A Confusion of the “Simple Majority“
In this article, Lai Zhen Pik discusses whether the passing of an ordinary resolution by virtue of a written members’ resolution would require a majority in the shareholding or a majority in the number of shareholders.
Introduction
Shareholders have many legal rights, among the most fundamental of which are the rights to make decisions and to appoint and remove directors. Such shareholders’ rights are exercised through the passing of members’ resolutions, which may be passed in the form of a written resolution or at a meeting of the members1. Resolutions are categorised into ordinary and special resolution.
By virtue of section 291(1) of the Companies Act 2016 (“CA 2016”), an ordinary resolution of the members of a company refers to:
“… a resolution passed by a simple majority of more than half of such members –
(a) who are entitled to vote and do vote in person, or where proxies are allowed, by proxy at a meeting of members; or
(b) who are entitled to vote on a written resolution.” (Own emphasis added.)
Conversely, a special resolution is defined under section 292(1) of CA 2016 to refer to a resolution:
“passed by a majority of not less than seventy-five per centum of such members —
(a) who are entitled to vote and do vote in person, or where proxies are allowed, by proxy at a meeting of members; or
(b) who are entitled to vote on a written resolution.”
The interpretation of the threshold to pass an ordinary resolution, that is “a simple majority of more than half of such members”, was in issue in the High Court case of Mohamed Zain Yon Bin Mohamed Fuad v Jason Jonathan Lo2. The question was whether the phrase refers to a majority in the number of the shareholders or a majority in the shareholding of the shareholders.
Salient background facts
The plaintiff (“Mohamed Zahid”) and the second defendant (“Yakub Hussaini”) were the only shareholders and directors of the fifth defendant (“Company”). Mohamed Zahid held 40% of the shareholding in the Company whilst Yakub Hussaini held the remaining 60%.
On or around 7 January 2019, Yakub Hussaini signed a written directors’ resolution and a written members’ resolution to appoint the first defendant (“Jason Lo”) as a director of the Company. Mohamed Zahid did not sign either of the resolutions.
The first issue of contention was whether the new CA 2016 would apply to the Company, as the Company had adopted the provisions of Table A under the Fourth Schedule of the repealed Companies Act 1965 as its memorandum and article of association and had not passed any resolution to adopt the corporate management regime under the new CA 2016. It was argued by Mohamed Zahid that under the Companies Act 1965, a members’ resolution in writing must be signed by all the members of the Company to be deemed duly passed at a general meeting of a company.
The second issue in dispute was whether the written directors’ resolution and written members’ resolution signed only by Yakub Hussaini were valid and sufficient to appoint Jason Lo as a director of the Company. It was undisputed that the directors’ resolution was invalid as the constitution of the Company required a directors’ resolution to be signed by all directors. The issue in the present case is therefore whether the written members’ resolution to pass an ordinary resolution can be passed if it was signed by Yakub Hussaini who only held 60% shareholding in the Company.
Findings of the Court
With regard to the first issue, the Court clarified that the CA 2016 would apply as the written members’ resolution was passed after the CA 2016 came into force. This position is supported by section 619(3) of the CA 2016 which provides that:
“The memorandum of association and articles of association of an existing company in force and operative at the commencement of this Act, and the provisions of Table A under the Fourth Schedule of the Companies Act 1965 if adopted as all or part of the articles of association of a company at the commencement of this Act, shall have effect as if made or adopted under this Act, unless otherwise resolved by the company.”
By virtue of sections 202(1) and 202(2) of the CA 2016, all directors subsequent to the person named as a director in the application for the incorporation of a company may be appointed by an ordinary resolution. As regards the passing of a written “ordinary resolution”, the Court held that the words “more than half of such members” must be read as meaning more than half the total shareholding of the shareholders and not more than half of the number of shareholders. Accordingly, the written members’ resolution signed only by Yakub Hussaini was valid to appoint Jason Lo as a director of the Company.
Conclusion
With Mohamed Zain Yon, it is now clear that the passing of an ordinary resolution by virtue of a written members’ resolution would only require a majority in the shareholding, and not a majority in the number of shareholders.
LAI ZHEN PIK
CORPORATE/M&A
[1] Section 290(1) of the Companies Act 2016.
[2] [2019] 1 LNS 343.