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INTRODUCTION TO THE COMPANY

1. GENERAL THEMES

 The company is essentially an artificial person recognised by law. What this “person”
is allowed to do – all its rights and liabilities – is defined by:
 the Companies Act; and
 case law which either interprets the provisions of the Companies Act, or fills
the gap in respect of matters not dealt with by the Companies Act
 A company is a structure that is set up for the use and benefit of natural persons. To
understand the relationship between the company and its stakeholders, we first need
to identify the most important stakeholders in a company, which include: -
 Shareholders;
 Shareholder rights – e.g. the rights to dividends, voting power and
decision making
 Majority vs Minority – minority shareholders are concerned with the
decisions of majority shareholders as they have an impact on the
shares as a whole
 Directors and other managers;
 Directors as fiduciaries – held to have a high level of loyalty and there
will be consequences if they fail to meet their duties e.g. criminal
liabilities if there is a breach
 Creditors;
 Concern is that they want to be paid, contracts govern the relationship
between the creditors and the debtors, usually when a company is
trying to get a loan, creditors will act as personal guarantors so that
there will be a recourse if the debts cannot be paid
 Gatekeepers (e.g. auditors);
 Regulators (e.g. ACRA)

2. CATEGORIES OF COMPANIES

Registered companies may be categorised in different ways, depending on the purposes for
which the categorisation is made. Under the Companies Act, companies may be registered
with either limited or unlimited liability, and as private or public companies. A company
may also qualify as an exempt private company, and/or a small company. It may also form
part of a group of companies, which comprises a holding company and one or more
subsidiaries. Finally, foreign-incorporated companies should be distinguished from those
incorporated in Singapore as they attract different regulations under the Companies Act.

2.1 LIMITED AND UNLIMITED COMPANIES

As per section 17(2) of CA, a company’s liability may be limited either by shares or by
guarantee, or be an unlimited company.

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COMPANIES ACT
Cap 50, 2006 Rev Ed
Formation of companies
17.—(2) A company may be —
(a) a company limited by shares;
(b) a company limited by guarantee; or
(c) an unlimited company
(5) As from 15th August 1984, no company limited by guarantee with a share capital shall
be registered under this Act.

2.1.1 LIMITED COMPANIES

COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“limited company” means a company limited by shares or by guarantee or, prior to the
expiry of the period of 2 years as specified in section 17(6), a company limited both by
shares and guarantee

 A member of a company limited by shares is shielded from unlimited liability as he


is only liable to contribute the amount that he had agreed to pay upon subscribing
for shares in the company
 Member cannot be asked to pay more than the amount unpaid on his shares
when the company is wound up

COMPANIES ACT
Cap 50, 2006 Rev Ed
Requirements as to constitution
22.—(3) A statement in the constitution of a company limited by shares that the liability of
members is limited shall mean that the liability of the members is limited to the amount,
if any, unpaid on the shares respectively held by them.

 While a company limited by guarantee also shields its members from unlimited
liability, it is distinct from a company limited by shares in that it does not require
members to make any payment upon subscription as members
 Instead, each member will undertake to contribute a specified amount to the
company’s assets in the event the company wounds up
 How much each member agrees to contribute will be stated in the
memorandum of association

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 Such companies are usually incorporated for charitable or not-for-profit
purposes, and members of such companies usually undertake to guarantee no
more than a nominal amount of the company’s liabilities
 The previous point is further supported by the CA prohibiting such a company
from having a share capital, which effectively prevents the company from
raising capital through the sale of equity, while the restriction on profit
participation limits the company’s ability to attract funds on the promise of profit
sharing

COMPANIES ACT
Cap 50, 2006 Rev Ed
As to constitution of companies limited by guarantee
38.—(1) In the case of a company limited by guarantee, every provision in the constitution
or in any resolution of the company purporting to give any person a right to participate in
the divisible profits of the company, otherwise than as a member, shall be void.
(2) For the purposes of the provisions of this Act relating to the constitution of a company
limited by guarantee and of this section, every provision in the constitution or in any
resolution of a company limited by guarantee purporting to divide the undertaking of the
company into shares or interests shall be treated as a provision for a share capital
notwithstanding that the number of the shares or interests is not specified thereby.

2.1.2 UNLIMITED COMPANIES

 An unlimited company is one in which the liability of the members to contribute to the
assets of the company on winding up is not limited in any way; it places no limit on the
liability of its members
 Every present and past member is generally liable to contribute to the assets
of the company an amount sufficient for the payment of its debts and liabilities
 An unlimited company may have a share capital but the existence of such capital does
not delimit its members’ liability
 However, given the risk of limitless exposure, it is not surprising that unlimited
companies are in fact very rare
 While there is no commercial reason why anyone would want to incorporate an
unlimited company, people incorporate unlimited companies in order to comply with
legislation or the rules of some body
 E.g. an unlimited company may be granted a license to provide architectural
services whereas a limited company may be granted a license to provide
architectural services only if its paid up capital exceeds S$1 million
 Unlimited companies are able to change its status by re-registering as a limited
company, and vice versa, but such conversion may only occur once

2.2 PRIVATE AND PUBLIC COMPANIES

 A company limited by shares may be incorporated as either a private or public


company
 As per section 18(1) of CA, a private company is defined as one where its constitution:

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 Restricts the right to transfer its shares; and
 Exists in many forms such as discretion vested in the board of directors
to refuse to register a proposed transfer of shares, outright prohibitions
subject to approval of named persons, or moratoriums prohibiting any
disposal of interests in the shares for a period of time, or pre-emption
rights which usually confer on other shareholders a first right of refusal
to acquire the transferor’s shares on a pro rata basis
 If there is no express restriction, then it is deemed to have done so by
prohibiting a transfer of shared except to a person approved by the
directors of the company
 Transfer of shares can also be restricted by providing a pre-emptive
right: e.g. if you want to sell your shares, you have to offer to sell to the
shareholders internally first and hence what the outsiders get is a
smaller stake which is very unattractive
 Limits to not more than 50 the number of its members
 Joint holders are counted as a single member and members who are
employees of the company or its subsidiary are not counted
 Private companies are required to distinguish itself by incorporating the word “Private”
into its name and the certificate of incorporation of a company will state whether it is a
private company’
 Private companies will have PTE LTD at the back

COMPANIES ACT
Cap 50, 2006 Rev Ed
Private company
18.—(1) A company having a share capital may be incorporated as a private company if its
constitution
(a) restricts the right to transfer its shares; and
(b) limits to not more than 50 the number of its members (counting joint holders of
shares as one person and not counting any person in the employment of the
company or of its subsidiary or any person who while previously in the
employment of the company or of its subsidiary was and thereafter has
continued to be a member of the company).

2.2.1 DISTINGUISHED BY COMPANIES ACT

Advantages of Private Companies

 Private companies are given more latitude in dispensing with formalities and in
managing or arranging its affairs
o For a meeting at which a special resolution is proposed to be passed, a private
company only needs to give 14 days’ written notice as opposed to 21 days’ for
public companies
 Unlike public companies, private companies may dispense with holding annual general
meetings

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 Private companies are not required to appoint a professionally qualified person as its
company secretary

Provisions applicable only to Public Companies

 A statutory meeting within a period of not less than one month and not more than three
months after the date on which the company is entitled to commence business
 Purpose of meeting is to apprise shareholders of important information on the
company’s information
 A company secretary who meets the qualifications identified by the CA must also be
appointed

It should not be assumed that all public companies are listed companies. In addition, as only
a public company may offer shares to the public and seek listing on a stock exchange (no
restrictions of transfer of shares), it does mean that all listed companies are necessarily public
companies. However, there is no reason why a public company may not choose to operate
as an unlisted company (e.g. companies limited by guarantee do not have a share capital,
and thus cannot be listed on the stock exchange; companies which are venture capital
companies or involved in the leisure industry).

A private company can be converted into a public company and vice versa, and this
conversion does not affect either the identity or the obligations of the company. This
conversion can be done either voluntarily or involuntarily. The Registrar of Companies may
declare that a company has ceased to be a private company in any of the following situations:

1) Company exceeds the limit on the number of members


2) Memorandum or articles of a private company have been so altered that they no longer
include restrictions or limitations of the kinds specified in s 18(1); or
3) Company ceases to have a share capital

Public companies will only have LIMITED on the back

2.3 SMALL COMPANY AND SMALL GROUP

To reflect the need to take into account the interests of a broader group of stakeholders in
deciding the relevance of or necessity for audit, section 205C of the Companies Act was
amended to exempt a company from audit in respect of a financial year in which it qualifies
as a small company.’

 Exempted from auditing


 Relieving these small companies form the cost of compliance – you
have to pay for auditing
 However, you need to fulfil 2/3 of the criteria

Section 205C(5) read with para 2 of the Thirteenth Schedule to the Companies Act states that
a company is a small company from a particular financial year if:

(a) it is a private company throughout the financial year; and


(b) it satisfies any 2 of the following criteria for each of the 2 financial years
immediately preceding the financial year:

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(i) the revenue of the company for each financial year does not exceed $10
million;
(ii) the value of the company’s total assets at the end of each financial year does
not exceed $10 million;
(iii) it has at the end of each financial year not more than 50 employees.

Para 5 of the Thirteenth Schedule states that a company ceases to qualify as a small company
from a financial year if:

(a) it ceases to be a private company at any time during the financial year; or
(b) it does not satisfy any 2 of the following criteria for each of the 2 consecutive financial
years immediately preceding the financial year:
(i) the revenue of the company for each financial year does not exceed $10
million;
(ii) the value of the company’s total assets at the end of each financial year does
not exceed $10 million;
(iii) it has at the end of each financial year not more than 50 employees.

Neither a parent company nor a subsidiary company that qualifies as a small company is
exempted from audit unless the company is also a member of a small group. As per Section
205C(5) read with para 7 of the Thirteenth Schedule to the Companies Act, a group of entities
constitutes a “small group” from a financial year if the group meets the criteria of a small
company on a consolidated basis, but it ceases to qualify when it fails to satisfy those criteria
for two consecutive financial years.

*Note: This new regime for audit exemption is only applicable in respect of a financial year
commencing on or after 1 July 2015.

While it is likely that many private companies will qualify both as small companies and exempt
private companies, these two regimes are clearly distinct.

 Audit exemption is currently available only under the small company and small group
regime
 Exempt private company status confers limited privileges as regards financial
arrangements with directors and disclosure of financial information

2.4 EXEMPT PRIVATE COMPANY

As per section 4(1) of the Companies Act, an exempt private company is:

(a) a private company in the shares of which no beneficial interest is held directly or
indirectly by any corporation and which has not more than 20 members; or
(b) any private company, being a private company that is wholly owned by the
Government, which the Minister, in the national interest, declares by notification in
the Gazette to be an exempt private company.
 If you start a company, you automatically qualify as an EPC as long as you have
under 20 members – not something that you have to apply for

There are two advantages of being an exempt private company:

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 A solvent exempt private company is not required to file any financial statements with
its annual return
 Exempt private companies are not restricted by sections 162 and 163 of the CA from
providing loans or other financial assistance to directors and director-related
companies
 In conclusion, exempt private companies enjoy more flexibility in the management of
their financial affairs (greater flexibility in loans)

Note: Repealed section 205C of the Companies Act (applies before 1 July 2015) was for the
provision of an exempt private company to be exempted from audit requirements.

COMPANIES ACT
Cap 50, 2006 Rev Ed
Exempt private company exempt from audit requirements (repealed)
205C.—(1) An exempt private company shall be exempt from audit requirements in respect
of a financial year if its revenue in that year does not exceed the prescribed amount
(2) For a period which is an exempt private company’s financial year but is less than 12
calendar months, the prescribed amount shall be proportionately adjusted.

Section 89A Companies Regulations

(1) For the purposes of section 205C of the Act, the prescribed amount is $5 million

2.5 CORPORATE GROUPS AND RELATED COMPANIES

As provided by section 5(1) of the Companies Act, one company (A) is a subsidiary of another
company (B) if:

(a) B controls the composition of the board of directors of A;


(b) B controls more than half of the voting power of A; or
(c) A is a subsidiary of another company (C), which is a subsidiary of B

Section 5A of the Companies Act defines a corporation as the ultimate holding company of
another corporation if:

(a) the other corporation is a subsidiary of the first-mentioned corporation; and


(b) the first-mentioned corporation is not itself a subsidiary of any corporation.

Section 5B of the Companies Act states that a corporation is a wholly owned subsidiary of
another corporation if it does not have any member which is not its holding company, a
subsidiary wholly controlled by the holding company, or their respective nominees.

Section 6 of the Companies Act further provides that one company (X) is related to another
company (Y) if:

(a) X is the holding company of Y;


(b) X is a subsidiary of Y; or
(c) X is a subsidiary of another company (Z), which is the holding company of Y.

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In terms of accounting consequence, the application of section 201(5) of the Companies Act
requires the directors of a parent company to present to shareholders the group’s consolidated
financial statements at its annual general meeting (section 209A makes it clear that “parent
company”, “subsidiary company” and “group” are to be interpreted by reference to the
accounting standards).

 Although both regimes utilize the concept of “control” to determine whether a holding
and subsidiary relationship exists, the approach of CA is more formalistic (focus only
on board and voting control)
 Accounting standards measure control by a broader and more qualitative assessment
of the extent to which a company is able to affect the variable returns that it derives
from its involvement in another company

*Note: As per Section 21 of the Companies Act, a subsidiary is not permitted to hold shares
in its holding company. The rationale is to pre-empt the formation of corporate groups with
complex interlocking shareholding structures.

 Example: Subsidiary becomes a shareholder of the holding company and the board
of the subsidiary exercises voting power and if the board exercises these votes which
will impact their interest in the subsidiary, then there will be a conflict of interests
when the board of the subsidiary also exercises voting power in the holding company
as they can do things that might benefit them

2.6 LOCAL AND FOREIGN COMPANIES

While the CA is primarily concerned with regulating companies incorporated in Singapore, it


also regulates foreign-incorporated companies in limited ways.

 The broad definition of a foreign company can be found in section 4(1) of the
Companies Act
 A foreign company that establishes a place of business or carries on business in
Singapore, or which intends to do so, has to comply with the regulations set out in
Division 2 of Part XI of the Companies Act
 Foreign companies are required to register with the Registrar under section 368(1)
before it establishes a place of business or commences to carry on business in
Singapore
 To facilitate communications and service of documents, a foreign company must have
a registered office in Singapore that is open and accessible to the public for at least
five hours each business day, and must appoint at least one authorized
representative who is a natural person resident in Singapore and who is authorized
to accept on its behalf service of process or other notices served on the company

3. CORPORATE PERSONALITY AND ATTRIBUTES

3.1 SEPARATE LEGAL PERSONALITY

An incorporated company is a separate legal person at law. Therefore, a company is fully


capable of acquiring rights and incurring liabilities on its own. While the members of a company
do not own the company’s rights and assets, and are not personally liable for its liabilities, they

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may influence the management of those rights and liabilities through the exercise of their votes
at company meetings.

Salomon v A Salomon & Co Ltd


[1897] AC 22
Company has a distinct personality separate from those of its owners
Fact
Salomon transferred his business of boot making, initially run as a sole proprietorship, to a
company (Salomon Ltd.), incorporated with members comprising of himself and his family.
The price for such transfer was paid to Salomon by way of shares, and debentures having
a floating charge (security against debt) on the assets of the company. Later, when the
company's business failed and it went into liquidation, Salomon's right of recovery (secured
through floating charge) against the debentures stood aprior to the claims of unsecured
creditors, who would, thus, have recovered nothing from the liquidation proceeds.
To avoid such alleged unjust exclusion, the liquidator, on behalf of the unsecured creditors,
alleged that the company was sham, was essentially an agent of Salomon, and therefore,
Salomon being the principal, was personally liable for its debt. In other words, the liquidator
sought to overlook the separate personality of Salomon Ltd., distinct from its member
Salomon, so as to make Salomon personally liable for the company's debt as if he continued
to conduct the business as a sole trader.
Issue
Whether, regardless of the separate legal identity of a company, a shareholder/controller
could be held liable for its debt, over and above the capital contribution, so as to expose
such member to unlimited personal liability
Held
That the proceedings were not contrary to the true intent and meaning of the Companies
Act 1862; that the company was duly formed and registered and was not the mere "alias"
or agent of or trustee for the vendor; that he was not liable to indemnify the company against
the creditors' claims; that there was no fraud upon creditors or shareholders; and that the
company (or the liquidator suing in the name of the company) was not entitled to rescission
of the contract for purchase.
Judgment

 As the company was duly incorporated, it is an independent person with its rights
and liabilities appropriate to itself, and that "the motives of those who took part in the
promotion of the company are absolutely irrelevant in discussing what those rights
and liabilities are"
o The contract of transfer of business was valid;
 In order to form a company limited by shares, the Act requires that a
memorandum of association should be signed by seven persons,
who are each to take one share at least
o The company could borrow from its members; and
o The members were not liable for company’s debts
 The company is not an agent or trustee for its members

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 A member’s control over company does not raise the inference that company and
its members are one entity
 Lord Macnaghten: The fact that Mr. Salomon raised 5000l. for the company on
debentures that belonged to him seems to me strong evidence of his good faith and
of his confidence in the company. The unsecured creditors of A. Salomon and
Company, Limited, may be entitled to sympathy, but they have only themselves to
blame for their misfortunes. They trusted the company, I suppose, because they had
long dealt with Mr. Salomon, and he had always paid his way; but they had full notice
that they were no longer dealing with an individual, and they must be taken to have
been cognisant of the memorandum and of the articles of association.
 Lord Halsbury LC: I can only find the true intent and meaning of the Act from the
Act itself; and the Act appears to me to give a company a legal existence with, as I
have said, rights and liabilities of its own, whatever may have been the ideas or
schemes of those who brought it into existence.

3.2 CONSEQUENCES OF SEPARATE PERSONALITY

The key consequences that flow from a company’s status as a separate person can be found
in Section 19(5) of the Companies’ Act. Simply put, the provision makes it clear that a company
may exercise all the functions of a legal person, bring and defend legal actions, and have
perpetual succession as well as the capacity to own land.

COMPANIES ACT
Cap 50, 2006 Rev Ed
Effect of incorporation
19.—(5) On and from the date of incorporation specified in the notice issued under
subsection (4) but subject to this Act, the subscribers to the constitution together with such
other persons as may from time to time become members of the company shall be a body
corporate by the name contained in the constitution capable immediately of exercising all
the functions of an incorporated company and of suing and being sued and having
perpetual succession and a common seal with power to hold land but with such liability
on the part of the members to contribute to the assets of the company in the event of its
being wound up as is provided by this Act.

Note: Section 2 of Interpretation Acts defines “person” and “party” to include any company or
association or body of persons, corporate or unincorporate.

3.2.1 CONTRACTUAL CAPACITY

 A company is endowed with the “full capacity to carry on or undertake any business or
activity, do any act or enter into any transaction”
 Thus, it may undertake such business or activities as it wishes, and form legal
relationships relating to such activities (i.e. formation of contracts)
 Catherine Lee v Lee’s Air Farming Ltd [1961] AC 12
 Facts
 Lee, the appellant’s late husband, had formed the respondent company
to carry on his business of spreading fertilizers on farmland from the air.

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He held 2,999 of its 3.000 shares, and by its articles of association
appointed sole governing director and employed at its salary as its chief
pilot. He was killed in an aircraft crash while flying for the company and
if he was a ‘worker’ then his widow was entitled to be paid compensation
under the Worker’s Compensation Act 1922 (NZ).
 Mrs Lee appealed successfully against the ruling of the COA of NZ that
Lee could not be a ‘worker’ when he was in effect also the employer.
 Judgement
 Held that the company was a legal entity separate from its controllers,
and there was no reason why the company could not contract with its
controlling shareholder and governing director
 In the Lordship’s view it is a logical consequence of the decision in
Saloman’s case that one person may function in dual capacities. There
is no reason, therefore, to deny the possibility of a contractual
relationship being created as between the deceased and the company.

3.2.2 OWNERSHIP OF BUSINESS AND PROPERTY

 A company’s business and property are those of its own, and its members have no
direct interest in such business or property
 As a company’s business is distinguished from those of its shareholders, it is the
company, rather than the shareholder that sues for defamation when its trade or
business is libeled or slandered (Metropolitan Saloon Omnibus Co Ltd v Hawkins)
 A company’s shareholders have neither legal nor beneficial interests in the company’s
property (Macaura v Northern Assurance Co Ltd)
 Facts
 Macaura sold the whole of the timber on the estate to a company, Irish
Canadian Sawmills Ltd, in consideration of the allotment to him of
42,000 fully paid shares. All the company’s shares were held by
Macaura and his nominees, and he was also an unsecured creditor of
the company. The timber was destroyed in a fire. A claim brought by
Macaura on the policies was disallowed on the ground that he had no
insurable interest in the timber.
 Judgement
 Held that the plaintiff could not sue the insurance companies to recover
his loss as he had no insurable interest in the timber
 As explained by Lord Buckmaster: No shareholder has any right to
any item of property owned by the company, for he has no legal or
equitable interest therein. He is entitled to a share in the profits while
the company continues to carry on business and a share in the
distribution of surplus assets when the company is wound up
 Applied by Singapore Court of Appeal in Beckkett Pte Ltd v Deutsche
Bank AG
 Judgement
o The COA held that Beckkett had no standing to set aside
the sale of those shares. While there was no doubt that
Beckkett, being the company of Asminco, had

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“commercial interest in the Adaro and IBT shares, and
the Asminco was in truth no more than “a corporate
vehicle used to hold the Adaro Shares and the IBT
Shares”, the fact remained that Beckkett and Asminco
were two separate entities, and the affected shares were
the property of Asminco, not Beckkett.

3.2.3 TO SUE AND BE SUED

 When a company owns a legal right, it is the only person who is entitled to bring
legal proceedings to enforce that right (if a wrong is done against the company)
 The “proper plaintiff rule” or “the rule in Foss v Harbottle” states that the shareholders
of the company have no standing to bring about an action
 Facts
 Two shareholders in the Victoria Park Company brought an action
against the company’s directors and some other persons. They alleged
that the property of the company had been misapplied or improperly
used
 Judgement
 The court held that the injury complained of was an injury to the
company. In law, the company and its members were not the same.
Therefore, the members could not maintain such a suit. It was for the
company to sue.
 However, this general rule is now subject to common law as well as statutory
exceptions that have been developed to remedy that injustice that could result
from a strict adherence to the rule

3.2.4 PERPETUAL SUCCESSION

 A company may exist indefinitely


 Absent any deliberate acts by a company’s members or creditors, the company’s
existence is not affected by changes to its membership, and this is so even if all of its
members have died (Re Noel Tedman Holdings Pty Ltd)
 Facts
 The company had two shareholders but both died in a traffic accident.
Even though all the shareholders and directors were dead, the
company still existed. The articles required the approval of the directors
before shares could be transferred under the will of a deceased
member but there were no directors and no members to appoint new
directors
 Judgement
 The court broke the vicious cycle by allowing the personal
representatives of the deceased members to appoint the directors, so
that these new directors could assent to the transfer of the shares to
the beneficiaries
 Company’s ability to survive changes to the constitution of its members is a
considerable advantage as it facilitates changes in the control of a company without
interrupting the ownership and continuation of its business

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3.2.5 LIMITED LIABILITY

 The effect of registering a company with limited liability is to shield its members, rather
than the company itself, from unlimited liability
 For a company limited by shares, the liability is limited by the amount that they
have agreed to pay on subscribing for the company’s shares
 For a company limited by guarantee, the liability of its members is limited to the
specific amount they have agreed to contribute (usually nominal) in the event that
the company is wound up
 The original impetus for permitting companies with limited liability was to encourage
enterprise
 Trend is to increase rather than limit the types of business vehicles with limited
liability

Advantages and importance of limited liability:

 Channel valuable resources to the production of beneficial goods and services


 Limited liability dramatically reduces risks of losing personal wealth in the event
that business fails by capping their liabilities at the invested amounts
 Promote efficient diversification
 Diversification reduces the overall risks of investment as the loss in value of
any one company will usually have minimal adverse impact on the value of the
entire portfolio of the investor
 Facilitate the separation of share ownership from management by reducing monitoring
costs
 Limited liability reduces the need and expense for monitoring activities of the
manager since less is at risk
 Assist in the development and operation of share markets
 Share price is fixed by reference to the company’s own worth rather than the
shareholders’ varying individual wealth and thus shares can be traded at a
uniform price

Drawbacks of limited liability:

 Rule may operate unfairly against creditors by shifting a portion of default risks to them

4. EXCEPTIONS TO THE SEPARATE ENTITY RULE

There are exceptional circumstances where it may be appropriate to disregard the


company’s separate legal status. Such instances are often metaphorically described as
“lifting” or “piercing” the corporate veil.

 An instance of veil “lifting” or “piercing” is better understood as an occasion where a


consequence of the separate entity doctrine is held in abeyance for a particular
purpose, but at no point in time does the company cease to exist as a legal entity

In Atlas Maritime Co SA v Avalon Maritime Ltd, The Coral Rose (No 1), Staughton LJ
distinguished between veil “piercing” and “lifting”:

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To pierce the corporate view is an expression I would reserve for treating the rights and
liabilities or activities of a company as the rights or liabilities of its shareholders. To lift
the corporate veil or look behind it, on the other hand, should mean to have regard to
the shareholding in a company for some legal purpose.

