Topic 8: COMPANY MEETINGS and

Topic 9: MAJORITY CONTROL AND MINORITY PROTECTION

1. The company suffered massive financial losses owing to poor
internal control. Discuss the directors’responsibility for putting in
place a system of internal control. (Note: This is on the topic of
Directors).
The issue is whether the directors of Syarikat Handyson Tools Berhad
should assume responsibility for its failure to have adequate system of
internal control in the Company.
Explain Section 246 CA 2016.
• Section 246 (1) CA 2016 - The directors of a public company or a subsidiary of a
public company must ensure that Co has implemented a system of internal control.
Such system should provide a reasonable assurance that:
(a) the assets of the company are safeguarded against loss from unauthorized use or
disposition and to give a proper account of the assets; and
(b) all transactions are properly authorized and that the transactions are recorded as
necessary to enable the preparation of true and fair view of the financial statements of
the company.
• Section 246 (2) - Any director who contravenes this section commits an offence and
shall, on conviction, be liable to imprisonment for a term not exceeding three
years or a fine not exceeding RM1 million or both.

On the facts, the Co suffered massive financial losses because it has
poor internal control.
So, The Board (BOD) did not have a proper system of internal control
in the Co. The BOD has failed to meet up to the standard of care
required of it.
This shows that the BOD has breached the duties under s.246.
Therefore, the BOD commits an offence and shall, on conviction, be liable to
imprisonment for a term not exceeding three years or a fine not exceeding RM1
million or both.
2. Explain the categories of persons who can convene a company
meeting
A meeting must be convened by persons with proper authority or entitled
to summon it. (slide 6)
In case of board meetings: (slide 7)
Chairman of the Board of Directors may convene a meeting of directors.
Clause 3 of the Third Schedule (Proceedings of the Board): A Director may
convene or request the Company Secretary to requisition a Board meeting.
In case of AGMs of a public Company, (slide 10)
Usually BOD, by passing directors’ resolution. At least 21 days’ notice is
required – s.316(2)(a).
Any member may apply to court under s.340(5) for an order to call for an
AGM.
A director, member or personal representative of a member may apply to
court under s.314 to call for an AGM if it is impracticable to call for an AGM.
– s.314(2)&(1)(a).
In case of meeting of members, (slide 14)
Generally, Board of Directors - s.310(a).
Members also have the authority to convene a meeting through either:
 s.310(b): power to convene meeting of members
 s.311: power to requisition directors to convene meeting of
members.
• This is a meeting convened by members pursuant to s. 310(b).
• This is a meeting requisitioned pursuant to s.311 by requisitionists/members.
In case of Court, (slide 19)
• s.314(2)(a): a director can apply to court for an order to call for a Meeting of
Members.
• s.314(2)(b): Members also may apply to court for an order to call for a
Meeting of Members where it is impracticable or impossible to convene a
meeting as prescribed by the CA 2016 or the constitution, s.314(1)(a)(b) e.g.
because of quorum tactic.
 Re El sombrero [1958]:
2 shareholders (10%) vs 1 shareholder (90%)
 Phuar Kong Seng v Lim Hua [2005]: Quorum tactic
1 shareholder (49%) vs 1 shareholder (51%)
***take a look for hand-writing scripts
3. Was the board correct to argue that only it has the power to
convene meetings?
Explanation on meeting requisitioned by members – s.311 CA (slide
16, 17)
• This is a meeting requisitioned pursuant to s.311 by requisitionists /
members:
 holding not less than 10% of Co’s paid-up capital; or -
s.311(3)(a)
 If the Co has no share capital, members representing not less
than 5% of the total voting rights of all members - s.311(3)(b)
• s.311(4): If Co is a private Co and 12 months have elapsed since the
last meeting convened pursuant to s.311, members holding at least 5%
of the Co’s paid-up capital may make the requisition.
***Public Co min 10%
• s.312 - Directors must proceed to call for the meeting within 14 days
from date of requisition – i.e. to issue out notice within these 14 days. -
s.312(1)(a) Meeting is to be held not later than 28 days after the date of
the notice to convene the meeting. - s.312(1)(b) If special reso is
proposed, 21 days’ notice. - s.312(4) = s.292(1)
• s.313(1) - If Directors fail to convene the general meeting, any
requisitioning member, who hold not less than ½ of the voting rights
of all requisitioning members, can convene the general meeting.
• The meeting can be convened only after the expiration of the 14 days,
- s.312(1)(a) and must be held not later than 3 months from the date
the directors received the original requisition. - s.313(3)
• Reasonable expenses incurred shall be paid to the requisitioning
members by the Company, out of the fees or remuneration of the
Directors who fail to convene the meeting; s.313(6) and (7).
Explanation on meeting convened by members - s.310(b) CA (slide
15)
• This is a meeting convened by members pursuant to s. 310(b).
• Requirements:
  any member hold not less than 10% of Co’s issued share
capital or a lower % specified in the constitution; or - s. 310(b).
 If a Co has no share capital, by not less than 5% of the
members. - s. 310(b).
• Members must send out notice of meeting to other shareholders
themselves.
If special resolutions are proposed – 21 days’ notice.
If ordinary resolution – 14 days
• The costs incurred in convening meeting under this section are to be
borne by the members themselves.
Conclusion on the board
On the facts, the Board argued that only itself had the power to
convene meetings.
It was right in case of board meetings.
It was wrong/incorrect in case of general meetings. There are
provisions in the Companies Act, under s.311 and s.310(b), which
members can convene general meetings.
On the facts, KMS held 12% while Powerful Machine held 8% of the
shares in the Co.
KMS is entitled to requisition for a general meeting under s.311 or
directly convening meeting under s.310.
Meanwhile, Powerful Machine is not entitled to do so, because it
holds less than 10% of Co’s issued share capital (8% only), unless it
joins together with KMS.
4. Discuss whether Handyson may hold its general meeting at
different venues, i.e. Banting, Petaling Jaya and Georgetown
simultaneously.
Refer Slides 23 on Section 327 CA 2016 (separately write)
• s.327(1): Subject to the constitution, a Co may hold all meetings of its
members at more than one venue.
• The main venue must be in Malaysia. - s.327(2)
• The main venue need not be the Co’s registered office or place of
business. (can skip)
• The Chairperson must be present at the main venue. - s.327(2)
• Company must use any technology or method that enables all
members to participate and exercise their right to participate, speak
and vote at the meeting. - s.327(1)

