High Court Orders Company EGM to Proceed Without Usual Quorum

Introduction

Under section 314 of the Companies Act 2016 (“CA 2016”), the Court may order a meeting of a company. The test is impracticability. Thus, when the extraordinary general meeting (“EGM“) of a company could not be held due to a lack of quorum, the High Court in Abdul Halim Bin Mutaref v ALM Autoserve Sdn Bhd & Anor (click here for the case) intervened to overcome the procedural hurdle.

Background Facts

The Plaintiff was the majority shareholder and a director of the company. The 2nd Defendant was the minority shareholder and also a director of the company. The company was the 1st Defendant in this case.

The Plaintiff issued a notice of requisition to convene an EGM.

The agenda was, among others, to remove the 2nd director as a director, and for the appointment of a new director.

However, the EGM could not be convened due to a lack of quorum, as the 2nd Defendant refused to attend despite having received the notice of requisition. 2 members were required to be present, whether personally or by proxy, to constitute a valid quorum.

The Plaintiff then applied to the court for an order that the EGM be convened under Section 314 of the CA 2016.

In response, the 2nd Defendant counterclaimed against the Plaintiff and essentially sought an order that the latter sell all his shares to the former, on the pretext of oppression under section 346(2) of the CA 2016. The 2nd Defendant also sought for his continued directorship in the company.

Court’s Findings

1. The 2nd Defendant refused to attend the EGM

Despite the Plaintiff’s exercise of his rights under the legal framework, the 2nd Defendant deliberately refused to attend the EGM convened by the Plaintiff. The non-attendance caused the failure of the EGM, creating an impasse.

2. Court intervention warranted under Section 314 of the CA 2016

Impracticability is the yardstick for such an order. It may be due to circumstances that make it impossible to hold a meeting, such as deadlock, intentional uncooperative attitude of directors, or deliberate non-attendance.

It also includes a situation where members deliberately fail to attend a meeting to prevent the constitution of a proper quorum.

Hence, the High Court allowed the Plaintiff’s application and ordered that the presence of one member of the company was sufficient to constitute a valid quorum.

3. Counterclaim was defective for naming the Plaintiff personally

Section 346 of the CA 2016 does not extend its scope to actions in a personal capacity. The 2nd Defendant had initiated the counterclaim solely against the Plaintiff, rather than against the company. Hence, the counterclaim was procedurally flawed at the outset.

4. The 2nd Defendant failed to satisfy the burden of proof

There were no explicit allegations against the Plaintiff or the company regarding any oppressive conduct. Moreover, the 2nd Defendant’s case was devoid of substantive evidence. For instance, the 2nd Defendant’s letter alleging mismanagement was engineered to support the counterclaim. The so-called evidence was therefore self-serving and unreliable.

Conclusion

A member’s right to call for a meeting is a statutory right which must not be impeded based on technical grounds. The conduct of the 2nd Defendant here in refusing to attend the company’s EGM was clearly a tactical move to frustrate the Plaintiff’s right as a majority shareholder to appoint or remove directors. The Court will readily intervene in such a situation.