Monday, August 31, 1992

S’pore companies Act and protecting minority interest

The Business Times

By Zakaria Othman

MEASURES to protect minority interest could refer to the “proper plaintiff rule” in the Singapore Companies (Amendment) Act.

Advocate and solicitor Roger Tan Kor Mee said the Singapore Companies (Amendment) Act is the first model of a Companies Act that touches on the “proper plaintiff rule”, which lays down the principle that members can take action if the transaction is ultra-vires the Singapore Companies (Amendment) Act or there is fraud committed against minority shareholders.

“Fraud in this case means any abuse or misuse of power by the majority shareholders,” he told Business Times after the “Corporate Management & Directorship conference” held recently.

Under Section 216A of the Singapore Companies (Amendment) Act, any member who is called the complainant under Subsection 1, can bring an action on behalf of the company, if he can satisfy Subsection 3.

Subsection 1 states that a complainant means any member of the company, the Minister or any other person who in the view of the court, is proper to make application under this section.

As stipulated in Subsection 3, the court will allow a member to take action if he can give reasonable notice to the directors of the company of his intention to apply to the court for derivative action.

The complainant, he added must be acting in good faith and the action taken must appear to be prima facie.

According to Tan, the interesting part of the Singapore Companies (Amendment) Act is that under Subsection 4, the court may order the company to pay the legal fees and costs, whereas under the proper plaintiff rule, the costs incurred are borne by the complainant.

An addition, Section 216B of the Singapore Companies (Amendment) Act states that majority shareholders cannot convene a general meeting to stop or act against such derivative actions.

However, Tan said the Singapore Companies (Amendment) Act has its drawbacks too. The notice to directors can be misused by minority shareholders in bringing certain matters to court.

Tan said if Malaysia were to adopt these provisions, there should be an additional section that says the court may take action if it subsequently finds that the application by the minority shareholders is made with “mala fide” or bad faith.

The other alternative for minority shareholders to overcome problems of having oppressed by majority shareholders is to withdraw from the company.

Under section 67 of the Companies Act 1985, a company generally cannot buy back its own shares but Section 181 says that it can, provided the court allow it.

Perhaps, Tan said, we can amend Section 67 to allow minority shareholders in private companies to sell the shares to the company if the company is interested.

He proposed that any acquisition of a company’s own shares should be funded from the company’s profit or reserves or the company can only acquire up to a certain percentage, like 10 to 15 percent of the total issued share capital.

Tuesday, August 25, 1992

The rights of a shareholder

The Business Times

By Zakaria Othman

The primary source of a shareholder’s rights is his “contract” with the company as embodied in the company’s memorandum and articles of associations (MAA)

A company’s memorandum of association sets out a company’s objective while its articles of association lay down the internal regulations which govern the company.

Mr. Roger Tan Kor Mee, an Advocate and Solicitor said, however, there is no fixed set of rights which by law inheres the shareholder status although statutory provisions, particularly the Companies Act 1965 (the At), set out certain rights for shareholders.

Moreover, he added, company law is constantly subject to change.

Delivering a paper on the “Latest Implications of Holding Shares and the Rights” at the Corporate Management and Directorship conference in Kuala Lumpur yesterday, he said the term “ shareholder” is often loosely used as a synonym for “ member”.

He stressed that a person who owns shares does not make him a member of the company, as it is only those whose names are registered on the Register of members are members of the company.

Once a person joins a company as a member, Tan said , the MAA will bind the company and the member as if they have been signed and sealed by the member covenants to observe all the provisions laid down.

He added that a company cannot, by contract, deprive its members of their statutory right to alter the articles or provision in the memorandum. It may be altered in the manner provided for in the Act, and not otherwise.

In contrast, the articles of association may be freely altered or added to subject to Act and any conditions in the memorandum.

As for shareholders’ rights, Tan said they stem form the company’s constitution (the MAA) and the law, namely case law and statute law.

Generally, a member is entitled to have the MAA observed and to restrain ultra vires or other illegal acts. The members will also have access to the company’s records and certain information provided to them.

Every member is entitled to be sent a copy of the company’s accounts for the financial year and it must be done not less than 14 days before the annual general meeting at which the accounts are to be presented.

(Under the proposed amendment to Section 170 of the Act, copies of the company’s account may be sent less than 14 days before the date of the meeting if it is agreed to by all members entitled to attend and vote at the meeting.)

The annual report and accounts provide a member with an overview of the company’s financial position.

Tan said annual general meetings are a forum for members to review management and provide the best opportunity for a member to voice his opinion on company policy or to ask questions of the management.

Every member, he said, is entitled to be sent 21 days’ notice of each annual general meeting and 14 days’ notice of each extraordinary general meeting. Any notice shorter than the period prescribed by the Act can only be made with the unanimous consent of all members entitled to attend and vote.

Every member is also entitled at law to explanation and additional information as may be necessary for member to understand the implications of any proposed transactions.

In order that members are informed of what is happening in the company, a member has a right to inspect the company’s registers.

“Inspection may be made free of charge,: he said.

Among the registers that must be maintained by the company are the registers of members, registers of substantial shareholders and registered of directors, managers, secretaries and auditors.