Singapore: special resolution required to voluntarily wind-up company, Court of Appeal rules

In holding that a special resolution of the members was required, the Court of Appeal - in Superpark Oy v Super Park Asia Group Pte Ltd [2021] SGCA 8, available here (pdf) - rejected the argument that a third route was available in addition to the two circumstances outlined within section 290(1) of the Companies Act. The court stressed the "substantial and meaningful" distinction between compulsory and voluntary winding-up - a distinction that, in its view, would be elided if a company's creditors were able to do away with the requirement for the members of the company to have passed a special resolution for voluntary winding up as required by section 290(1).

Note: section 290(1) has been replaced by a provision expressed in largely identical terms: section 160 of the Insolvency, Restructuring and Dissolution Act 2018, which came into force on 30 July 2020.

UK: England and Wales: unfair prejudice and the removal of directors

Written judgment was delivered today by the Court of Appeal in Loveridge v Loveridge [2020] EWCA Civ 1104. The case centred on allegations of unfair prejudice, under section 994 of the Companies Act 2006, and interim orders that had been granted by the trial judge pending a trial.  Unlike the trial judge, the Court of Appeal found that the petitioning shareholder-director had failed to demonstrate an arguable case under section 994 based on the existence of an equitable constraint on the exercise of legal powers. Such a case had been based, in part, on the petitioner's role as the "driving force" behind the development of various businesses. Lord Justice Floyd observed (paras. [52] and [53]): 

It is not the law that progressive and energetic managers, however well they perform their duties to the benefit of the company, acquire entrenched rights not to be removed from their positions if the constitution of the company permits their removal. Such a principle would act as a significant but unjustified restriction on countless companies with dynamic executives from operating their companies in accordance with their constitutions .... the fact that an individual has had such a role [as 'driving force'] is not a sufficient indication that he is entitled to maintain it in the face of constitutional rules which permit it to be terminated".

 

UK: England and Wales: conduct of general meetings and the role of the chairman

Judgment was given yesterday by Deputy High Court Judge Lance Ashworth QC in Kaye v Oxford House (Wimbledon) Management Company Ltd [2019] EWHC 2181 (Ch). The decision is an important and interesting one exploring the operation of general meetings and, in particular, the role of the chairman in conducting the business and in closing the meeting. It would also appear to be the first authority to consider the operation of section 303(5) of the Companies Act 2006, which provides that a resolution may be moved at a meeting unless (to quote directly): (a) it would, if passed be ineffective (whether by reason of inconsistency with any enactment or the company's constitution or otherwise), (b) it is defamatory of any person, or (c) it is frivolous or vexatious.

Here is an extract:

It is the duty and function of the chairman to preserve order and to take care that the proceedings are conducted in a proper manner and that the sense of the meeting is properly ascertained with regard to any question which is properly before the meeting. However, he does not have power to stop the meeting at his own will and pleasure ... the chairman is not running the general meeting for his own benefit, but for the benefit of the company as a whole. The chairman must therefore act at all times in good faith and for proper purposes, remembering at all times that the authority to preside over the meeting does not confer dictatorial power" (para. [106]).  

New Zealand: can a minority shareholder's refusal to endorse a special resolution be unfairly prejudicial?

Earlier this year - on 22 August to be precise - New Zealand's highest appellate court, the Supreme Court, delivered judgment in Baker v Hodder [2018] NZSC 78. A media summary is available here (pdf). The judgment is noted here for reasons that do not emerge strongly from the media summary: the discussion of the extent to which a majority shareholder is able to seek relief in respect of a minority's refusal to endorse a special resolution.

The facts were these. The company's shareholders and directors were family members: the Bakers and the Hodders; the Hodders held 70% of the shares and the Bakers the remaining 30%. An important transaction - the sale of a farm - was proposed requiring a special resolution under section 129 ("Major transactions") of the Companies Act 1993. The Bakers agreed to sign a written resolution if certain conditions were met; without their approval a special resolution could not be passed.