*Note: Exceptions to the separate entity rule may arise under statute or at common law

 Piercing the corporate veil


o You know there is wrongdoing so you are trying to pierce the corporate veil to
get a legal recourse to some pre-existing legal obligation
o Narrow doctrine
 Need to find a pre-existing legal obligation and then prove that the
company is actually trying to breach this legal obligation then the court
will pierce the veil
 The law will only pierce the so far as it is necessary to address that
particular wrong
 Therefore, only for a specific situation and there will not be a
wholesale disregard (exception: fraud)
 Lifting the corporate veil
o To look behind the veil and see who is in control
 Steps to take for hypo
o 1. Identify that there is a wrongdoing
o 2. Find some sort of control or corporate form
o 3. Wrongdoing has to evade some sort of pre-existing legal obligation (case
of Prest v Petrodel)
o 4. Identify who are you trying to go after for this wrongdoing
 If not possible can try to get under fraud or dishonestly, relationship of
agency and trust or tort or criminal law

4.1 STATUTE

 A statute may sometimes require the company’s separate personality to be


disregarded so as to ensure that its purpose is achieved
 Section 169 of the Companies Act: Provision and improvement of director’s
emoluments
 Section 201(5) of the Companies Act: Financial statements and consolidated
financial statements
 Certain provisions in the Income Tax Act
 Sometimes, a statute may not explicitly require a company’s separate entity to be
disregarded, but may implicitly do so once its underlying policy is taken into account

4.2 COMMON LAW

 At common law, the court’s jurisdiction to disregard a company’s distinct personality


has been repeatedly affirmed but its precise legal basis is unclear
 Several reasons contribute to this difficulty:

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The jurisdiction has generally been constructed by the liberal use of broad
concepts and metaphors that provide, by their negative undertones, a
semblance of sound reason for departing from the Salomon principle
 It is ultimately the policy underlying a particular legal rule that determines
whether a company should be regarded as the same or distinct from its
controllers for the purposes of that rule, and this muddled “doctrine” has come
to be understood more generally as an assemblage of all case or situations
where the company is not treated as an entity separate from its members for
one reason or another
 Murky relationship that doctrine bears to other more established legal principles
such as agency and trusts
 In Singapore, the courts appear to have accepted four grounds of “abuse of the
corporate form”, viz, that the company has been used
(a) To evade an existing legal obligation
(b) As a mere “sham”, “façade” or “device”;
(c) To perpetrate fraud; or
(d) As an extension or alter ego of its controller
 In keeping with the restrictive approach, “abuse” is necessarily a narrow concept, and
thus courts would not pierce the corporate veil merely because it is in the “interests of
justice” to do so
 It has been suggested that threshold conditions required for invoking the
jurisdiction are that a person (or persons) who controls a company has
engaged in some impropriety and utilizes the company to conceal such
impropriety

4.3 EVASION OF PRE-EXISTING LEGAL OBLIGATION

 A company’s separate existence may be disregarded to prevent the deliberate evasion


of a pre-existing legal obligation
 Gilford Motor Co, Ltd v Horne: Injunctive orders restraining both the defendant
and the company from soliciting the plaintiff’s customers were upheld and
justified as the company was a “mere cloak or sham” to enable the
defendant to carry on the proscribed business in breach of his
contractual obligation
 Jones v Lipman: Corporate veil was lifted to prevent a person from evading
his legal liability, which in this case, was to ensure that Lipman and Alamed
(company) will perform the specific performance of selling the freehold land to
Jones (company was no more than a “creature of the defendant…a device and
a sham” formed for the purpose of evading the latter’s contractual obligation)
 To justify a departure from the Salomon principle, it is necessary to consider the
motive of the alleged perpetrator
 Relevant motive is that of evading those obligations and constraints that
existed or accrued prior to and independently of the company’s involvement
 Prest v Petrodel Resources Ltd
 Facts
 The wife petitioned for divorce in March 2008
 The appeal concerns only the position of a number of companies
belonging to the Petrodel Group, which the judge found to be wholly

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owned and controlled (directly or through intermediate entities) by the
husband
 Judgement
 Piercing the corporate veil: is an expression that means disregarding
the separate personality of the company – exceptions to the rule set out
in the case of Saloman
 The Concealment Principle: does not involve piercing the corporate
veil at all – the court is not disregarding the “facade”, but only looking
behind it to discover the facts which the corporate structure is
concealing
 The Evasion Principle: the court may disregard the corporate veil if
there is a legal right against the person in control of it which exists
independently of the company’s involvement, and a company is
interposed so that the separate legal personality of the company will
defeat the right or frustrate its enforcement
 Lord Neuberger: agreed with Lord Sumption’s formulation that the
doctrine should only be invoked where “a person is under an existing
legal obligation or liability or subject to an existing legal restriction which
he deliberately evades or whose enforcement he deliberately frustrates
by interposing a company under his control”. The court may then pierce
the corporate veil for the purpose, and only for the purpose, of depriving
the company or its controller of the advantage that they would otherwise
have obtained by the company’s separate legal personality.
 The principle is properly described as a limited one, because in
almost every case where the test is satisfied, the facts will in
practice disclose a legal relationship between the company and
its controller which will make it unnecessary to pierce the
corporate veil.
 In Singapore, the suggestion that the corporate veil may be “pierced” to prevent a
person from evading a prior legal obligation or restriction has been endorsed on a
number of occasions, but it was not actually applied
 Seems to appear that the principle forms part of the law, but is one that is
vulnerable to challenge

4.4 THE “SHAM/FAÇADE” PRINCIPLE

 Generally, a document or transaction may be impugned as a sham if all the parties to


a transaction agree to create a false appearance as to the legal effects of that
document or transaction
 If established, this falsity renders the document or transaction a legal
nullity but is not by itself a sufficient reason to disapply the separate entity
rule
 If the parties at the time of the transaction actually intended the legal consequences of
the legal form which they have adopted, the transaction is not a sham simply because
it is subsequently discovered that one of them would not fulfil his part of the bargain
 Idea that the company was not set up for the particular purpose that it claimed to be
 Therefore, in order to raise a case of the “sham/façade” principle, there is a
need to establish this mismatch

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 Narrow doctrine may be invoked when the entire purpose of setting up the company
is because of fraud and hence the company was only a sham and a facade (very
setting up of the company itself is fraudulent, no other purpose other than to commit
that particular crime)
 To establish this, there has to be an intention to commit the wrong – difficult
case to prove
 Case of Asteroid Maritime Co Ltd v Owners of the Ship or Vessel “Saudi Al Jubail”
(“The Saudi Al Jubail)
 Facts
 One Mohammed Orrri (“Orri”) owned and operated a group of
companies (“the Orri Group”). The plaintiffs were the owners of the
vessel Fidelity, which was chartered to Cargo Carries Co Ltd (“CCC”).
When CCC defaulted on the payments due under the charterparty, the
plaintiffs arrested the Saudi Al Jubail to recover the outstanding
damages.
 The Saudi Al Jubail was initially purchased by Omega Shipping Co
Ltd (“OSC”), but then purportedly transferred to Saudi Al Jubail
Navigation Co Ltd (“SAJ”). All three companies, CCC, OSC and SAJ,
were purportedly members of the Orri Group. However, it turned out
that CCC and SAJ did not actually exist, although OSC was
incorporated in Malta.
 Judgement
 At [24], the court found that “[OSC and SAJ] were mere corporate
names which Orri had abused and used as a cover for his own trading
and shipowning activities and that he was the beneficial owner of the
vessel at the time the Writ herein was filed.”

4.5 FRAUD

 Courts should have the jurisdiction to disregard a company’s separate personality


when it has been used by those in control to perpetrate fraud
 Comports with the idea that “fraud unravels everything”
 Re Darby: Corporate veil was lifted on account of defendant’s fraud, with the
result that the company and the defendant were regarded as one and the same
person
 At page 100, it was decided that the corporation was a mere “alias” for
Darby and Gyde, and the entire transaction was a fraudulent scheme
 Children’s Media Ltd v Singapore Tourism Board [2008] 3 SLR(R) 981
 Facts
 The HC pierced the corporate veil of a company (“CML”) and its
immediate shareholder (“TTM”) to impose liability on H, the
ultimate shareholder, director and CEO of both CML and TTM,
for CML’s breach of contract
o Contract was formed between Singapore Tourism Board
(STB) and CML for organizing a large-scale charity
concert in Singapore which CML failed to deliver
o STB sued to recover the sponsorship sum on account of
CML’s breach and sought to lift CML’s corporate veil to

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hold H and TTM jointly liable for CML’s contractual
breach
 Judgement
 While it was observed that the first two appellants (CML and
TTM) “were no more than corporate puppets compliantly
dancing to the tune of the third appellant (H)”, it was also noted
that the third appellant’s lack of bona fides in staging the event,
and the misrepresentations he made to induce the respondent’s
agreement, were by themselves ample reasons for imposing
personal liability on the third appellant
 This hints that the presence of fraud or dishonesty is a sufficient
reason for lifting the corporate veil
o Controller was personally liable because he had used
the companies for fraudulent or dishonest ends
 So far as the position in Singapore is concerned, Children’s Media cannot be taken as
having finally settled the question of whether the corporate veil doctrine could be
applied to circumvent the privity of contract rule
 Main objection to such a development lies in the consensual nature of contracts
 Hence, the reference to evasion of liability was obscure, for this was not a case
where H had himself incurred a liability and interposed CML and TTM to evade
his liability, but one where the liability had been incurred by CML from the start.
Hence, H had no personal liability to begin with and no liability to evade, but
had simply procured CML to breach its contractual liability

4.6 THE COMPANY AS ALTER EGO

 Corporate veil may be lifted when a person has used a company as his “alter ego” or
as a “mere extension” of himself
 When you use the company as a tool to commit a wrongdoing
 NEC Asia Pte Lyd v Picket & Rail Asia Pacific Pte Ltd and endorsed in Alwie Handoyo
v Tjong Very Sumito: Test for deciding whether a company has been used as such is
to ask whether the company is in fact carrying on the business of its controller
 Finding is one of fact and such conduct is typically evidenced by the habitual
failure to observe corporate formalities and governance rules, and/or
improper mixing of company with personal assets
 Tjong Very Sumito v Chan Sing En: It was held (at first instance) that a controller was
a company’s alter ego and therefore personally accountable for its liabilities for
conversion and unjust enrichment to the plaintiffs
 Factors considered were: (a) controller had absolute control over company;
(b) sums paid to company as named recipient were in fact beneficially
received by controller; (c) controller had used sums standing to the
company’s account for his personal purposes; and (d) the company, though
a named defendant to the suit, had not filed an independent defence but had
spoken entirely through the controller as its mouthpiece
 Controller had used the company as an “extension” of himself and he had
“made no distinction between himself and the company”
 Holding was ultimately inconsequential as the company was later found to be
liable to the plaintiffs neither in conversion nor unjust enrichment

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 Alternative understanding of the alter ego exception is that it is not an independent
ground for lifting the veil but merely a species of “implied agency”
 If the relevant evidence exist that is able to show that the company and its
controller have consented to create an agency relationship, the controller would
be bound (as principal) by the acts of the company (as agent) – this does not
interfere with the ordinary incidents of the separate entity rule
 Are you trying to attribute some sort of wrongdoing to the shareholder? How
do we make the shareholder liable? Do we have to pierce the veil or can we
say that the company is doing this for the shareholder? (Could just be an
agency relationship)
 However, in order to establish that there will be an agency relationship
you need to fulfil the necessary elements such as mutual consensus
between parties

4.7 CORPORATE GROUPS

 Common law principles as well as Companies Act provisions were largely formulated
with the single entity in mind, but larger businesses today are commonly carried on
by a group of companies rather than a single entity
 Risk of unfairly disadvantaging third parties (who will have no recourse against the
parent or any of the group companies when the contracting member defaults on its
obligations) has prompted some to suggest that company law should seek to regulate
a corporate group as a single entity
 This is so as to reflect the reality that the group is functioning not merely as a
collection of individual units but as an economic whole
 One facet of such an approach would be to allow our courts the discretion to lift the
veils of group companies and treat two or more such companies as a single entity
 However, this line of reasoning has had no enduring impact in England, and
has never been accepted in Singapore

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DHN Food Distributors Ltd v Tower Hamlets London Borough Council
[1976] 3 All ER 462
Exceptional case that allowed for piercing of the corporate veils of group companies
Facts
The council in 1970 compulsorily acquired the premises and as a result DHN had to close
down its business. Substantial compensation for disturbance could be claimed by DHN
only if it had an interest in land greater than that of a bare licensee.
Held
It was found that it was appropriate to pierce the corporate veils to treat the group as a
single economic entity for the purpose of allowing DHN’s claim as the parent company
and two of its wholly owned subsidiaries had “complete identity of commercial interest and
personality”, manifested by the fact that they had common directors, common ultimate
shareholders, as well as a common interest in maintaining the business on the
acquired land.
Notes

 However, facts of DHN were exceptional in that the corporate veils there were
pierced to enable a company to obtain a statutory benefit which it could have been
entitled to but for the technical omission to restructure the ownership of the land
prior to its acquisition; not a case where the corporate veil was pierced to impose
on the parent company liability for obligations first assumed by the subsidiary
 Subsequent cases distinguished DHN and declined to treat it as authority for the
more general proposition that the separate legal status of group companies may
be ignored whenever there is unity of control and economic interests

 Adams v Cape Industries plc:


o Facts
 Cape headed a group which included many wholly owned subsidiaries
 Several hundred plaintiffs had been awarded damages by a Texas
court for personal injuries suffered as a result of exposure to asbestos
dust
 COA held that the judgement could not be enforced against the
English parent
o Judgement
 English Court of Appeal clarified that there was no jurisdiction to
disregard the distinct personalities of group companies merely
because a parent company exercised overall supervision and control
over its subsidiaries’ operational and financial affairs
 DHN was a case on interpretation of a particular statute, not a
general principle
 Cape did not have sufficient control over its US subsidiaries
 As per Slade LJ, ““Our law, for better or worse, recognises the
creation of subsidiary companies, which though in one sense
the creatures of their parent companies, will nevertheless under
the general law fall to be treated as separate entities with all the
rights and liabilities which would normally attach to separate
legal entities”

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 Issues to consider: Imposing liability on the parent company as
they have the corporate entity and have access to everything
hence giving them the upper hand as compared to the victims
of torts (unequal bargaining power)
o Should the corporate veil be pierced if justice requires it
to be done? No such exception
 In Singapore, there is no special discretion for displacing the separate entity rule in a
group context, even if the companies within a group are organized as a single
economic unit
 Position is no different even if the subsidiary was set up with the specific
intention to avoid potential future liabilities
 A fortiori, the “single economic entity” argument must fail if the companies
concerned, despite having common economic interests, are not connected by
common shareholders or directors

5. CIRCUMVENTING THE CORPORATE VEIL

Veil piercing is of necessity a limited remedy invoked only in exceptional circumstances. A


litigant who seeks to affix a company’s rights or liabilities onto its controller or shareholder is
more likely to succeed if he places greater reliance on other conventional principles that may
justify such an outcome. The usual incidents of the separate entity rule in these cases are
altered, not by the operation of the veil-lifting doctrine, but by principles that have general
application to all legal persons, whether natural or corporate. In contrast to veil lifting, these
principles affirm, rather than disregard) the company’s distinct legal status in their application.

5.1 AGENCY

 A company may act as an agent of its shareholder or controller


 Where there is evidence of an express agreement, proof of an agency relationship is
usually a straightforward matter
 Mutual consensus between principal and agent is needed
 Smith, Stone and Knight Ltd v Lord Mayor, Aldermen and Citizens of the City of
Birmingham: There was an implied agency between a holding company and
subsidiary; subsidiary was carrying on the waste paper business as Smith’s agent
 Parent company had treated the subsidiary’s profits as its own; appointed
the subsidiary’s manager and provided the expertise required for running the
business; had complete say over its management decisions; and was
ultimately in effectual and constant control over the subsidiary
 Facts that merely reflect the shareholder’s control and interests are not sufficient for
the purpose of identifying proof of an agency, what may be more pertinent is evidence
that point to the company’s lack of beneficial or commercial interests in the business
or asset in question

5.2 TORT

 A shareholder acting for or in association with a company may incur personal tortious
liability for its activities

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 If the shareholder commits a tort together with the company, they are jointly liable for
the same tort
 A shareholder-cum-director also commits a tort if he authorizes, directs or procures a
company to commit a tort
 If a shareholder commits a tort whist acting as the company’s agent, he is not exempt
from personal liability even if the company is liable as principal for the same tort
 Chandler v Cape plc: Held that a parent company may also owe a duty of care to third
parties dealing with its subsidiaries in exceptional circumstances

5.3 CONTRACT

 Parties are free to contract around the separate entity rule


 A contractual provision may expressly disregard the separate entity rule so as to
ensure that the parties’ contractual intention is not defeated
 Usually involves restrictive covenants

5.4 TRUSTS

 A company may also hold property on trust for the controller, but the general rule is
that a company’s property is its own, and a shareholder has no direct or beneficial
interests in such property even if it has complete shareholding control over the
company
 Mere fact of control does not give rise to a trust relationship between a company and
its controller; the usual elements of intention and certainty have to be established

5.5 EXPRESS STATUTORY POW ERS

 Effect of these express statutory powers seems to be “legislative veil-piercing” but


what the statute is doing is making someone else responsible for what should have
been the responsibility of the company
 Recognizing that the company is an artificial entity where there are human actors
and hence the responsibility should fall on these human actors who are directly
involved in the running of the company

COMPANIES ACT
Cap 50, 2006 Rev Ed

Publication of name and registration number


144.—(2) If an officer of a company or any person on its behalf —


(a) uses or authorises the use of any seal purporting to be a seal of the company
whereon its name does not so appear; 

(b) issues or authorizes the issue of any business letter, statement of account, invoice
or official notice or publication of the company wherein its name is not so mentioned;
or 


Page 22 of 153
(c) signs, issues or authorises to be signed or issued on behalf of the company any bill
of exchange, promissory note, cheque or other negotiable instrument or any
indorsement, order, receipt or letter of credit wherein its name is not so mentioned,
he shall be guilty of an offence, and where he has signed, issued or authorised to be signed
or issued on behalf of the company any bill of exchange, promissory note or other negotiable
instrument or any indorsement thereon or order wherein that name is not so mentioned, he
shall in addition be liable to the holder of the instrument or order for the amount due thereon
unless it is paid by the company.
Directors
145.—(10) If a company carries on business without having at least one director who is
ordinarily resident in Singapore for more than 6 months, a person who, for the whole or any
part of the period that it so carries on business after those 6 months —
(a) is a member of the company; and
(b) knows that it is carrying on business in that manner,
shall be liable for the payment of all the debts of the company contracted during the period
or, as the case may be, that part of it, and may be sued therefor.
Liability where proper accounts not kept
339.—(3) If, in the course of the winding up of a company or in any proceedings against a
company, it appears that an officer of the company who was knowingly a party to the
contracting of a debt had, at the time the debt was contracted, no reasonable or probable
ground of expectation, after taking into consideration the other liabilities, if any, of the
company at the time of the company being able to pay the debt, the officer shall be guilty of
an offence and shall be liable on conviction to a fine not exceeding $2,000 or to
imprisonment for a term not exceeding 3 months.
Responsibility for fraudulent trading
340.—(1) If, in the course of the winding up of a company or in any proceedings against a
company, it appears that any business of the company has been carried on with intent to
defraud creditors of the company or creditors of any other person or for any fraudulent
purpose, the Court, on the application of the liquidator or any creditor or contributory of the
company, may, if it thinks proper to do so, declare that any person who was knowingly a
party to the carrying on of the business in that manner shall be personally responsible,
without any limitation of liability, for all or any of the debts or other liabilities of the company
as the Court directs.
(2) Where a person has been convicted of an offence under section 339(3) in relation to the
contracting of such a debt as is referred to in that subsection, the Court, on the application
of the liquidator or any creditor or contributory of the company, may, if it thinks proper to do
so, declare that the person shall be personally responsible without any limitation of liability
for the payment of the whole or any part of that debt.
Dividends payable from profit only
403.—(2) Every director or chief executive officer of a company who wilfully pays or permits
to be paid any dividend in contravention of this section —
(b) shall also be liable to the creditors of the company for the amount of the debts due
by the company to them respectively to the extent by which the dividends so paid

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have exceeded the profits and such amount may be recovered by the creditors or
the liquidator suing on behalf of the creditors.

6. INCORPORATION PROCESS

The Companies Act is the primary legislation that regulates a company’s formation and its
legal capacity. According to section 4(1) of the Companies Act, “company” is defined to mean
only “a company incorporated pursuant to this Act or pursuant to any corresponding previous
written law”.

A company is formed by a process of “incorporation”. This involves registering the company


with the Registrar by submitting various prescribed documents and paying a prescribed fee.
All such submissions are made electronically through Bizfile (an electronic filing and document
retrieval system managed and operated by the Accounting and Corporate Regulatory
Authority of Singapore (ACRA)), and the company is formed or incorporated when the
Registrar issues a certificate confirming the registration.

COMPANIES ACT
Cap 50, 2006 Rev Ed
Formation of Companies
17.—(3) No company, association or partnership consisting of more than 20 persons shall
be formed for the purpose of carrying on any business that has for its object the acquisition
of gain by the company, association or partnership, or by the individual members thereof,
unless it is registered as a company under this Act, or is formed in pursuance of some other
written law in Singapore or letters patent.

While no penalty is expressly stated for the contravention of this prohibition, but a person who
contravenes may be liable under the Companies Act’s general penalty provision. At common
law, an association that has carried on business in contravention of section 17(3) of the
Companies Act is illegal and may not therefore sue or be sued by its members.

6.1 COMPANY NAMES

COMPANIES ACT
Cap 50, 2006 Rev Ed
Names of companies
27.—(1) Except with the consent of the Minister or as provided in subsection (1B), the
Registrar must refuse to register a company under this Act under a name which, in the
opinion of the Registrar —
(a) is undesirable;
(b) is identical to the name of any other company, limited liability partnership, limited
partnership or corporation or to any registered business name;
(c) is identical to a name reserved under subsection (12B) or section 378(15), section
16 of the Business Names Registration Act 2014, section 19(4) of the Limited

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Liability Partnerships Act (Cap. 163A) or section 17(4) of the Limited Partnerships
Act (Cap. 163B); or
(d) is a name of a kind that the Minister has directed the Registrar not to accept for
registration.

 Reservation of a company name is a prerequisite of incorporation – company does not


have a face
 Once reserved, an approved name is valid for a period starting from the date on
which the application was lodged and ending 60 days after the Registrar notifies the
applicant of his approval, and may be extended for a further period of 60 days
 A name is “undesirable” if it is obscene or offensive to a friendly state or religion or to
particular sections of the local community
 Mere resemblance to another name does not constitute “undesirability”
 Registrar may direct a company to change its name if:
 It is registered with a name that ought to have been rejected under section
27(1) of the Companies Act, or
 Its name is similar to the name of another company or corporation or business
as to be likely to be mistaken for it, or
 The use of such name has been restrained by an injunction annulled by the
Minister
 Where a person makes a complaint relating to confusingly similar names, it seems that
mere proof of similarity is insufficient
 Evidence that the complainant has a trading presence in Singapore that is likely
to be mistaken as that of the offending company is needed
 Similar names are alright, only if the name is exactly the same then the Registrar will
refuse the incorporation, this is to make the incorporation process easier – the
company who is not happy with the name will subsequently lodge a complaint against
the name

6.2 REGISTRATION AND INCORPORATION

 Once a proposed company name has been reserved, a person may proceed to register
the company by lodging with the Registrar:
 Constitution of the proposed company
 The form of incorporation
 The prescribed fee; and
 A declaration made in compliance with section 19(2) of the Companies Act
 A company must have at least one member (section 20A) and one director (section
145(1)) who is ordinarily resident in Singapore
 Director must be a natural person who has attained the age of 18 years
 If company only has one member, the sole member may also be the sole
director of the company
 A person who has agreed to subscribe for shares in a company is deemed to
be a member of the company and his name shall be entered into the company’s
register
 A certificate or notice of incorporation is conclusive evidence that all requirements
precedent to registration have been complied with, and that the company in question
is duly incorporated under the Companies Act

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7. PROMOTERS

7.1 WHO IS THE PROMOTER

 A promoter is someone “who undertakes to form a company with reference to a given


project and sets it going, and who takes the necessary steps to accomplish that
purpose”
 A person is only responsible as a promoter from the time he forms the intention to
promote a company and takes an active or overt step in furtherance of such
intention
 Process of promotion will only come to an end when all activities designed
to start the company’s business have been carried out (not necessarily on
the company’s incorporation)
 Emma Silver Mining Co v Lewis & Son: Frequently, this would be upon
the completion of the relevant fund-raising activities
 A company promoter brings the company together and establishes the direction of the
company, chooses the directors and creates the constitution
 Vested with some sort of power and responsibility with relevant duties and
obligations
 Usually involved in matters of setting up the company

7.2 PROMOTER’S DUTIES

 A promoter has the power of defining how, and when, and in what shape, and under
what supervision, it shall start into existence and begin to act as a trading corporation
 To guard against the risk of abuse of such powers to the detriment of the company
being formed, the law imposes on the promoter the obligations of a fiduciary
 An extension of agency or trust principles
 A promoter is obliged to act in good faith in the company’s interests
 Must not place himself in a position of conflicting interests and duties, nor make
a profit from his position without full disclosure to the company
 If a promoter contract with the company without making adequate disclosure,
the contract is liable to be rescinded (Emile Erlanger v The New Sombrero
Phosphate Co)
 Proscription against secret profits is not limited to the gains derived directly
from the sale of a property or an asset to the company, but extends also to
benefits arising from transactions that are ancillary to such a sale
 Promoter may transact with the company he promotes and benefit from the transaction
if full disclosure is made of his interests

7.3 REMEDIES FOR BREACH

 If a promoter procures a company to transact without adequately disclosing his


interests in the transaction, the company may rescind the contract, or seek an
account of the promoter’s profits, or both
 Depends on factual matrix of the case
 If a third party vendor sells an asset to the company and rewards the promoter for
arranging or brokering the deal,

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Company may strip the promoter of such reward if it were not disclosed
Company may also rescind the contract against the third party vendor on the
ground of material misrepresentation or the vendor’s notice of the promoter’s
breach
 If the promoter fails to disclose his interests when he is himself the vendor of the asset,
the company’s right to recover his undisclosed profit hinges on whether the asset was
first acquired by the promoter for his own account or as a fiduciary of the company
 If the asset was acquired for himself initially, a failure to disclose his identity as
vendor will entitle the company to rescind the contract, limited by the usual
equitable constraints
 If the asset is acquired by the promoter as agent or fiduciary for the company,
then the asset prima facie belonged to the company, and the promoter may not
profit from dealing with it except with the company’s fully informed consent
 If promoter conceals his interests, the company is entitled to either
rescind the contract or seek an account of the promoter’s secret profits
 Promoter’s profit is the difference between the price at which he
purchased the asset and the price at which it was sold to the company

7.4 REMUNERATION OF PROMOTERS

 Promoter is not entitled to any remuneration for his services unless the company has
agreed to such remuneration by way of a binding contract
 The profit that he derives from the sale of an asset or business to the company or
some transaction ancillary to such sale has conventionally been the primary means by
which he is rewarded for his effort

7.5 PRE-INCORPORATION CONTRACTS

 Contracts that were made prior to the incorporation of the company


o Company promoter would not want to be separately liable
 Agency law: relationship is one of authority which enables the agent to bind the
principal, even where there is no authority, it is possible for the principal to ratify the
contract (authority is hence conferred retrospectively at the time of contract
formation), company (principal) did not exist at the time of contract and hence after it
is incorporated it can choose to ratify the contract by establishing authority
retrospectively
 When a company has not been incorporated but there is already a contract in place,
s41 can be used to hold the company promoter personally liable

COMPANIES ACT
Cap 50, 2006 Rev Ed

Ratification by company of contracts made before incorporation


41.—(1) Any contract or other transaction purporting to be entered into by a company prior
to its formation or by any person on behalf of a company prior to its formation may be
ratified by the company after its formation and thereupon the company shall become

Page 27 of 153
bound by and entitled to the benefit thereof as if it had been in existence at the date of the
contract or other transaction and had been a party thereto.
(2) Prior to ratification by the company the person or persons who purported to act in the
name or on behalf of the company shall in the absence of express agreement to the
contrary be personally bound by the contract or other transaction and entitled to the
benefit thereof.

