A Review of the Companies Act 2016 - Part 2
30 September 2016
Tiong Hui Jin discusses the “No AGM Regime” and requirements for member’s written resolutions.
The Companies Act 2016 (“Act”) became law on 16 September 2016 and will come into operation on a date to be determined by the Minister. In this article, we continue our review of the Act by examining the requirements pertaining to the dispensation of annual general meetings and to member’s written resolutions.
THE NO AGM REGIME
Applicability of the No AGM Regime
The present Act, i.e. the Companies Act 1965 (“CA65”) requires every company to hold an annual general meeting (“AGM”) once in every calendar year and not later than 15 months after the date of the preceding AGM.
The Act introduces a new regime whereby it will no longer be mandatory for a private company to hold AGMs. The rationale stems from the notion that AGMs are unnecessarily burdensome and serve little purpose as members of a private company are usually involved in the management of the company and thus, already have access to its corporate information.
The “No AGM Regime” does not apply to a public company which is required under Section 340 of the Act to hold an AGM in every calendar year within six months of its financial year end and not later than 15 months after the last preceding AGM.
Consequential changes from the No AGM Regime
The Act introduces new provisions to facilitate the “No AGM Regime” by addressing matters which are usually dealt with at an AGM. First, a private company will be required to circulate its financial statements and reports to its members within six months of its financial year end (Sections 257 and 258).
Secondly, Sections 267(4)(a) and 267(6) of the Act require the members to appoint an auditor for a private company by way of an ordinary resolution 30 days before the end of the period for submission of the previous year’s financial statements to the Registrar, or if such financial statements are lodged earlier than the foregoing submission deadline, then the appointment must be made before the financial statements are lodged.
Thirdly, in respect of the retirement of directors of a private company, which is an ordinary business to be transacted at an AGM under the CA65, the Act provides that the retirement of a director of a private company may be determined by the passing of a written resolution (Section 205(2)).
Section 132 of the Act authorises the directors to make such distribution as they consider appropriate to the members of a company. Hence, the Act dispenses with the requirement for members to approve the payment of a final dividend at an AGM.
Section 165(4) of the CA65 requires an annual return to be lodged with the Registrar within one month after the company’s AGM. Under Section 68(1) of the Act, an annual return will have to be lodged by a company within 30 days from each anniversary of its incorporation date. The Act dispenses with the aforesaid requirement for the calendar year in which a company is incorporated.
MEMBER’S WRITTEN RESOLUTIONS
Section 152A of the CA65 sets out the requirements for a member’s written resolution. This provision applies to both a private company and a public company. It also requires such resolution to be passed by unanimous approval of the members.
Applicability of the Member’s Written Resolution Regime
The Act draws a distinction between the manner in which a private company and a public company may pass a member’s resolution. Section 290(1) provides that a private company may pass a member’s resolution either at a meeting or by a written resolution. On the other hand, Section 290(2) provides that a public company may only pass a member’s resolution at a meeting of its members. In other words, the provisions relating to a member’s written resolution in Sections 297 to 308 of the Act apply only to private companies.
Notwithstanding the above, a public company which has only one member may resort to Section 344 of the Act to formalise decisions in respect of matters that require the approval of its members in general meeting.
The requirement for unanimity under Section 152A of CA65 for a member’s written resolution of a private company will be abolished when the Act comes into force. A member’s written resolution in respect of an ordinary resolution is to be passed by a simple majority of members, and in respect of a special resolution, by not less than 75% majority (Section 306(4) read with Sections 291 and 292).
Initiation of member’s written resolution
A member’s written resolution may be proposed by the board of directors or a member (Section 297(1)). The Act expressly prohibits two matters from being decided by a written resolution, namely, the removal of a director or an auditor before the expiration of their respective terms of office (Section 297(2)). Thus, a physical meeting has to be convened to consider such resolutions.
Circulation of written resolution
To prevent the reduced approval threshold for written resolutions from being abused, the Act requires a proposed written resolution to be circulated to every eligible member (i.e. those entitled to vote on the resolution on the circulation date of the written resolution) (Section 298).
The circulation date of a written resolution will be either the date on which copies of the written resolution are circulated to the eligible members or if such copies are circulated on different days, the first of those days (Section 299). The written resolutions may be circulated in hard copy or electronic form (Section 300(1)).
The Act also requires a copy of the written resolution to be circulated together with a statement that sets out the procedure for signifying agreement or otherwise to the resolution and the date by which the resolution shall lapse if it is not passed (Sections 301(2) and 303(4)).
Other matters concerning a member’s written resolution
A member who holds 5% (or such lower percentage as is specified in the constitution) of the total voting rights of all eligible members may require the company to circulate a proposed resolution as a member’s written resolution (Section 302(1)). The request shall be made in hard copy or electronic form, state the resolution and any accompanying statement, and be signed by the member making the request (Section 302(5)).
The Act sets out four situations where a resolution may not properly be moved as a written resolution (Section 302(2)), namely where the resolution -
(a) if passed, would be ineffective whether by reason of inconsistency with any written law or the constitution;
(b) is defamatory of any person;
(c) is frivolous or vexatious; or
(d) if passed, would not be in the best interest of the company.
The Act also addresses the payment of the expenses incurred by the company for circulating a written resolution proposed by its members. Section 304 provides that such expenses are to be borne by the members who made the request and that the Company is not required to circulate the resolution unless a sufficient sum to cover the expenses has been deposited with the company.
The company need not circulate a member’s written resolution if the court, upon an application by the company or an aggrieved person, is satisfied that the rights under Section 302 are being abused by the member (Section 305(1)). The court may further order the member who requested the circulation of the written resolution to pay the company’s costs of such application even if that member is not a party to the application (Section 305(2)).
Procedure signifying agreement
The procedure for signifying agreement to a proposed member’s written resolution is set out in Section 306 of the Act which stipulates that a member signifies his agreement when the company receives an authenticated document from the said member which identifies the relevant resolution and indicates his agreement to the resolution (Section 306(1)).
The document may be sent to the company in hard copy or electronic form (Section 306(2)). A member’s agreement to the written resolution, once signified, is irrevocable (Section 306(3)). A written resolution will be passed when the requisite majority of members have signified their agreement to it (Section 306(4)).
Section 307(1) states that, unless otherwise provided in the constitution, a proposed written resolution circulated upon the request of a member under Section 302 will lapse if it is not passed within 28 days from the circulation date. Any agreement of a member obtained after the expiry of the 28-day period for such resolution will not be effective.
Section 293(1)(a)(i) of the Act provides that in relation to a member’s written resolution, every member is to have one vote for every share or stock held by him. As the Act does not contain provisions that address a situation where a company’s constitution confers different voting rights on the holders of different classes of shares, it appears that Section 293(1)(a)(i) would override such provisions of the constitution when the company seeks recourse to a member’s written resolution.
The “No AGM Regime” and the new requirements relating to member’s written resolutions under the Act will undoubtedly promote a more efficient framework for the administration of private companies in Malaysia.