The Bakers decided not to grant their approval, whereupon the Hodders brought an action under section 174 ("Prejudiced shareholders") of the 1993 Act, which permits a shareholder to seek relief where "... the affairs of a company have been, or are being, or are likely to be, conducted in a manner that is, or any act or acts of the company have been, or are, or are likely to be, oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity".

The trial judge, Ellis J, held that the Bakers' refusal was unfairly prejudicial and ordered the Bakers to sign the resolution; she also refused to stay her decision to permit the Bakers to appeal. The farm was sold. The Court of Appeal declined to hear the Bakers' appeal, taking the view that the case was moot given that the farm had been sold.

The Supreme Court unanimously held that the Court of Appeal should have heard the Bakers' appeal which, though moot, raised issues of sufficient importance - including the interaction between sections 129 and 174 of the 1993 Act - to justify the Court of Appeal exercising its discretion to hear the appeal. The Court further held that it was inappropriate to order the Bakers to sign the resolution: this was, the Court held, "usurping their position as shareholders" (para. [72]). A little earlier in the judgment, it was observed (paras. [70] and [71]):

...s 174 applies where the affairs of the company have been, are being or are likely to be, conducted in a manner that is oppressive, unfairly discriminatory or unfairly prejudicial to the party claiming under s 174. Although this language is not obviously apt where the oppression complained of consists of a shareholder invoking the right to decline to approve a major transaction under s 129, s 174(3) contemplates that a s 174 order may be made against a person other than the company, including a shareholder. That could be taken as suggesting that s 174 could apply where a shareholder or group of shareholders refuses to approve a major transaction under s 129. Even if s 174 did apply in such a situation, however, the power to make an order under that section would need to be exercised with great caution.

One situation in which it may be appropriate to make an order under s 174 against a minority shareholder who refuses to approve a major transaction is where there are particular circumstances that mean the minority shareholder is breaching a duty owed to the company or to another shareholder or an understanding among shareholders as to the ongoing conduct of the affairs of the company. There may be others; it is not necessary for us to reach a definitive view on that in the present case".

Australia: shareholder meetings - boards, shareholders and the balance of power

Judgment was given last Friday in Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80. The case - on appeal from [2015] FCA 785 and heard by Allsop CJ, Foster and Gleeson JJ - is an important decision on the operation of shareholder meetings as well as the balance of power between the board of directors and shareholders.

At issue was whether shareholders were entitled to table resolutions at a shareholders' meeting for the purpose of expressing an opinion regarding the management of the company. The resolutions were not intended to be acts of the company, or to direct the directors to act in particular way. In the court's view (at para. [60]):

" ....the shareholders in general meeting did not have a role to play in the exercise of powers vested exclusively in the board by passing a resolution which would express an opinion on the exercise of those powers. That general proposition may be affected by the particular constitution of a company, but it applies in this case".

Ireland: general meetings, resolutions and shareholder expressions of opinion

Earlier this month judgment was given in Petroceltic International PLC v Worldview Capital Management SA [2015] IEHC 612 by Mr Justice Abbott sitting in the High Court. The case arose following a disagreement between a company's directors and some of its shareholders in respect of a plan for fund-raising. The decision is noteworthy because it required the trial judge to consider an important aspect of corporate governance: the balance of power between the shareholders in general meeting and the board of directors.

More specifically, at issue was the legitimacy of certain resolutions - tabled by shareholders (including the company's largest shareholder) at an extraordinary general meeting (EGM) that they had requisitioned - which provided that those voting in support did not approve of (i) a bond issue and (ii) the company incurring new borrowing or issuing any debt securities.  These resolutions, it was argued by the shareholders, were not designed to direct the board to act in a particular way or to bind or constrain the directors in the exercise of their powers under the articles of association; they were instead designed to give the shareholders the opportunity to express an opinion on what was being proposed by the board.