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THE COMPANY’S CONSTITUTION
1. INTRODUCTION

 The constitution is a document or a set of documents that sets out the basic structure
by which a company is organised
 Which is basically a set of fundamental rules
 As the constitution is hard to change, it benefits the minority and protects their
rights
 Traditionally, a company’s constitution comprised two separate documents that served
different functions
 Memorandum of association
 Defines the company’s essential features (i.e. name, capital structure,
member’s liability and objects)
 Articles of association
 Regulates the relationship between the company and its members, as
well as that among members
 However, Companies (Amendment) Act 2014 introduced the replacement of the
memorandum and articles of association with a single-document constitution (with
effect from 3 Jan 2016)
 Companies incorporated on or after the effective date of the amendment (3 Jan
2016) are required to adopt constitutions in the form of a single document
 Companies incorporated prior to the date may continue to be regulated by the
memorandum and articles of association

2. DEFINITION

COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“constitution”, in relation to a company, means —
 the constitution of the company which is registered with the Registrar under section
19, as may be amended from time to time; and
 in the case of a company incorporated before the date of commencement of section
3 of the Companies (Amendment) Act 2014, the memorandum of association of the
company, the articles of association of the company, or both, in force immediately
before that date;

 Companies Act does not mandate companies existing prior to the Effective Date to
replace their memoranda and articles of association with the new-styled constitution
 Vast majority of companies will likely continue to rely on registered memoranda
and articles of association as their constitutional documents
 Therefore, there is a need for the two-limb definition found in the Companies
Act

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 As the difference between the two forms of constitution is largely one of form, no
practical or legal difficulty is anticipated by the co-existence of the forms of the
constitution

3. DUAL-DOCUMENT CONSTITUTION: MEMORANDUM AND ARTICLES OF


ASSOCIATION

The historical distinction between the memorandum and the articles of association lay in their
different functions.

 Memorandum – the document that set out important statutorily mandated


information
 Bowen LJ in Guinness v Land Corp of Ireland: Fundamental conditions upon
which alone the company is allowed to be incorporated; they are conditions
introduced for the benefit of the creditors, and the outside public, as well as of
the shareholders
 Articles – regulations agreed to by the company’s members
 Bowen LJ in Guinness v Land Corp of Ireland: Internal regulations of the
company

Provisions of the memorandum would take precedence over those in the articles in so far as
they related to a matter that was statutorily mandated to be included in the memorandum.
Prior to the 2004 amendment of the Companies Act, this dominant status of the memorandum
was further fortified by the relative difficulty of amending the memorandum of association.

 Twofold structure of the memorandum and articles of association effectively created


two classes of rights (and obligations) for the company and its members

Distinction between the memorandum and the articles of association was substantially
eliminated when the Companies (Amendment) Act 2004 abolished the requirement to state
a company’s objects in its memorandum and introduced a general power to amend the
memorandum by special resolution.

 Pared the mandatory content of the memorandum to a bare minimum and altogether
closed out the possibility of permanent entrenchment
 Net result is that there is no practical difference between the legal effects of the
provisions stated in the memorandum and in the articles of association
 Little justification for maintaining the memorandum as a separate document

4. SINGLE-DOCUMENT CONSTITUTION

The new single-document constitution that is in effect from 3rd January 2016 basically
contains:

1) Basic Requirements
2) Internal Regulations
3) Template Model Constitution

Page 30 of 153
4.1 PRESCRIBED CONTENT

The required content of a single-document constitution is set out in section 22(1) of the
Companies Act.

COMPANIES ACT
Cap 50, 2006 Rev Ed
Requirements as to constitution
22.—(1) The constitution of every company shall comply with such requirements as may be
prescribed, shall be dated and shall state, in addition to other requirements —

(a) the name of the company; 



(b) if the company is a company limited by shares, a statement that the liability of the
members is limited;
(c) if the company is a company limited by guarantee, that the liability of the members
is limited and that each member undertakes to contribute to the assets of the
company, in the event of its being wound up while he is a member or within one year
after he ceases to be a member, for payment of the debts and liabilities of the
company contracted before he ceases to be a member and of the costs, charges
and expenses of winding up and for adjustment of the rights of the contributories
among themselves, such amount as may be required not exceeding a specified
amount;
(d) if the company is an unlimited company, that the liability of the members is unlimited;
(e) if the company is an unlimited company or a company limited by guarantee, the
number of members with which the company is applying to be registered;
(f) the full names, addresses and occupations of the subscribers to the constitution of
the company; and
(g) that such subscribers are desirous of being formed into a company in pursuance of
the constitution and (where the company is to have a share capital) respectively
agree to take the number of shares in the capital of the company set out opposite
their respective names.

4.2 INTERNAL REGULATIONS

Internal regulations refer to regulations that companies are required to adopt in its constitution
to govern its internal affairs.

 Regulations are subject only to the Companies Act and relevant common law
principles
 Typically, these regulations from the bulk of the constitution’s content, for example:
 Shares – issue and transfer
 Appointment and removal of directors
 Powers of directors
 Board and shareholder meeting procedures
 Distribution and/or capitalisation of profits
 Distribution of surplus assets on liquidation
 Any other matters included by shareholders

Page 31 of 153
Prior to the 2014 amendments, there was a “default” set of articles set out in Table A of the
Fourth Schedule to the Companies Act which could be adopted by companies as its articles,
though it was not obliged to do so.

Since the 2014 amendments, Table A has been replaced by the model constitutions
prescribed by the Minister pursuant to section 36(1) of the Companies Act. Given the complex
and diverse operations of public companies in Singapore, the Steering Committee for the
Review of the Companies Act took the view that it would not be useful to prescribe a standard
constitution for them. Hence, the model constitutions prescribed under section 36(1) apply
only to private companies and companies limited by guarantee.

 A company may adopt the relevant model constitution in whole or in part


 Further, the company may choose to adopt either the model that is in force at
the time of adoption, or the model that is in force as amended from time to time

5. LEGAL EFFECTS OF THE CONSTITUTION

5.1 THE CONSTITUTION AS A CONTRACT

The provision, section 39(1) of the Companies Act, is generally understood to have the effect
of creating a contract between the company and all its members, and between the members
inter se.

 This confers upon a member the personal right to bring an action to enforce a
regulation of the constitution, or to restrain its breach
 That the constitution is a contract between members also means that one member
may institute legal actions directly against another member without joining the
company as a party
 But however, do note that a member’s right to enforce a provision of the constitution is
subject to a number of restrictions
 Just because something is found in the constitution does not mean that it can
automatically be enforced by a member

5.2 MEMBER AND OUTSIDER RIGHTS

5.2.1 CONTRACTUAL EFFECT BETWEEN COMPANY AND MEMBERS

A company’s constitution is binding only on persons who are parties to it (generally the
members who have subscribed to it by acquiring shares in the company).

Eley v Positive Government Security Life Assurance Co Ltd


(1876) 1 Ex D 88 (CA)
A person who is not a member of the company have no standing to sue, or be sued against,
in connection with rights or obligations conferred by the constitution
Facts
Plaintiff solicitor, Mr William Eley, at the time of the company’s incorporation, inserted into
its articles of association a clause that the company would appoint him as its permanent

Page 32 of 153
solicitor. The company did so employ him for a period of time but subsequently terminated
the appointment. Plaintiff then brought an action against the company for breach of contract.
Issue
Whether the plaintiff could bring forward an action against the company
Held

 Plaintiff could not bring forward an action against the company


Judgment
 The articles of association were a matter between the shareholders, or the
shareholders and the directors
 The articles only bound the company and its members, and the plaintiff was not a
party to this contract (no creation of a contract between the plaintiff and the
company) – rule of privity
 Lord Cairns: “No doubt he thought that by inserting it he was making his employment
safe as against the company, but his relying on that view of the law does not alter
the legal effect of the article”, which “is a matter between the directors and the
shareholders, and not between them and the plaintiff.”

The rule of privity is generally straightforward for cases such as Malayan Building Ltd v Raffles
Hotel Ltd, where a “pure” outsider who holds neither shares nor office in the company has no
standing to enforce the contract between the lessee and its members.

5.2.2 “QUA-MEMBER” RULE

However, this principle has also been extended to bar a member’s enforcement of a
provision in the company’s constitution that is said to concern a non-member or an
outsider right. This is the qua-member rule that was laid down in Hickman v Kent or Romney
Marsh Sheep-Breeders’ Association:

 Facts
o The defendant association was incorporated as a non-profit making company.
Article 49 pf its articles of association provided that disputes between the
association and any of its members should be referred to arbitration. Hickman,
a member, brought this action complaining of various irregularities in the affairs
of the association, including the refusal to register his sheep in his published
flock book, and a threat to expel him from membership. The association was
granted a stay of proceedings.
 Judgement
o An outsider to whom rights purport to be given by the articles in his capacity as
such outsider, whether he is or subsequently becomes a member, cannot sue
on those articles treating them as contracts between himself and the company
to enforce those rights
o … no right merely purporting to be given by an article to a person, whether a
member or not, in a capacity other than that of a member, as for instance,
as solicitor, promoter, director, can be enforced against the company

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5.2.3 RATIONALE AND DIFFICULTIES

 Qua-member rule thus operates to limit the constitutional rights that a member may
enforce by way of a personal action; only those rights conferred upon him in his
capacity as a member are enforceable
 This rule has been criticised as an unjustified gloss on section 39 of the
Companies Act (which expressly renders “all provisions” binding on the
company’s members
 May however be justified that (at a broad level), the rule is a limit implicit
in the very nature of a company’s constitution
 Drawing a distinction between member rights and outsider rights
 Just because you own shares does not immediately entitle you to member
rights – you have to be a member to be able to enforce those rights
 Being a director does not immediately entitle you to member rights

Authorities have had little success in drawing a bright line between member and non-member
rights, especially in cases involving member-directors. There have been two lines of authority:

 A right conferred by the institution on a member in his capacity as a director (and


not as a member) may not be enforced by him
 Beattie v E & F Beattie Ltd:
 Facts: The defendant sought to invoke an arbitration clause contained in the
articles when he was sued by his company for the return of certain sums which
it was alleged had been improperly paid to him
 Judgement: A member-director could not enforce an arbitration clause in the
company’s articles because the articles apply only to regulate the company’s
relationship with its members in their capacity as members. Since the dispute
in question concerned the acts done by the member in his capacity as a
director, the arbitration clause had no application
 Browne v La Trinidad:
 Facts: Before the formation of the company, an agreement was entered into
between B and a person as trustee for the intended company, by which it was
stipulated that B should be a director and should not be removable till after
1888. It was held that treating the agreement as embodied in the articles, still
there was no contract between B and the company that he should not be
removed from being a director, the articles being only a contract between the
members inter se, and not between the company and B
 Judgement: A shareholder-director could not enforce an article which
prescribed his appointment as a director for a specific period of time since the
articles constituted a contract as between a company and its members
 Courts have allowed shareholder-directors to enforce their rights conferred upon
them as directors
 Quin & Axtens Ltd v Salmon:
 Facts: The company’s two managing directors, Salmon and Axtens, held
between them the bulk of the company’s ordinary shares. Article 75 provided
that the business of the company should be managed by the directors and
article 80 stated that no resolution of a meeting of the directors should be valid

Page 34 of 153
if either Salmon or Axtens dissented. The directors resolved to acquire and to
let various properties, but Salmon dissented
 Judgement: The bargain made between the shareholders is contained in
articles 75 and 80 of the articles of association, and it amounts for the purpose
in hand to this, that the directors should manage the business; and the
company, therefore, are not to manage the business unless there is provision
to that effect. A shareholder may always enforce the articles because he has
in common with all other members, the right to have the articles observed

5.2.4 EXTRINSIC CONTRACTS BASED ON OR INCORPORATING THE


CONSTITUTION

Directors and other officers of the company can enforce a term of the constitution by entering
into personal contracts with the company, be it oral or in writing.

 Contracts based on incorporating constitution


 Such contract exists independently of the company’s constitution, which the director
or officer in question may enforce in his own right as a contracting party
 Note that the performance of such extrinsic contracts may sometimes be
affected by the terms of a company’s constitution (occurs when it incorporated
one or more terms of the constitution)
 Cases where there is no formal written contract but the terms can be
found in the constitution and this is problematic because the company
has the liberty to alter the constitution at any point in time – if it is validly
altered to your disadvantage then a problem would arise – you have no
say over how the terms of your contract are being changed
 Therefore, it is better to have an extraneous written contract than not
having any formal written contract
 Extraneous contract: separate and independently altered –whether or
not there is a breach depends on the term of the contract
 Swabey v Port Darwin Gold Mining Co:
 Facts: The articles provided that the directors were to be remunerated at the
rate of 200 euros per annum. In July 1888 the company passed a special
resolution altering the articles so that directors were thereafter to receive 5
euros per month. Swabey, a director, thereupon resigned office and claimed
three months’ accrued fees at the old rate
 Judgement: Director was entitled to the remuneration stated in the company’s
articles as he had contracted to serve the company on the terms stated in the
articles, and thus the remuneration formed of the director’s contract of
appointment (alteration cannot have retrospective effect)
 An outsider who contracts on this basis is vulnerable to the risk that the term set out in
the constitution may be altered by a three-quarter majority of the company’s
shareholders

An extrinsic contract may incorporate the terms of the constitution either by express
reference or by implication. Whether a term is so incorporated is determined by looking at
all the documents as a whole.

 Chee Kheong Mah Chaly v Liquidators of Baring Futures (Singapore) Pte Ltd:

Page 35 of 153
 Facts
 The liquidators of BFS, PLC and their related company, Bishopscourt
Ltd (BL) (‘the three companies’), instituted proceedings in London to
recover damages from D&T and C&L(S) and C&L(London) for
negligence in the discharge of their duties as auditors of BFS. A
settlement was eventually reached with C&L(S) and C&L (London)
under which part of the moneys received, amounting to some £24
million, would be set aside to enable the three companies to continue
their proceedings against D&T.
 The sufficiency or otherwise of the £24 million fund set aside would
depend on whether, if D&T were to succeed in defending the BFS
action, they would be entitled to costs on the indemnity or the
standard basis.
 Judgement
 Indemnity clause was held to have been incorporated in the auditors’
contract as it was a term relevant to scope of the auditors’
responsibilities

However, as provided for in section 26 of the Companies Act, a company is free to amend its
constitution, but it is not always free to act upon the amendment and rely upon the altered
constitution to justify the breach of a pre-existing legal (contractual) obligation.

 Southern Foundries (1925) Ltd v Shirlaw:


 Facts: In this case, a company sought to remove its director despite prior arrangement
that it would hire director for 10 years, and not terminate the director without just cause.
Company sought to rely on altered articles that gave it the right to do so.
 Judgement: It was held that even though the company was free to amend its articles,
it remained bound by the contract with the plaintiff, which was breached upon its
premature termination. The altered constitution could not, therefore, be relied upon to
justify the breach of a pre-existing legal obligation.

Gaps in the constitution may be “filled” by existing contractual principles including the
implication of terms in fact (Sembcorp Marine Ltd v PPL Holdings Pte Ltd) and the introduction
of extrinsic material (Golden Harvest Films Distribution (Pte) Ltd v Golden Village Multiplex
Pte Ltd). However, the introduction of extrinsic material to interpret the contract should be
limited since company constitutions are also intended for the use of outsiders who have no
access to background information.

5.3 STATUTORY CONTRACT

The constitution can be viewed as a statutory contract, which differs from a normal contract in
the following ways:

 Normal legal doctrines of contract such as vitiating factors do not apply to a company’s
constitution
 Not all the member’s consent is needed to amend the constitution
 Section 39(1) effects:
 Constitution is binding and legally enforcing

Page 36 of 153
 A member can be called to court when found in defiance of it. Whether
specific remedies such as specific performance is enforced is a matter
of discretion and factually inclined. Damages are, however, available
 Contract between the company and the members, and between the members
themselves
 Contractual status derived from section 39 and not from contractual concept of
consensus ad idem
 The idea of consensus as idem can be said with respect to the incorporators
of the constitution, but this is not the case for members who join subsequently
 Content subject to the provisions of the Companies Act
 Relational, long term contract
 Many usual rules in contract law are not applicable eg. no rescission for
misrepresentation, remedies are more limited
 Alteration or amendment of its content does not require the unanimous agreement of
the members
 As a result of the qua-member rule, not all obligations in the constitution are
enforceable

6. ALTERING THE CONSTITUTION

 Under section 26(1) of the Companies Act, any clause in the constitution is prima facie
alterable by special resolution
 As per section 184(1) of the Companies Act, a special resolution is one that
is passed by a three-quarter or higher majority of the votes cast at a general
meeting (75% of votes)
 If the constitution of a company is altered by a special resolution, by an order of
court, or by some other document, the company has to lodge a copy of such
resolution, order or document, together with a copy of the amended
constitution, with the Registrar within 14 days after the date of the said resolution,
order or document
 Failure to lodge as required may result in the imposition of penalties on both
the company and its officers
 Section 39(3) of the Companies Act provides that a member is not bound by a
subsequent alteration that requires him to subscribe for more shares in the company,
or which otherwise increases his liability to contribute to the company’s share capital,
or to pay money to the company, unless he has given his written consent either before
or after the alteration

COMPANIES ACT
Cap 50, 2006 Rev Ed
As to effect of alterations on members who do not consent
39.—(3) Notwithstanding anything in the constitution of a company, no member of the
company, unless either before or after the alteration is made he agrees in writing to be
bound thereby, shall be bound by an alteration made in the constitution after the date on
which he became a member so far as the alteration requires him to take or subscribe for
more shares than the number held by him at the date on which the alteration is made or in

Page 37 of 153
any way increases his liability as at that date to contribute to the share capital of or otherwise
to pay money to the company.

 As seen in section 26(1AA) of the Companies Act below, where the constitution is
altered by such resolution, such alteration is deemed to form part of the original
constitution on and from the date of the special resolution
 Consistent with the common law rule that alterations to the company’s
constitution may only take prospective effect
 Means that a company may not, by altering its constitution, undermine or
otherwise adversely affect any legal right or interest that has accrued under the
constitution prior to the alteration

COMPANIES ACT
Cap 50, 2006 Rev Ed
General provisions as to alteration of memorandum
26.—(1AA) Any alteration or addition made to the 5 constitution under subsection (1) shall,
subject to this Act, be deemed to form part of the original constitution on and from the date
of the special resolution or such later date as is specified in the resolution.

 Russell v Northern Bank Development Corp Ltd: While a company may not contract
out of the statutory power to amend the constitution, an agreement amongst
shareholders not to vote in favour of any such amendment is nevertheless valid and
enforceable
 Facts: In 1988, the board of directors proposed to make an increase of capital
to 4 million by a rights issue. Russell, an executive, objected to this and was
successful in obtaining a declaration that the agreement was binding on his
fellow shareholders (although not on the company itself)
 Judgement: A company may effectively be prevented from altering its
constitution so long as those shareholders with sufficient votes to block a
special resolution are contractually bound to do so

6.1 RESTRAINTS ON ALTERATION

6.1.1 COMPANY OBJECTS

 As with other provisions of the constitution, as per section 33(1) of the Companies Act,
a company may amend its object clauses by special resolution
 Company has to give at least 21 days’ written notice of the proposal to table
the resolution at a general meeting – section 33(2)
 Notice has to be sent to all members of the company as well as all trustees for
debenture holders and, in the case where there is no trustee for any class of
debenture holders, to all debenture holders of that class – section 33(3)
 If the resolution is passed as a special resolution, the members or debenture holders
whose interests meet or exceed the prescribed threshold may, within 21 days from the
resolution, apply to the court to cancel the alteration – section 33(5) and section 33(6)
 Once an application is made, the alteration will not take effect except with the
confirmation of the court

Page 38 of 153
 Special resolution may not be lodged with the Registrar until after the lapse of
21 days from the date of the resolution, but shall be so lodged within 14 days
after the expiry of the said 21 days or after the court has determined the
application

COMPANIES ACT
Cap 50, 2006 Rev Ed
Alterations of objects in constitution
33.—(1) Subject to this section, a company may by special resolution alter the provisions of
its constitution with respect to the objects of the company, if any.
(2) Where a company proposes to alter its constitution, with respect to the objects of the
company, it shall give 21 days’ written notice by post or by electronic communications in
accordance with section 387A or 387C, specifying the intention to propose the resolution
as a special resolution and to submit it for passing at a meeting of the company to be held
on a day specified in the notice.
(3) The notice shall be given to all members, and to all trustees for debenture holders and,
if there are no trustees for any class of debenture holders, to all debenture holders of that
class whose names are, at the time of the posting of the notice, known to the company.
(4) The Court may in the case of any person or class of persons for such reasons as to it
seem sufficient dispense with the notice required by subsection (2).
(5) If an application for the cancellation of an alteration is made to the Court in accordance
with this section by —
(a) the holders of not less in the aggregate than 5% of the total number of issued shares
of the company or any class of those shares or, if the company is not limited by
shares, not less than 5% of the company’s members; or
(b) the holders of not less than 5% in nominal value of the company’s debentures,
the alteration shall not have effect except so far as it is confirmed by the Court.
(5A) For the purposes of subsection (5), any of the company’s issued shares held as
treasury shares shall be disregarded.
(6) The application shall be made within 21 days after the date on which the resolution
altering the company’s objects was passed, and may be made on behalf of the persons
entitled to make the application by such one or more of their number as they appoint in
writing for the purpose.
(7) On the application, the Court —
(a) shall have regard to the rights and interests of the members of the company or of
any class of them as well as to the rights and interests of the creditors;
(b) may if it thinks fit adjourn the proceedings in order that an arrangement may be
made to the satisfaction of the Court for the purchase (otherwise than by the
company) of the interests of dissentient members;
(c) may give such directions and make such orders as it thinks expedient for facilitating
or carrying into effect any such arrangement; and
(d) may make an order cancelling the alteration or confirming the alteration either wholly
or in part and on such terms and conditions as it thinks fit.

Page 39 of 153
(8) Notwithstanding any other provision of this Act, a copy of a resolution altering the objects
of a company shall not be lodged with the Registrar before the expiration of 21 days after
the passing of the resolution, or if any application to the Court has been made, before the
application has been determined by the Court, whichever is the later.
(9) A copy of the resolution shall be lodged with the Registrar by the company within 14
days after the expiration of the 21 days referred to in subsection (8), but if an application
has been made to the Court in accordance with this section, the copy shall be lodged with
the Registrar together with a copy of the order of the Court within 14 days after the
application has been determined by the Court.
(10) On compliance by a company with subsection (9), the alteration, if any, of the objects
shall take effect.
(11) For the avoidance of doubt, a reference in this section to the alteration of any provision
of the constitution of a company or the alteration of the objects of a company includes the
removal of that provision or of all or any of those objects.

6.1.2 ALTERATIONS CONTRARY TO THE CA

 Section 39(3) of the Companies Act provides that a member is not bound by a
subsequent alteration that requires him to subscribe for more shares in the
company, or which otherwise increases his liability to contribute to the company’s
share capital, or to pay money to the company, unless he has given his written consent
either before or after the alteration

6.1.3 PROVISIONS FORMERLY ENTRENCHED IN MEMORANDUM

 As per section 26(1B) of the Companies Act, a provision that was entrenched by the
memorandum before 1 April 2004 may only be altered by unanimous agreement of
the company’s members
 This is because companies incorporated before the Effective Date may retain
their memorandum and articles of association as their constitution, this abated
form of “entrenched” provision will continue to be a feature of the constitution
to the extent that it exists in the memorandum

COMPANIES ACT
Cap 50, 2006 Rev Ed
General provisions as to alterations of constitution
26.—(1B) Notwithstanding subsection (1), a provision contained in the constitution of a
company immediately before 1st April 2004 and which could not be altered under the
provisions of this Act in force immediately before that date, may be altered only if all the
members of the company agree.

