INTERPRETATION OF SECTION 291 AND 619 OF COMPANIES ACT 2016 – THE NEW SIDE OF COMPANY LAW IN MALAYSIA

Introduction

In 2019, the Kuala Lumpur High Court interpreted section 291 on the members’ written resolution under the new Companies Act 2016 (CA 2016) through Mohamed Zahid Yon vs Jason Lo & Ors. The case also laid out reasonings on the applicability of CA 2016 provisions to companies which still retain the Table A Articles of Association under the Companies Act 1965 (CA 1965). The Plaintiff appealed this matter to Court of Appeal after losing his ground in High Court. Court of Appeal is hesitant to accept the arguments made by the Plaintiff, and therefore affirming the decision made by the High Court. The Plaintiff subsequently filed a notice of motion seeking leave for the Federal Court to decide on the following question of law:

(a)      Whether “Meeting” under Division 5 of the CA 2016 is applicable even when the members have not passed a resolution to incorporate the same in its constitution; and

(b)      In a company with 2 members, as per the current appeal, whether one can approve an ordinary resolution without the other’s approval.

On 23.6.2020 the Federal Court dismissed the leave of appeal filed by the Plaintiff on the ground that the Applicant has not met the requirement and threshold under Section 96(1) of the Court of Judicature Act 1964 and the law stipulated under the Companies Act 2016 is clear. Now it is important to revisit the interpretations made by the High Court and realise how this case has changed the interpretative perspective towards CA 2016.

Brief Facts

The 5th Respondent is a private limited company consisting of 2 directors and 2 shareholders, being the Plaintiff and the 2nd Defendant. The Plaintiff holds 40% shares in the Company and the remaining 60% shares is held by the 2nd Defendant.

On 7.1.2019, one Directors Circular Resolution and Members Circular Resolution were circulated for the re-appointment of the 1st Defendant as a director of the 5th Respondent. Despite the Plaintiff’s refusal to approve both resolutions, the appointment of the 1st Defendant was effected with the passing of the Members Circular Resolution by the 2nd Defendant.

It is undisputed that under the 5th Defendant’s Article of Association, approval of all directors’ is required in passing a board resolution but it is silent on members’ resolution. Therefore, Plaintiff contended that given the Company had not opted to adopt the new constitution under the CA 2016, the old company law applies on passing a members’ resolution. Section 152A of the CA 1965 and Article 67 of the Table A in CA 1965 were heavily relied upon where all members’ approval is required. Since the Plaintiff did not sign both resolutions, the appointment of the 1st Defendant rendered as invalid and ineffective.

Parties will be referred to as at the High Court stage throughout this writing.

High Court’s interpretation of Section 291

Under CA 1965, meetings need to be called before a resolution can be passed. With the insertion of Section 290 of the CA 2016, members are now provided another alternative to pass a resolution; by way of written resolution. Section 291 of the CA 2016 allows an ordinary resolution to be passed by a simple majority of more than half of such member and this has to be read together with Section 293 CA 2016. In this case, the Plaintiff holds 40% of the shareholding in the 5th Defendant whereas the 2nd Defendant holds the remaining 60% of the shareholding. With regards to voting in a written resolution, the law is clear where it will be counted on the numbers of shares or stock held by a member. . The High Court Judge YA Wong Chee Lin (Judge) in her decision was right to interpret the word “more than half of such members” as more than half the number of shareholdings of the members and not more than half in number of shareholders. What is more interesting is how the JC decided that CA 2016 provisions are applicable to the 5th Defendant though the 5th Defendant’s constitution is based on the provisions of CA 1965.

Applicability of CA 2016 and not 1965

Section 619(3) of the CA 2016 is to provide a smooth transition from CA 1965 to CA 2016. Any company that adopts the provisions of Table A under the Fourth Schedule of the CA 1965 or has an existing constitution, shall have effect as if made or adopted under the CA 2016, unless otherwise resolved by the company. This according to the Judge is an important provision because the CA 2016 has become an integral part of the existing constitution of the company. In this case, the resolution was passed subsequent to the coming into force of the CA 2016. The Judge in her grounds of judgment said that the Plaintiff could not be said to have acquired any right, privilege, obligation or liability under section 152 of the CA 1965 before the coming into force of the CA 2016 as otherwise the provisions in the CA 2016 providing for members’ resolutions to be in writing would never be applicable. Such act will render the CA 2016 redundant to that extent.

Court of Appeal

The Court of Appeal unanimously ruled that there are no merits contained in the appeal and there was also no appealable error in the decisions made by the High Court Judge. The Court of Appeal dismissed the appeal with costs of RM10,000 inclusive of the costs in High Court. However, up until where the leave was heard at the Federal Court, no grounds of judgment was delivered by the Court of Appeal judges.

Dismissal of the Leave of Appeal to Federal Court

Notwithstanding the absence of the grounds of judgment from the Court of Appeal, the Federal Court in the corum of 3 judges proceeded to hear parties for leave. The Plaintiff counsel, amongst others, submitted that the decision by the Federal Court’s decision would benefit the public especially companies that stumbled upon the same situation. On that point, the 1&2nd Defendant submitted that the questions of law posed for the Federal Court’s consideration had already been dealt with at High Court and Court Of Appeal stage. It is on the administrative part of the Court of Appeal to release the written grounds of judgment.

The Federal Court then unanimously dismiss the Plaintiff’s leave application with costs of RM30,000.00. The panels decided that the Plaintiff has not met the requirement and threshold under Section 96(1) of the Court of Judicature Act 1964. Further, the law stipulated under the Companies Act 2016 is already clear especially on Section 613 of CA 2016 and on the members resolutions.

Conclusion

It is unsure as to whether the Court of Appeal or even Federal Court would release their written grounds of judgment. However, the decisions at the High Court stands currently. In a nutshell, this case blows a bigger picture on our understanding of the CA 2016, and therefore clearing the tangling issue towards a smooth transition from CA 1965 to CA 2016.

About the Contributor

Eleena Othman is an advocate and solicitors in the High Court of Malaya and currently is a legal assistant in Messrs HL Lee & Co. She is experienced in banking, probate, general and corporate litigation and tax related matters.

Wahab Jumrah is currently a Legal Counsel at Raffles Education Corporation. He was a former legal practitioner in Raja, Darryl & Loh before decided to move to southern Johor. His experience includes corporate and commercial law, construction related industries, arbitration matters and fiduciary services.