The Court of Appeal in Abdul Malek Faisal bin Mohd Hyffny v Shaikh Marikhzan Jalani & 2 others (grounds of judgment dated 21 February 2023) invalidated an extraordinary general meeting (EGM) where the shareholders had passed a resolution to remove the director and chairperson of the company. The appeal turned on whether the shareholders should have waited for the full 15 minutes before electing one of their number to be chairperson of that meeting.
Summary of the Decision and Significance
Grounds by: Lee Swee Seng JCA
The company in question, Minsyam Sdn Bhd, had two camps of shareholders – with each camp having an equal number of voting shares for the purposes of the EGM.
Abdul Malek and Radzee in one camp, and Shaikh Markhzan and Syed Zainal were in the other camp.
Abdul Malek was the Chairman and a director of the company.
Shaikh Markhzan and Syed Zainal requisitioned for an EGM and the EGM was scheduled to be held on 9 March 2020 at 10.30am. The EGM was for the purpose of voting for a resolution to remove Abdul Malek as a director of the company.
The Companies Act 2016 (CA 2016) and the constitution of the company provided that: (1) the chairman shall preside as the chairperson at every general meeting of the company; and (2) if the chairman is not present within 15 minutes after the time for the holding of the meeting, the members present shall elect one of their members to be the chairperson of the meeting.
The meeting minutes then showed that the EGM had started at 10.35am. Shaikh Markhzan appointed himself as the chairman and then he, together with the proxy for Syed Zainal, voted for the removal of Abdul Malek as a director of the company. The EGM then ended at 10.41am.
The Court of Appeal overturned the High Court finding and where the Court of Appeal held that the EGM was improperly held. The two shareholders at the EGM had failed to wait the full 15 minutes. This was in breach of the constitution and the CA 2016.
The Court of Appeal also refused to cure this irregularity under section 582 of the CA 2016. Section 582 allows for the Court to make an order declaring a proceeding is valid if no substantial injustice has been or may be caused.
This decision highlighted the significance of critical elements for a general meeting to be called to order. There need to be quorum, and for a chairman to be properly appointed in accordance with the constitution and the CA 2016. As there was no properly appointed chairman, the general meeting was invalid.
The company, Minsyam Sdn Bhd, had four shareholders: (1) Abdul Malek and Radzee in one camp and (2) Shaikh Markhzan and Syed Zainal in the other camp.
There had been disputes among the shareholders. In 2015, Abdul Malek and Radzee filed an oppression action against Shaikh Markhzan and Syed Zainal. In 2017, the Court did find oppression and the Court ordered for a share buy-out. The parties reached a settlement, and where Abdul Malek would purchase 50,000 shares in the Company held by Syed Zainal. Syed Zainal then resigned as a director of the Company.
Subsequently, in 2018, a Board meeting was held. Abdul Malek was appointed as the new chairman of the company and Radzee appointed as the new managing director (replacing Shaikh Markhzan who was removed as the managing director).
Shaikh Markhzan was unhappy with the sale and purchase of the 50,000 shares from Syed Zainal to Abdul Malek. Court proceedings were filed and challenges were raised in relation to restraining this block of 50,000 shares.
Eventually, on 22 January 2020, Shaikh Markhzan issued a request under section 311 of the CA 2016 to have the directors hold an EGM for the removal of Abdul Malek as a director of the company.
At this stage, the effective voting shareholdings of the two factions were the same.
In the first camp, Abdul Malek had 175,000 shares and Radzee had 50,000 shares. In the second camp, Shaikh Markhzan had 175,000 shares, and Syed Zainal with his 50,000 shares. The impugned block of 50,000 shares would not be used for voting due to the ongoing court proceedings.
Under the constitution, where there was equality of votes, the chairman of the meeting would have the casting vote. Hence, the great importance as to who would be the chairman of the meeting.
The EGM was eventually scheduled for 9 March 2020 at 10.30am.
Earlier in the morning on the day of the EGM, Abdul Malek sent an email to the company secretary and Shaikh Markhzan. He informed them that he would be attending the EGM before 11am.
The relevant extract from the email
“Insyallah I will be coming in, but I will be slightly late. Latest before 11am.”
From the unchallenged minutes of the EGM held on 9 March 2020, the following events took place:
- The EGM was scheduled to being at 10.30am on 9 March 2020.
- The meeting started at 10.35am. Present was Shaikh Markhzan and the proxy of Radzee.
- Shaikh Markhzan appointed himself as chairman of the meeting.
- Shaikh Markhzan and Radzee’s proxy voted for the removal of Abdul Malek as director and chairman of the company.
- The resolution was passed.
