MEMBER FIRM OF
The rights and equitable treatment of shareholders and employees
What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action? What shareholder vote is required to elect or remove directors?
Shareholders are conferred under the Companies Act 2016 with the power to appoint and remove a director before the expiration of the director’s term of office by way of an ordinary resolution passed by a simple majority of more than half of these members. The constitution of the company may set out stricter requirements in relation to the appointment or removal of a director, for example, requiring the unanimous vote of members for the removal of directors. However, pursuant to section 206(2) of the Companies Act 2016, a director may only be removed by an ordinary resolution, and special notice of the intention to move it must be provided to the company at least 28 days before the meeting to which it is to be moved. A copy of the special notice is also required to be sent to the director concerned. This director has an entrenched right to be heard and to oppose the proposed removal.
What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?
The following are some of the matters reserved to shareholders under the Companies Act 2016:
In addition to the above, the constitution of the company or the shareholders’ agreement may further specify matters reserved to the shareholders that the directors will not be able to carry out without first obtaining the affirmative vote of the shareholders.
The Companies Act 2016 does not set out matters that are subject to a non-binding shareholder vote. However, under the Companies Act 2016, there is a new provision giving powers to the shareholders to make recommendations to the board on matters affecting the management of the company, known as the ‘management review’. This recommendation is not binding on the board unless the recommendation is in the best interest of the company, and it is subject to either the right of the management review being provided in the constitution or the recommendation being passed as a special resolution (ie, an affirmative vote by shareholders holding 75 per cent of the voting rights in the company).
Disproportionate voting rights
To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?
The Companies Act 2016 allows for disproportionate voting rights and for limits to be placed on the voting rights of the shareholders. A company may issue different classes of shares and attach different voting rights to the shares in each class. Pursuant to section 90(1), a company with different classes of shares must state in its constitution prominently that the company’s share capital is divided into different classes of shares and the voting rights attached to the shares in each class.
The company may also issue shares that do not allow the holders to vote on resolutions or give them any right to participate beyond a specified amount in any distribution, whether by way of dividend, on redemption or in a winding up or otherwise. These are known as ‘preference shares’.
If the company has a class of shares of which the holders are not entitled to vote, the descriptive title of shares in the class shall include the words ‘non-voting’, and those words must appear legibly on any share certificate, prospectus or directors’ report issued by the company (section 90(2), Companies Act 2016).
Shareholders’ meetings and voting
Are there any special requirements for shareholders to participate in general meetings of shareholders or to vote? Can shareholders act by written consent without a meeting? Are virtual meetings of shareholders permitted?
Generally, a shareholder (other than a holder of preference shares) has the right to attend, participate and speak at a meeting and to vote by way of a show of hands on every resolution of the company, as well as the right to one vote for each share by way of a poll.
Under the Companies Act 2016, a shareholder may appoint a proxy, and the proxy shall be entitled to vote on a show of hands provided that he or she is the only proxy appointed by the shareholder. If the shareholder appointed more than one proxy, the proxies shall only be entitled to vote by way of a poll, and the appointment of the proxies shall not be valid unless the shareholder has specified the proportions of the shareholder’s holdings to be represented by each proxy.
For private companies, the use of written resolutions without the need to hold a members’ meeting is allowed except in the case of the removal of a director or auditor before the expiration of his or her term (section 297, Companies Act 2016).
The passing of written resolutions is no longer provided in the Companies Act 2016 for public companies, and resolutions of members can only be passed at general meetings.
Virtual meetings of shareholders are permitted by the Companies Act 2016 unless the company’s constitution provides otherwise. These virtual meetings may be convened at more than one venue using any technology or method that enables the shareholders to participate and to exercise their rights to speak and vote at the meeting. The Malaysian Code on Corporate Governance provides that the board must ensure that the conduct of a virtual general meeting (whether held in a fully virtual or a hybrid form) supports meaningful engagement between the board, senior management and shareholders. Further, it provides that listed companies should leverage technology to facilitate voting, including voting in absentia and remote shareholders’ participation in general meetings.
Shareholders and the board
Are shareholders able to require meetings of shareholders to be convened, resolutions and director nominations to be put to a shareholder vote against the wishes of the board, or the board to circulate statements by dissident shareholders?
Shareholders have the power under the Companies Act 2016 to require the directors of the company to convene a shareholders’ meeting. Pursuant to section 311(3), directors are obliged to call for a meeting of shareholders on receipt of a requisition to do so from:
If the directors do not give notice to convene the meeting within 14 days from the date of the requisition and do not proceed to hold the meeting within 28 days after the date of this notice, the members who requisitioned the meeting, or any of the members representing more than half of the total voting rights of all the members who requisitioned the meeting, may call for a members’ meeting.
There is no requirement under the law for the board of directors to circulate statements by dissident shareholders.
Controlling shareholders’ duties
Do controlling shareholders owe duties to the company or to non-controlling shareholders? If so, can an enforcement action be brought against controlling shareholders for breach of these duties?
Controlling shareholders do not owe a statutory duty to the company or to non-controlling shareholders of the company.
However, non-controlling shareholders have the right to bring an action in court for minority oppression on the following grounds:
A statutory derivative action may also be brought by a shareholder on behalf of the company to remedy a wrong done against the company by its own board of directors or controlling shareholders. The derivative action provided under section 347 of the Companies Act 2016 allows a shareholder, with leave of the court, to initiate, intervene in or defend a proceeding on behalf of the company.
Can shareholders ever be held responsible for the acts or omissions of the company?
Generally, the legal position is that a company is a separate legal entity, and the shareholders of a company are not liable for acts or omissions of the company except regarding an unpaid amount of shares in the case of a winding-up of the company in accordance with section 435 of the Companies Act 2016.
However, in certain circumstances, the court may order a lifting of the corporate veil whereby persons who are responsible may be held personally liable for the acts or purported acts of the company. A court may grant this relief where there is actual fraud or unconscionable or inequitable conduct amounting to fraud in equity, as set out in the Federal Court of Malaya decision on 25 March 2021 in the case of Ong Leong Chiou & Anor v Keller (M) Sdn Bhd & Ors [2021] 1 LNS 301.