On the facts, since the EGM was held simultaneously at all the three
venues by the way of video-conferencing, Handyson will be permitted
to do so (hold its general meeting at different venues).
Since the Directors were at Banting venue, so the main venue was
Banting venue. This is because the Chairperson of BOD was most
likely present at the main venue, Banting.
Since there were video-conferencing, therefore, there were adequate
audio-visual links to allow members a reasonable opportunity to
participate.
5. Explain the rights of shareholders in relation to company general
meetings.
Refer Slides 34-36
Right to requisition for general meetings.
Shareholders holding not less than 10% of the paid up capital or total
voting rights may requisition an extraordinary general meeting under
Section 311 CA 2016.
Right to convene general meetings.
Shareholders holding not less than 10% of the issued shares or not less
than 5% of the members may call a general meeting. - s.310(b)
Right to receive notices of general meetings
A notice must be given within the length of time prescribed under the
CA 2016. No shareholder must be excluded.
Right to attend meetings and appoint proxies.
Every member has a right to attend personally or appoint a proxy,
who shall have same rights as him (attend, speak, vote during meeting).
Right to speak at meetings and be given reasonable opportunity
time to discuss and debate
Members have the right to confront the Directors on the ordinary
business of an AGM, relating to: the financial performance of the Co
for the financial year end, the Directors’ Report and Auditors’ Report,
Declaration of Dividends and election of Directors retiring by rotation
and appointment of Auditors.
Other right to participate in general meetings:
election and removal of directors, determine the remuneration of the
Directors, alterations/amendments to the constitution, disposal of
substantial portion of the Company’ s property or undertaking, issue of
shares, increase in authorized capital and reduction of capital.
Right to vote.
right to vote on a show of hands or by poll.
6. Could KMS propose an impromptu special resolution for
management review during the EGM?
Introduction
The question requires discussion on the right of shareholders to
propose a resolution for management review.
Explanation of law
• Section 195(1) CA 2016 provides that at a meeting of members, the
Chairperson shall allow a reasonable opportunity for members at the
meeting to question, discuss or make recommendation on the
management of the company.
• s.195(2) - A meeting of members may pass a resolution under this
section, which makes recommendations to the Board on matters
affecting the management of the company.
• However, s.195(3) - any recommendation shall not be binding on the
Board, unless the recommendation is in the best interest of the
company, provided that:
(a) The right to make recommendation is provided for in the
constitution or
(b) passed as a special resolution.

• In Petra Perdana Bhd v Tengku Dato’ Ibrahim Petra, the court held
that members’ resolution is an indication of what is the best interest
of the company.
• Since the resolution must be special resolution in order to be
binding on the Board, the notice convening the meeting must set out
the text of the proposed resolution and there must be a notice of 21
days.
• It appears then that the recommendation must first be discussed
among the members before the meeting is called, and then the text
of the proposed resolution is to be drafted.

