In the recent case of Lim Swee Chai v Advancecon Holdings Bhd & Anor [2024] 4 AMR 913, the High Court delivered probably the first decision in Malaysia on the bifurcation of section 311(1) and section 311(3) of the Companies Act 2016 (“CA 2016”).
 
In this case, the learned High Court Judge held that section 311(1) of the CA 2016 provides that the members may request a company to convene a shareholders’ meeting regardless of the percentage of shares held by such members while section 311(3) of the CA 2016 sets out when directors are obliged to act on such a requisition. In the former case, the Board has discretionary powers on whether to convene the meeting upon receiving the request from the members.
 
Brief Facts
 
The Plaintiff and the 2^nd Defendant co-founded the 1^st Defendant, Advancecon Holdings Berhad (“Advancecon”), a company whose shares are listed on Bursa Malaysia. At the material time, the Plaintiff was a shareholder and Non-Executive Director, while the 2^nd Defendant was an Executive Director, shareholder, and Group CEO. The 2^nd Defendant held approximately 20.18% of Advancecon’s issued shares, making him the largest shareholder, while the Plaintiff held around 11.18%. It is also undisputed that the 2^nd Defendant held around 0.22% of Advancecon’s paid-up share capital. The discrepancy in the 2^nd Defendant’s shareholding in Advancon is explained later in this article.
 
On 25 June 2022, the 2^nd Defendant issued a Notice of Requisition to the Board of Directors of Advancecon to convene an Extraordinary General Meeting (“EGM”) for the purpose of passing a resolution to remove the Plaintiff as a director. The Board agreed and passed resolutions on 29 June 2022 and 8 July 2022, to hold the EGM virtually on 9 August 2022. The Company Secretary issued a Notice of EGM on 12 July 2022.
 
The EGM was held as scheduled and was attended by 96 members including the Plaintiff. The Plaintiff was given the opportunity to present his case, after which a vote was taken. The resolution to remove the Plaintiff as a director was passed with 77.83% of the votes in favour. Advancecon made the necessary announcements and lodged the relevant notifications following the EGM.
 
Approximately four months later, the Plaintiff challenged the validity of the EGM and its outcome through a letter issued by his solicitors. Advancecon denied any irregularities, leading to further correspondence between the parties. On 3 March 2023, the Plaintiff commenced proceedings in the High Court seeking declarations that the Notice of Requisition, Notice of EGM, the EGM itself, and all related actions were unlawful, null, and void.
 
The main issue before the High Court is whether the Notice of Requisition issued by the 2^nd Defendant fulfilled the requirements of clause 72 of Advancecon’s Constitution and section 311 of the CA 2016 in view of the fact that the 2^nd Defendant holds less than 10% of Advancecon’s paid up capital.
 
The Plaintiff’s Submissions
 
The Plaintiff argued that the Notice of Requisition issued by the 2^nd Defendant was invalid because the 2^nd Defendant held only 0.22% of Advancecon’s paid-up share capital, which is significantly below the statutory threshold of 10% required by section 311(3) of the CA 2016 and clause 72 of Advancecon’s Constitution.
 
The Plaintiff further contended that the Notice of Requisition was defective as it misrepresented that the 2^nd Defendant held at least 10% of Advancecon’s paid-up share capital when, in reality, he only held 0.22%.
 
The 2^nd Defendant’s Submissions
 
The 2^nd Defendant contended that the EGM and the resolution to remove the Plaintiff as a director were valid because his Notice of Requisition was issued under section 311(1) of the CA 2016, which does not mandate a minimum shareholding threshold, unlike section 311(3) of the same statute. The 2^nd Defendant further argued that any irregularity in the Notice of Requisition did not invalidate his request under section 311(1) and that such irregularity was cured by the Board’s decision to convene the EGM according to its constitutional power and section 582¹ of the CA 2016.
 
