Whilst the board of directors of a company are given the authority to manage a company's business and affairs, shareholders (as a collective body) are vested with the power to appoint or remove directors to the board. This is one of the ways in which the Companies Act (the Act) ensures that the interests of shareholders are protected.
The Act also provides means for shareholders to be heard. Section 176 of the Act allows shareholders with not less than 10% of a company’s paid up share capital to requisition a general meeting. This shareholders’ right was recently exercised by 2 members of Mainboard-listed and US-based yacht maker, Grand Banks Yachts Limited (Grand Banks).
On 27 July 2012, the board of directors of Grand Banks (the Board) received a special notice from Mr Peter Cheng Lim Kong (Mr Cheng) and Mr Kwah Yeow Khong (Mr Kwah), stating their intention to call for an extraordinary general meeting (EGM) of Grand Banks to remove all 4 existing directors and to replace them with one new executive director and 3 new independent directors. On 10 August 2012, the Board received an amended and restated special notice from the same members, requisitioning the Board to convene an EGM.
A requisition from shareholders for the removal of directors from public companies is not uncommon – other SGX- listed companies such as 1st Software Corporation Ltd, HG Metal Manufacturing Limited, United International Securities Limited and Asia Water Technology Ltd have been on the receiving end of such requisition notices. The procedure for the removal of directors in public listed companies is largely dealt with by the Act. Under section 152 of the Act, a shareholder of a public company may remove a director by ordinary resolution notwithstanding anything in the company's memorandum or articles of association and regardless of whether the said director has a service agreement for a set duration. This, however, is without prejudice to any claim for compensation by the said director against the company for a breach of contract.
Section 176 of the Act provides that the board of directors shall, on the requisition of the holders of not less than 10% of the paid up share capital of the company as at the date of the deposit of the requisition, proceed to convene an EGM. In Grand Banks’ case, as Mr Cheng had recently acquired 9.7 million Grand Banks shares which increased his stake to just over 10% of the paid up share capital of the company, he was able to exercise his rights under section 176 of the Act to requisition the Board to convene an EGM for the purpose of replacing all the current directors.
The requisition notice, which is to be deposited at the company's registered office, must state the objects of the meeting and must be signed by the requisitionists, in this case, Mr Cheng and Mr Kwah. The Board shall thereafter proceed to convene an EGM as soon as practicable, but in any case no later than 2 months after receipt of the requisition notice.
The Board has 21 days from the date of deposit of the requisition notice to proceed to convene the EGM, failing which Mr Cheng and Mr Kwah or any shareholder(s) representing more than 50% of the total voting rights of all of them, may convene the EGM to be held within 3 months from the date of such deposit.
The shareholders’ requisition for removal of a director before the expiry of such director’s period of office must be made through a special notice of at least 28 days to the company, notwithstanding anything in the company's memorandum or articles of association or any agreement to the contrary. Failure to give such notice within the prescribed period will render the resolution ineffective. Upon receipt of the special notice of resolution, Grand Banks must follow up with notice of the resolution to its shareholders not less than 14 days before the EGM.
In Grand Banks’ case, the 28-days’ grace period will allow Mr Peter Kevin Poli, Mr Basil Chan, Mr Jeffrey Stewart Bland and Mr Heine Askaer-Jensen, who are proposed to be removed at the EGM, time to rally support and prepare their arguments for why they should not be removed. The directors are entitled to be heard on the resolution at the EGM where their removal is being sought, and to make written representations to Grand Banks and request the said representations be sent to all Grand Banks shareholders. If such representations are received too late in time from the directors, it may be read out at the EGM. Notwithstanding the foregoing, the company or any person who claims to be aggrieved may apply to the High Court of Singapore to prevent the representations from being sent out or read out at the EGM if the court is satisfied that section 152 of the Act is being abused to secure publicity for defamatory matters.
As is common with such high-profile boardroom tussles, each party in the Grand Banks case has been working to garner support from the shareholders. On 30 July 2012, the Board issued a statement to its shareholders in response to the special notice sent by Mr Cheng and Mr Kwah, assuring its shareholders that the Board has undertaken significant efforts to turn the company around and that the Board cumulatively had deep corporate experience and a unique understanding of the yacht business.
Mr Cheng expressed a different opinion – he voiced concerns about Grand Banks’ business strategy and its ability to return to a profitable status, noting certain discrepancies in the company’s order book. He also highlighted that sales from its $13 million order book would be insufficient to cover the company’s overheads, which totalled $19.5 million in FY2012. In his letter to the Board, Mr Cheng wrote that the proposed new directors, with their extensive management and professional expertise, would be able to boost Grand Banks’ operations and act in the interest of the company and its shareholders.
Will the incumbent directors of Grand Banks be removed or will they retain their positions at the upcoming EGM? In addition, will Grand Banks shareholders get the chance to voice their opinions at the upcoming EGM? Either way, it remains to be seen if Grand Banks can set sail into calmer waters again.
"A house divided against itself cannot stand"- Abraham Lincoln