6.1.4 PROVISIONS ENTRENCHED BY “ENTRENCHING PROVISIONS”

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 An entrenching provision is a statutory mechanism that enables shareholders to
safeguard certain constitutional rights by setting more stringent requirements for their
alteration
 An entrenching provision entrenches another provision – Provision A is
entrenched to make Provision B harder to change
 A provision in the constitution that provides
 That other provisions in the constitution cannot be altered in
accordance with the Act; or
 That other provisions in the constitution cannot be altered
except with a majority greater that 75%; or except where other
specified conditions are met
 Purpose: to entrench certain rights such as voting rights, rights to dividends,
rights as a director of the company
 If an entrenched provision contained certain individual rights then it could only
be altered if that particular person agrees to its alteration
 The purpose in limiting majority rule is that an entrenching provision may be
 used to
this effect because it could subject the amendment of a specified provision to the
approval of minority shareholders or to the fulfilment of one or more conditions outside
the majority’s control. That it may not be removed or amended except with the approval
of all members further strengthens the minority’s position
 The definition of an “entrenching provision” can be found in section 26A(4) of the
Companies Act
 As per section 26(1A) of the Companies Act, section 26(1) which states that a
constitution of a company may be altered or added to by special resolution is subject
to section 26(A)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Power to entrench provisions of memorandum and articles of company
26A.—(1) An entrenching provision may —
(a) be included in the constitution with which a company is formed; and
(b) at any time be inserted in the constitution of a company only if all the members of
the company agree.
(2) An entrenching provision may be removed or altered only if all the members of the
company agree.
(3) The provisions of this Act relating to the alteration of the constitution of a company are
subject to any entrenching provision in the constitution of a company.
(4) In this section, “entrenching provision” means a provision of the constitution of a
company to the effect that other specified provisions of the constitution —
(a) may not be altered in the manner provided by this Act; or
(b) may not be so altered except —
i. by a resolution passed by a specified majority greater than 75% (the
minimum majority required by this Act for a special resolution); or
ii. where other specified conditions are met.

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 In addition, a provision that satisfies the description of section 26A(4) will only qualify
as an entrenching provision for purposes of section 26A if it is included in the
company’s constitution at the time of its incorporation, or is subsequently inserted into
the constitution with the agreement of all the company’s members – section 26A(1)
 An entrenching provision may be removed or altered only if all the members of the
company agree – section 26A(2)
 Example of an entrenching provision:
 Clause X: Party A shall have the right to appoint 3 directors for as long as it
holds not less than 35% of the company’s issued shares.
 Clause Y: Provided that Party A holds not less than 35% of the Company’s
issued shares, Art X shall not be amended except with the approval of the
holders of not less than 80% of the issued shares of the Company.
 Clause Y is the entrenching provision as it makes Clause X harder to
amend

6.1.5 BONA FIDE IN THE COMPANY’S INTERESTS

 Where a company is altering its constitution, the freedom to vote is constrained by the
requirement that an alteration has to be made “bona fide for the benefit of the
company as a whole”
 Failing this test will invalidate an alteration even if it has been approved by a special
resolution
 Rationale for constraint lies in the need to control the exercise of majority power

Allen v Gold Reefs of West Africa, Ltd


[1990] 1 Ch 656
Bona fide test
Facts
Emilio Zuccani owned partly paid shares and was the only owner of fully paid shares in the
company. He died owing the company over £6,000, the aggregate of sums called-up but
still unpaid on his partly paid shares. Articles provided for a lien in favour of the company
‘upon all shares (not being fully paid) held by such member in respect of debts owed by a
shareholder to the company’.
After Mr Zuccani’s death the company amended the articles to omit the language in brackets
thereby extending the company’s lien to cover fully paid-up shares. Mr Zuccani’s executors
sought a declaration that the company had no lien upon the fully paid-up shares. They
argued, amongst other points, that the resolution creating a lien upon Mr Zuccani’s fully
paid-up shares was an oppressive act as against him, he being the only holder of fully paid-
up shares in the company.
Issue
Whether the alteration was made bona fide
Held

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 The amendment was valid. Any suspicions excited by the fact that the amendment
only affected Zucanni’s executor were dispelled once it was realised that this was
because Zuccani was the only holder of paid-up shares who at the time was in arrear
of calls
 The altered articles applied to all holders of fully paid shares, made no distinction
between them, and therefore the directors could not be charged with bad faith
Judgment

 The power to alter a company’s articles must be exercised ‘bona fide for the benefit
of the company as a whole’. An alteration so made is valid and binding on the
members and may affect their existing rights as members. It may, however, amount
to a breach of an independent contract
 The shareholders were acting in the truest and best interests of the company in
exercising the legal right to alter the articles so that the company might as one result
obtain payment of the debt due from Mr Zuccani. The shareholders were only bound
to look to the interests of the company. They were not bound to consult or consider
Mr Zuccani’s separate or private interests.’

 In deciding whether an alteration is made bona fide for the company’s benefit, the court
must defer to the shareholders’ assessment
 Shuttleworth v Cox Brothers & Co (Maidenhead), Ltd:
 Facts
 The plaintiff was a director of the defendant company on the terms of
article 18, which provided that he and others should be the first directors
of the company, that they should be permanent directors, and that each
of them should hold office so long as he should live, unless he should
become disqualified from any of the clauses specified in article 22. The
company passed an altered article by a special resolution, adding a
seventh clause: ‘If he shall be requested in writing by all the other
directors to resign his office.’ The plaintiff was then asked to leave
 Judgement
 The test is whether the alteration of the article was in the opinion of
the shareholders for the benefit of the company
 Whether the shareholders were acting in good faith
 Court may not substitute its own view for the shareholders’ since it is
the shareholders, and not the court, who are responsible for managing
the company’s affairs (less intrusive approach)
 Once it is shown that the shareholders honestly believed the alteration to be in the
company’s interests, it cannot be struck down only because the court disagrees with
the shareholders’ assessment
 An alteration is presumed to be valid unless there is evidence of bad faith
 Peters’ American Delicacy Co Ltd v Heath: The onus of proof is on the person
challenging the alteration (this case no longer carries weight, refer to the case
of Gambotto instead
 Sidebottom v Kershaw, Leese & Co, Ltd:
 Facts

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 The defendant company had altered its articles by introducing a
provision which gave the directors power to buy out, at a fair price, the
shareholding of any member who competed with the company’s
business. The plaintiffs, who were minority shareholders and who
carried on a competing business, unsuccessfully challenged the validity
of the alteration
 Judgement
 An alteration is made in bad faith if it is made with fraudulent or
malicious intent
 E.g. An alteration prompted by a malicious motive would be one aimed
at injuring a minority shareholder without regard to the company’s
interests
 Lord Sterndale MR: “I think, looking at the alteration broadly, that it is
for the benefit of the company that they should not be obliged to have
amongst them as members persons who are competing with them in
business, and who may get knowledge from their membership which
would enable them to compete better.”
 Where an alteration is prima facie beneficial to the company, the presumption
of good faith is strengthened so that nothing short of direct evidence of bad
faith is required for its rebuttal
 The mere fact that a minority shareholder would be adversely affected by the
alteration is not by itself a sufficient ground for inferring bad faith
 In general, a finding of good faith on the part of the majority will dispose of any attempt
to invalidate a constitutional amendment
 Test is therefore predominantly subjective as it is the shareholder’s own
view that is determinative of the issue, but is qualified by an objective
component, that the alteration will not be upheld if it is one which no
reasonable person would consider to be for the company’s benefit
 Reasons for objective qualification: absence of any reasonable basis
for the majority’s view may be evidence of majority’s bad faith or the
majority, whilst acting with the best of intention, have failed to take into
account matters which they ought to have considered

6.1.5.1 CONFLICTING SHAREHOLDER INTERESTS

 In Greenhalgh v Arderne Cinemas Ltd, Lord Evershed MR reformulated the bona fide
test to address the issue as to whether the majority could, by altering the articles,
advance their own interests at the minority’s expense
 Facts
 The articles of the defendant provided that existing members should
have pre-emptive rights if a member wished to sell their shares. Mallard,
the managing director, had negotiated with an outsider for the sale of a
controlling interest in the company. Mallard had procured the passing
of a special resolution to give effect to this agreement. In effect, this
negated the pre-emptive rights of the existing members. One of the
latter, Greenhalgh, claimed a declaration that the resolutions were
invalid as a fraud on the minority. The COA refused a declaration
 Individual Hypothetical Member Test

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 “Benefit for the company” – the shareholder must proceed upon what,
in his honest opinion is for the benefit of the company as a whole
 “The company as a whole” had to mean, in this context, not the
company as an entity distinct from its corporators, but the “corporators
as a general body”
 Test: the case may be taken of an individual hypothetical member and
it may be asked whether what is proposed is, in the honest opinion of
those who voted in its favour, for that person’s benefit
 Problems:
 Far from clear who would qualify as a “hypothetical member”
o This would be problematic in a situation like Gambotto
where the case is only dealing with a very specific class
of shareholders
o If the very purpose of the alteration is targeted at a
specific person or class then the hypothetical test would
be futile
o When using this test, strip off the characteristics of
majority and minority
 Even assuming that this wholly detached member exists, the
test is problematic if it effectively requires a member to vote
altruistically in another’s interests
 Discrimination Test
 A constitutional amendment would be impeached if its effect “were to
discriminate between the majority shareholders and the minority
shareholders, so as to give the former an advantage of which the latter
was deprived”
 It is therefore not necessary to require that persons voting for a
special resolution should, so to speak, dissociate themselves
altogether from their own prospects
 If the corporators think it is a fair offer and vote in favour of the
resolution, it is no ground for impeaching the resolution that they
are considering their own position as individuals
 Problems:
 On its face, the test appears to suggest that the mere fact that
the majority had gained at the expense of the minority would
constitute a good reason for impeaching the amendment. But
this was precisely the case in Greenhalgh, yet the amendment
was upheld. Indeed, such an approach goes against a host of
authorities, which consistently held that the mere fact that an
alteration operated to the disadvantage of particular minority
shareholders does not render the amendment mala fide
 Today, a shareholder who is so aggrieved may stand a better chance of securing
redress by petitioning under section 216 of the Companies Act, which affords a broader
ground for reviewing the fairness of the majority’s actions

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6.1.5.2 COMPULSORY SHARE TRANSFERS

 A company’s constitution may sometimes contain provisions that empower its


directors or members to compulsorily acquire the shares of other members

Sidebottom v Kershaw, Leese & Co Ltd


[1920] 1 Ch 154 (CA)
Bona fide test
Facts
The articles of association were amended to provide that its directors may by notice require
a shareholder or director who carries on a competing business to transfer, at fair value, all
his shares to a person or persons nominated by the directors.
Issue
Whether the alteration was made bona fide
Held

 Alteration was upheld


Judgment
 The majority had acted in the honest belief that it would benefit the company to have
the power to remove shareholders engaged in competing businesses
 There is no doctrinal objection to the incorporation of expropriation clauses into a
company’s articles of association
 Articles can be amended to include such a provision – rights of disposal – provided
the exercise of the power of alteration is bona fide for the benefit of the company as
a whole (by a three-quarter majority)
 Lord Sterndale MR: “I think, looking at the alteration broadly, that it is
for the benefit of the company that they should not be obliged to have
amongst them as members persons who are competing with them in
business, and who may get knowledge from their membership which
would enable them to compete better.”

 Philips v Manufacturers’ Securities Ltd: Naked share provisions are enforceable if


included in the company’s constitution from the outset
 Sidebottom v Kershaw, Leese & Co Ltd: A subsequent alteration to introduce such a
provision will likely also be upheld as bona fide for the company’s benefit if it is
motivated by the need to terminate the membership of a person or persons who
have harmed or threatened to harm the company

Gambotto v WCP Ltd


(1995) 182 CLR 432
Proper Purpose Test – Can consider using this text if the facts involve expropriation
Facts

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Court struck out an amendment to insert a compulsory acquisition clause even though there
was evidence that the company would stand to gain over A$4m in tax and administrative
savings if the majority shareholders had complete control of the company.
Issue
Whether the bona fide test was appropriate for appraising alterations that confer powers of
expropriation
Held

 Court struck out the clause and held that bona fide test was inappropriate
Judgment
 Proper Purpose Test
o An alteration would only be lawful if
 It is made for a proper purpose; and
 It does not operate oppressively in relation to minority shareholders
 First limb encapsulates the equitable principle that it is a “fraud on the power” to alter
the articles for a purpose other than that for which the power was conferred. For the
majority judges, the line between proper and improper purposes is drawn by
distinguishing between alterations that protect a company from harm and those that
positively advance its interests
o “Proper purpose” refers to securing the company from significant detriment
or harm
 Does not include the advancement of the interests of the company
as a legal and commercial entity or those of the majority
 Criticism: substantial commercial benefits can never be held as a
proper purpose, blurred benefit-detriment distinction, onus of proof
on majority shareholders, very stringent test, courts playing a more
interventionist role
 Second limb states that alteration has to be fair in the circumstances
o Procedural fairness: company must ensure a fair process for effecting the
alteration
 Disclosure of all relevant information
 Presumably requires shares to be valued by an independent expert
o Substantive fairness: largely requires the acquisition to be at a fair price
 Conception of shares as property
o Gambotto places greater emphasis on the proprietary nature of shares and
the need to protect this economic interest
o Peters’ American Delicacy Co Ltd v Health – rights in shares are “not
enduring and indefeasible but are liable to modification or destruction
 Distinction between shares in small private companies and large
public companies

 UK Company Law Review Steering Group declined to adopt the Gambotto approach
 The CLR considered the possibility and drew attention to the fact that in
Gambotto the alteration of articles was undoubtedly of benefit to the company
as a whole (it stood to gain tax advantages) and the minority were to be fully
compensated

Page 47 of 153
 In addition to the constraints discussed above, an alteration of the constitution may
also be invalidated pursuant to an application made under section 216 of the
Companies Act
 This may be the case where a shareholder adversely affected by the alteration
is able to establish that the majority has conducted the company’s affairs in a
manner that constitutes commercial unfairness. The alteration may be
evidence of such unfair conduct if it violates a contractual or other legal
obligation to which the company or the majority shareholders are bound, or is
otherwise in breach of the minority shareholder’s “legitimate expectations”

7. SHAREHOLDERS’ AGREEMENTS

 The purpose of shareholders’ agreements is to set out parties’ overall understanding


and supplement the constitution
 Governs the relationship between shareholders
 Shareholders’ agreements most commonly found in joint ventures
 Shareholders’ agreements afford the parties involved considerably more flexibility and
certainty
 Parties could be:
 Between company and shareholders
 Between all shareholders
 Between some shareholders
 As a private contract separate from the constitution, it is not subject to the strictures of
the Companies Act and is governed, instead, by the usual contractual principles
 Not alterable by majority vote, but only by consent of all the parties to the
contract
 While parties are generally free to stipulate such terms as they deem fit, they may not
oust the statutory right to alter the company’s constitution
 Enforcement is not subject to the ambivalence of the qua-member rule
 It may be rectified on the ground of a mistake and its breach may be remedied in the
usual way by damages, injunctions and specific performance
 Advantages of shareholders’ agreements
 Private agreement need not be registered with the Registrar
 Drawbacks of shareholders’ agreements
 Agreement only binds those shareholders who are signatories to it
 Subsequent shareholders are not bound by its terms unless they specifically
assent to them
 By conferring contractual rights to each and every shareholder, such
agreements may enable individual shareholders to impede or even obstruct
decision-making to the detriment of the company’s interests
 Cannot compel company to comply if agreement is not incorporated in Articles,
and can only sue for damages
 Issuance of new shares
 For shareholders to decide – if you decide to amend such that the issuance of
new shares should be banned then the company would not be able to exercise
its capital right to issue shares and hence this is illegal and contrary to statute

Page 48 of 153
Russell v Northern Bank Development Corp Ltd
[1992] 1 WLR 588
Shareholders Agreement
Facts
A company and its shareholders entered into a shareholders’ agreement. Clause 3 of the
agreement provided that the company would not increase its share capital except with the
consent of all parties to the contract.
Issue
Whether the clause was valid
Held

 So far as the company was concerned, the clause was an unlawful attempt to oust
the company’s statutory power to amend its memorandum and increase its share
capital
 As regards the shareholders, however, clause 3 was merely an agreement
concerning how they would exercise their votes in a particular situation. There is no
reason why such an agreement could not be upheld since owners of shares are, like
other property owners, free to deal with their shares (including the right to vote) in
such manner as they deem fit
 Consequently, the House of Lords granted a declaration that clause 3 was valid as
between the shareholders
Judgment
 While a company may not contract out of the statutory power to amend the
constitution, an agreement amongst shareholders not to vote in favour of any such
amendment is nevertheless valid and enforceable
 A company may effectively be prevented from altering its constitution so long as
those shareholders with sufficient votes to block a special resolution are
contractually bound to do so

Page 49 of 153
SHARES
1. CAPITAL

1.1 MEANING

 According to the legal dictionary, capital refers to:


 The basic assets of a business (particularly corporations or partnerships) or of
an individual, including actual funds, equipment and property as distinguished
from stock in trade, inventory, payroll, maintenance and services
 Related to the basic assets or activities of a business or individual, such as
capital account, capital assets, capital expenditure, and capital gain or loss
 An amount of money a person owns, as in "how much capital do you have to
put into this investment?" as distinguished from the amount which must be
financed
 Basically, it refers to the financial assets or the financial value of assets of a company

1.2 SHARE CAPITAL VS DEBT CAPITAL

 Share capital (permanent capital) refers to funds that a company raises in exchange
for issuing an ownership interest in the company in the form of shares (amount of
money put up by the subscribers to a company’s share issuance)
 No fixed entitlement
 Residual claimants – everything that is left over belongs to the shareholders
 Shareholders thus known as the ultimate owners
 Good/bad depending on how well the company does
 Closer to owners than debt capital – rights are grounded on property law
 Represents rights IN the company
 Subject to capital maintenance rules
 Rights to take out investments
 If the company calls for unpaid shares, then the shareholders have to pay up
 Debt capital (temporary capital) is capital raised through borrowing from a source
outside the company in exchange for issuing debentures (amount of money owed by
the company to the creditors)
 Creditor has fixed entitlement to interest during period of loan
 During liquidation – entitled to his principal (capital)
 Rights grounded on contract
 Represents rights AGAINST the company
 May be secured on company’s assets
 In terms of priority of claims, when a company is liquidated, creditors can claim before
shareholders. Likewise, a claim on company during its lifetime is also creditors before
shareholders
 A loan relationship is documented in contract while a shareholder relationship is
documented in the Company’s Constitution.
 Uncalled capital – for companies to call for when they require funds

Page 50 of 153
 Reserve capital – funds that serve as a guarantee in the case that a company winds
up

2. SHARES – DEFINITION AND CONTENT

Borland’s Trustee v Steel Brothers & Co Ltd


[1901] 1Ch 279
Facts
The company’s articles provided that the shares of a member should in certain
events, including bankruptcy, be transferable compulsorily to designated persons at
a fair price not exceeding the par value. On the bankruptcy of Borland, the company
gave notice to his trustee in bankruptcy requiring him to transfer the shares in
accordance with the articles. The trustee objected that this provision in the articles
was void, either on the ground that it was repugnant to absolute ownership, or as
tending to perpetuity. The court rejected both contentions.
Definition of a share
A share is the interest of a shareholder in the company measured by a sum
of money, for the purpose of liability in the first place, and of interest in the
second, but also consisting of a series of mutual covenants entered into by all the
shareholders inter se in accordance with s 39(1) of the CA.
A share is not a sum of money settled in the way suggested, but is an interest
measured by a sum of money and made up of various rights contained in the
contract, including the right to a sum of money of a more or less amount.

Cambridge Gas Transportation Corporation v Navigator Holdings plc


[2007] 1 AC 508
Facts
A scheme of arrangement was proposed for a company with involvement in several
jurisdictions. An order in New York sought assistance in the vesting of shares and
assets in the Isle of Man in the creditors committee. Cambridge was a majority
shareholder in the Isle of Man company, but had no involvement in the New York
proceedings and resisted the vesting order.

Held
The appeal failed. If the New York order was in rem, then it could not affect title to
shares in the Isle of Man. If in personam, the court had a wide common law
discretion, but the action had been brought against the wrong party. However the
order was neither: ‘The purpose of bankruptcy proceedings…is not to determine or
establish the existence of rights, but to provide a mechanism of collective execution
against the property of the debtor by creditors whose rights are admitted or
established. That mechanism may vary in its details.’

The Manx court had jurisdiction to assist the committee of creditors, as appointed
representatives under the Chapter 11 order, to give effect to the plan. As there was

Page 51 of 153
no suggestion of prejudice to any creditor in the Isle of Man or local law which might
be infringed, there was no discretionary reason for withholding such assistance.

Definition of a share
In the case of fully paid shares, the question of liability does not of course arise.
So a share is the measure of the shareholder’s interest in the company: a
bundle of rights against the company and the other shareholders. As against the
outside world, that bundle of rights is an item of property, a chose in action. But
as between the shareholder and the company itself, the shareholder’s rights may
be varied or extinguished by the mechanisms provided by the articles of
association or the Companies Act.

 A share is regarded as a bundle of rights and obligations


 Exact rights and obligations that a share represents depend on the company’s
constitutional documents
 Includes rights and obligations of members conferred and imposed on
members by the CA as well
 Ownership of shares in a company merely confers upon the shareholder two rights:
 Financial rights – if and when the company is wound up, the right to participate
in the assets of the company remaining after all the debts of the company have
been paid
 E.g. to dividends and to return of capital (viz, a pro rata share of any
surplus assets) on liquidation; or pre-emptive rights on further issues of
shares (expressed in the constitution)
 General membership rights – while the company is a going concern, the right
of participation on the terms of the constitution
 E.g. to attend and vote at shareholder meetings, to access certain
company information, etc. These may be given in the constitution, the
CA or case law
 An additional right that might be considered would be that of property rights
– section 121 provides that a share shall be movable and not immovable
property (shares can be sold and transferred)
 E.g. to sell the share. These rights arise under general law but may be
affected by the constitution or the CA
 May be significant in relation to succession as shares, being movable
property, would devolve according to the law of the deceased
shareholder’s domicile
 Where a share is transferred, the transferor hands over to the
transferee the whole package of rights that the share represents
 Obligations that a shareholder has will be:
 Liability to pay calls
 Liability to contribute to the assets of the company in the event of winding
up
 Hence, in summary, to contribute up to the issue price of the share (assuming
shares are only partly-paid) and to comply with the constitution

Page 52 of 153
3. SHARE CAPITAL STRUCTURE: PAR VALUE ABOLISHED

 Most significant relatively recent change to the concept of shares in Singapore was the
abolition of par (or nominal) value and of the related concept of authorized capital
 These changes were made by the Companies (Amendment) Act 2005 and took effect
on 30 January 2006

3.1 HISTORICAL ROLE OF PAR VALUE

 Par value is the minimum price at which shares can generally be issued and it is
basically a measure of shareholder’s interest
 Maintenance of capital by prohibiting companies from allotting shares at a discount
to their par value

3.2 RATIONALE FOR REMOVAL

 Par value was no longer useful in performing the roles it was supposed to do and could
be a source of confusion instead
 During the life of the company, the value of a share will in most cases have
lost any correspondence it might have had to the par value
 Basically, this means that the par value bears no relation to the actual
value of a share
 In actual fact, to determine the real value of a share, one must take the
total value of a company divided by the total number of shares (it is not
the value of the stock market as it is just the value people who ascribe
to it)
 As there is no minimum prescribed for the par value in Singapore, shares
could be issued with very low par values to obviate certain restrictions imposed
by the capital maintenance rules, such as the rule against issuing shares at a
discount, and the more stringent user restrictions on nominal share capital, by
designating as share premium what would otherwise have been nominal
capital. The function of ‘par value’ as a benchmark lost much of its significance
this way

3.3 CHANGES CONSEQUENT UPON THE ABOLITION

Prior to abolition, there were special rules which applied to issuing shares either at a discount
or at a premium. However, the abolition of par value for shares has brought about
consequential changes to a number of related concepts and provisions in the CA. Not only
were the rules regarding discounts and premiums abolished (subject to transitional
provisions), there was also no longer a need to distinguish between share capital and share
premium, and the concept of authorized capital as the sum total of the par values of all shares
that the company is authorized to issue could no longer be retained.

 Key sections of the CA that effect the abolition are section 62A and 62B
 Former section 22(1)(c) was repealed from 30 January 2006, hence there is no longer
a need for share capital to be stated in the constitution

Page 53 of 153
The power to alter share capital is dealt with in section 71 and the constitution (Articles 40
and 41 of Table A Fourth Schedule).

COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 40 – 41 of Table A
40.—(1) The company may from time to time by ordinary resolution do one or more of the
following:
(a) increase the share capital by such sum as the resolution shall prescribe;
(b) consolidate and divide all or any of its share capital;
(c) subdivide its shares or any of them, so however that in the subdivision the
proportion between the amount paid and the amount, if any, unpaid on each
reduced share shall be the same as it was in the case of the share from which
the reduced share is derived;
(d) cancel the number of shares which at the date of the passing of the resolution in
that behalf have not been taken or agreed to be taken by any person or which
have been forfeited and diminish the amount of its share capital by the number
of the shares so cancelled.
41. Subject to any direction to the contrary that may be given by the company in general
meeting, all new shares shall, before issue, be offered to such persons as at the date of the
offer are entitled to receive notices from the company of general meetings in proportion, as
nearly as the circumstances admit, to the amount of the existing shares to which they are
entitled. The offer shall be made by notice specifying the number of shares offered, and
limiting a time within which the offer, if not accepted, will be deemed to be declined, and,
after the expiration of that time, or on the receipt of an intimation from the person to whom
the offer is made that he declines to accept the shares offered, the directors may dispose
of those shares in such manner as they think most beneficial to the company. The directors
may likewise so dispose of any new shares which (by reason of the ratio which the new
shares bear to shares held by persons entitled to an offer of new shares) cannot, in the
opinion of the directors, be conveniently offered under this regulation.

4. CLASSES OF SHARES

 A company is generally free to issue shares formally divided in to different classes


 The rights attached to a particular class could be contained in the
memorandum and articles or in the resolution of the company authorising the
issue of shares of that class

4.1 REASONS FOR ISSUING DIFFERENT CLASSES OF SHARE

 From an investor’s perspective, there will be a risk-return trade off which makes it more
attractive for investing
 From a company’s perspective, it is a way of raising capital without conceiving control
 Gives the company a breathing space – no need to pay dividends when they
are in trouble for a few years (especially for non-cumulative)

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 Gets more money when issuing a more fanciful share by a higher issue price
(due to higher demand), and pay out lower dividends
 **All down to the aim of lowering the cost of capitals

4.2 CLASSES OF SHARES

4.2.1 ORDINARY SHARES

 Ordinary shares are basically any share that is not a preference share: residual class
of shares
 They have no legal entitlement to dividends even if there are profits as it
conflicts the idea that shareholders are residual claimants
 Amount of dividends is proposed by the directors and approved by
shareholders
 Ordinary shareholders are known as the residual claimants of the company
 They are ranked last in terms of any distribution in a winding up

4.2.2 PREFERENCE SHARES

 Preference share as defined in the repealed (by 2014 Act) section 4 states that in
relation to sections 5, 64 and 180, it is a share which does not entitle the holder
thereof to vote at a general meeting (except in limited circumstances) or to
participate beyond a specified amount in any distribution, whether by way of dividend,
or on redemption, in a winding up, or otherwise
 Note that this definition appears somewhat at odds with conventional
understanding of preference shares as shares which confer at least some
preferential rights as to payment of dividends or return of capital in a
liquidation
 The typical features of a preference share are as follows:
 Fixed dividends on terms of issue of the preference shares
 Fixed entitlement/promise on the condition that the company is making
profits
 Priority to dividends and assets on liquidation

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A dividend is a distribution of a portion of a company's earnings,
decided by the board of directors, to a class of its shareholders
 An asset is a resource with economic value that an individual,
corporation or country owns or controls with the expectation that
it will provide future benefit
 Dividends are profits which a company has at that particular
time, while an asset is what the company has
 Do not carry any votes (A category of preference shares)
 However, it is not uncommon for preferences shares to have voting rights,
though these are commonly restricted
 Preferential rights to payment of dividends and return of capital:
 Entitled before ordinary shareholders get paid
 On winding up: creditors > preference shareholders > ordinary
shareholders
 Fixed entitlement: usually as a percentage of issue price
 Contractual promise to pay a fixed dividend – safety net
 Cf ordinary share, which has more potential for growth
 Since dividends are payable out of profits – if there are no profits the
company does not have to pay – i.e. the promise is conditional on the
company having profits
 Hybrid capital – they are shares in the legal sense but they act like bonds
 Preference shares have fixed entitlements, and are sometimes treated as
debts in an economic sense
 Preference share rights are set out in the constitution

COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights of holders of preference shares to be set out in constitution
75.—(1) No company shall allot any preference shares or convert any issued shares into
preference shares unless there are set out in its constitution the rights of the holders of
those shares with respect to repayment of capital, participation in surplus assets and
profits, cumulative or non-cumulative dividends, voting and priority of payment of
capital and dividend in relation to other shares or other classes of preference shares.
(2) If default is made in complying with this section the company and every officer of the
company who is in default shall be guilty of an offence and shall be liable on conviction to a
fine not exceeding $2,000.

 The types of preference shares are as seen in the chart above


 Voting or non-voting
 These shares do not carry any votes, but it is not uncommon for
preference shares to have voting rights, though these are commonly
restricted
 Cumulative or non-cumulative
 A cumulative dividend is a right associated with certain preferred
shares of a company. A fixed amount or a percentage of a share's par
value must be remitted periodically to shareholders who own these

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shares without regard to the company's earnings or profitability. A
cumulative dividend must be paid, whereas a regular dividend, also
called a non-cumulative dividend, may be paid to or withheld from
shareholders at the company's discretion
 Noncumulative describes a type of preferred stock that does not pay
the stockholder any unpaid or omitted dividends. Preferred stock shares
are issued with a stated dividend rate, which may be a stated dollar
amount or a percentage of the par value. If the corporation chooses not
pay dividends in a given year, the investor does not have the right to
claim any of the unpaid dividends in the future
 Participating or non-participating
 Situation where shareholder may receive a cut/bonus of the company’s
profit for that year
 May be on the terms that the shareholders get paid 5% of the issue
price (i.e. the amount you paid in)
 But if the company does particularly well that year, the shareholder may
get an amount beyond that of 5%
 ‘Particularly well’ (i.e. essentially, the super profit) will be defined
in the company’s constitution
 Convertible or non-convertible
 Conversion to ordinary shares as ordinary shares have an indefinite life,
as compared to the finite life set of preference shares
 Note: Conversion price is set at the beginning; if price of ordinary shares
go up, one is essentially buying these ordinary shares at a lower price
 Redeemable or non-redeemable
 Section 70 of the CA provides that a company having a share capital
may, if authorized by its articles, issue preference shares that are liable
to be redeemed
 In the absence of an express distinction between the rights of different classes, the
law presumes that all shareholders rank equally

COMPANIES ACT
Cap 50, 2006 Rev Ed
Redeemable preference shares
70.—(1) Subject to this section, a company having a share capital may, if so authorized by
its constitution, issue preference shares which are, or at the option of the company are to
be, liable to be redeemed and the redemption shall be effected only on such terms
and in such manner as is provided by the constitution.
(3) The shares shall not be redeemed unless they are fully paid up.
(4) The shares shall not be redeemed out of the capital of the company unless —
(a) all the directors have made a solvency statement in relation to such redemption; and
(b) the company has lodged a copy of the statement with the Registrar.
(5) For the avoidance of doubt, shares redeemed out of proceeds of a fresh issue of shares
issued for the purpose of redemption shall not be treated as having been redeemed out of
the capital of the company.

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(6) A private company may redeem any redeemable preference shares by lodging a
prescribed notice of redemption with the Registrar.
(8) If a public company redeems any redeemable preference shares, it shall within 14 days
after doing so give notice thereof to the Registrar specifying the shares redeemed.

4.3 CLASS RIGHTS

 The requirements for the issuance of shares with different voting rights by the public
company are laid out in section 64A of the CA
 A public company may only issue different classes of shares if the issue of different
classes of shares is permitted under its constitution and the rights attached to each
class of shares are set out in the constitution (section 64A(1))
 While a public company may issue shares with special, limited, conditional or no
voting rights (as per section 64A(2)), it may only be issued with the approval of a
special resolution (section 64A(3))

COMPANIES ACT
Cap 50, 2006 Rev Ed
Issue of shares with different voting rights by public company
64A .—(1) Different classes of shares in a public company may be issued only if —
(a) the issue of the class or classes of shares is provided for in the constitution of
the public company; and
(b) the constitution of the public company sets out in respect of each class of
shares the rights attached to that class of shares. 


(2) Without limiting subsection (1) but subject to the conditions of subsection (1)(a) and (b),
shares in a public company may —
(a) confer special, limited, or conditional voting rights; or
(b) not confer voting rights.
(3) Notwithstanding anything in subsection (1) or (2), a public company shall not undertake
any issuance of shares in the public company that confers special, limited or conditional
voting rights, or that confers no voting rights unless it is approved by the members of the
public company by special resolution.
(4) Where a public company has one or more classes of shares that confer special, limited
or conditional voting rights, or that confer no voting rights, the notice of any general meeting
required to be given to a person entitled to receive notice of the meeting must specify the
special, limited or conditional voting rights, or the absence of voting rights, in respect of
each such class of shares.
(5) This section shall not operate so as to limit or derogate from the rights of any person
under section 74.
(6) Nothing in this section shall affect the right of a private company, subject to its
constitution, to issue shares of different classes, including shares conferring special, limited
or conditional voting rights or no voting rights, as the case may be.

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A question arises as to whether public companies should be allowed to issue shares with
voting rights

 This question should be answered in the positive as this arrangement confers


maximum flexibility to raise capital without the strict statutory fetters which previously
existed. Furthermore, this will attract more high profile international companies to be
listed in the Singapore stock exchange. (In 2011, Singapore lost its bid against
NYSE for the listing of Manchester United due to the fact that our listing rules did
not permit dual-class share structures for public companies then.)
 However, this comes at the cost of corporate governance
 Unfair to public investors as the voting power of one’s shares does not bear
any reasonable relationship to the equity interest of those shares. A
shareholder may have greater voting power than another even if both have
the same amount of equity in the company. The removal of the one share
one vote restriction risks public investors becoming disenfranchised and
being relegated as second-class investors, at the mercy of those who own
no more of the company (ie the founding shareholders) than they do but have
greater rights
 Minority controlling shareholders with special voting rights could entrench their
control of the company since by default they would be able to appoint their nominees
to a majority of the Board whose positions are effectively insulated from the threat
of removal. This increases opacity and the company becomes more susceptible to
corporate misconduct which casts doubt on the question of accountability.

4.4 VOTING RIGHTS

 The default rule for the number of votes attached to a share is 1 vote per share, but
subject to constitution
 Non-voting shares must have a vote on certain matters: sections 64(4) and s
180(4)
 Must vote for the benefit of the class as a whole
 Deduce what the intention and the impetus was for the voting to
determine whether it really is for the benefit of the class as a whole
 Bona fide for the interest of the company
 Subjective – depends on who the person is
 The idea of an amiable lunatic – he is kind but because he is a
lunatic it might not really be for the interests of the company

COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights and powers attaching shares
64.—(1) Subject to subsections (2) and (3), sections 21 and 76J, and any written law to the
contrary, a share in a company confers on the holder of the share the right to one vote on
a poll at a meeting of the company on any resolution.

Page 59 of 153
(2) A company’s constitution may provide that a member shall not be entitled to vote unless
all calls or other sums personally payable by him in respect of shares in the company have
been paid.
(3) Subject to subsection (4) and section 64A, a right specified in subsection (1) may be
negated, altered, or added to by the constitution of the company.

 However, there are certain situations laid out in section 64(4) that requires a share to
carry a vote

COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights and powers attaching shares
64.—(4) Notwithstanding subsection (3), the right of a holder of a specified share of a
company to at least one vote on a poll at a meeting of the company on the following
resolutions may not be negated or altered:
(a) a resolution to wind up the company voluntarily under section 290; or
(b) a resolution to vary any right attached to a specified share and conferred on
the holder.

 North-West Transportation v Beatty:


 Facts
 The plaintiff, Henry Beatty, is a shareholder in the North-West
Transportation Company Limited, and he sues on behalf of himself and
all other shareholders in the company, except those who are
defendants. The defendants are the company and five shareholders
who were the directors of the company. The claim is to set aside a sale
made to the company by James Hughes Beatty, one of the directors, of
a steamer called the United Empire, of which previously he was the sole
owner of
 Judgement
 Shareholders do not owe fiduciary duties to the companies when
exercising their voting rights
 The rationale is that shares are considered as one’s personal property
 Unless some provision to the contrary is to be found in the charter or
other instrument by which the company is incorporated, the resolution
of a majority of the shareholders, duly convened, upon any question
with which the company is legally competent to deal, is binding upon
the minority, and consequently upon the company, and every
shareholder has a perfect right to vote upon such question, although he
may have a personal interest in the subject-matter opposed to, or
different from, the general or particular interests of the company
 However, there are still limitations such as shareholders having to vote bona fide in
the interests of the company (where the constitution is being altered)
 The rule in public companies:
 Pre-2015: Old section 64 entrenched the “one-share-one-vote” principle for
public companies (still the rule in stock exchange)

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 2014 Act: New section 64 now provide that public companies may now specify
voting rights in constitution

5. VARIATION OF CLASS RIGHTS

 Where a proposed alteration of the constitution will have the effect of varying “class
rights”, most companies’ constitutions require an additional procedure to be followed
 Safeguard for the shareholders of that class, and this can be seen as a kind of
de facto “entrenchment” of the class rights
 Prior to 1 April 2004, if class rights were contained in the memorandum of association,
it would seem that they were entrenched as the Act provided then that the
memorandum of a company could be altered only to the extent and in the manner
provided by the Act but not otherwise (Section 26(1B) applies where rights which
were defined in the memorandum were alterable, but only by unanimous resolution
of the members)
 If there was no specific provision in the Act allowing the alteration of a particular
clause in the memorandum, that clause was unalterable
 Prior to 1 April 2004, the articles of association are, subject to the Act and any
conditions in the memorandum, alterable by special resolution
 If class rights are contained in the articles, they are generally alterable by
special resolution unless the memorandum prohibits or regulates such
alteration, in which event the memorandum governs
 Articles defining class rights are still alterable by special resolution, only if they are not
subject to the provisions of any entrenching provision within the meaning of section
26A
 Where the rights attached to a class are set out in a resolution of the company, they
may be varied by resolution in a similar way
 To vary the rights of a class of shares, you will have to have a separate class meeting

5.1 DEFINITION OF CLASS RIGHTS

 While the definition of a class right is not found in the statute, it can be said to be a
right (e.g. to a dividend or a vote) which is attached to all shares of a particular
class (e.g. preference shares)
 If specific rights are given to certain members in their capacity as members or
shareholders, then those members become a class
 Class rights are those in the first and third category of Cumberland

Cumbrian Newspapers v Cumberland & Westmorland Herald


[1986] Ch 1
Rights not attached to particular shares
Facts
The plaintiff had acquired 10.67% of the ordinary shares in the defendant company
(‘Cumberland’) in 1968 as part of an arrangement designed to concentrate the local
newspaper publishing business under one title and to make it difficult for an outsider to
acquire control of this paper.

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The articles of Cumberland were altered so that the plaintiff had (i) rights of pre-emption
over the company’s other ordinary shares (arts 7 and 9); (ii) rights in respect of unissued
shares (art 5); and (iii) the right to appoint a director, so long as it held at least 10% of the
shares (art 12).
The articles of the defendant adopted art 4 of Table A of the Companies Act 1948 whereby
the rights attached to any class of shares could only be varied with the consent of three
quarters of the class. The plaintiff contended that the articles conferred on it class rights
which could not be abrogated or varied without its consent.

Issue
Whether the plaintiff’s rights under arts 5, 7, 9 and 12, rights attached to a class of shares
Held

 A right or benefit may constitute a “class right” even if it is not referable to any
particular share, if it is conferred on the member in his capacity as a member but not
some other members
Judgment

Rights or benefits which may be contained in articles can be divided into 3 different
categories:

 First, there are rights or benefits which are annexed to particular shares
o Classic examples of rights of this character are dividend rights and rights to
participate in surplus assets on a winding up
o If articles provide that particular shares carry particular rights not enjoyed by
the holders of other shares, it is easy to conclude that the rights are ‘attached
to a class of shares’, for the purposes of both s 125 & art 4 of Table A
o The plaintiff’s rights however, cannot be brought within this first category
o The rights were not attached to any particular shares – there is no reference
to any current shareholding held by the plaintiff
 A second category of rights or benefits which may be contained in articles would
cover rights or benefits conferred on individuals not in the capacity of
members or shareholders of the company but, for ulterior reasons, connected
with the administration of the company’s affairs or conduct of its business
o If the rights or benefits were not conferred on the beneficiary in the capacity
of member or shareholder of the company, then the rights could not be
regarded as class rights
o Current case does not fall into the 2nd category – the purpose of the rights &
privileges conferred on the plaintiff by those articles was to enable the
plaintiff, in its capacity as a shareholder in the defendant, to obstruct an
attempted take-over of the defendant.
 The third category will cover rights or benefits that, although not attached to
any particular shares, were nonetheless conferred on the beneficiary in the
capacity of member or shareholder of the company
o In the present case, the rights under arts 5, 7, 9 & 12 fell within this category

Page 62 of 153
o Rights will not be enforceable by the plaintiff except otherwise than as an
owner of ordinary shares in the defendant
o Enforcement by the plaintiffs of the rights granted under arts 5, 7 & 9 would
require no more than ownership by the plaintiff of some rights; art 12 would
require the plaintiff to hold at least 10% of the issued shares, but any shares
would do
o A company, which, by its articles, confers special rights on one or more
of its members in the capacity of member or shareholder thereby
constitutes the shares for the time being held by that member or
members, a class of shares for the purposes of s 125  the rights are
class rights

5.2 VARIATION OF CLASS RIGHTS

 The question is whether after the amendment of the articles, the holders of the shares
in question have the rights they had before the amendment
 If they still have the same rights, there is no variation of class rights
notwithstanding that the enjoyment of those rights may have changed

White v Bristol Aeroplane Co


[1953] 1 All ER 40 (CA)
No variation of class rights
Facts
Article 68 of the defendant company’s articles provided that the rights attached to any class
of shares might be ‘affected, modified, varied, dealt with, or abrogated in any manner’ with
the sanction of an extraordinary resolution passed at a separate meeting of the members of
that class.
There was a proposal to increase the capital of the company by a bonus issue of new
shares to the existing shareholders (to both preference and ordinary shareholders). The
ordinary shareholders would have a majority over the existing preference stockholders and
this will swell the total number of votes that can be cast by ordinary stockholders. The plaintiff
claimed that ‘affected’ the voting rights attached to their shares, and therefore came within
the terms of the article cited.
Issue
Whether the bonus issue of shares amounted to a variation of class rights for preference
shareholders
Held

 Proposed issue of new capital did not “affect” the rights or privileged of the existing
preference stockholders. They might be affected as a matter of business by reason
of the new preference stock which would be in the possession of the ordinary

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shareholders & have a majority over the existing preference stock. This however,
would only affect the enjoyment of the rights and not the rights itself
Judgment

 The rights, as such, are conferred by resolution or by the articles, and they cannot
be affected except with the sanction of the members on whom those rights are
conferred; but the results of exercising those rights are not the subject of any
assurance or guarantee under the constitution of the company, and are not protected
in any way.
 Romer LJ: “But in my opinion it cannot be said that the rights of ordinary shareholders
would be affected by the issue of further ordinary capital; their rights would remain
just as they were before, and the only result would be that the class of person entitled
to exercise those rights would be enlarged.”

Note

 At common law, this will not be deemed as a variation


 However, under the CA, section 74 (6) will apply, thereby triggering the protective
rights, because this is treated as a variation of the rights

Greenhalgh v Arderne Cinemas


[1946] 1 All ER 512 (CA)
No variation of class rights
Note: Parri passu means equal footing
Facts
The company had issued ordinary shares of 10s [50p] each and other ordinary shares of 2
s [10p] each, ranking pari passu for all purposes. On a poll, every member had one vote for
each share held by him, which meant that Greenhalgh, who held the bulk of the 2 shares,
could control about 40% of the votes and so block a special resolution. The holders of the
10s shares procured the passing of an ordinary resolution subdividing the 10s shares
into 5 2s shares, each ranking pari passu with the 1941 2 s shares. Greenhalgh objected
unsuccessfully that the rights attaching to his 2 s shares were ‘varied’ by this manoeuvre.

Issue
Whether this amounted to a variation of class rights
Held

 A right or benefit may constitute a “class right” even if it is not referable to any
particular share, if it is conferred on the member in his capacity as a member but not
some other members
Judgment

 The only right of voting which is attached in terms to the shares of that class is the
right to have vote per share pari passu with the other ordinary shares of the company
for the time being issued

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 If it had been attempted to reduce that voting right, e.g. by providing or attempting
to provide that there should be one vote for every five of such shares, that would
have been an interference with the voting rights attached to that class of shares
 As a matter of law, the rights remained as they always were – a right to have one
vote per share pari passu with the ordinary shares for the time being issued which
include the new 2 s ordinary shares resulting from the subdivision
 In other words, the fact that the holders of the 10s shares had increased their voting
power five-fold did not amount in law to a variation of Greenhalgh’s rights. He still
had his original one vote per share after the resolution

 When you vary class rights, your own class rights will not be changed but this might
alter your enjoyment to rights as a whole

COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights of holders of classes of shares
74.—(6) The issue by a company of preference shares ranking pari passu with existing
preference shares issued by the company shall be deemed to be a variation of the rights
attached to those existing preference shares unless the issue of the first-mentioned shares
was authorised by the terms of issue of the existing preference shares or by the
constitution of the company in force at the time the existing preference shares were issued.
Article 5 of Table A
The rights conferred upon the holder of the shares of any class issued with preferred or
other rights shall, unless otherwise expressly provided by the terms of issue of the shares
of that class, be deemed to be varied by the creation or issue of further shares ranking
equally therewith
74.—(7) For the purposes of this section, the alteration of any provision in the constitution
of a company which affects or relates to the manner in which the rights attaching to
the shares of any class may be varied or abrogated shall be deemed to be a variation
or abrogation of the rights attached to the shares of that class.

Section 74(6) seems to be in contradiction to the case of White v Bristol which states that a
dilution of preference shares is itself a variation of class rights. However, what is the
definition of preference shares? There is no legal definition according to statute – last time
there was a definition of preference shares in the old Companies Act but even then the
definition did not apply to s74 so we take preference shares to mean any shares which are
not ordinary shares
The issue here is that you are elevating this class of shares but you are not providing a
definition for what constitutes preference shares and hence this seems rather problematic

5.2.1 MODIFICATION OF RIGHTS CLAUSE

 It is usual to provide in the constitution that class rights may be modified only after
a specified proportion of the holders of shares of that class have consented to the
modification or have voted in favour of the alteration at a separate meeting
 Such provisions are commonly referred to as a ‘modification of rights’ clause

Page 65 of 153
 Any procedure for modification of class rights set out in the constitution must
be strictly complied with

COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 4 of Table A (Regulation 8 of Model Constitution)
Rights attached to any class be varied with the consent in writing of the holders of 75%
of the issued shares of that class, or with the sanction of a special resolution passed
at a separate general meeting of the holders of the shares.
Necessary quorum shall be 2 persons at last holding or representing by proxy one-third of
the issued shares of the class and that any holder of shares of the class present in person
or by proxy may demand a poll.
To every such special resolution section 184 shall with such adaptations as are necessary
apply.

 But the modification of rights clause and the additional protection it creates may not be
offered to an amendment of the modification of rights clause itself, where this is not
entrenching, unless that clause is construed as itself creating a class right
 Where companies do not have the modification of rights clause in the constitution
from inception, but have only inserted them at later stage, it would seem that
whether or not the class rights which their constitution defines would be entrenched
within the meaning of section 26A would depend on whether the addition of the
modification of rights clause happened to be voted in unanimously or not

COMPANIES ACT
Cap 50, 2006 Rev Ed
Power to entrench provisions of constitution of company
26A.—(1) An entrenching provision may —
(a) be included in the constitution with which a company is formed; and

Page 66 of 153
(b) at any time be inserted in the constitution of a company only if all the members of the
company agree.

 Hence, since special procedure in the constitution for modification of class rights in
Article 4 of Table A is an entrenching provision, one needs unanimous consent to
change the modification of rights clause
 When a company wants to change the modification of rights clause, that is in
itself a change in class rights
 If you interpret the definition of entrenching provision narrowly (a provision that
entrenches another clause) then the MOR clause might be an entrenching provision
 Depends on how it is inserted in the Constitution at the start or inserted based
on unanimous decision
 You must explain how it is an entrenching provision and how it falls within the
defintion

5.2.2 OBJECTION TO MODIFICATION

 Even if the procedure set out in a modification of rights clause is complied with, a
dissatisfied shareholder may still block the alteration by applying to court under
section 74. This section allows a holder (or holders) of 5% of the shares of the class
in question to apply to court to have a variation or abrogation of their rights
cancelled
 If such an application is made, the variation or abrogation will not have any
effect until it is confirmed by the court
 Court will disallow the alteration if it is of the opinion that the alteration would
unfairly prejudice the shareholders of the class represented by the applicant;
in other words, the resolution must be fair to all members of the class
 Re Holders Investment Trust: The majority must exercise its power for the
purpose of benefitting the class as a whole, and not for any particular
member or members
 Carruth v Imperial Chemical Industries Ltd: Where it is proved that the majority
have voted in that manner because of their interests as members of some other
class, the court will not necessarily regard the resolution as fair and may decline
to confirm it
 Section 74 of the CA gives an additional right to a holder of shares of a particular class
to complain to the court and have any attempt to vary rights cancelled
 However, there seems to be a qualification to this right as it only applies where
there is a MOR clause in the Constitution
 Assumption that if you have classes of shares naturally there will be a
MOR clause

COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights of holders of classes of shares
74.—(1) If, in the case of a company the share capital of which is divided into different
classes of shares, provision is made by the constitution for authorizing the variation or
abrogation of the rights attached to any class of shares in the company, subject to the

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consent of any specified proportion of the holders of the issued shares of that class or the
sanction of a resolution passed at a separate meeting of the holders of those shares, and
in pursuance of that provision, the rights attached to any such class of shares are at any
time varied or abrogated, the holders of not less in the aggregate than 5% of the total
number of issued shares of that class may apply to the Court to have the variation or
abrogation cancelled, and, if any such application is made, the variation or abrogation shall
not have effect until confirmed by the Court.
(1A) For the purposes of subsection (1), any of the company’s issued shares held as
treasury shares shall be disregarded.
(2) An application shall not be invalid by reason of the applicants or any of them having
consented to or voted in favor of the resolution for the variation or abrogation if the Court is
satisfied that any material fact was not disclosed by the company to those applicants before
they so consented or voted.
(3) The application shall be made within one month after the date on which the consent was
given or the resolution was passed or such further time as the Court allows, and may be
made on behalf of the shareholders entitled to make the application by such one or more of
their number as they appoint in writing for the purpose.
(4) On the application the Court, after hearing the applicant and any other persons who
apply to the Court to be heard and appear to the Court to be interested, may, if satisfied
having regard to all the circumstances of the case that the variation or abrogation would
unfairly prejudice the shareholders of the class represented by the applicant, disallow the
variation or abrogation, as the case may be, and shall, if not so satisfied, confirm it and the
decision of the Court shall be final.

