Section 314 of Companies Act: court orders one- member extraordinary general meeting

Introduction

In February 2020, the High Court allowed a shareholder to convene a one-member extraordinary general meeting (EGM) of a family-run company in Lee Yee Wuen v Kien Yiap Trading Sdn Bhd.(1) When applying for a court-ordered meeting, applicants must prove that it is otherwise impracticable to hold the meeting. This case is significant in determining whether the application of this test differs for family-run companies.

Background

The subject company had two shareholders. The plaintiff (majority shareholder) filed an oppression action against, among others, a family member who was the other shareholder (minority shareholder) of the company (first originating summons). The plaintiff subsequently filed another action pursuant to Section 314 of the Companies Act 2016 to convene an EGM in respect of the same company (second originating summons).

The second originating summons was filed because of the minority shareholder’s absence from previous EGMs called by the plaintiff. Due to the company’s two-person quorum requirement for members’ meetings, the plaintiff had been unable to hold an EGM. Both applications included a request to convene an EGM.

Preliminary Objection

Before addressing the merits of the second originating summons, the court considered a preliminary objection raised by the minority shareholder—namely, whether the second originating summons should be struck out for multiplicity of proceedings, given that both applications sought to hold an EGM.

The court dismissed the objection, holding that the basis for convening the meeting in the first and second originating summonses was different.

In the first originating summons, the company secretary issued a notice for members to discuss the proposed appointments of the plaintiff and another person as directors of the company. That EGM did not proceed due to the lack of quorum caused by the minority shareholder’s non-attendance.

In the second originating summons, a separate notice was issued by the plaintiff under Section 314 of the Companies Act for the appointment of a different set of directors. The court was also influenced by the fact that the request to convene the EGM in the first originating summons would be withdrawn.

Impracticability of Meeting

The main issue was whether it was impracticable to hold a meeting of the company, which is the test under a Section 314 application.

The court first examined the reasons put forward by the minority shareholder for not attending the EGM—namely, that he allegedly needed to:

spend time addressing creditors’ and suppliers’ concerns to prevent possible legal action; and
attend a case-management hearing fixed for the same day.

The court did not accept these reasons, holding that the minority shareholder’s absence was deliberate. The excuse regarding the case-management hearing was rejected, as the minority shareholder’s personal attendance had not been directed by the court.

The court then considered the relevant provisions of the company’s memorandum and articles of association. It noted that Article 46 provides for a quorum of two for members’ meetings, and Article 67 requires a minimum of two directors for board meetings.

In addressing allegations that the plaintiff would act against the company’s best interests, the court found that:

a shareholder owes no duty to the company;
a shareholder is entitled to prioritise his or her own interests; and
no oppression action had been filed against the plaintiff.

Thus, the minority shareholder was not entitled to stifle the company’s proper functioning. The court emphasised the need to uphold proper corporate governance in line with the Companies Act and the company’s memorandum and articles of association. Minority shareholders must accept the principle of majority rule, so long as there is no oppression, and cannot rely on quorum requirements to curtail the majority’s rights.

Importantly, the court held that the application of the Section 314 test is no different for family-run companies. Notably, the relationship between the members in this case was not governed by any shareholders’ agreement.

Accordingly, the court was satisfied that it was impracticable for the plaintiff to convene the EGM without judicial intervention. The second originating summons was therefore allowed.

Comment

This judgment reaffirms the judiciary’s role in safeguarding the hallmarks of corporate democracy and upholding the majority rule. The court will not hesitate to intervene when certain shareholders attempt to use a company’s quorum provisions as a veto to deny the majority’s rights.

Notably, the court also applied the reasoning of Aedit Abdullah JC in Lim Yew Ming v Aik Chuan Construction Pte Ltd ([2015] 3 SLR 931, Singapore High Court), holding that no special treatment should be afforded to family-run companies. The same legal test of impracticability applies consistently across all companies.