The court granted an injunction which prevented the shareholders from requisitioning the EGM and tabling the resolutions. In doing so, the judge explained (at para. [29]):

To allow resolutions “for the expression of opinion” which in varying degrees would amount to a de facto restraint or impediment in market terms would be adding an intolerable risk to the jungle of risks faced by those working in the commercial world, so that the creation of value added such as employment, product, interest, and profit would, be greatly hampered. It was submitted by the defendants that to deny the possibility of such resolutions expressing opinions would amount to 'disenfranchisement and marginalisation' of the members on key issues and the suppression of their freedom of expression and the damage which would result to the members from that course of events is self evidently inestimable; and further, that it was 'counter intuitive' that shareholders cannot collectively express an opinion on the matter of concern in an era of increasing incorporate democracy and shareholder activism. However, the artificial construct of the company does, in fact, in an ordered way restrict the decision making powers of the shareholders. The articles of association of any company may in particular cases increase such involvement with decision making and therefore aid democracy of shareholders but it is difficult to envisage any changes however liberal which would not at least in some way seek to put order on the expression of shareholders views so that such expression did not have the direct or indirect effect of altering the way in which the company did business as it was intended by articles, statute and regulation, or (as in this case) to have to face de facto market impediments engendered by such 'expressions of opinion'."

Isle of Man: 'corporate common sense' and the construction of the articles of association

Judgment was given several days ago by His Honour Deemster Doyle in Origo Partners plc v Brooks Macdonald (Case 49 of 2014, High Court). The decision is one of the most important Manx authorities on the construction of a company's articles of association. The case concerned an application for a declaration under section 217 of the Companies Act 2006 in respect of the articles of a public company, Origo Partners plc, with a London Stock Exchange AIM listing and registered under the 2006 Act.

Broadly put, there were two rival interpretations in respect of the meaning of "75% resolution" within the company's articles: did such a resolution require [a] at least 75% of the voting rights cast in respect of the resolution, or [b] at least 75% of the total voting rights (whether voted or not)? Deemster Doyle held that it was the former and in doing so observed (at paras. 126 and 127):

....the construction I have placed on the articles is consistent with market practice and the one which most accords with corporate common sense ... The proper construction of the articles ... allows corporate management a degree of confidence and increases the likelihood that its sensible plans will not be stalled by lack of voter turnout; it saves on management time in regular proxy chasing and may avoid the practical difficulties and commercial obstacles associated with such time-wasting and costly chasing; it reduces additional uncertainty for stakeholders, particularly investors, and it assists in providing a company flexibility to address unforeseeable circumstances where a shareholder vote is required. It also ensures that the affairs of Origo can progress rather than stagnate and it ensures that resolutions are passed on the basis of the wishes of active and constructive shareholders willing and able to participate in the affairs of their company, rather than allowing votes to non-active shareholders not constructively participating to count effectively as a "no" vote with the disastrous default position being that the required majority is never reached and Origo cannot progress in accordance with the majority votes exercised by its members".

Hong Kong: Unfair prejudice and listed companies

Earlier this month the Court of Appeal of the High Court gave judgment in Luck Continent Ltd v Cheng Chee Tock Theodor (CACV 107/2012). This is an interesting and important decision concerning section 168A of the Companies Ordinance Cap 32 in the context of listed companies. Section 168A provides that a shareholder may petition the court for relief where the company's affairs are being, or have been, conducted in an unfairly prejudicial manner. An equivalent provisions exists in the United Kingdom: section 994 of the Companies Act 2006.

The case concerned a company incorporated in Bermuda with a listing on the Hong Kong Stock Exchange. Its articles stipulated that a special resolution was required to remove a director. This provision was inconsistent with the HKSE Listing Rules which required an ordinary resolution (see para 4(3) of Appendix 3: here, pdf).  Several attempts were made to comply with the Listing Rules by amending the company's articles but these were blocked by shareholders holding just over 25% of the company's shares. The shares were later suspended from trading.

The company's largest shareholder - holding a little under 47% of the shares - sought an order under section 168A for the amendment of the company's articles. This was granted last year by Barma J. in the Court of First Instance (see HCMP 702/2010), and upheld by the Court of Appeal several days ago in a decision considering English authorities including O'Neill v Phillips [1999] 1 WLR 1092 and Re Astec (BSR) plc [1998] 2 BCLC 556. Noting that amending the articles would facilitate the resumption of trading in the shares, the court found that the blocking of the amendment breached a fundamental understanding between the shareholders that the company would maintain its listing status. The breach of this understanding was unfairly prejudicial.