 Note: The right to apply to court under s 74 only exists where there is a modification of
rights clause; if there is no such provision, class rights may be altered in the normal
manner (via special resolution), and the court has no power to interfere

6. ISSUE AND ALLOTMENT OF SHARES

Allotment is the appropriation to a person of a certain number of shares, though not


necessarily specific shares while issuance is when the shareholder is put in control of the
shares allotted to him. However, if the company has not included the new names into the
register, the shares are not considered “transferred”.

 Power to issue shares is usually vested with the directors


 However, the directors may not exercise any power to issue shares without the prior
approval of the company in general meeting (Section 161(1))
 Section 161(2) also stipulates that the approval of the company need not be sought
for every issue of shares as directors are able to procure general approval from the
company to issue shares by means of a resolution passed at the general meeting
 Resolution is in force until the conclusion of the next annual general
meeting unless previously revoked (Section 161(3))
 Note: As per section 161(5), a resolution granting the directors power to issue shares
must be lodged with the Registrar in accordance with section 186 even though it is
not a special resolution

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COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for issue of shares by directors
161.—(1) Notwithstanding anything in a company’s constitution, the directors shall not,
without the prior approval of the company in general meeting, exercise any power of the
company to issue shares.
(2) Approval for the purposes of this section may be confined to a particular exercise of that
power or may apply to the exercise of that power generally; and any such approval may be
unconditional or subject to conditions.

 Any issue of shares in contravention of section 161 is void and the consideration for
the shares will be recoverable accordingly
 Existing shareholders have first right to subscribe for new shares to be issued by the
company (i.e. pre-emption rights on new issues), as per Article 41 of Table A, as seen
below (or Regulation 45 of Model Constitution)
 When you want to issue shares or transfer shares you have to seek approval
from the board of directors and this might be subjected to pre-emption rights
such as having to sell within the company first before proceeding to sell shares
outside

COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 41 of Table A
Subject to any direction to the contrary that may be given by the company in general
meeting, all new shares shall, before issue, be offered to such persons as at the date
of the offer are entitled to receive notices from the company of general meetings in
proportion, as nearly as the circumstances admit, to the amount of the existing
shares to which they are entitled. The offer shall be made by notice specifying the number
of shares offered, and limiting a time within which the offer, if not accepted, will be deemed
to be declined, and, after the expiration of that time, or on the receipt of an intimation from
the person to whom the offer is made that he declines to accept the shares offered, the
directors may dispose of those shares in such manner as they think most beneficial to the
company. The directors may likewise so dispose of any new shares which (by reason of the
ratio which the new shares bear to shares held by persons entitled to an offer of new shares)
cannot, in the opinion of the directors, be conveniently offered under this regulation.

 The court has a power to validate any improper issue or allotment of shares under
section 72, notwithstanding any other provision of the Act. An application for validation
may be made by the company, a shareholder, a creditor or by a mortgagee of the
shares
 Should be just and equitable
 Following factors may be considered to be relevant in deciding whether or not
to validate improperly issued shares:

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 Whether the persons who issued the shares deliberately flouted the
law or acted with such reckless disregard of the statutory provisions
that it would be inappropriate to validate the shares
 Whether innocent shareholders were misled into taking up such
shares and would be prejudiced by the court's refusal to validate the
shares
 The reason for which the validation order is sought, e.g. that the
applicant wishes to have locus standi to petition for the winding up of
the company

6.1 ISSUE PRICE

 The former section 68 which prohibited the issue of shares at a discount to par value
was repealed in 2006
 Directors’ duties might be relevant with regards to the constraints on issue price, as
directors are ultimately subject to fiduciary duties to act bona fide in the best
interests of the company. Hence, issue price cannot be set too low which could lead
to the detriment to the company
 Where shares are paid for by consideration other than cash, there is no requirement
that such consideration must be adequate
 Re Wragg Ltd: Value of asset is generally determined by the board and the
court does not inquire into adequacy of consideration unless it is wholly illusory
 After the abolition of the par-value scheme, there is no longer a constraint on the share
issue price and the new section 68 clarifies that a company may issue shares for
no consideration
 This was enacted for very specific situations (e.g. bonus issue), statute was
not meant to change the general rule
 Consideration for shares issued – value that is given is subjected to market value
 Sometimes consideration can be given via assets

COMPANIES ACT
Cap 50, 2006 Rev Ed
Issue of shares for no consideration
68. A company having a share capital may issue shares for which no consideration is
payable to the issuing company.

6.2 SHARE REGISTER

 The function of the share register is essentially to keep a record of all the members
 Company is only concerned with people who are in the register

COMPANIES ACT
Cap 50, 2006 Rev Ed
Members of company

Page 70 of 153
19.—(6) The subscribers to the constitution shall be deemed to have agreed to become
members of the company and on the incorporation of the company shall be entered as
members —
(a) in the case of a public company, in the register of members kept by the public
company under section 190; or
(b) in the case of a private company, in the electronic register of members kept by the
Registrar under section 196A.

 It is also publicly available as per section 192

COMPANIES ACT
Cap 50, 2006 Rev Ed
Inspection and closing of register
192.—(1) A public company may close the register of members or any class of members
for one or more periods not exceeding 30 days in the aggregate in any calendar year.
(2) The register and index shall be open to the inspection of any member without charge
and of any other person on payment for each inspection of $1 or such less sum as the public
company requires.
(3) Any member or other person may request the public company to furnish him with a copy
of the register, or of any part thereof, but only so far as it relates to names, addresses,
number of shares held and amounts paid on shares, on payment in advance of $1 or such
less sum as the company requires for every page thereof required to be copied and the
company shall cause any copy so requested by any person to be sent to that person within
a period of 21 days or within such further period as the Registrar considers reasonable in
the circumstances commencing on the day next after the day on which the request is
received by the company.
(4) If any copy so requested is not sent within the period prescribed by subsection (3), the
public company and every officer of the company who is in default shall be guilty of an
offence and shall be liable on conviction to a fine not exceeding $400 and also to a default
penalty.

 ACRA maintains the share register of a private company while the individual public
company itself maintains its own share register (sections 196A and 190)
 Note: SGX-listed public companies’ shares are subject to the Central Depositary
(“CDP”) regime. This affects the methods of registration, certification and transfer of
shares of such companies.
 Also, no more share certificate for public listed companies

COMPANIES ACT
Cap 50, 2006 Rev Ed
Electronic register of members
196A.—(1) On and after the date of commencement of section 110 of the Companies
(Amendment) Act 2014, the Registrar shall, in respect of every private company, keep and

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maintain an electronic register of members of that company containing such information
notified to the Registrar on or after that date.
Register and index of public companies
190.—(5) Every public company having more than 50 members shall, unless the register of
members is in such a form as to constitute in itself an index, keep an index in convenient
form of the names of the members and shall, within 14 days after the date on which any
alteration is made in the register of members, make any necessary alteration in the index.

6.3 SHARE CERTIFICATES

 As shares are intangibles and have no physical existence, section 123(1) of the CA
provides that the share certificate is prima facie evidence of the title of the member
to the share
 Certificate is not the share

COMPANIES ACT
Cap 50, 2006 Rev Ed
Certificate to be evidence of title
123.—(1) A certificate under the common or official seal of a company specifying any shares
held by any member of the company shall be prima facie evidence of the title of the member
to the shares.

 It is commonly thought that shares held under the Central Depository system are
uncertificated as the transfers on the system are made without delivery of certificates.
This is in fact not correct. Shares of companies incorporated under the CA are all
certificated. There is a difference between immobilisation of the shares (which the
CDP system effects) and their dematerialisation, which neither the CDP system nor
the Act does
 The CA requires a share certificate to be issued to the holder of shares within two
months of an allotment or within one month of a transfer
 Each share must normally be distinguished by an appropriate number
 Share certificate will usually indicate the identifying numbers of the shares
 As per section 66(1), companies incorporated in Singapore may not issue share
warrants
 Share warrants are contracts entered into between the company itself and
potential investors – an option to purchase the company’s shares at a
predetermined price at a later date

COMPANIES ACT
Cap 50, 2006 Rev Ed
Share warrants
66.—(1) A company shall not issue any share warrant stating that the bearer of the warrant
is entitled to the shares therein specified and which enables the shares to be transferred by
delivery of the warrant.

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(2) The bearer of a share warrant issued before 29 December 1967 shall, in the 2-year
period after the date of commencement of section 34 of the Companies (Amendment) Act
2014, be entitled to surrender it for cancellation and to have his name entered in the register
of members.

6.4 PARTLY PAID-UP SHARES

 The amount outstanding on the par value remained available to creditors since this
would be called up if the company went into liquidation
 In modern times, partly paid shares are uncommon due to the abolishment of par value
in Singapore

COMPANIES ACT
Cap 50, 2006 Rev Ed
Transitional provisions for section 62A
62B.—(1) For the purpose of the operation of this Act on or after 30th January 2006 in
relation to a share issued before that date —
(a) the amount paid on the share shall be the sum of all amounts paid to the
company at any time for the share (but not including any premium); and
(b) the amount unpaid on the share shall be the difference between the price of
issue of the share (but not including any premium) and the amount paid on the
share.
(2) On 30th January 2006, any amount standing to the credit of a company’s share premium
account and any amount standing to the credit of a company’s capital redemption reserve
shall become part of the company’s share capital.

 When a call is made, a debt arises on the part of the shareholder. As long as the
shareholder’s name remains on the register of members, his liability to pay calls
continues. Even after a shareholder ceases to be a member, he remains liable in
respect of calls already made. When a shareholder sells his shares, the purchaser
impliedly agrees to indemnify him against calls made after the agreement for
sale but before his name is removed from the register of members
 Only the person who is named as holder of the shares in the company's register
of members is liable for calls
 Where the person registered is a nominee for some other person, there is an
equitable right of indemnity against the true owner

6.5 FORFEITURE, SURRENDER & LIENS

 These are constitutional remedies of the company which mainly apply in the context
of partly-paid shares, where a shareholder fails to pay an instalment due on the shares
 See e.g. Articles 9-12, 28-35 of Table A and Regulations 13-16, 32-39 MC
 Lien – a right to keep possession of property belonging to another person until a debt
is discharged

Page 73 of 153
COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulations 13 – 16 of Model Constitution (Lien)
13.—(1) The company has a first and paramount lien on —
(a) every share (that is not a fully paid share) for all money (whether presently
payable or not) called or payable at a fixed time in respect of that share; and
(b) all shares (other than fully paid shares) registered in the name of a single person
for all money presently payable by the person or the person’s estate to the
company.
(2) The company’s lien, if any, on a share extends to all dividends payable on the share.
(3) The directors may at any time declare any share to be wholly or partly exempt from
paragraph (1) or (2), or both.
14.—(1) Subject to paragraph (2), the company may sell, in any manner as the directors
think fit, any shares on which the company has a lien.
(2) No sale may be made under paragraph (1) unless —
(a) a sum in respect of which the lien exists is presently payable;
(b) a notice in writing, stating and demanding payment of the amount in respect of
which the lien exists as is presently payable, has been given by the company to
the registered holder for the time being of the share, or the person entitled to the
share by reason of the death or bankruptcy of the registered holder of the share;
and
(c) a period of 14 days has expired after the giving of the notice in sub‑paragraph
(b).
15.—(1) To give effect to any sale of shares under regulation 14, the directors may
authorise any person to transfer the shares sold to the purchaser of the shares.
(2) Subject to regulations 25, 26 and 27, the company must lodge a notice of transfer of
shares in relation to the shares sold to the purchaser with the Registrar.
(3) The purchaser of any shares referred to in paragraph (1) is not bound to see to the
application of the purchase money, and the purchaser’s title to the shares is not affected by
any irregularity or invalidity in the proceedings with respect to the sale of the shares.
16.—(1) The proceeds of any sale of shares under regulation 14 received by the company
must be applied in payment of any part of the amount in respect of which the lien exists as
is presently payable.
(2) Any remaining proceeds from the sale of shares must (subject to any lien for sums not
presently payable as existed upon the shares before the sale but which have become
presently payable) be paid to the person entitled to the shares at the date of the sale.
Regulations 32 – 39 of Model Constitution (Forfeiture of Shares)
32. If a member fails to pay any call or instalment of a call on the day appointed for payment
of the call or instalment of the call, the directors may, as long as any part of the call or
instalment remains unpaid, serve a notice on the member requiring payment of the unpaid
part of the call or instalment, together with any interest which may have accrued.

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33. The notice under regulation 32 must —
(a) name a day (not earlier than 14 days after the date of service of the notice) on
or before which the payment required by the notice is to be made; and
(b) state that, in the event of non-payment at or before the time appointed, the
shares in respect of which the call was made is liable to be forfeited.
34.—(1) If the requirements of a notice referred to in regulation 33 are not complied with,
any share in respect of which the notice was given may, at any time after the notice is given
but before the payment required by the notice has been made, be forfeited by a resolution
of the directors passed for the purpose of forfeiting the share.
(2) Forfeiture under paragraph (1) includes all dividends declared in respect of the forfeited
shares and not paid before the forfeiture.
35. A forfeited share may be sold or otherwise disposed of on any terms and in any manner
as the directors think fit, and, at any time before a sale or disposition, the forfeiture may be
cancelled on any terms as the directors think fit.
36.—(1) A person whose shares have been forfeited ceases to be a member in respect of
the forfeited shares.
(2) Despite paragraph (1), the person referred to in that paragraph remains liable to pay to
the company all money which, at the date of forfeiture, was payable by the person to the
company in respect of the shares (together with interest at the rate of 8% per annum
beginning on the date of forfeiture on the money for the time being unpaid if the directors
think fit to enforce payment of such interest).
37. A statutory declaration in writing that the declarant is a director or the secretary of the
company, and that a share in the company has been forfeited on a date stated in the
declaration, is conclusive evidence of the facts stated in the declaration as against all
persons claiming to be entitled to the share.
38.—(1) The company may receive the consideration, if any, given for a forfeited share on
any sale or disposition of the forfeited share and may execute a transfer of the share in
favour of the person to whom the share is sold or disposed of (called in this regulation the
transferee).
(2) Upon the company executing a transfer of the share in favour of the transferee, the
company must lodge a notice of transfer of share with the Registrar under section 128 of
the Act for the purpose of updating the electronic register of members to reflect the
transferee as the registered owner of the forfeited share.
(3) The transferee is not bound to see to the application of the purchase money, if any, and
the transferee’s title to the share is not affected by any irregularity or invalidity in the
proceedings with respect to the forfeiture, sale, or disposal of the share.
39. The provisions of this Constitution as to forfeiture apply in the case of non-payment of
any sum which, by the terms of issue of a share, becomes payable at a fixed time as if the
sum had been payable by virtue of a call duly made and notified.

 A company may have the power to forfeit shares for non-payment of calls. The power
to forfeit and the conditions for the exercise will be prescribed in the articles (Articles
28-33 of Table A)

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 Shares that are forfeited may, if the company is so authorised by its articles, be
cancelled and the amount of its share capital diminished
 Power to forfeit shares must be exercised bona fide and only when the member
is unable to pay for the shares
 Not to be used to relieve members from liability when they are merely unwilling
to pay the unpaid portion on their shares (Allen v Gold Reefs of West Africa
Ltd)
 Shares can be surrendered if a shareholder does not want to wait until his shares are
forfeited for non-payment
 Power to accept a surrender of shares must be exercised bona fide
 If the aim of the surrender is to relieve a shareholder from his liability to pay
calls, the surrender may be avoided
 Company has no power to cancel shares upon a surrender. If shares are to be
cancelled, the cancellation must comply with the rules regarding reduction of
capital
 Common to provide that a company shall have a lien over a member’s shares for
amounts unpaid on those shares
 Lien may exist even in respect of other debts owed by a member to the
company, unconnected with the consideration paid for the shares

7. OWNERSHIP OF AND INTERESTS IN SHARES

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7.1 OWNERSHIP

 Legal title in a share of a company incorporated under the CA is vested in the person
to whom the share is issued or transferred and whose name is on the register of
members in respect of that share
 Fundamental principle of company law states that the company does not need to
concern itself with the beneficial/equitable ownership of a share (see also Art 7 TA;
Reg 11 MC)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Limitation of liability of trustee, etc., registered as holder of shares
195.—(4) Subject to this section, no notice of any trust expressed, implied or constructive
shall be entered in a register or branch register or be receivable by the Registrar and no
liabilities shall be affected by anything done in pursuance of subsection (1), (2) or (3) or
pursuant to the law of any other place which corresponds to this section and the corporation
concerned shall not be affected by notice of any trust by anything so done.
Regulation 11 of Model Constitution
11.—(1) Except as required by law, no person is to be recognised by the company as
holding any share upon any trust.

 However, the general principle in s 195(4) has been modified in certain


important respects for SGX-listed companies:
 Although the CDP Depositary’s name is entered in a listed company’s
register of members, the depositors of “book-entry” shares in CDP are
statutorily deemed to be members of the company. Such depositors will
usually be either the ultimate beneficial owners of the shares or
custodians acting on their behalf
 Under 2014 reforms to the proxy appointment rules (see Topic 4), in
effect depositors who are themselves licensed custodians for the
ultimate beneficial owners may appoint the latter as proxies to enable
them to attend and vote at general meetings

7.2 INTERESTS IN SHARES

 Section 7 sets out the circumstances when a person is deemed to have an interest in
a share for the purposes of, inter alia, determining substantial shareholdings, in the
case of loans to companies in which directors have an interest, for the purpose of
maintain the register of directors’ shareholdings and in the context of the directors’
general duty of disclosure
 Requirement of directors to disclose their interests in shares is due to the fear
of money laundering
 Section 7(1) lays out the substantive rules where the definition of interests in
shares are used
 With regards to deemed interests, one must look to section 7(4), section 7(4A)
and section 7(6)

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 Section 7(4) refers to deemed interests arising from control and held
through
 Section 7(4A) refers to deemed interests arising from 20%+ interest
(in intermediate companies)
 Section 7(6) refers to deemed interests due to certain contractual
interests
 Section 7(9) lays out the circumstances where such interests are to be
disregarded
 Section 7 – Variety of situations where somebody would be deemed to have an interest
in shares
 Control over disposal of shares
 Equitable interests
 Interests held by corporations
 Definition applies
 To determine substantial shareholdings
 Directors’ holdings
 In the case of loans or quasi-loans to director-related companies

COMPANIES ACT
Cap 50, 2006 Rev Ed
Interests in shares
7.— (1) The following subsections have effect for the purposes of Division 4 of Part IV and
sections 163, 164 and 165 and subsection (6A) shall, in addition, also have effect for the
purposes of section 244.
(1A) Subject to this section, a person has an interest in shares if he has authority (whether
formal or informal, or express or implied) to dispose of, or to exercise control over the
disposal of, those shares.
(1B) For the purposes of subsection (1A), it is immaterial that the authority of a person to
dispose of, or to exercise control over the disposal of, particular shares is, or is capable of
being made, subject to restraint or restriction.
(2) Where any property held in trust consists of or includes shares and a person
knows, or has reasonable grounds for believing, that he has an interest under the
trust, he shall be deemed to have an interest in those shares.
(3) A unit in a collective investment scheme within the meaning of section 2 of the Securities
and Futures Act (Cap. 289) —
(a) that is issued or offered to the public for subscription or purchase, or for which the
public is invited to subscribe for or purchase, and that has been so subscribed or
purchased; or
(b) that is issued for the purpose of an offer to the public by and is held by the manager
concerned within the meaning of section 283 of that Act, does not constitute an
interest in a share.
(4) Where a body corporate has, or is by the provisions of this section deemed to
have, an interest in a share and —

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(a) the body corporate is, or its directors are, accustomed or under an obligation
whether formal or informal to act in accordance with the directions, instructions or
wishes of a person; or
(b) a person has a controlling interest (means more than 50%) in the body
corporate, that person shall be deemed to have an interest in that share.
(4A) Where a body corporate has, or is by the provisions of this section (apart from this
subsection) deemed to have, an interest in a share and —
(a) a person is;
(b) the associates of a person are; or
(c) a person and his associates are,
entitled to exercise or control the exercise of not less than 20% of the voting power
in the body corporate, that person shall be deemed to have an interest in that share.
(5) For the purposes of subsection (4A), a person is an associate of another person if the
first-mentioned person is —
(a) a subsidiary of that other person;
(b) a person who is accustomed or is under an obligation whether formal or informal to
act in accordance with the directions, instructions or wishes of that other person in
relation to the share referred to in subsection (4A); or
(c) a body corporate that is , or a majority of the directors of which are, accustomed or
under an obligation whether formal or informal to act in accordance with the
directions, instructions or wishes of that other person in relation to the share referred
to in subsection (4A).
(6) Where a person —
(a) has entered into a contract to purchase a share; (contractual interest!)
(b) has a right, otherwise than by reason of having an interest under a trust, to have a
share transferred to himself or to his order, whether the right is exercisable presently
or in the future and whether on the fulfilment of a condition or not;
(c) has the right to acquire a share, or an interest in a share, under an option, whether
the right is exercisable presently or in the future and whether on the fulfilment of a
condition or not; or
(d) is entitled (otherwise than by reason of his having been appointed a proxy or
representative to vote at a meeting of members of a corporation or of a class of its
members) to exercise or control the exercise of a right attached to a share, not being
a share of which he is the registered holder,
that person shall be deemed to have an interest in that share.
(7) A person shall not be deemed not to have an interest in a share by reason only that he
has the interest in the share jointly with another person.
(8) It is immaterial, for the purposes of determining whether a person has an interest in a
share, that the interest cannot be related to a particular share.
(9) There shall be disregarded —
(a) an interest in a share if the interest is that of a person who holds the share as bare
trustee;

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(b) an interest in a share if the interest is that of a person whose ordinary business
includes the lending of money if he holds the interest only by way of security for the
purposes of a transaction entered into in the ordinary course of business in
connection with the lending of money;
(c) an interest of a person in a share, if that interest is an interest held by him by reason
of his holding a prescribed office;
(ca) an interest of a company in its own shares if
that interest is purchased or otherwise acquired in accordance with sections 76B to
76G (including treasury shares); and
(d) a prescribed interest in a share, being an interest of such person, or of the persons
included in such class of persons, as is prescribed.

7.3 TRANSFER OF SHARES

 Sales and other disposals are implemented by a transfer of the shares (Articles 20-
23 of Table A; Regulations 24-27 of Model Constitution)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulations 24 – 27 of Model Constitution (Transfer of Shares)
24.—(1) Subject to this Constitution, any member may transfer all or any of the member’s
shares by instrument in writing in any usual or common form or in any other form which the
directors may approve.
(2) The instrument of transfer must be executed by or on behalf of the transferor and the
transferor remains the holder of the shares transferred until the name of the transferee is
entered in the electronic register of members.
25.—(1) To enable the company to lodge a notice of transfer of shares with the Registrar
under section 128(1)(a) of the Act, the following items in relation to the transfer of shares
must be delivered by the transferor to the registered office of the company:
(a) the instrument of transfer;
(b) a fee not exceeding $1 as the directors from time to time may require;
(c) the certificate of the shares to which the instrument of transfer relates;
(d) any other evidence as the directors may reasonably require to show the right of
the transferor to make the transfer.
(2) Upon receipt of the items referred to in paragraph (1), the company must, subject to
regulation 26, lodge with the Registrar a notice of transfer of shares in accordance with
section 128 of the Act and retain the instrument of transfer referred to in regulation 24.
26. The directors may decline to lodge a notice of transfer of shares with the Registrar if —
(a) the shares are not fully paid shares;
(b) the directors do not approve of the transferee; or
(c) the company has a lien on the shares.
27. The lodging of any notice of transfer of shares with the Registrar for the purpose of
updating the electronic register of members may be suspended at any time and for any

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period as the directors may from time to time determine, but not for more than a total of 30
days in any year.

