of judgment dated 30 November 2020).
Judge: Ong Chee Kwan JC
Why is the case important?
This is a rare case determining the duties of a company secretary, who those duties are owed to, and whether there was a breach.
Here, the company secretary was instructed to adjudicate, stamp and register the transfer of shares from the registered shareholder to the beneficial owners. Midway through the adjudication process, the registered shareholder instructed the company secretary to stop the transfer. There was a dispute as to the ownership of shares.
The beneficial shareholders, being the intended transferees of the shares, brought a claim against the company secretary.
First, the court held that there was no claim based on contract. The company secretary did not have a contractual relationship with the intended transferees of the shares.
Second, the company secretary did owe a duty of care to these intended transferees to properly carry out the instructions to adjudicate, transfer and register the shares. The company secretary was expected to take into account the intended transferees’ interests in the shares.
Third however, there was no breach of this duty of care. There was no evidence that the company secretary acted negligently. Nothing to suggest that the company secretary had not exercised the skill and care expected of him.
This case is significant in establishing that a company secretary can owe such a duty of care to third parties, such as the intended transferee of shares. It is important that the company secretary exercises proper skill and care when carrying out the share transfer process.
Read the rest of the series:
What were the top 5 company law cases in Malaysia for 2020?