Preference shareholders can have voting rights if granted by the company's constitution; serious breaches of fiduciary duty justify denying an injunction to protect company interests.

Ahmad Fairuz Zainol Abidin J:

(Enclosure 3, 19)

Enclosure 3

Introduction

[1] This is the Plaintiffs' application for an injunction to restrain the implementation of resolutions passed at an Extraordinary General Meeting ("EGM") of Coneff Corporation Sdn Bhd ("Coneff") held on January 29, 2024. The resolutions concern the removal of the Second and Third Plaintiffs as directors and the appointment of the First Defendant as director.

Background Facts

[2] Coneff is a housing developer undertaking two ongoing projects - Phase 3B known as Residensi Desa Idaman and Phase 5 known as Residensi Wilayah Madani. The First Plaintiff is the sole holder of ordinary shares in Coneff, while the First and Second Defendants are holders of preference shares pursuant to Subscription Agreements dated November 1, 2022, under which they invested RM15 million in Coneff.

[3] The Second Plaintiff (Lee Lun Teong) and Third Plaintiff (Oo Heng Teng) were directors of Coneff prior to the EGM. The Second Defendant was appointed as a director in November 2023.

[4] On January 29, 2024, at an EGM requisitioned by the Second Defendant, resolutions were passed to remove the Second and Third Plaintiffs as directors and appoint the First Defendant as a director. The First Plaintiff objected to these resolutions on the basis that the Defendants, as preference shareholders, did not have voting rights.

The Plaintiffs' Case

[5] The Plaintiffs contend that cl 7(e) of Coneff's constitution, which grants voting rights to preference shareholders, is invalid and contrary to the Companies Act 2016 . They rely on s 2 of the Act which defines a preference share as:

"a share by whatever name called, which does not entitle the holder to the right to vote on a resolution or to any right to participate beyond a specified amount in any distribution whether by way of dividend, or on redemption, in a winding up, or otherwise"

[6] The Plaintiffs argue that this definition expressly prohibits preference shareholders from having voting rights, rendering cl 7(e) void under s 32(2) of the Act which states:

"The constitution of a company has no effect to the extent that it contravenes or is inconsistent with the provisions of this Act."

The Defendants' Opposition

[7] The Defendants oppose the application on several grounds. First, they argue that s 2's definition of preference shares should not be read restrictively.

[8] The Defendants submit that this provision explicitly recognizes a company's right to confer voting rights on any class of shares through its constitution. They argue that the definition in s 2 merely describes a typical preference share but does not prohibit companies from conferring additional rights, including voting rights, through their constitutions.

Legal Principles

[9] The principles governing the grant of an interlocutory injunction are well established. As held in American Cyanamid Co v. Ethicon Ltd [1975] AC 396 and applied in Keet Gerald Francis Noel John v. Mohd Noor @ Harun Abdullah & Ors 1994 MarsdenLR 493 ; 1994 MarsdenLR 2101 ; ; [1995] 1 AMR 373, the court must consider:

1. Whether there is a serious question to be tried

2. Where the balance of convenience lies

3. Whether damages would be an adequate remedy

On The Question Of Serious Issue To Be Tried

[10] At this interlocutory stage, it would be inappropriate for this court to make any definitive finding on the interpretation of s 2 of the Companies Act 2016 , as this is a matter properly reserved for the hearing of the Originating Summons. However, I must note that the Plaintiffs' contention that s 2 creates an absolute prohibition against preference shares carrying voting rights is not unanswerable.

Finding On Whether There Is A Serious Issue To Be Tried

[11] I accept the argument of the Defendants that s 2 definition of Preference Shares does not overcome the terms of cl 7(e) of the Constitution. To my mind, the critical consideration is the entitlement to vote. Any shares which disentitles the holder to vote is b