 For shares in unlisted private companies, the procedure (as modified by the 2014 Act)
will (presumably) involve the following steps:
 The transferor and transferee execute a share transfer form;
 The transferee lodges the form with the company;
 The board approves the transfer (if required);
 The company notifies ACRA electronically of the relevant details;
 ACRA updates the electronic register (“EROM”) thus registering the transferee
as a new member;
 the company issues a share certificate to the transferee
 For shares in SGX-listed companies, since 1993 the procedure has been different
because of the scripless trading system used by the Singapore Exchange. Listed
shares are now held and transferred through the Central Depository (“CDP”) system
(which now functions under the SFA). The procedure is briefly described in Corporate
Law at [12.066]-[12.067] and in Woon at [11.152]

7.4 RESTRICTIONS ON TRANSFER: PRIVATE CO MPANIES

 Shares are freely transferable unless restrictions are imposed by the constitution
or restrictions by agreement
 It would seem that transfers may also be restricted by a moratorium (a temporary
prohibition of an activity) on the issuance of shares, albeit that the moratorium is not in
the articles nor an agreement with all the shareholders (Pacrim Investments Pte Ltd v
Tan Mui Keow Claire & Anor)
 In the case of a private company, the transfer of shares is usually restricted by giving
a discretion to the directors to refuse to register a transfer, or by stipulating to whom
shares may be transferred, or by giving to the existing members a right to have any
shares offered to them first before they can be transferred (“pre-emptive rights”)

7.5 IMPLIED WARRANTY OF GENUINENESS OF SHARE TRANSFER


FORMS

 The person who presents a transfer for registration impliedly warrants that it is genuine
and impliedly undertakes to indemnify the company against any loss that it may suffer
by reason of the registration
 A person who presents a transfer to a company for registration, whether it is in
favour of himself or someone else (e.g. a broker presenting a transfer on behalf
of his or her client) impliedly warrants that it is genuine, and if it is not, may be
liable to indemnify the company if it suffers loss by acting on it

Yuen Kai Yung v Hong Kong and Shanghai Banking Corp


[1981] AC 787
Implied warranty
Facts

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The shareholder had had his share certificates stolen. The thief lodged forged transfers with
stockbrokers, who in good faith sent the share certificates and transfer deeds to the bank
for registration and transfer, which was done. The transferee thus came to be registered
and he then sold the shares. The innocent shareholder asked for his name to be restored
to the register and for related relief. The bank brought third party proceedings against the
stockbrokers. The original shareholder succeeded against the bank. As between the bank
and the stockbrokers, at first instance and in the Hong Kong Court of Appeal the Judges
relied on the Barclay implied indemnity and found the stockbrokers liable to indemnify the
bank. The stockbrokers appealed to the Privy Council
Held

 The Privy Council accepted the principle that a person who presents transfers for
registration impliedly warrants them to be genuine
 This is based on the general principle that when an act is done by one person at the
request of another and that act turns out to be tortious, the person doing it is entitled
to an indemnity from him who requested it to be done

7.6 EFFECT OF A BLANK TRANSFER

 A blank transfer is one that has been executed by the shareholder named in the share
certificate but which is blank as regards the transferee
 Perfectly legal notwithstanding the prohibition in section 66 on issuing share
warrants which make shares transferable by delivery
 Delivery of the blank transfer does not effect any legal transfer of the shares, it
is registration that does
 Usually done by people who own shares but need to borrow money
 Security over shares (to give a property right to the lender)
 Not an absolute title, only by way of security
 Equitable charge by way of deposit of the share certificate and the submission
of a blank transfer form
 Question of authority only arises when it is a genuine transfer form executed in
blank
 Implied warranty promising the transferee that the transfer form is
genuine
 There are 2 basic scenarios:
 (1) Where the transfer has been obtained from the registered owner of shares
 Owner intends to pass title and hands over, transferee obtains an
equitable interest in those shares
 Where deposited with him as security for a loan, obtain only a limited
interest in the shares
 Owner has no intention to vest him with title, that person obtains no title
to the shares e.g. deposited for safekeeping
 (2) Where the transfer has been obtained from someone who is not the
registered owner
 There is a risk that transferor is not the owner of the shares and the true
owner has not authorised the transfer of shares to the transferee.
Hence, transferor cannot then pass good title (unless owner is estopped
from denying the efficiency of the title)

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 A person who takes a transfer of the shares does so subject to the
defects of the title of the transferor: Seah Eng Lim v P & O Banking
Corp Ltd
 However, three ways in which a transferee can get good title:
 Transferor has equitable interest, owner being divested himself
of all but bare legal title; application of the normal property rule
 True owner has entrusted the shares to the transferor for the
purposes of disposal; or normal principles of agency
 True owner is estopped from denying the transferor’s authority
to transfer the shares on his behalf. (through negligence –
although hard to prove as a person generally owes no duty to
safeguard his property – or positive representation which he is
precluded from denying)

7.7 SHARE CERTIFICATE ESTOPPEL

 Estoppel – to prevent a denial of something


 Share certificate estoppel – company issues the share certificate and hence makes
representations of this share certificate
 Estoppel thus operates against the company
 A share certificate contains two statements of importance
 First, the name of the holder of the shares
 Secondly, the amount to which the shares are paid up
 Both these statements amount to representations by the company and will estop the
company from denying their truth vis-à-vis any person who has relied on such
statements to his detriment
 In the proper case, the company will have to pay damages to a person who suffers
loss in reliance on these statements
 Such loss might arise where the company issues a share certificate to a person
who does not have a valid title to the shares and a subsequent purchaser
purchases the shares on the faith of the certificate
 Basis on which damages are awarded is that the company is estopped from denying
the truth of the statement as to the owner of the shares
 As estoppel depends upon the claimant being misled, the person who perpetrates the
fraud by presenting a forged transfer obviously cannot take advantage of the estoppel
 Similarly, if a person knows that he has got no title to shares, the issue of a
share certificate in his name does not allow him to take advantage of the
estoppel
 However, the person to whom the certificate is issued may in the proper
case still have the benefit of the estoppel
 There can be no estoppel if the certificate relied upon is forged, for in such a case
there is no representation by the company
 Forged transfer forms
 Transfer form has to be filled in and executed by the transferor
 Forgery is with respect to the signature – signature has been forged by
someone who is not the true owner
 No legal effect whatsoever – forgeries are null and void

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Insufficient to rely upon a transfer form only, as the company is not
responsible for any representations made in a transfer form
 Estoppel will not arise even if the transfer is certified by the company,
since certification of a transfer is not a representation that the
transferor has any title to the shares
 An estoppel also arises in respect of the statement as to the amount to which the
shares are paid up
 In an appropriate case, even the person to whom the certificate is issued may
be able to take advantage of the estoppel
 In order for an estoppel to arise in such a situation, it must be shown that the
person to whom the representation was made acted on the representation to
his prejudice
 An estoppel will not arise if the claimant did not rely upon the share certificate

7.8 RECTIFICATION OF THE SHARE REGISTER

COMPANIES ACT
Cap 50, 2006 Rev Ed
Power of Court to rectify register
194.— (1) If —
(a) the the name of any person is without sufficient cause entered in or omitted from the
register; or 

(b) default is made or unnecessary delay takes place in entering in the register the fact
of any person having ceased to be a member, 


the person aggrieved or any member or the public company may apply to the Court for
rectification of the register, and the Court may refuse the application or may order
rectification of the register and payment by the company of any damages sustained by any
party to the application.
(2) On any application under subsection (1), the Court may decide —
(a) any question relating to the title of any person who is a party to the application to
have his name entered in or omitted from the register, whether the question arises
between members or alleged members or between members or alleged members
on the one hand and the public company on the other hand; and
(b) generally, any question necessary or expedient to be decided for the rectification of
the register.
(3) The Court when making an order for rectification of the register shall by its order direct
a notice of the rectification to be so lodged.
(4) No application for the rectification of a register in respect of an entry which was made
in the register more than 30 years before the date of the application shall be entertained by
the Court.

7.9 TRANSMISSION OF SHARES

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 i.e. on death or bankruptcy of shareholder

COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 24-27 of Table A or Regulations 28-31 of Model Constitution
24. In case of the death of a member the survivor or survivors where the deceased was
a joint holder, and the legal personal representatives of the deceased where he was
a sole holder, shall be the only persons recognised by the company as having any title to
his interest in the shares; but nothing herein contained shall release the estate of a
deceased joint holder from any liability in respect of any share which had been jointly held
by him with other persons.
25. Any person becoming entitled to a share in consequence of the death or bankruptcy of
a member may, upon such evidence being produced as may from time to time properly be
required by the directors and subject as hereinafter provided, elect either to be registered
himself as holder of the share or to have some person nominated by him registered
as the transferee thereof, but the directors shall, in either case, have the same right to
decline or suspend registration as they would have had in the case of a transfer of the share
by that member before his death or bankruptcy.
26. If the person so becoming entitled elects to be registered himself, he shall deliver or
send to the company a notice in writing signed by him stating that he so elects. If he elects
to have another person registered he shall testify his election by executing to that person a
transfer of the share. All the limitations, restrictions, and provisions of these Regulations
relating to the right to transfer and the registration of transfers of shares shall be applicable
to any such notice or transfer as aforesaid as if the death or bankruptcy of the member had
not occurred and the notice or transfer were a transfer signed by that member.
27. Where the registered holder of any share dies or becomes bankrupt his personal
representative or the assignee of his estate, as the case may be, shall, upon the production
of such evidence as may from time to time be properly required by the directors in that
behalf, be entitled to the same dividends and other advantages, and to the same rights
(whether in relation to meetings of the company, or to voting, or otherwise), as the registered
holder would have been entitled to if he had not died or become bankrupt; and where 2 or
more persons are jointly entitled to any share in consequence of the death of the registered
holder they shall, for the purposes of these Regulations, be deemed to be joint holders of
the share.

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COMPANY MANAGEMENT AND
MEETINGS
1. INTRODUCTION

This topic addresses three related matters.

Allocation of management powers

The company was the first business vehicle to enable the separation of ownership and
management, and thus the professionalization of management. This division is especially
manifested in public listed companies, which are typically managed by a team of professional
managers who do not hold significant stakes in the company. By contrast, the owners of small
closely-held companies are often also the directors and key employees of the company. In
either case, you should appreciate the fact that, from a legal responsibility point of view, the
management of a company falls largely on the company’s board of directors. Thus, unless
otherwise specified by the Companies Act or the company’s constitution, the board of directors
is the principal decision-making body (or organ) of the company.

Nevertheless, the Companies Act and most companies’ constitutions do in fact reserve certain
decisions to the shareholders. These usually relate to important matters which directly affect
the shareholder’s rights or interests, e.g. amendments to the constitution, payment of
dividends, or restructuring of the company’s share capital. Even in these cases, the
shareholders are usually asked simply to approve or disapprove a proposal formulated by the
board. The shareholders formally express their collective will by voting at the general meeting,
which is therefore also regarded as a decision-making body (or organ) of the company. A
decision of either organ, when acting within its powers, is regarded in law as a decision of
the company.

The constitutional distinction between the respective domains of the board and the
shareholders is a fundamental feature of company law. It not only affects how the powers of
the company are exercised but also influences other company-law rules, especially the duties
of directors.

Regulating management conduct

One of the important roles of company law is to regulate the conduct of directors with a view
to ensuring that they act in the interests of the company and, indirectly, its shareholders and
other stakeholders. The Companies Act does this in different ways, laying down both broad
general standards (or duties) and also detailed rules applicable to specific situations.

Management decision-making procedures

In this topic we will also consider some of the detailed rules (in the Act and the constitution)
on how formal decisions of the company are made. Traditionally, this occurs at meetings –
whether board or general meetings. Procedural rules do not exist in a vacuum: they often
inter-relate with statutory and common-law rules, and an appreciation of the relationship is

Page 86 of 153
required for a full understanding. (Procedure may not be a particularly riveting topic, but
dealing with it is an important part of legal practice).

2. DIVISION OF POWERS BETWEEN BOARD AND STAKEHOLDERS

 Company law recognises only two possible bodies as having the original power
(derived directly from the company’s constitution) to exercise corporate powers and to
act as the company (basic division of powers between the board and the general
meeting is now primarily governed by section 157A)
 Shareholders in general meeting
 Board of directors
 Constitution of the company lays down the framework by which the company is run
internally
 Provides details as to the proper conduct of shareholders’ as well as directors’
meetings
 As long as proper procedures for decision-making by these organs is followed,
decisions made by the general meeting of the shareholders or at a meeting
of the board of directors are considered decisions of the company
 Not every shareholder is necessarily entitled to participate in the
general meeting as some shares may not carry or may have only limited
voting entitlements
 Every company must have a board of directors
 Elected by the general meeting and entrusted with the management of the
company
 Generally required to act as a collegiate body
 An individual director does not have the authority to bind the company unless
he is specifically authorised
 Job is to participate in the decisions of the board

2.1 THE DIVISION OF POWERS BETWEEN THE ORGANS

2.1.1 HISTORICAL ENGLISH POSITION

 In the past, the relationship between the shareholders and the directors was essentially
a hierarchical one
 Traditional point of view:
 Shareholders, because of their contribution of capital, were traditionally thought
of as “owners” of the company
 The above is the rationale for their central role in the control of corporate
matters
 Board of directors were seen as skilled managers to whom the authority to
manage the business was delegated
 There has been a fundamental change in the way the law viewed the company and
the relative positions of the shareholders and the board within the corporate structure
 Aron Salomon v A Salomon & Co Ltd: Incorporation led to the steady erosion
of the shareholders’ superior position
 Modern view:

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Considers both the general meeting and the board of directors as respectively
deriving directly from the company’s constitution, original authority to commit
the company to juristic acts
 Scope of authority of the general meeting and of the board therefore depends on the
particular terms of the constitution
 Rationale for the division of power is that it is a bargain amongst shareholders which
can only be modified by amending the constitution

Automatic Self-Cleansing Filter Syndicate Co Ltd v Cuninghame


[1906] 2 Ch 34 (CA)
Company – Directors – Powers
Facts
A company had power under its memorandum of association to sell its undertaking to
another company having similar objects, and by its articles of association the general
management and control of the company were vested in the directors, subject to such
regulations as might from time to time be made by extraordinary resolution, and, in
particular, the directors were empowered to sell or otherwise deal with any property of the
company on such terms as they might think fit. At a general meeting of the company a
resolution was passed by a simple majority of the shareholders for the sale of the company's
assets on certain terms to a new company formed for the purpose of acquiring them, and
directing the directors to carry the sale into effect. The directors, being of opinion that a sale
on those terms was not for the benefit of the company, declined to carry the sale into effect.
Issue
Whether the shareholders could override the directors
Held

 If the management of the company is in the board of directors, then they alone
can exercise these powers. If a particular activity is not on the list, then the
shareholders cannot make a decision in that regard
 Upon the construction of the articles, the directors could not be compelled to comply
with the resolution
Judgment
 Lord Collins MR held that the simple majority of shareholders was not enough
to override the requirement in the constitution that the directors may only be
given instructions through a three quarter majority. So the directors were
entitled to reject the offer. They are not agents to the shareholders nor the
company. The shareholders would need to dismiss the directors or change the
constitution. He elaborated
o It has been suggested that this is a mere question of principal and agent,
and that it would be an absurd thing if a principal in appointing an agent
should in effect appoint a dictator who is to manage him instead of his
managing the agent. I think that that analogy does not strictly apply to this
case. No doubt for some purposes directors are agents. For whom are they
agents? You have, no doubt, in theory and law one entity, the company,
which might be a principal, but you have to go behind that when you look to

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the particular position of directors. It is by the consensus of all the individuals
in the company that these directors become agents and hold their rights as
agents… There are provisions by which the minority may be overborne, but
that can only be done by special machinery in the shape of special
resolutions.

 General rule is that neither organ is permitted to usurp the authority that has
been constitutionally conferred on the other organ
 John Shaw & Sons (Salford) Ltd v Shaw
 Facts
 Two of the brothers failed to accept certain other provisions of
the settlement, and as a result it was resolved at a meeting of
the permanent directors that the present action should be
instituted against them. But before the hearing of the suit the
shareholders held an extraordinary meeting, at which a
resolution was passed directing the board to discontinue the
action forthwith
 Judgement
 Should the shareholders wish to override a decision of the
board, the only way in which the general body of the
shareholders can control the exercise of the powers vested by
the articles in the directors is by
o Altering their articles (by special resolution: need 75%
vote)
 However, if board of directors have already
signed contract with 3rd party any amendment
of articles cannot undo the decision (3rd party
rights must be protected & cannot be interfered
with)
o By refusing to re-elect the directors of whose
actions they disapprove. (by ordinary resolution)
 Shareholders cannot themselves usurp the powers which
by the articles are vested in the directors any more than the
directors can usurp the powers vested by the articles in the
general body of shareholders.
 Distribution of powers is a matter of contract as embodied in the company’s
constitution, and depended on a proper construction of the constitution

2.1.2 SINGAPORE POSITION

 A significantly different interpretation of the English case law on the question was taken
by the High court in Credit Development Pte Ltd v IMO Pte Ltd [1993] 2 SLR (R) 370.
However, this decision gave rise to some concern that shareholders could too easily
interfere with management decisions
 In 2003, the CA was amended to reverse the position reached in Credit Development
Pte Ltd v IMO Pte Ltd
 Section 157A was introduced
 Article 73 of Table A was also amended to reflect the same position

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 “Being not inconsistent with the aforesaid Regulations or provisions”
 The regulations you provide thus cannot be inconsistent with the
CA (s157A)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Powers of directors
157A.—(1) The business of a company shall be managed by, or under the direction or
supervision of, the directors.
(2) The directors may exercise all the powers of a company except any power that this Act
or the constitution of the company requires the company to exercise in general meeting.

 ““Except any power” does not refer to just ANY management power, it is only for
SPECIFIC powers and hence ultimately the general meeting is not given the liberty to
just overwrite anything
 Matters typically allocated to general meeting for approval (as referenced in section
157A)
 Under the CA: see e.g. ss 26, 76C-76E, 78B, 149B, 152, 160, 161, 205, 290
etc.
 Under the constitution: see e.g. Table A Articles 40, 98 etc.
 Under the SGX listing rules (listed companies only): e.g. rules 805-806, 906
etc.
 The apparently mandatory choice of expression suggests a statutory allocation of
powers
 This means that legislation governs the division of powers
 Unless the CA or the constitution (as permitted by section 157A(2)) allows for
shareholders to make the decision in a general meeting, the board has power
to make all other decisions
 What sort of decisions do companies have to make?
 Mergers – structural decision
 Investments – commercial and management decision (bulk of decisions that
companies have to make – these decisions will often be vested in the directors,
structural decisions which affect shareholding and the future of the business
will be vested in the general meeting)
 Director’s duties are towards the company as a separate entity and not towards the
shareholders
 Shareholders do not own the company – they are an organ of the company,
which is similar to that of the board
 If powers of management are vested in the directors only they alone can exercise
these powers and the general meeting cannot intervene (so whatever powers are
vested in one organ, the other organ cannot intervene)
 However, general meeting can remove the board (hence ultimate control of
who is on the board is vested in the shareholders)

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2.2 RESERVE POW ERS OF THE SHAREHOLDERS

 At common law, it was generally thought that the general meeting has a reserve power
to act when the board is unable or unwilling to do so itself
 When does this residual power devolve?
 A matter of necessary implication
 Board is unwilling or unable to act
 No other way to break deadlock
 What determines the scope of this residual power?
 Also a matter of necessary implication – important to restrict the scope
 Deadlock relates to performance of bona fide obligation of company to
third party
 Nothing to suggest honoring obligation not in the company’s best
interest
 Wide view of general meeting’s reserve powers was stated in Barron v Potter
 Facts
 The two directors of the company were not on speaking terms,
so that effective board meetings could not be held. The plaintiff,
Canon Barron, had requisitioned a members’ meeting at which
additional directors had purportedly been appointed. The
defendant objected that the power to make such appointments
was vested by the company’s articles in the directors. It was
held that, in view of the deadlock, the power in question reverted
to the general meeting, and so the appointments were valid
 Held
 Where “if directors having certain powers are unable or
unwilling to exercise them – are in fact a non-existent body for
the purpose – there must be some power in the company to do
itself that which under other circumstances would be otherwise
done” and that therefore the company in general meeting may
exercise that power
o Criticised as convenient but difficult to reconcile in
principle with the strict theory of a division of powers
 Narrow view of general meeting’s reserve powers is credited to Massey v
Wales
 Facts
 Massey concerned a company which had two directors. One
director, Yaqob Rajwan, wanted to appoint Baruch Rajwan to
the board of the company but a quorum for a board meeting
could not be reached as the board was deadlocked. Yaqob
Rajwan nonetheless held a board meeting in the absence of
the other director and Baruch Rajwan was appointed as a
director. This appointment was invalid. The Rajwans then gave
instructions to solicitors to commence legal proceedings on the
company’s behalf. Thereafter, a shareholders resolution was
passed to ratify the appointment of the solicitors. The issue

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before the court therefore was whether the shareholders had
the power to do so.
 Judgement
 Narrow view that if the general meeting can APPOINT another
director to make the decision then there is no need for the
general meeting to make the decision and hence you are still
being true to the doctrine that management decisions are
reserved for the board
 Where the question as to whether general meeting had any
reserve power to ratify the commencement of legal proceedings,
it was held that this had to be considered as a matter of
implication from the constitution, on the basis of business
efficacy or necessity
o However, where there is express or even a general
power vested in the general meeting to remove and
appoint additional directors, the implication of such
reserve power to remove and appoint additional
directors is generally displaced

Chan Siew Lee v TYC Investment Pte Ltd


[2015] 5 SLR 409 (CA)
Whether permissible to imply reserve powers in favour of shareholders in general meeting
to authorise payments and to act against director for alleged breach of duty in disapproving
payments
Facts
The only two directors of a company agreed on a payment voucher system after one of the
directors (“Ms Chan”) was alleged to have made unauthorised payments out of the
company’s bank accounts. The agreement prohibited either director from signing a cheque
on the company’s bank accounts unless the other director had signed a voucher approving
of the payment.
Ms Chan invoked the agreement to refuse to approve certain payments which the other
director (“Dr Tay”) wanted the company to make. In order to overcome the deadlock, an
extraordinary general meeting (“EGM”) was convened. Resolutions were passed to approve
of those payments and to authorise Dr Tay to unilaterally sign the cheques and vouchers to
effect the payments. Further resolutions were passed to enable the company to appoint
solicitors and to commence proceedings against Ms Chan for (a) a declaration that the
company’s shareholders had reserve powers of management to approve specific payments
where the board of directors was deadlocked; (b) specific performance of an implied term
of the agreement on the payment voucher system, namely, that the directors shall not
exercise their power to approve (or disapprove) any payment dishonestly, for an improper
purpose, capriciously or arbitrarily; or (c) an injunction pursuant to s409A of the Companies
Act (Cap 50, 2006 Rev Ed) to remedy the breach of fiduciary duties by Ms Chan in
disapproving of the payments.

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The High Court held that there was a limited shareholder power to appoint solicitors but
there was no implied term as contended for by the company, no breach of that implied term
and no breach of fiduciary duty. Both the company and Ms Chan appealed.
Issue
Whether, in what circumstances and to what extent the management powers of a company
may be reserved to the shareholders when the board is deadlocked
Will an express term conferring management powers upon the shareholders be deemed
invalid as a matter of law? Or does s 157A establish a default rule which may be varied?
Use the case of TYC to state that division of powers is still a default rule – structure is that
you generally vests but there are specific instances of exceptions to this rule
Held

 Both appeals were allowed in part


Judgment

 The analysis of whether there was a reserve power vested in the general meeting
was one that had to be situated in the context of implied terms. The division of
power between the board of directors and the shareholders in a general meeting
was a matter of contract which was set out in the company’s constitution. As with
implied terms in general, the basis for doing so was necessity
 Before it may be implied that the general meeting is possessed of reserve powers
to act, two further cumulative requirements had to be met:
o The dispute must relate to the performance of a bona fide obligation
owed by the company to a third party; and
o There is no material suggesting that it will not be in the company’s best
interest to honour these obligations.
 The predicate of such necessity would generally be the existence of a deadlock
within the board. The need to invoke even these limited reserve powers would
therefore not arise where there was either (a) no deadlock; or (b) the deadlock could
be broken by the appointment of additional directors and/or the removal of existing
directors in a general meeting. If the case proceeded to the point where it was
necessary to imply a reserve power, a litigant would still need to be satisfied that the
intended resolution was likely to be carried at a general meeting with the requisite
majority prescribed by the company’s constitution.

High Court

 Stated that 157A was a default rule and the reason for this is that we have always
proceeded on basis that a division of powers was a matter of contract
 What was parliamentary intention behind 157A with respect to the division of
powers?
 157A says “shall” which suggests that it is a statutory division of powers
 If the general meeting does not have any power then what happens when there is a
deadlock and we have to go back to the reserves of power?