UK: England and Wales: public company re-registration as a private company - entitlement to object under section 98 of the Companies Act 2006

Section 97 of the Companies Act 2006 sets out the procedure to follow where a public company wishes to re-register as a private company and this includes the passing of a special resolution. Where a special resolution has been passed, section 98(1) provides that the "holders of not less in the aggregate than 5% in nominal value of the company's issued share capital or any class of the company's issued share capital" may seek an order of the court cancelling the resolution. Entitlement to seek an order under section 98 was recently considered by the High Court in Eckerle v Wickeder Westfalenstahl GmbH [2013] EWHC 68 (Ch). A summary of the decision has been provided by the ICLR (see here), the headnote of which reads: "The holders of dematerialised shares in a public company were not entitled to the same protection under section 98 of the Companies Act 2006 as registered minority shareholders".

Singapore: company law reform - an update

Five years ago this month the Ministry of Finance appointed a steering committee to review the Companies Act 1967. The committee's final report was published last April and contained 217 recommendations relating to directors, shareholder rights, capital maintenance, accounts, company administration and charges: see here (pdf). The Ministry of Finance consulted on these recommendations and earlier this month the outcome of this consultation was published: see here (pdf).

The great majority of the committee's recommendations have been adopted. For example, the Ministry of Finance has accepted the committee's view that corporate directorships should not be introduced in Singapore and that the Act should contain an express provision providing that by ordinary resolution a private company director can be removed from office. MOF has also agreed with the committee's view that it would not be desirable to codify exhaustively directors' duties and that public companies should be able to issue non-voting shares and shares with multiple votes. A draft of the Bill to amend the 1967 Act is planned for publication early next year.

UK: directors' remuneration - amendments to the Enterprise and Regulatory Reform Bill

The Government has published explanatory notes to accompany the amendments it has tabled to the Enterprise and Regulatory Reform Bill to introduce a binding shareholder vote on remuneration policy in quoted companies: see here (pdf).

UK: England and Wales: the Duomatic principle and the company's financial circumstances

Judgment was given yesterday in Secretary of State for Business, Innovation and Skills v Doffman [2010] EWHC 3175 (Ch): see here.  The case concerned an application for the disqualification of several directors brought by the Secretary of State under Section 6 of the Company Directors Disqualification Act (1986). In this regard the trial judge was required to consider the operation of the so-called Re Duomatic principle, which takes its name from Re Duomatic Ltd. [1969] 2 Ch 365, in which Buckley J. stated (at p. 373): "[W]here it can be shown that all shareholders who have a right to attend and vote at a general meeting of the company assent to some matter which a general meeting of the company could carry into effect, that assent is as binding as a resolution in general meeting would be". With regard to the Re Duomatic principle, the trial judge in Doffmann observed (paras. [44] and [45]):

... a company's financial circumstances may preclude the application of the Duomatic principle. While the interests of a company are normally identified with those of its members, the interests of creditors can become relevant if a company has financial difficulties ... It has been said that the interests of creditors can "intrude" (and the application of the Duomatic principle can, accordingly, be barred) even when a company may not strictly be insolvent".

Australia: Productivity Commission report on executive remuneration released

The Productivity Commission report on executive remuneration was released today: see here (pdf - 2.6MB). The report rejects the introduction of a cap on executive pay and a binding shareholder vote on remuneration. Instead it contains 17 recommendations designed to strengthen the corporate governance framework, including: 

• All ASX300 companies should have a remuneration committee, comprising solely of non-executive directors (the majority of whom should be independent).
• The remuneration report should contain a summary statement, in plain English, of the company's remuneration policies.
• Proxy holders should be required, except in exceptional circumstances, to cast all of their directed proxies on remuneration reports and any resolutions related to those reports.
• Institutional investors, particularly superannuation funds, should disclose, at least on an annual basis, how they have voted on remuneration reports and other remuneration-related issues.
• Where a company’s remuneration report receives a ‘no’ vote of 25 per cent or more of eligible votes cast at an AGM, the board should be required to explain in its subsequent report how shareholder concerns were addressed and, if they have not been, the reasons why; where the subsequent remuneration report receives a 'no' vote of 25 per cent or more of eligible votes cast at the next AGM, a resolution should be put that the elected directors who signed the directors’ report for that meeting stand for re-election at an extraordinary general meeting.