The High Court’s Decision
 
The Court agreed with the 2^nd Defendant’s submissions and found that a plain reading of section 311 of the CA 2016 indicates two distinct situations: 

To fully explain this bifurcation in section 311 of the CA 2016, the Court examined the predecessor of section 311, namely section 144 of the Companies Act 1965 (“CA 1965”). Section 144(1) of the CA 1965 mandated directors to convene a members’ meeting “on the requisition of members holding at the date of the deposit of the requisition not less than one-tenth of such of the paid-up capital”. Notably, the language in section 311(1) of the CA 2016, which allows any member to requisition a meeting, was absent from section 144(1) of the CA 1965.
 
The Court observed that the Parliament, in enacting section 311(1) of the CA 2016, deliberately departed from the position in section 144(1) of the CA 1965 and decoupled the right to requisition from the duty to convene. This legislative change reflects a clear intent to liberalise the regime governing members’ requisitions and supports the Defendants’ interpretation of section 311. This allows any member to request a meeting while maintaining the 10% threshold for mandatory compliance by the directors.
 
In this context, the Court found the Plaintiff's attempt to impose a 10% threshold onto section 311(1) and clause 72 of the Constitution untenable. Such an interpretation would contravene established statutory interpretation principles and render the bifurcation of section 311 redundant.
 
Factually, the 2^nd Defendant, as a registered member of Advancecon, was entitled to issue the Notice of Requisition under section 311(1) of the CA 2016 even though he held only 0.22% of the paid-up shares in Advancecon. Consequently, the Board's decision to convene the EGM, as recorded in the Directors’ Resolutions, which was within its constitutional powers, has refuted the Plaintiff's claims of improper action.
 
Further, the Court also held that the Plaintiff’s delay in objecting to the Notice of Requisition and the EGM also undermines his position and supports the Defendants' argument that the Plaintiff is estopped from challenging the validity of the Notice and the EGM at this stage. The Plaintiff's participation in the EGM without immediate objection weakens his challenge to the process.
 
Having held that the 2^nd Defendant was entitled to issue the Notice of Requisition under section 311(1) of the CA 2016, the Court also found that the inaccuracy in the Notice of Requisition does not invalidate the Notice or render it defective. The Court referred to section 582 of the CA 2016 and held that the said section can be used to cure the inaccuracy in the Notice of Requisition.
 
The Court was satisfied that the mistake regarding the 2^nd Defendant's shareholding percentage in the Notice of Requisition was an honest error and not intended to mislead. Advancecon, in its affidavit, admitted that it overlooked the fact that much of the 2nd Defendant's shares were pledged, leading to the misstatement of the shareholding in the Notice of Requisition. In any event, the Court held that the 2^nd Defendant's right to requisition a meeting is derived from his status as a registered member of Advancecon, and not his exact shareholding percentage. Therefore, the inaccuracy in the Notice of Requisition does not negate the 2^nd Defendant's right to invoke section 311(1) of the CA 2016.
 
The Court concluded that the Plaintiff has not established a sufficient basis to invalidate the EGM of Advancecon held on 9 August 2022, and the resolution passed therein for his removal as director. The 2^nd Defendant is entitled to issue a Notice of Requisition under section 311(1) of the CA 2016 and the Board had the power to, and did in fact, convene the EGM pursuant to the Constitution, independently of any irregularity in the Notice of Requisition.
 
Comments
 
This decision is likely the first reported case in Malaysia that explores the bifurcation of section 311 of the CA 2016. This decision underscores the legislative intent to decouple the right to requisition from the duty to convene a meeting. Section 311(1) of the CA 2016 allows any member of the company to request the directors to convene a meeting, irrespective of their shareholding percentage.
 
This decision raises two key points. First, it highlights the legislative intent to separate the right to requisition and the duty to convene by introducing section 311(1) in the CA 2016, resulting in the bifurcation of subsection (1) and subsection (3) regarding the requisition of meetings.
 
Secondly, this decision emphasises that while every member of the company is entitled to issue a notice of requisition under section 311(1) of the CA 2016, the Board retains discretionary power to decide whether to convene the meeting. The Board is only obliged to convene a meeting of members on a requisition from members representing at least 10% of the company’s paid-up capital pursuant to section 311(3) of the CA 2016.
 
Case Note by Anson Liow (Associate) of the Dispute Resolution Practice of Skrine.
 

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