High Court Interprets Section 291(1) of the Companies Act 2016
11 April 2019
In Mohamed Zahid Yon bin Mohamed Fuad v Jason Lo & Others (KLHC OS No. WA-24CC-43-01/2019), the High Court was required to interpret the phrase “more than half of such members” in section 291(1) of the Companies Act 2016 (“CA 2016”).
The 5th Defendant, a private company, had only two shareholders, namely the Plaintiff who held 40% and the 2nd Defendant who held 60% of the shareholding in the 5th Defendant.
The 2nd Defendant signed a members’ written resolution to appoint the 1st Defendant as an additional director of the 5th Defendant. The Plaintiff, who did not sign the members’ resolution, sought a declaration from the Court that the appointment of the additional director was invalid on two grounds.
First, the Plaintiff argued that the Memorandum and Articles of the 5th Defendant, which was still in the form of Table A of the Fourth Schedule of the Companies Act 1965 (“CA 1965”) meant that section 152A of CA 1965, which required a members’ written resolution to be signed by all members of a company, applied. As the Plaintiff did not sign the members’ resolution, the resolution was therefore ineffective. The Court disagreed with the Plaintiff’s contention.
According to Wong Chee Lin, JC the provisions of CA 2016 applied to the resolution as it was passed after CA 2016 had come into force. Her Ladyship said that the Plaintiff could not have acquired any right, privilege, obligation or liability under section 152A of CA 1965 before the coming into force of CA 2016. The Court added that to hold otherwise would mean that the provisions in CA 2016 providing for members’ written resolutions would never be applicable and CA 2016 would be rendered redundant to the extent.
Next, the Plaintiff relied on section 291(1) of CA 2016 which, amongst others, stipulates that an ordinary resolution is to be passed by a simple majority of “more than half of such members … who are entitled to vote on a written resolution.” The Plaintiff contended that the provision requires more than half the number of members.
The Court referred to section 293(1)(a)(i) of CA 2016 which, among others, provides that “in the case of a company having a share capital … on a vote on a written resolution, every member shall have one vote in respect of every share or stock held by him …”
Based on a reading of sections 291(1) and 293(1)(a)(i) of CA 2016, the learned Judge was of the view that the 2nd Defendant, having 60% of the shareholding of the 5th Defendant, could validly sign a members’ written resolution to appoint the 1st Defendant as a director of the 5th Defendant.
The Court rejected the Plaintiff’s second argument and held that “more than half of such members” in section 291(1) of CA 2016 must be read as meaning “more than half the number of shareholding of the members and not more than half the number of the members”.
Although the interpretation of section 291(1) by the High Court does not appear to be supported by a literal reading of the provision, it is clearly in line with the purposive interpretation of the section, especially when read together with section 293(1)(a)(i) of CA 2016. To hold otherwise would render section 293(1)(a)(i) redundant. It is to be noted that section 184A(4)(a) of the Singapore Companies Act is more clearly drafted as it provides, amongst others, that “an ordinary resolution is passed by written means … if it has been formally agreed … by one or more members … who on that date represent … a majority … of the total voting rights of all the members”.
The facts of the case stated in the judgment do not disclose whether the requirements of CA 2016 were complied with in relation to the circulation of the members’ resolution in question. Section 302 of CA 2016 requires a member (who must hold not less than five per cent of the total voting rights of all eligible members) to first request the company to circulate the resolution. If the directors of the company fail to do so within the period prescribed in section 303(3), the member who made the request is entitled to circulate the members’ resolution pursuant to section 303(6) of CA 2016.
If the provisions in sections 302 and 303 of CA 2016 were not complied with, a further argument could have been raised by the Plaintiff that the members’ resolution was invalid for non-compliance with the said provisions, and it would have been interesting to see whether the learned Judge would have granted the declaration sought by the Plaintiff for non-compliance with those sections, notwithstanding that the 2nd Defendant held more than one-half of the total voting rights in the 5th Defendant.