For further information see: media release| overview (including key points) | recommendations and findings | Productivity Commission remuneration enquiry site | submissions | public hearing transcripts | Government response to the report | 

UK: the Punch Taverns plc AGM - shareholders reject remuneration report

Punch Taverns plc held its annual general meeting earlier this week. The voting results are available here. Resolution 3 - to approve the company's remuneration report - was not passed: 55.44% of votes were cast against. The company's board responded by issuing a statement in which it explained that a "full review of remuneration policy and its future implementation" would be conducted in consultation with shareholders. Perhaps the shareholders should have been consulted earlier, not least because at the company's last annual general meeting, in January of this year, disquiet over remuneration was evident: approximately one third of votes were cast against the remuneration report. 

USA: the Shareholder Bill of Rights Act + Bank of America annual meeting

Senator Charles Schumer is planning to introduce a Shareholder Bill of Rights Act, the purpose of which is to give public company shareholders greater voice. An annual "say on pay" vote is proposed as is the annual election of directors. The requirement for separation of the roles of chairman and chief executive is also included in the Bill, an arrangement that shareholders in Bank of America narrowly - and surprisingly - secured last week at the bank's annual meeting: see here and here. A webcast of the meeting is available here. According to a recent report in the Financial Times newspaper, 61% of companies in the S&P 500 index combine the roles of chairman and chief executive.

UK: auditor liability limitation agreements - a dead duck?

An interesting development has been reported by Robert Bruce in the Financial Times: the likely reluctance of listed companies, during the forthcoming AGM season, to seek shareholder approval for auditor liability limitation agreements (ALLAs). Whilst Section 532 of the Companies Act (2006) renders void provisions exempting an auditor from liability, the Act provides an exception with regard to ALLAs in Sections 534 to 536. Shareholder authorisation is required. 

Bruce offers several suggestions for companies' lack of enthusiasm for ALLAs, including the fact that other issues are regarded as more important, and quotes the view of Deloitte's managing director for audit (Vince Niblett) that ALLAs are a "dead duck". Niblett is quoted as saying: "Audit committee chairmen will roll their eyes ... [they] are not going to want to have an argument at the AGM with a shareholder who has got the wrong end of the stick".

UK: Bellway shareholders reject remuneration report

Last Friday, at the Bellway plc annual general meeting, a majority of shareholders voted against the company's remuneration report (see pp. 34-41 of the company's annual report and accounts). It is highly unusual for a company to lose such a vote. The cause of the shareholders' concern was the company's lack of consultation regarding directors' bonuses and the vagueness over future policy. After the meeting, the board published this statement expressing contrition:

The Board has noted shareholders' views on the Report of the Board on Directors' Remuneration and believes it was wrong in not consulting with major shareholders earlier. It therefore proposes to review future policy on this matter, in consultation with them, in the coming months".

Notes:

[1] The UK's Combined Code on Corporate Governance stresses the importance of discussion with shareholders. Main Principle D1 provides:

There should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has responsibility for ensuring that a satisfactory dialogue with shareholders takes place"

[2] Quoted companies are required to provide shareholders with the opportunity to vote on the contents of the remuneration report (see Section 439 of the Companies Act 2006). The vote is advisory and does not effect the validity of the company's remuneration arrangements. 