• This is because, any impromptu recommendation by members

during the meeting, even if it gets the support of 75% of the members,
will not be a special resolution since there was no notice of 21 days
given.
• If it is not a special resolution, it will not be binding on the Board.
• A notice to call the meeting is usually prepared by the secretary on
the instruction of the Board. Even if members submit the text of the
proposed resolution, it is unclear if the secretary would want to include
this in the notice, especially if the directors do not support it.
***(important)
• Thus, it would appear that a binding recommendation through the
passing of a special resolution can realistically take place only at a
meeting convened by members. ***(important)

Application to the facts and Conclusion

On the facts, KMS found out that the board had instructed the
company secretary not to include the proposed special resolution for
management review in the notice of the EGM.
Therefore, KMS could not propose an impromptu special resolution
for management review during the EGM.
The only option for KMS is to convene another meeting of members
pursuant to s.310(b), in order to get the special resolution passed
during the meeting.
7. Under the common law, minority shareholders face setbacks in
bringing a derivative action. Explain these main setbacks.
Refer Topic 9, Slides 5-6
Main setbacks in bringing derivative action under Common Law:
1. The resolution of the majority of the directors or shareholders
duly convened and passed is legally binding on the company
and consequently, on the minority.
2. The majority is usually in a formidable position, and they may
choose not to commence an action in the name of the
company on wrongs from which they have benefited.
3. Common law derivative action can be overly-technical and
time consuming.
4. The legal fees and costs elements are always an important
factor. If the minority shareholder fails in his action, he is
potentially liable to pay the costs of the majority. (minority
shareholder bears the cost)
5. At the same time, if the wrong-doers are held to be liable, the
minority shareholder has not corresponding right to share the
damages. (only Co get money, wrong-doers paid)
6. In most cases, the minority shareholder who is not part of the
management may be unable to obtain the relevant information
to adequately support his case.
8. The Companies Act 2016 has abrogated the common law
derivative action. Explain the new statutory remedies for minority
shareholders. To what extent have the common law setbacks been
resolved?
Candidates should not merely copy from statute book without
showing critical thoughts.

• Even if members of the company ratify the conduct, the subject matter of the
action, the ratification does not prevent any person from bringing in such
proceedings. - s.349&(a)
• The ratification is a factor for the court to take into account in determining
what order to make. - s.349(c)
• Section 349 can solve the common law setback of:
• The resolution of the majority of the directors or shareholders duly
convened and passed is legally binding on the company and consequently,
on the minority.

• Under s.347(1)-(3) Companies Act 2016, a complainant (minority

shareholders) may now, with the leave of the Court, bring(2), intervene or
defend an action on behalf of the company(1), and the right of any person to
bring action on behalf of a company at common law is abrogated(3). (can
skip)
• Section 347(1)-(3) can solve the common law setback of:
• The majority is usually in a formidable position, and they may choose
not to commence an action in the name of the company on wrongs from
which they have benefited.

• Under s.348(4), in deciding whether to grant leave, the court shall take into
account whether
(a) the complainant (minority shareholders) is acting in good faith and
(b) it appears prima facie (on the surface 表面看来) to be in the best interest
of the company.
• Section 348(4) can solve the common law setback of:
• Common law derivative action can be overly-technical.
• The complainants shall give 30 days’ notice in writing to the directors of the
intention to apply for the leave of court - s.348(2)
• Where leave has been granted, proceedings shall be initiated within 30 days
from the grant of leave. - s.348(3)
• Section 348(1)-(3) can solve the common law setback of:
• Common law derivative action can be time consuming.

• The court may make an order for indemnification for costs. - s.350(e)
• Section 350 can solve the common law setback of:
• The legal fees and costs elements are always an important factor. If the
minority shareholder fails in his action, he is potentially liable to pay the
costs of the majority. (minority shareholder bears the cost)

• The court may make an order for inspection of the company’s books. -
s.350(c)
• So, the minority shareholders will have the right to demand Co’s officer,
employees to provide assistance and information such as: surrender the
report stolen, interview the witnesses. - s.350(c)
• Section 350 can solve the common law setback of:
• In most cases, the minority shareholder who is not part of the
management may be unable to obtain the relevant information to
adequately support his case.

• For 5th setback, “At the same time, if the wrong-doers are held to be liable,
the minority shareholder has not corresponding right to share the
damages. (only Co get money, wrong-doers paid)”,
• There was no provision/solution under CA2016 for minority shareholders
to obtain a share of the damages.

• CA2016 has introduced 2 additional improvements:

1. Any proceedings brought, intervened in or defended under s.347 shall
not be discontinued, compromised or settled except with the leave of
the Court - Section 348(5).
• If minority shareholder has started legal action after obtaining the Leave of
court, even if he wants to stop, discontinue, withdraw, settle with wrong-doers,
he cannot just do that, he need to obtain Leave of court, so the Court will
know the actual reason for him to discontinue.
2. In granting leave, the court may make orders pertaining to the control
and conduct of the proceedings. Section 350 (a)
• Minority shareholder can decide how proceedings/legal action to be done,
set deadline for compliance.
• The legal action will not be dragging too long, he can ensure to obtain
cooperation from the wrong-doers.