Company Law

• Published date: 01 December 2015
• Author: Dan W PUCHNIAK BA (Manitoba), LLB (Victoria), LLM and LLD (Kyushu); Barrister and Solicitor (Ontario); Associate Professor, Faculty of Law, National University of Singapore. TAN Cheng Han SC LLB (National University of Singapore), LLM (Cambridge); Advocate and Solicitor (Singapore); Professor, Faculty of Law, National University of Singapore.
• Date: 01 December 2015

Meetings

9.1 As companies are artificial entities, they can only act through others, notably through their organs or agents. Where a company seeks to do things through its organs, namely, the shareholders in general meeting or the board of directors, it will often be necessary to convene a meeting. Such meetings must comply with the requirements set out in the company's articles of association or the Companies Act (Cap 50, 2006 Rev Ed) (‘the Act’). Frequently, there will be quorum requirements set out in the articles and they usually provide that a quorum shall comprise a minimum of two members or directors, as the case may be.

9.2 Where a quorum cannot be obtained, there are two possibilities open to the party that is trying to convene the meeting. The first is to rely on s 182 of the Act which states that where for any reason it is impracticable to call a meeting in any manner in which meetings may be called, a director or member may apply to the court for an order that a meeting be held and conducted in such manner as the court thinks fit, including a direction that one member present in person or by proxy shall be deemed to constitute a meeting. The second is to proceed with an inquorate meeting relying on s 392 of the Act which regards such a meeting as a procedural irregularity which is not invalid unless the court is of the view that substantial injustice has been caused by such irregularity and by order declares the proceeding to be invalid.

9.3 The second course has the benefit of convenience but there is the uncertainty over whether it will be challenged and the outcome of any such challenge. The first course involves court action from the outset but if the court orders the meeting to be held the outcome of the meeting cannot be challenged on the basis of any procedural irregularity.

9.4 Lim Yew Ming v Aik Chuan Construction Pte Ltd[2015] 3 SLR 931 (‘Lim Yew Ming’) involved an application under s 182 of the Act. Essentially, the plaintiff, who held 51.5% of the shares in the company, wanted to convene an extraordinary general meeting (‘EGM’) to remove the second and fifth defendants as directors of the company. The second to the seventh defendants were all members of the company collectively holding 48.5% of the shares in the company. They had refused to attend two previous EGMs that the plaintiff had attempted to convene with the consequence that no quorum could be obtained.

9.5 The court allowed the application. In its view, impracticability included the inability of a meeting to be conducted because of the absence of a quorum. In addition, there were good reasons for the court to exercise its discretion to allow the meeting to take place as to do otherwise would frustrate the mechanism of decision-making within the company.

9.6 The authors agree that the application was rightly granted on the facts set out by the learned judicial commissioner. The crux of such cases is whether the quorum requirements were intended by the members to confer veto rights. In general, quorum requirements are not equated with veto rights as is implied by s 392 of the Act which provides, inter alia, that the absence of a quorum is a procedural irregularity that does not prima facie invalidate the meeting unless there is substantial injustice. This means that the absence of a quorum in itself does not cause substantial injustice and this is because quorum requirements do not generally give rise to veto rights. However, where the quorum requirements were specially negotiated and bargained for, and it is clear that the intention behind such quorum requirements was to confer a veto right on members, as was the case in Chang Benety v Tang Kin Fei[2012] 1 SLR 274, it has been held that a meeting that proceeded without a valid quorum would be invalidated because substantial injustice would otherwise be caused to the party not attending the meeting.

9.7 It is true of course that there are material differences between ss 182 and 392 as the learned judicial commissioner acknowledged (Lim Yew Ming at [45]):

The distinction between the two requirements under ss 182 and 392 is there because of the different perspectives involved. Section 392 operates post hoc. Where an irregularity arises such as a decision taken at an inquorate meeting, the question that is examined is whether a substantial injustice has arisen, because of the conduct of the party proceeding in breach. In contrast, when the court's intervention is sought under s 182, the issue is whether the meeting should be permitted to go ahead, and the prescribed criteria under that section is impracticability. No decision has yet been made; the only question is the holding of the meeting. The decision may yet be influenced by those choosing to attend. They are given that opportunity, slim though it may be at times, and it is for them to decide what to make of it.