- The meeting concluded at 10.41am.
Abdul Malek filed an application in the High Court to essentially seek for a declaration that the resolution passed at this EGM was invalid and null and void.
The High Court dismissed the application. The Court found that Abdul Malek had not proved that he was there by 10.45am and that in any event, the non-compliance of the waiting period of 15 minutes was a procedural irregularity. It is curable as the outcome of the voting would have still been the same.
Abdul Malek filed an appeal to the Court of Appeal.
The Court of Appeal addressed two legal issues. The first was whether the EGM was wrongly convened in violation of the constitution and the CA 2016. The second was whether any such violation was curable.
Issue 1: Whether the EGM was wrongly convened in violation of the constitution and the CA 2016
The Court of Appeal analysed that Article 49 of the company’s articles of association (now known as the constitution) and the CA 2016 applied in determining the proceedings at general meetings and how the chairman would preside. In this case, the company’s Article 49 is the same as the wording in Article 49 of the Table A set of articles of association:
“Proceedings at General Meetings
49. The chairman, if any, of the board of directors shall preside as chairman at every general meeting of the company, or if there is no such chairman, or if he is not present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present shall elect one of their number to be chairman of the meeting”.
In turn, section 329 of the CA 2016 provides for similar language:
“329 Chairperson of meetings of members
(1) Subject to any provision of the constitution that states who shall be the chairperson, the chairman of the Board, if any, shall preside as the chairperson at every general meeting of the company.
(2) If there is no such chairman, or if the chairman is not present within fifteen minutes after the time appointed for the holding of the meeting or is unwilling to act, the members present shall elect one of their members to be chairperson of the meeting.”
The Court of Appeal held that it was clear that with the conclusion of the meeting at 10.41am, the meeting was rushed through as Shaikh Markhzan was aware that Abdul Malek may be late. Irrespective of Shaikh Markhzan’s motive, he must wait for the 15 minutes to be over from the time set for the holding of the meeting at 10.30am.
The Court of Appeal accepted that the attending shareholders were not obliged to wait past 10.45am. However, the Court could not accept the convening of the meeting at 10.35am and concluding it at 10.41am as to be a proper meeting that had complied with Article 49 and section 329 of the CA 2016.
The Court of Appeal found that the High Court had erred when it concluded that once there was quorum, the company secretary was permitted to proceed with the convening of the meeting at 10.31am. Instead, the mandatory language of “shall” in both Article 49 and section 329 of the CA 2016 with respect to the chairman chairing the meeting unless he could not be present after 15 minutes cannot be ignored simply because the two shareholders had not the patience to wait.
Therefore, both the requirements under section 328 of the CA 2016 (relating to quorum) and section 329 of the CA 2016 (dealing with the chairman) must be met. Section 329 is not there for decorative purposes but for a designed purpose to ensure proper chairmanship of a meeting.
Issue 2: Whether the violation was curable
The Court of Appeal considered whether the curative provision in section 582 of the CA 2016 could help cure any irregularity. This provision essentially provides that no proceeding shall be invalidated by any defect, irregularity or deficiency “unless the Court is of the opinion that substantial injustice has been or may be caused which cannot be remedied by any order of the Court.”
First, the Court of Appeal noted that the director to be removed in this case, Abdul Malek, had every right to be heard as part of the rules of natural justice before a vote is taken. The Court of Appeal referred to section 207 of the CA 2016 where this section refers to the director’s right to make oral representation or written representation on the resolution to remove him.
Second, the Court of Appeal considered the factual background and the context of the shareholders’ disputes. Here, it was the removal of a director who is a substantial shareholder of the company as well as chairman of the Board in the aftermath of a High Court finding of oppression by the majority represented by the two shareholders who passed the resolution for removal.
All the above factors heightened the Court’s scrutiny of the actions of the shareholders requisitioning for the EGM to remove Abdul Malek as the director and chairman of the company. The Court put the shareholders to strict compliance with the procedural requirements in Article 49 and the statutory requirements of section 329 of the CA 2017, and the rights of the chairman to exercise his casting vote under the constitution in what could well be a tie in the votes.
This decision emphasises the importance of ensuring all procedural requirements are met before a meeting can validly be held and can commence. Here, the importance of having a properly appointed chairman in accordance with the constitution and the CA 2016.
While there is the curative provision under section 582 of the CA 2016 (similar to the previous section 355 of the Companies Act 1965), the Court will look at the particular facts of the case in deciding on the injustice between the parties. The facts of this case involved the two camps of shareholders too finely balanced and with no certainty as to how the voting would have proceeded with and whether the crucial casting vote may have been cast.