Introduction
Section 144 (members requisition directors to convene EGM)
Section 145 (members convene EGM)
Section 150 (court-ordered EGM)
Comment
The best opportunity for members of a company to express their views and concerns about the management of the company is at its general meetings. In Malaysia, the power to convene an extraordinary general meeting (EGM) ordinarily rests with the company directors (eg, Article 44 of Table A of the Fourth Schedule of the Companies Act 1965 allows any director to convene an EGM). The members themselves do not have a common law right to compel the directors to convene an EGM.
Sections 144, 145 and 150 of the Companies Act 1965 provide different mechanisms for the members to convene an EGM. In most cases such an EGM is convened to allow the members to vote on the removal and replacement of the directors. As a riposte, whether by an opposing shareholder faction or the directors themselves, legal challenges may then be made based on whether the procedural requirements have been adhered to.
This updates examines the three different mechanisms and their requirements for convening an EGM as provided for under Sections 144, 145 and 150 of the act.
Section 144 (members requisition directors to convene EGM)
Section 144 of the act allows members holding not less than 10% of the voting rights to requisition the directors to convene an EGM. Section 144(1) makes it clear that this statutory right of members is preserved "notwithstanding anything in the articles of the company". The requirement for a 10% shareholding threshold under Section 144 of the act, which is also present in Section 145 of the act, aims to prevent frivolous convening of meetings that would disrupt the administration of the company.
'Members'
Notwithstanding the term 'members' under Section 144 of the act, it is likely that even a single member that holds not less than 10% of the voting rights can rely on the provision. The High Court in Granasia Corporation Bhd v Choong Wye Lin ([2008] 4 CLJ 893) held that a single member could requisition a meeting under Section 144 of the act. The court referred to the Australian decision in South Norseman Gold Mines No Liability v MacDonald ([1937] SASR 53).
Requisition requirements
Section 144(2) of the act states that the requisition notice must:
- state the objects of the meeting,
- be signed by the requisitionists; and
- be deposited at the registered office of the company (although it is sufficient for the requisition to be sent by post to the registered office).(1)
Under Section 144(3) of the act, the directors must issue a notice to convene the EGM within 21 days of deposit of the requisition notice. Under Section 144(1), the EGM must be held within two months of the date of requisition.
It is likely that a meeting requisitioned by the members cannot deal with a resolution not included in the agenda for which the meeting was requisitioned.(2) However, any business can be transacted at such a requisitioned meeting if sufficient notice of the necessary resolutions is given.(3)
Directors fail to convene EGM
In the event that the directors fail to convene the EGM within 21 days of the date of requisition, Section 144(3) of the act gives the requisitioning members the remedy of self-help - that is, the requisitionists themselves can convene the EGM.
Nonetheless, if the directors were to issue the notice to convene the EGM after the 21-day period and the EGM were to be held after the two-month period from the date of requisition (without objection from the requisitionists), such an EGM would not be void. This was the case in the High Court decision of Dato' Hamzah Abdul Majid v Wembley Industries Holdings Bhd ([1998] 4 CLJ Supp 471), where the directors who had been removed at such an EGM had tried to seek a declaration that the EGM was void for breach of Section 144 of the act. It was held that the duty on the directors to convene an EGM under Section 144 of the act was owed to the requisitionists. As the meeting had been held on a later date and the requisitionists had not sought to convene one on an earlier date, it still suited the requisitionists' purposes. Nonetheless, holding a late EGM would still expose the directors to the general penalty provisions under Section 369 of the act.
Members convene the EGM
In exercising their right to convene an EGM under Section 144(3) of the act, the requisitionists also face a deadline - the EGM must be held within a period of three months from the date of the requisition, following a Court of Appeal decision in HL Nominees (Tempatan) Sdn Bhd v SJA Bhd & Anor and Another Appeal ([2005] 1 CLJ 23).
The rationale for this time limit is to maintain order in a company - once the requisitionists have been granted the power to convene the EGM, they must not delay in holding the meeting.(4)
As long as requisitionists holding half the total voting rights of the original requisitionists eventually convene the EGM, it is valid (Section 144(3) of the act). Therefore, the withdrawal of some of the requisitionists does not affect the right of the others to call the EGM.(5)
Expenses
Under the Section 144 mechanism, if the requisitionists convene the EGM, then all reasonable expenses they incur shall be paid to them by the company (Section 144(4)).
Section 145 (members convene EGM)
Section 145 of the act allows two or more members holding not less than 10% of the issued share capital (or if the company has no share capital, not less than 5% in number of members) directly to convene a meeting of the company.
Instead of relying on the Section 144 mechanism, which necessitates waiting for the directors to decide to call an EGM, Section 145 allows the members to call for such a meeting themselves - this route can be much faster. However, Section 145 does not give the members a right to be repaid any expenses incurred by them in holding such a meeting.
'Two or more members'
While it is likely that a single member can rely on Section 144 of the act, Section 145 makes clear that two or more members are required in order to convene a meeting under this provision.
Statutory right?