Nevertheless, in the context of meetings, there is little merit in adopting materially different approaches depending on whether it is a member or director seeking to call the meeting, or a member or director seeking to invalidate a meeting where a quorum was not present. In both cases, the court should prima facie either order the meeting to be held or not invalidate the meeting that was held without a quorum. However, where the quorum requirement was intended to give a shareholder a right to block corporate action, the prima facie position is inapplicable and the court should either not allow the meeting to be held or invalidate the proceeding that took place without a valid quorum, as the case may be, and this was acknowledged by the judge: Lim Yew Ming at [52].

9.8 In Lim Yew Ming, the learned judicial commissioner had also said that while impracticability and the exercise of the court's discretion involved a two-stage approach, there was little to be gained by analysing both matters separately as there would often be an overlap in the matters going to both. A holistic assessment of all the factors going to both elements was therefore a better approach. This was not the position taken in Naseer Ahmad Akhtar v Suresh Agarwal[2015] 5 SLR 1032 (‘Naseer Ahmad Akhtar’) where the learned judicial commissioner, while recognising that there may be an overlap between the two elements, said that nevertheless the elements remained distinct and that it was preferable for analytical clarity that they be given separate treatment. It is suggested respectfully that this is the better approach.

9.9 As with Lim Yew Ming, it was held in Naseer Ahmad Akhtar that it was impracticable to conduct an EGM as such a meeting would have been inquorate because of the refusal of the other shareholders to attend. The learned judicial commissioner then went on to say that the fact that the application was being brought by a majority shareholder presented a prima facie case for relief under s 182 of the Act as minority shareholders should not ordinarily be allowed to block resolutions that are unfavourable to them. This is because shares are a specie of property and members should be entitled to exercise their voting rights in their own self-interest, a point also made in Lim Yew Ming. While this is correct, it is suggested that the better justification is that corporate law is premised on a strong default rule that favours majority rule and this is why s 182 should be applied in a manner that does not usually allow minorities to block the holding of meetings and thereby frustrate the will of the majority.

9.10 The learned judicial commissioner accepted that if there was an agreement between the shareholders over how control of the company was to be allocated, s 182 could not be used to override such an agreement. She found, however, that there was never any such agreement and accordingly there was nothing to prevent the court from exercising its discretion in favour of the applicant.

9.11 One final aspect of this case that can usefully be noted is that s 182 applications may meet with the rejoinder that the court should not exercise its discretion because of wrongdoing or oppressive conduct on the part of the applicant. Indeed, this allegation was made by the defendants in Naseer Ahmad Akhtar and there was also an outstanding oppression action against the applicant. Such allegations are relevant because if they are established, the appropriate course of action may be for the court not to grant the s 182 application. However, it would seem unsatisfactory if s 182 applications developed into full-scale disputes revolving around whether there has been wrongdoing towards the company or oppression against minority shareholders. Such disputes are more appropriately resolved through either s 216A or 216 of the Act. The learned judicial commissioner therefore rightly took the view that short of situations involving clear cases of oppression (and, it is suggested, of wrongdoing against the company), the court should not normally deny the relief sought. The authors agree that this strikes the appropriate balance.

9.12 In Lim Kok Wah v Lim Boh Yong[2015] 5 SLR 307 (‘Lim Kok Wah’), the issues revolved around the applicability of s 392 of the Act. The defendants sought to impugn a board meeting and an EGM on the basis that inadequate notice had been given. Vinodh Coomaraswamy J held that there were procedural irregularities involved in both meetings. In so far as the board meeting was concerned, the one-day notice given was unreasonably short and there was insufficient time for them to attend the meeting. As for the EGM, although the company's articles provided that at least seven days' notice for general meetings had to be given, this contradicted s 177(2) of the Act which provided for not less than 14 days' notice.

9.13 The next question then was whether the procedural irregularities caused any substantial injustice to the defendants. As regards the board meeting, the learned judge was satisfied that substantial injustice...