By Lilian Woo
Lawyer:
Hello, this is Lawyer speaking.
CFO:
Hello, Lawyer, this is Client speaking, CFO of stock code 0000 (Company). We are an offshore incorporated company listed in Hong Kong. I have a problem that I need your advice.
Our Company received a written notice issued by A Limited and B Limited claiming to be shareholders together holding more than 18% of the issued shares of the Company requisitioning a meeting of shareholders of the Company for the purpose of considering (a) the appointment of a Ms Jane Doe as director, and (b) a direction to the board of directors of the Company to sell its office building in London (the “Notice”). What shall we do?
Lawyer:
I note that under the law of the jurisdiction where the Company was incorporated, shareholders of the Company do not have any statutory right to require that the directors call a general meeting of the Company; however, there is indeed a provision in the articles of association of the Company (the “Articles”) which expressly provides that the directors of the Company are required to call a general meeting on the requisition of shareholders holding at least 10% of the paid up capital of the Company which carries a right to vote at a general meeting. The exact wording of the relevant provision is:
“Any one or more Members holding at the date of deposit of the requisition not less than one-tenth of the paid up capital of the Company carrying the right of voting at general meetings of the Company shall at all times have the right, by written requisition to the Board or the Secretary of the Company, to require an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition; and such meeting shall be held within two (2) months after the deposit of such requisition. If within twentyone (21) days of such deposit the Board fails to proceed to convene such meeting the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.”
First of all, we need to establish if the Notice is valid.
In order for the Notice to be valid, it must be signed by registered shareholder(s) holding not less than 10% of the total issued shares in the Company. Please check (a) if the Notice has been signed by each of A Limited and B Limited, (b) if the name of each of A Limited and B Limited was in the register of members of the Company as at the date of the Notice, and (c) if indeed they together held more than 10% of the issued shares of the Company on the date of the Notice,.
CFO:
Let me see. The Notice was signed (a) by a director for and on behalf of A Limited and (b) by a law firm representing B Limited. Further, according to the register of members of the Company (“Register”), B Limited was a registered shareholder of the Company holding 10% of the total issued shares as at the date of the Notice, but the name of A Limited did not appear on the Register at all; having said that, A Limited did in the Notice explain that its shares in the Company were being held in the name of the nominee of Hong Kong Securities Clearing Company Limited (“HKSCC”).
Lawyer:
I am afraid in the circumstances the Notice is not valid.
In the case of A Limited, the Notice is not valid as A Limited was not a registered shareholder as at the date of the Notice notwithstanding that some of the shares held by HKSCC might be beneficially owned by A Limited. If A Limited would like to requisition a general meeting, it will have to transfer the shares held by HKSCC on its behalf back to its own name before serving a requisition notice on the Company.
In the case of B Limited, I am afraid the Notice is also not valid. Although B Limited was a registered shareholder holding not less than 10% of the total shares of the Company on the date of the Notice, the Notice was not signed by B Limited but by a law firm representing it. The Notice must be signed by a registered shareholder and not by anyone else claiming to be acting on its behalf.
The Company may disregard the Notice and simply notify A Limited and B Limited that the Notice was invalid. The Company may, but under no legal obligation to, explain to the requisitioning shareholders why the Notice is invalid. The Company should advise the requisitioning shareholders to seek independent legal advice on the matter.
CFO:
If B Limited, being a registered shareholder holding not less than 10% of the issued shares of the Company issues a new requisition notice, this time signed by its director for and on its behalf, would the Company be obliged to hold the general meeting and put forward the resolutions proposed?
Lawyer:
Yes, I am afraid so, but the Company would only be required to convene a meeting of shareholders to consider the appointment of an additional director. The proposed direction to the board of directors of the Company to sell its office building in London is not a resolution that is capable of being legally effective and therefore cannot be properly moved at a general meeting.
In Credit Development Pte. Ltd. v IMO Pte. Ltd. [1993] 2SLR 370, the High Court of Singapore concluded that three categories of resolutions could not properly be moved: (i) if the resolution is ultra vires the company or the company in general meeting; (ii) if it is in respect of a matter which requires a particular type of resolution and the resolution sought is not of that type; or (iii) if it is contrary to public policy.
Under the law and a company’s articles of association, certain matters are reserved to the shareholders while others are within the purview of the board.
The case of Howard Smit ltd. v Ampol Petroleum Ltd. [1974] AC821 at 837 summed up the general principle of the law as follows:
“The constitution of a limited company normally provides for directors, with powers of management and shareholders, with defined voting powers having power to appoint the directors, and to take, in general meeting, by majority vote, decisions on matters not reserved for management… It is established that directors, within their management powers, may take decisions against the wishes of the majority of shareholders, and indeed that the majority of shareholders cannot control them in the exercise of these powers while they remain in office…”
Accordingly, where the management of the company is vested in the board of directors as is expressly provided in the articles of association of the Company, in general, shareholders of the company at a general meeting may not control the directors in the exercise of their power to manage the company.
In Rose v McGivern [1998] 2 BCLC 593, Neuberger J. stated as follows:
“It seems to me that if the extraordinary general meeting called pursuant to the requisitions could only be for the purposes of passing ineffective resolutions, then, as a matter of commercial common sense, the directors need not call such an extraordinary general meeting.”
If you do receive a new requisition notice issued by B Limited, let me know and we will discuss the matter further.
Lilian Woo
Partner
Lilian.Woo@conyers.com
+852 2842 9588
This article is not intended to be a substitute for legal advice or a legal opinion. It deals in broad terms only and is intended to merely provide a brief overview and give general information.
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