Section 145 does not contain the wording "notwithstanding anything in its articles" which is present in Section 144. It is therefore unclear whether there can be a contracting out of Section 145 - that is, whether the articles can exclude members relying on Section 145.
The Court of Appeal in Indian Corridor Sdn Bhd v Golden Plus Holdings Bhd [2008] 3 MLJ 653 had to deal with such an issue. The two appellant shareholders convened an EGM pursuant to Section 145 and the respondent company challenged the convening of the EGM. Article 55 in the respondent's articles provided that the directors may convene an EGM, and that EGMs "shall also be convened on such requisition, or, in default, may be convened by such requisitionist, as provided by Section 144". The appeal court had to consider whether Article 55 had the effect of contracting out of Section 145. The court held that on a construction of Article 55, there had been no contracting out of Section 145. The wording of Article 55 did not state that the shareholders shall not resort to their right under Section 145.
Nonetheless, the decision does not make clear whether the articles of a company expressly exclude members from seeking recourse to Section 145 - for example, by the inclusion of a phrase along the lines of "EGMs may be convened by such requisitionist only by way of section 144 of the Act and section 145 of the Act is expressly excluded".
The Court of Appeal in Indian Corridor distinguished the equivalent Australian provision (under Section 242(1) of the Australian Companies Code), as that section has the wording "so far as the articles do not make other provision", which the Australian courts have held allow for the contracting out of the statutory provision.(6) The Court of Appeal found that while the Australian provision permits a contracting out of its provisions, Section 145 has no equivalent. This question may therefore still be open to interpretation by the courts.
Notice period
Under Section 145(2), the minimum notice in writing for a company meeting must be not less than 14 days or such longer period as provided in the articles. When convening an annual general meeting for a public company, Section 145(2A) requires notice in writing of not less than 21 days, or such longer period as provided in the articles.
Service of notice
Section 145(4) also requires that if the articles do not make provision for service of the notice on every member having a right to attend and vote at the meeting, then the notice must be served in accordance with Table A.
Unlike under Section 144, where the primary obligation is on the directors to issue the notices to call for the EGM, the members relying on Section 145 must carry out the issuance of the notices themselves. In planning to call a meeting under Section 145, the members can rely on Section 160 to inspect or to obtain a copy of the register of members of the company to obtain the names and addresses of all the members.
Section 150 (court-ordered EGMs)
There may be situations in which it is difficult or almost impossible to hold a meeting of the company, even if there is reliance on Section 144 or 145. For example, an opposing shareholder may refuse to attend the meeting and the quorum requirement under the articles cannot be met. The court is empowered under Section 150 to order a meeting of a company to be called where it is impracticable to call or to conduct a meeting in the manner prescribed by the articles or the act.
Applicant
The court may make an order to convene a meeting on its own motion or on the application of a director or any member who is entitled to vote, or the personal representative of such a member.
'Impracticable'
The applicant must show that it is impracticable to call a meeting of the company in any manner whatsoever or to conduct the meeting in the manner prescribed by the articles or the act. The word 'impracticable' is not synonymous with impossible.(7)
The court can also exercise its power under Section 150 if the meeting cannot be conducted properly, even though it may be called. In the High Court cases of Low Son Siang v Lee Kim Yong ([1999] 1 CLJ 529) and Phuar Kong Seng v Lim Hua ([2005] 2 MLJ 338), there were only two shareholders and the quorum requirement for a meeting was two. There had been a failure on the part of one of the shareholders to attend the EGM and the court allowed the application under Section 150 of the act to call for an EGM and directed that the quorum at the meeting be one member.
Requirement to attempt to requisition meeting under Section 144 or Section 145 first?
Before applying to the court under Section 150, members who wish to convene a meeting of the company must first attempt to resort to Section 144 or Section 145. In the High Court case of Kemunting Tin Dredging (M) Bhd v Baharuddin Ma'arof ([1985] 1 CLJ 442), the court dismissed the application under Section 150 and held that it was not impracticable for the members to call a general meeting. It was held that the members still had two avenues open to them,in reliance of the procedures under either Section 144 or Section 145.
The statutory right for members to call for meetings allows members to express their views and to influence corporate governance. Where the members wish to replace the directors, they need not rely on those same directors to call for the necessary meeting. The right to call for meetings is therefore a safeguard to corporate democracy in allowing members the opportunity to vote on company matters.
For further information on this topic please contact Lee Shih at Skrine by telephone (+60 3 2081 3999), fax (+60 3 2094 3211) or email ([email protected]).
Endnotes
(1) Hup Seng Co Ltd v Chin Yin ([1962] MLJ 371).
(2) Scottish authority of Ball v Metal Industries ([1957] SC 315).
(3) Holmes v Life Fund of Australia Ltd ([1971] 1 NSWLR 860).
(4) Dato' Hamzah Abdul Majid v Wembley Industries Holdings Bhd ([1998] 4 CLJ Supp 471).
(5) Canopee Investments Pte Ltd v Landmarks Holdings Bhd ([1989] 2 MLJ 469).
(6) LC O'Neil Enterprise Pty Ltd v Toxis Treatments Ltd ([1986] 10 ACLR 337).