[3] The Association of British Insurer's Director of Investment Affairs, Peter Montagnon, provided the following comments in a statement issued after the AGM:

This is a very clear message that there must be a proper link between reward and performance, even in a sharp economic downturn. It is right that Bellway should consult with shareholders on its policy review. More broadly, shareholders expect all companies to be sensitive to the need for bonuses to be paid only if stretching targets are met. Remuneration consultants, who advise companies, should be particularly alert to the views of shareholders in this regard.”

UK: PIRC makes public its shareholder voting recommendations

PIRC - the governance advisory service - has begun disclosing publicly its shareholder voting recommendations: see here. Recommendations are only published after the relevant company meeting although some get reported beforehand in the media.

PIRC makes recommendations in connection with approximately 1,000 companies and appears to be the first governance advisory service to disclose publicly this information.  It takes the position that "all organizations that have responsibility for decisions on shareholder voting should be transparent, as there is a clear public interest in the exercise of ownership rights".

UK: updated ABI guidance - directors' powers to allot shares and disapply pre-emption rights + articles of association

In December, the Association of British Insurers published updated guidance regarding: [1] Directors' powers to allot share capital and disapply shareholders' pre-emption rights and [2] articles of association. The former outlines the ABI's change of position following the recommendation of the Rights Issue Review Group that the overall allotment headroom that shareholders should normally be invited to approve be increased from one third to two thirds of the issuer's issued share capital. For further information, see the ABI's press release and this report from The Financial Times. 

The ABI's articles of association guidance states that "[a] company's Articles of Association are a key element of corporate governance and consequently of considerable interest to investors" and sets out the ABI's expectations with regard to various matters including directors' conflicts of interest, auditor liability limitation agreements and political expenditure. With regard to dispute resolution clauses, the guidance document explains:

Some companies believe that it is appropriate to provide for a dispute resolution procedure and governing law in their Articles. In general terms these provide that arbitration should be in accordance with the Rules of Arbitration of the International Chamber of Commerce. Where a court determines that arbitration cannot be used in a particular dispute, or where a derivative claim is being brought under the Companies Act 2006, the courts of England and Wales would have exclusive jurisdiction. However, ABI members remain concerned about such dispute resolution provisions being codified in the articles of association. If a Company considers that such provision may be appropriate in their case, it is advised that careful consultation with shareholders is necessary".

UK: listed companies: calling general meetings after 3 August 2009

The UK's implementation of the Shareholder Rights Directive (2007/36/EC) will require several changes to the Companies Act (2006) with regard to the calling of general meetings by listed companies. The Department for Business, Enterprise and Regulatory Reform is currently consulting on the implementation of the Directive and the amendments it will make to the 2006 Act - see the DBERR consultation paper for further information; the consultation period ends on 30 January. The deadline for implementing the Directive is 3 August.

The Directive requires a minimum of 21 days for annual general meetings (this is the current requirement for public companies under Section 307 of the Companies Act (2006)). Article 5 of the Directive provides that Member States may permit other general meetings (i.e., extraordinary general meetings) to be called with 14 days' notice providing the following criteria are met:

[1] the shareholders have approved the holding of general meetings on 14 clear days’ notice by passing an appropriate resolution at an AGM; and
[2] that the company offers "the facility for shareholders to vote by electronic means accessible to all shareholders".

The Directive requires the approval required in [1] to be by no-less than a two-thirds majority. DBERR is consulting on whether this should be a 75% majority in order that it is the same as that required for a special resolution (see Section 283 of the Companies Act (2006)). Until the outcome of the consultation is known, DBERR has recommended that listed companies consider passing a special resolution at their next AGM in order that they are able to call general meetings on 14 days' notice after 3 August 2009. This resolution would need to be passed at each subsequent AGM. 

With regard to the requirement in [2] that electronic voting "accessible to all shareholders" is offered, it is noted in the DBERR consultation paper (at para. 3.16):

It is not entirely clear in this context what this final phrase covers in terms of accessibility and the circumstances when accessibility is required. For example it may mean that companies must offer the facility for members to vote electronically (eg. via the company’s website) at all times; or it might mean that any method available to vote electronically (eg. via certificate acceptable and that shareholders should use such facilities.