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2022 MarsdenLR 1747
COURT OF APPEAL PUTRAJAYA
LGB ENGINEERING SDN BHD & ORS – Appellant
Versus
RAYSTON RESOURCES SDN BHD – Respondent
[Civil Appeal No: B-02(NCC)(A)-300-02-2019]
The court upheld the validity of shareholder resolutions passed under the Companies Act 2016, despite prior quorum disputes, emphasizing majority shareholder rights and the applicability of new statutory provisions.
Headnote:(A) Companies Act 1965 and Companies Act 2016 –
Issues
regarding quorum at shareholders' meetings – Validity of shareholder resolutions – Transfer of shares in breach of articles of association – Effect of nullity and ratification in company law – Statutory provisions addressing quorum and members' written resolutions under the Companies Act 2016. (Paras 1, 2, 8, 46, 230)
(B)
Pre-emptive right of minority shareholders – Majority rights to manage company affairs and implications of minority refusal to participate – Effect of judicial pronouncements regarding company resolutions and quorum requirements. (Paras 75, 122, 215)
Facts of the case:
The case involved an ongoing dispute between majority and minority shareholders over the validity of resolutions due to quorum issues, leading to the nullification of previous resolutions. The Court evaluated new statutory provisions enabling circular resolutions circumventing quorum requirements.
Findings of Court:
Majority shareholder's resolutions passed through members' circular resolution post-Companies Act 2016 are valid; courts will not interfere unless substantial injustice can be shown.
Issues
: The key issues were whether the resolutions could be validly ratified in the absence of the minority shareholder and whether the new statutory provisions applied retrospectively.
Ratio Decidendi:
The court held that the pre-emptive rights of minority shareholders could be waived and that statutory changes provided remedies for previous quorum issues.
Result:
The appeal was allowed, validating the contested resolutions. Parties involved: Majority shareholder (D1), Investment Holding Company (D2), Immediate Minority Shareholder (RRSB).
Key Points:- Judgment holds that ratification can cure certain nullities if the invalidating factor is removed and proper procedure followed; the new written resolutions can be validly used to ratify past actions. (!) (!) (!) - Court discusses waivability of pre-emptive rights and that waivers can permit transactions that previously breached articles, enabling ratification without ultra vires findings. (!) (!) (!) - The 2016 Act’s written resolutions (s 303) provide a remedial, prospective mechanism to address quorum issues and allow capitalisation and share issuances to proceed without physical meetings, clarifying retrospective vs prospective application. (!) (!) (!) - The court distinguishes between ultra vires/illegal acts (not curable) and procedural irregularities (curable by ratification), applying s 582 CA 2016 to validate acts where no substantial injustice occurs. (!) (!) (!) - The decision emphasizes majority rule while recognizing minority rights and the circumstances under which ratification can be sanctioned to preserve business objectives. (!) (!) (!)
How to determine if prior nullities due to lack of quorum can be ratified under new company law provisions?What is the effect of waiving pre-emptive rights on a transfer that previously caused a quorum defect?What is the proper application (retrospective or prospective) of written resolutions under the amended Companies Act 2016 to cure earlier irregularities?
JUDGMENT
[1] The issues before this Court of Appeal arose in the context of a resolution held to be null and void by the High Court for lack of a quorum of shareholders, there being a need for at least 2 members to be present for the members' or shareholders' meeting. Unfortunately, in the 2 - member Company, the minority member chose to absent itself from the meeting as it has often been done thereafter. The majority member sought to overcome this impasse by transferring one share of its 83% equity in the Company to its related entity so that the quorum quagmire may be quickly addressed.
[2] The majority misjudged the issue as any transfer would need the consent of the minority where the minority has a pre-emptive right. In an action brought by the minority member to declare the transfer of the one share null and void for breach of a particular article of the Company on the pre-emptive right of the minority, the High Court agreed and so declared the transfer to be null and void and with that all resolutions sought to be passed with the presence of the new shareholder of the one share in the Company were also null and void.
[3] Needless to say the majority member was frustrated with the deliberate action of the minority to stymie the valid business activities of the Company including capitalising on advances made by the majority member to the Company and the subscribing of new shares in the Company.
[4] The majority saw a way out of this problem created by the minority by absenting itself from all shareholders' meetings with the coming into force of the Companies Act 2016 which allows for a members' circular resolution to be passed by a majority of the votes without the need for a physical meeting with its attendant need for a quorum of the two members.
[5] A fresh members' meeting was convened and as expected the minority shareholder refused to sign the resolutions which sought to ratify inter alia the increase in the paid-up capital of the Company and the subscription of the new shares. The majority understood the resolutions to have been carried as it has an overwhelming majority and there was then no need for a physical presence of the minority to constitute the quorum of two.
[6] The minority cried foul and commenced an action by an Originating Summons ("OS") in the High Court to declare the fresh resolutions passed by way of a members' circular resolution to be null and void with the consequent reversal out and cancellation of all exercises taken arising out of the passing of the impugned resolutions that the High Court had struck down. That included the capitalisation exercise in the subscription of new shares in the Company.
[7] The majority was again flabbergasted that the minority can literally have a majority control over the Company by just putting obstacles in its valid pursuit of the Company's business ventures which included the consequential capitalisation of its joint-venture subsidiary which has been awarded a project by the State government.
[8] The majority in the 1st appellant together with the related companies named in the OS thus appealed to this Court to correct what they said was an error in the High Court where its interpretation of the relevant provisions of the Companies Act 1965 (" CA 1965") and Companies Act 2016 (" 2016") are concerned with respect to how the affairs of a company are to be conducted.
The Corporate Structure And Shareholding Of The Parties
[9] Rayston Resources Sdn Bhd ("RRSB") referred to as the "Immediate Minority Shareholder", filed an OS in 2017 at the High Court ("Subsequent OS No 51"). It is the plaintiff below and respondent in this appeal. The intitulement made reference to an earlier OS filed by the Immediate Minority Shareholder which shall be referred to as "Earlier OS No 2."
[10] In terms of history of the evolving disputes between the parties, one can start at 1999, when there were proceedings involving Sonny's Group culminating in a Consent Order of March 20
