DIVISION OF POWERS BETWEEN THE GENERAL MEETING AND THE BOARD OF DIRECTORS IN A COMPANY

• Date: 01 December 1993
• Citation: (1993) 5 SAcLJ 360
• Published date: 01 December 1993
• Author: RONALD CHOO HAN WOON

Credit Development Pte Ltd v IMO Pte Ltd 1

The power of management in a company is usually vested in the board of directors by the articles of association. Members cannot interfere with or supervise the board of directors in their exercise of these powers unless the articles of association allow them to do so.

Regulation 73 of Table A of the Fourth Schedule of the Companies Act confers on the directors all the powers of the company except those which the Companies Act or the memorandum or articles require to be exercised by the members. Most companies adopt Regulation 73 in their Articles of Association; either unchanged or with only slight modifications.

Regulation 73 provides that “The business of the company … shall be managed by the directors who … may exercise all such powers of the company as are not … required to be exercised by the company in general meeting, subject, nevertheless, to any of these Regulations, to the provisions of the Act, and to such regulations, being not inconsistent with the aforesaid Regulations or provisions, as may be prescribed by the company in general meeting.”

Although the second part of Regulation 73 appears to subject the powers of the directors to “regulations” which may be prescribed in general meeting, the widely held view was that Regulation 73 vests the powers of management exclusively in the directors.2

This widely held view was rejected by Lim Teong Qwee JC in the case of Credit Development Pte Ltd v IMO Pte Ltd. In this case, the defendant (“IMO”) held about 7% of the shares in the plaintiff (the “Company”). In April 1992, IMO sent a written requisition to the directors of the Company (pursuant to S.183 Companies Act) requiring them to give notice to the members of certain resolutions which IMO intended to table at the next Annual General Meeting.

Among the proposed resolutions were resolutions to appoint accountants and solicitors to investigate into and report on the conduct of the directors and resolutions to require former and present directors to disclose their relationships with a company called OTB and its related companies (these companies together controlled the majority of the shares in the Company). The directors declined to include the resolutions in the next Annual General Meeting and took out an application in the name of the Company to determine

if they were bound to give members notice of the resolutions and to table them at the next Annual General Meeting.

On the issue of what resolutions could “properly be moved” under S.183, the judge decided that a resolution could properly be moved if it was not ultra vires the members in general meeting. Hence the defendant had to show that the proposed resolutions were within the powers of the members in general meeting as conferred on them by the memorandum and articles of the Company.

Article 88(1) of the Company is almost identical to Regulation 73 of Table A. The defendant argued that Art 88(1) and in particular the words of limitation found in the second part of that article conferred on the members the power to prescribe regulations supervising the exercise of the directors’ powers and that a bare majority only was needed to pass such regulations (since nothing is expressed in the articles of association about the required majority).

Lim JC held that on a plain reading of Article 88(1), the members could by ordinary resolution prescribe regulations which would be binding on the directors so long as such resolutions were not inconsistent with the Companies Act, the Memorandum of Association, or the Articles of Association of the Company.3

It was argued by the Plaintiff that the first part of Article 88(1) had conferred on the directors certain powers and any regulation which purported to supervise the exercise of these powers...