Page 93 of 153
 157A is from Australia from a section which is under “replaceable rules” and hence
it is still CONTRACTUAL but in our statute it is a default rule which means that there
is a statutory division of powers

Court of Appeal

 Stated that it was most likely contractual and this seems to contradicts the Act
 Limited circumstances where courts will imply a necessity to resort to reserve
powers
 Justification is that a company should not be held back by a deadlock
 Limitations to shareholder’s reserve powers
 Bare minimum to keep the company going

Summary

 Need for implication for reservation of management powers arise when there is a
deadlocked block and you must meet the TWIN CRITERIA – refer also to limitations
of S216A
 Courts really want to restrict reserve powers and the ability of the general meeting
to control the management decisions of the board

3. DIRECTORS – GENERALLY

 The board of directors is conferred with the powers to manage the company
 According to section 145 of the Companies Act, every company must have at least
one director who is ordinarily resident in Singapore
 Company’s constitution will normally stipulate the number of directors on the board
 Directors are also by definition “officers” of the company upon whom much of the
responsibility for compliance with the requirements of the Companies Act fall
 Officers – Refers to anyone who is employed in a professional capacity
 Director
 Company secretary
 Person employed in executive capacity
 Receiver and manager
 Liquidator in a voluntary winding up

3.1 WHO IS A “DIRECTOR”?

 While the Companies Act does not define a director in any specific terms, section 4 of
the Companies Act provides for a general description of the term “director”

COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“director” includes any person occupying the position of director of a corporation by
whatever name called and includes a person in accordance with whose directions or

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instructions the directors or the majority of the directors of a corporation are
accustomed to act and an alternate or substitute director

Directors

Formally appointed
Deemed by law
Non-executive:
Executive: Does not work on a full
time basis. Not to run the Shadow directors:
Works for company
on a more or less full company but watch Influence of the person must be such
time basis, possibly managers and EDs that the directors are 'accustomed' to
under contract for act in accordance with his directions
service or instructions. Should be able to
Outside directors or influence a majority of board.
Nominated by employees
Managing /shareholders De facto directors:
director
Acts by him show that he assumed the
Chairman status and functions of a company
Nominee director by participating in the affairs
Other
director of the company on equal footing with
executive
directors the other direcotrs. Although never
Alternate /Substitute director:"alter formally appointed
egos" of people appointing them

3.1.1 DE FACTO DIRECTOR

 De facto director refers to a person who is not so formally appointed but who
nevertheless acts as a director
 Treated as a director under the Companies Act
 Real influence is effectuated through his assumption of the directorial
responsibilities so as to make him part of the corporate governing
structure
 Exercises discretionary power
 Re Hydrodam (Corby) Ltd: In order to establish that a person is a de facto director of
a company, it must be shown that he undertook functions in relation to the
company which could properly be discharged only by a director
 Re Richborough Furniture Ltd: In cases where the dividing line between mere
management and an assumptions of directorship is unclear, it would appear that the
court should give the person in question the benefit of the doubt
 Raffles Town Club Pte Ltd v Lim Eng Hock Peter: The court should look at the
aggregate acts of the person in question (and must show that the person had
assumed the status and functions of a company director by participating in the affairs
of the company on an equal footing with the other directors)

Page 95 of 153
3.1.2 SHADOW DIRECTOR

 A shadow director refers to a person who is not formally appointed but is in


accordance with whose directions or instructions the directors or the majority
of the directors of a corporation are accustomed to act
 Real influence is exerted directly on the de jure board
 Board may be influenced by external factors and hence if we have an
outsider who is able to influence the board then we would have to
impose some sort of obligations on these directors as well
 Conceptually different from the de facto director as it is not necessary for such a person
to have acted as if he is on equal footing with the de jure directors
 Assessment of whether the communication by the alleged shadow director falls to be
classified as a “direction or instruction” is objectively ascertained by the court
 Secretary of State for Trade and Industry v Deverell: Phrase is wide enough to
encompass advice
 Alleged shadow director needs to be able to influence at least a majority of the board;
not necessary that such influence should be exercised over the entire of the company’s
activities
 Shadow directors can be corporate entities

3.1.3 PURPOSE OF SUCH CONCEPTS

 The purpose of the extended idea is to identify those with real influence in the corporate
affairs of the company and to prevent their escape of duty or liability by the easy
step of declining formal appointment

3.1.4 ADDITIONAL POINTS

 More definitions of de factor director & shadow directors:


 Re Hydrodam (Corby) Ltd
 De factor: no formal appointment, but held out as a director
 Shadow: no formal appointment, but pulls the strings in the background,
“lurks in the shadows”
 Secretary of State for Trade & Industry v Deverell
 No need for shadow director to “lurk in the shadows”, important
question is: does he have real influence over the affairs of the
company?
 HMRC v Holland
 De facto director must be part of company’s “governing structure” and
assumed role sufficient to attract fiduciary duty
 Heap Huat Rubber Co v Kong Choot Sian
 Not useful to refer to ‘shadow’ directors, important question is if he is ‘a
person in accordance with whose directions or instructions the directors
… are accustomed to act’?
 A ‘shadow director’ is not a director for all purpose of the Act, he’s not
required to comply with formal procedures in Act or Articles
 Shadow directors not entitled to fees, do not have to inform
when they change their address etc.

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 How is a shadow director distinguished from a de facto director?
 Executive directors: play a day-to-day role in running the company
 Non-executive directors: do not play such a day-to-day role, but works more in
the background, setting targets for the company etc. They play more of a
supervisory role
 Are de facto and shadow directors treated as directors for all legal purposes? If not,
then for which purposes?
 Heap Huat Rubber Company Sdn Bhd v Kong Choot Sian [2004] SGCA 12, at
[67] (CA):
 Be that as it may, the judge never expressly held that as a “shadow
director”, Kong had to comply with Art 73 which dealt with directors’
remuneration. Similarly, it is our view that the fact that a party is
adjudged to be a “shadow director” does not mean that he is a
“director” for the purposes of articles of association which
stipulate or set out formal requirements, such as Art 73. It would
simply make no sense for a party who is a “shadow director” to have
his remuneration determined by the company in general meeting on the
basis that he is a director. Indeed, if the HHR companies’ argument is
taken to its logical extreme, this would require all board resolutions
passed during the period when the party was a “shadow director” to be
signed by him

3.2 TYPES OF (FORMALLY-APPOINTED) DIRECTORS

 A formally appointed director, or a de jure director, is one who is appointed by the


company in accordance with the requirements of the company’s constitution
 Would have consented to act as a director (section 146)
 Must not be qualified from acting as a director (section 173C)
 Personal particulars of such a director have to be provided to ACRA for the purposes
of a determinative register of directors maintained by the Authority
 They can exist in the following formats:
 Executive director
 Non-executive director
 Independent director – expected by the stock exchange to protect the minor
shareholders in listed companies. Independent director, at board meetings,
must take a view that will be favourable for the minor shareholders because
often, major shareholders, with stakes in other businesses, may try to form
contracts with the listed companies
 Nominee director – Someone who is being placed on the board, normally by a
shareholder (e.g. if that person purchased more than 10% of the company’s
share & demands to be on the board)
 Alternate director
 Note: A CEO is not necessarily a director, but a managing director is both a director &
CEO

3.3 APPOINTMENT

 Appointment of directors is usually governed by the company’s constitution

Page 97 of 153
 Articles 63 – 68 of Table A

COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 63 – 68 of Table A
63. At the first annual general meeting of the company all the directors shall retire from
office, and at the annual general meeting in every subsequent year one-third of the directors
for the time being, or, if their number is not 3 or a multiple of 3, then the number nearest
one-third, shall retire from office.
64. A retiring director shall be eligible for re-election.
65. The directors to retire in every year shall be those who have been longest in office since
their last election, but as between persons who became directors on the same day those to
retire shall (unless they otherwise agree among themselves) be determined by lot.
66. The company at the meeting at which a director so retires may fill the vacated office by
electing a person thereto, and in default the retiring director shall if offering himself for re-
election and not being disqualified under the Act from holding office as a director be deemed
to have been re-elected, unless at that meeting it is expressly resolved not to fill the vacated
office or unless a resolution for the re-election of that director is put to the meeting and lost.
67. The company may from time to time by ordinary resolution passed at a general meeting
increase or reduce the number of directors, and may also determine in what rotation the
increased or reduced number is to go out of office.
68. The directors shall have power at any time, and from time to time, to appoint any person
to be a director, either to fill a casual vacancy or as an addition to the existing directors, but
so that the total number of directors shall not at any time exceed the number fixed in
accordance with these Regulations. Any director so appointed shall hold office only until the
next following annual general meeting, and shall then be eligible for re-election but shall not
be taken into account in determining the directors who are to retire by rotation at that
meeting.

 As per section 149B, the power to appoint directors to the board is usually vested in
the members and directors are generally appointed by ordinary resolution and
typically at the annual general meeting
 Hence a member who controls a majority of the voting shares should therefore
be fairly confident of being able to control the composition of the board

COMPANIES ACT
Cap 50, 2006 Rev Ed
Appointment of directors by ordinary resolution
149B. Unless the constitution otherwise provides, a company may appoint a director by
ordinary resolution passed at a general meeting.

 General right of members may be displaced by express provision in the constitution


 Constitution may vest the power to appoint additional directors exclusively in
the board

Page 98 of 153
Right to appoint a director may be expressly conferred on some other person
such as a specific member or even a third party such as a lessor
 Company’s constitution will usually prescribe the procedure for appointment of
directors
 Section 150(1) prohibits the appointment of two or more directors in a single
resolution unless this has been first unanimously agreed to by the meeting
(applicable to public companies only)
 Note: The now-repealed section 153 used to provide for an age limit of 70 years
for directors of public companies
 Where constitution of company confers the power to fill casual vacancies or to appoint
additional directors on the board, the directors must exercise such power bona fide in
the interests of the company

3.4 QUALIFICATION

 Apart from the requirement that directors should be natural persons of full age and
capacity, the Companies Act does not mandate any positive qualification
requirements for the position

COMPANIES ACT
Cap 50, 2006 Rev Ed
Directors
145.—(2) No person other than a natural person who has attained the age of 18 years
and who is otherwise of full legal capacity shall be a director of a company.

 Directors do not have to be members of the company, but if the constitution


provides for the directors to hold a certain number of shares, then this share
qualification must be obtained within two months after the appointment or such
shorter period as fixed by the constitution
 Failure to obtain the share qualification within the stipulated period is an
offence, and the director concerned is required to vacate his office

3.5 DISQUALIFICATION AND DEBARMENT

Ong Chow Hong v PP


[2011] 3 SLR 1093
Whether lapse in judgment warranted disqualification as director
Facts
The appellant was the non-executive Chairman and independent director of Airocean Group
Limited (“Airocean”), a listed company in Singapore. Airocean’s Chief Executive Officer,
Thomas Tay, was investigated for corruption by the Corrupt Practices Investigation Bureau
(“CPIB”). Thomas Tay informed Airocean’s Board of Directors (“Board”) about the
investigation when he was released on bail but the Board decided that nothing further
needed to be done. When news of CPIB’s probe on Thomas Tay was published in the

Page 99 of 153
newspapers, the Singapore Exchange Limited (“SGX”) asked Airocean to confirm the
veracity of the news and explain why they did not disclose this to the public.
The appellant could not be physically present for the preparation of the reply to SGX
because he had to attend a golf event. The appellant told Airocean’s company secretary
that he would agree to any announcement issued by Airocean if Peter Madhavan
(“Madhavan”) approved of it. Madhavan was an independent director on the Board who was
also a lawyer. The appellant never asked nor saw the announcement before it was
announced. The appellant pleaded guilty to having breached his duty of reasonable
diligence as a director under s 157(1) of the Companies Act (Cap 50, 2006 Rev Ed) (“the
Act”). The trial judge sentenced him to a fine of $4,000 in default, four weeks’ imprisonment
and a disqualification order barring him from taking part in the management of a company
for 12 months.
The appellant only appealed against the disqualification order on the basis that it was
unwarranted or manifestly excessive. The Prosecution also cross-appealed on the basis
that the length of the disqualification order was manifestly inadequate.
Held

 Appeal was dismissed and cross appeal was allowed


Judgment

 The distinction between the punitive or protective rationale behind the


disqualification regime for directors was crucial. The statutory objective would inform
the court on the applicable relevant considerations in assessing the appropriateness
and extent of disqualification orders. The punitive rationale incorporated classical
sentencing principles such as retribution or proportionality. On the other hand, the
protective rationale focused on prospective considerations that might be divorced
from past culpability
 The rationale behind the disqualification regime was considered by the High Court
to be essentially protective in nature. However, according to V K Rajah JA’s view,
there were two sides to the shield of protection
o The specific, or “thin” aspect of the shield serves to protect the
shareholders and creditors of the companies concerned from the
possibility of future instances of undesirable conduct by the specific
individuals being disqualified
 It is this narrower protection rationale that is often referred to by the
courts
o There is also a wider, of “thick” aspect, which serves to “generally protect
the public from all errant directors by an uncompromising reaffirmation of
the expected exemplary standards of corporate governance”
 It cannot be denied that the effect of disqualification, given its
substantial interference with the freedom of the individual, does
suggest that the regime is at least quasi-punitive
 Purpose behind these disqualifications was the subject of the case of Ong Chow
Hong – in the end of the V K Rajah JA concluded that the purpose of disqualification
was to protect and not to punish – hence we do not have to measure how long the
disqualification is to how bad the behavior was or his intention behind. Instead we

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look at whether there is a NEED to protect and then to adjust the disqualification
accordingly

 Disqualification may be automatic or dependent on an order being made, whether by


the court or by the Registrar
 Generally, a director who is disqualified is prohibited not only from acting as a director
but also from being involved directly or indirectly in the “management” of a company

3.5.1 AUTOMATIC DISQUALIFICATION

 Situations where disqualification is automatic:


 Where an individual is adjudged bankrupt, whether by a Singapore Court or a
foreign court having jurisdiction in bankruptcy (section 148(1))
 Disqualified until bankruptcy is discharged

COMPANIES ACT
Cap 50, 2006 Rev Ed
Restriction on undischarged bankrupt
148.—(1) Every person who, being an undischarged bankrupt (whether he was adjudged
bankrupt by a Singapore Court or a foreign court having jurisdiction in bankruptcy), acts as
director of, or directly or indirectly takes part in or is concerned in the management of, any
corporation, except with the leave of the Court or the written permission of the Official
Assignee, shall be guilty of an offence and shall be liable on conviction to a fine not
exceeding $10,000 or to imprisonment for a term not exceeding 2 years or to both.

 Individual is convicted of any offence involving fraud or dishonesty punishable


with imprisonment for three months or more, or was convicted or made liable
for a civil penalty for a contravention of the market conduct regulations under
the Securities and Futures Act (section 154(1))
 Disqualification is for a period of five years from conviction, or from his
release from prison, if he had been sentenced to imprisonment

COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification to act as director on conviction of certain offences
154.—(1) A person shall be subject to the disqualifications provided in subsection (3) if —
(a) the person is convicted of any of the following offences:
i. any offence, whether in Singapore or elsewhere, involving fraud or
dishonesty punishable with imprisonment for 3 months or more;
ii. any offence under Part XII of the Securities and Futures Act (Cap. 289); or
(b) the person is subject to the imposition of a civil penalty under section 232 of the
Securities and Futures Act.
(4) The disqualifications in subsection (3) shall —
(a) in a case where the disqualified person has been convicted of any offence referred
to in subsection (1) or (2) but has not been sentenced to imprisonment, take effect

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upon conviction and continue for a period of 5 years or for such shorter period as
the court may order under subsection (2); or
(b) (b) in a case where the disqualified person has been convicted of any offence
referred to in subsection (1) or (2) and has been sentenced to imprisonment, take
effect upon conviction and continue for a period of 5 years after his release from
prison.

 Where individual persistently defaults in complying with those provisions of the


CA which require the filing or lodging with or notifying of the Registrar of any
matter
 Disqualification runs for five years from the date the person was last
found responsible for such non-compliance
 If the person has had on three occasions within a period of five years
been found guilty or made responsible for failure to comply with these
provisions of the Act, it will be taken to be conclusive evidence of
“persistent default”

COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification for persistent default in relation to delivery of documents to Registrar
155.—(1) Where a person has been persistently in default in relation to relevant
requirements of this Act and that person, within a period of 5 years after he has last been
adjudged guilty of any offence or has had made against him an order under section 13 or
399 in relation to any such relevant requirements of this Act, without the leave of the Court,
is a director or promoter of, or is in any way directly or indirectly concerned or takes part in
the management of a company, he shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $10,000 or to imprisonment for a term not exceeding 2
years or to both.

 Where individual was a director of at least three defunct companies who had
their names struck off the register within a five-year period

COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification for being director in not less than 3 companies which were struck off
within 5-year period
155A.—(1) Subject to subsection (5), a person —
(a) who was a director of a company (Company A) at the time that the name of Company
A had been struck off the register under section 344; and
(b) who, within a period of 5 years immediately before the date on which the name of
Company A was struck off the register under section 344 —
i. had been a director of not less than 2 other companies whose names had
been struck off the register under section 344; and
ii. was a director of those companies at the time the names of the companies
were so struck off the register,

Page 102 of 153


shall not act as director of, or in any way (whether directly or indirectly) take part in or be
concerned in the management of, any company or any foreign company to which Division
2 of Part XI applies for a period of 5 years commencing after the date on which the name of
Company A was struck off.

 Anyone who is disqualified or subject to disqualification orders under the


Limited Liability Partnerships Act from acting as a manager of a limited liability
partnership

COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification under Limited Liability Partnerships Act
155C.—(1) Subject to any leave which the Court may give pursuant to an application under
subsection (3), a person who is subject to a disqualification or disqualification order under
section 34, 35 or 36 of the Limited Liability Partnerships Act (Cap. 163A) shall not act as
director of, or in any way (whether directly or indirectly) take part in or be concerned in the
management of, any company or any foreign company to which Division 2 of Part XI applies
during the period of disqualification or disqualification order.
(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be
liable on conviction to a fine not exceeding $10,000 or to imprisonment for a term not
exceeding 2 years or to both.

 In circumstances where the director is automatically disqualified from acting as a


director and from being involved in management, the director may make an application
to court to be allowed to act as director or to participate in management
 In Quek Leng Chye v Attorney-General: Lord Diplock considered the following
factors relevant for a court’s consideration in deciding whether leave should be
granted or not
 Nature of the offence of which the applicant has been convicted
 Nature of the applicant’s involvement
 The applicant’s general character
 The structure and nature of the business of each of the companies
which the applicant seeks the leave of the court to become a director of
or to take part in its management
 The interests of the general public, the shareholders, creditors and
employees of these companies and the risks to the public and to those
persons should the applicant be permitted to be a director or to take
part in management

3.5.2 DISQUALIFICATION AND DEBARMENT ORDERS

 Additionally, an order may be made under section 149 of the Companies Act to
disqualify persons who are considered unfit to be directors from being a director or in
any way, whether directly or indirectly, being concerned in the management of a
company

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COMPANIES ACT
Cap 50, 2006 Rev Ed
Disqualification of unfit directors of insolvent companies
149.—(1) The Court may —
(a) on the application of the Minister or the Official Receiver as provided for in
subsection (9)(a); and
(b) on being satisfied as to the matters referred to in subsection (2),
make an order disqualifying a person specified in the order from being a director or in any
way, whether directly or indirectly, being concerned in, or take part in, the management of
a company during such period not exceeding 5 years after the date of the order as is
specified in the order (referred to in this section as a disqualification order).

 Under section 155B, the Registrar is also empowered to make a debarment order
against a director or secretary of a company which has defaulted in lodging or filing
documents with the Registrar or in failing to notify the Registrar of any matter as
required by the Companies Act
 Default must have persisted for a continuous period of at least three months
 Basically, a debarment order prevents the subject of the order from acting as a
director or secretary of any other company except the company of which he is
director or secretary of immediately before the order is made
 Such a debarment is effective from the date the order is made and continues
in force until the Registrar cancels or suspends the order
 Before the order is made, the Registrar must give the director or secretary
concerned an opportunity to show cause why the debarment should not be
made

3.6 VACATION OF OFFICE (INCLUDING RESIGNATION & REMOVAL)

3.6.1 AUTOMATIC VACATION

 It will usually be stipulated in the company’s constitution that the office of director is
to be vacated in certain circumstances, such as where the director has resigned, or
has been declared bankrupt
 Or director has been absent without permission from board meetings for a
prolonged period, or has become of unsound mind
 Unless the constitution provides otherwise, a director may resign by giving to the
company notice in writing, and his resignation cannot be made conditional upon
the company’s acceptance of the same (section 145 (4A) and (4B))
 Note: According to section 145(5), a director who is the only director remaining in
the company who is ordinarily resident in Singapore cannot resign or vacate his
office, and any attempt to do so is invalid

3.6.2 REMOVAL

 Company may remove a director at any time

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 In the case for a public company, the right is expressly reserved for the company in
a general meeting, which may always, by ordinary resolution, remove its directors
before the end of their respective terms of office
 According to section 152(1), this right exists notwithstanding anything to the
contrary in the constitution or in the service contracts that may have been
made between the director and the company
 Note that the board cannot remove a director (section 152(8))
 Resolution to remove a director is one that requires special notice (section
152(2))
 Notice must include intention to move the resolution, and must be not
less than 28 days before the meeting at which it is proposed to be
moved
 Where director was employed pursuant to an extraneous service contract, he
may be entitled to compensation in respect of the termination of his
appointment (section 152(7))

COMPANIES ACT
Cap 50, 2006 Rev Ed
Removal of directors
152.—(1) A public company may by ordinary resolution remove a director before the
expiration of his period of office, notwithstanding anything in its constitution or in any
agreement between it and him but where any director so removed was appointed to
represent the interests of any particular class of shareholders or debenture holders the
resolution to remove him shall not take effect until his successor has been appointed.
(2) Special notice shall be required of any resolution to remove a director of a public
company under subsection (1) or to appoint some person in place of a director so removed
at the meeting at which he is removed, and on receipt of notice of an intended resolution to
remove a director under subsection (1) the company shall immediately send a copy thereof
to the director concerned, and the director, whether or not he is a member of the company,
shall be entitled to be heard on the resolution at the meeting.
(3) Where notice is given pursuant to subsection (2) and the director concerned makes with
respect thereto representations in writing to the public company, not exceeding a
reasonable length, and requests their notification to members of the company, the company
shall, unless the representations are received by it too late for it to do so —
(a) in any notice of the resolution given to members of the company state the fact of the
representations having been made; and
(b) send a copy of the representations to every member of the company to whom notice
of the meeting is sent, whether before or after receipt of the representations by the
company,
and if a copy of the representations is not so sent because they were received too late or
because of the company’s default the director may, without prejudice to his right to be heard
orally, require that the representations shall be read out at the meeting.
(4) Notwithstanding subsections (1), (2) and (3), copies of the representations need not be
sent out and the representations need not be read out at the meeting if, on the application
either of the public company or of any other person who claims to be aggrieved, the Court

Page 105 of 153


is satisfied that the rights conferred by this section are being abused to secure needless
publicity for defamatory matter and the Court may order the company’s costs on an
application under this section to be paid in whole or in part by the director, notwithstanding
that he is not a party to the application.
(5) A vacancy created by the removal of a director of a public company under this section,
if not filled at the meeting at which he is removed, may be filled as a casual vacancy.
(6) A person appointed director of a public company in place of a person removed under
this section shall be treated, for the purpose of determining the time at which he or any other
director is to retire, as if he had become a director on the day on which the person in whose
place he is appointed was last appointed a director.
(7) Nothing in subsections (1) to (6) shall be taken as depriving a person removed as a
director of a public company thereunder of compensation or damages payable to him in
respect of the termination of his appointment as director or of any appointment terminating
with that as director or as derogating from any power to remove a director which may exist
apart from this section.
(8) A director of a public company shall not be removed by, or be required to vacate his
office by reason of, any resolution, request or notice of the directors or any of them
notwithstanding anything in the constitution or any agreement.
(9) Subject to any provision to the contrary in the constitution, a private company may by
ordinary resolution remove a director before the expiration of his period of office
notwithstanding anything in any agreement between the private company and the director.

 In the case of a private company, the right of the company to remove him before his
period of office expires may be qualified by the company’s constitution, otherwise,
the default rule would be by ordinary resolution

COMPANIES ACT
Cap 50, 2006 Rev Ed
Removal of directors
152.—(9) Subject to any provision to the contrary in the constitution, a private company may
by ordinary resolution remove a director before the expiration of his period of office
notwithstanding anything in any agreement between the private company and the director.

 Other events that can lead to a director vacating office is stipulated in Article 72 of
Table A

COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 72 of Table A
(a) ceases to be a director by virtue of the Act;
(b) becomes bankrupt or makes any arrangement or composition with his creditors
generally;
(c) becomes prohibited from being a director by reason of any order made under the
Act;

Page 106 of 153


(d) becomes disqualified from being a director by virtue of section 148, 149, 154 or 155;
(e) becomes of unsound mind or a person whose person or estate is liable to be dealt
with in any way under the law relating to mental disorder;
(f) subject to section 145, resigns his office by notice in writing to the company;
(g) for more than 6 months is absent without permission of the directors from meetings
of the directors held during that period;
(h) without the consent of the company in general meeting, holds any other office of
profit under the company except that of managing director or manager; or
(i) is directly or indirectly interested in any contract or proposed contract with the
company and fails to declare the nature of his interest in manner required by the
Act.

4. DIRECTOR’S FINANCIAL DEALINGS WITH COMPANY

 The CA contains a number of specific rules applying to certain common financial


dealings between a company and its directors

4.1 REMUNERATION AND TERMINATION PAYMENTS

 Directors do not have any right to be paid or remunerated for the services which
they perform for the company
 Unless there is provision for them to be paid, whether in the constitution or by company
resolution, directors are not entitled to a fee for acting qua director
 Shareholders have authority over a director’s remuneration as the CA requires
shareholder approval in respect of payments made to a director in respect of his office
 Payments and benefits covered by this section include:
 Only payment/benefits received by a director, in his capacity of a
director
 As a director is often employed by the company and therefore the
amounts received by the company may derive from his office as director
(director’s fees) and if he is employed in the executive position, from his
service contract with the company (salary)
 Payment to the executive is not captured under section 169 of the CA,
for such payment would not be “in respect of [a director’s] office”

COMPANIES ACT
Cap 50, 2006 Rev Ed
Provision and improvement of director’s emoluments
169.—(1) A company shall not at any meeting or otherwise provide emoluments or
improve emoluments for a director of a company in respect of his office as such unless
the provision is approved by a resolution that is not related to other matters and any
resolution passed in breach of this section shall be void.
(2) In this section, “emoluments” in relation to a director includes fees and percentages, any
sums paid by way of expenses allowance in so far as those sums are charged to income
tax in Singapore, any contribution paid in respect of a director under any pension scheme

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and any benefits received by him otherwise than in cash in respect of his services as
director.

 Where the constitution provides for the determination and payment of remuneration,
the requirements of the particular provision will have to be adhered to
 If proper procedure therein provided was not followed, the director in question
will be precluded from claiming in quantum meruit or for an equitable allowance
in respect of the services he had rendered
 Under section 168(1), the CA prohibits a company from making any payment of
compensation to a director for loss of office as an officer of the company unless the
particulars with respect to the proposed payment have been disclosed to and
approved by the members of the company
 However, note that a payment which is properly referable to the director’s
remuneration package as a whole and is therefore consideration for the
director’s service would not be caught by the provision (section 168(5)(e))

COMPANIES ACT
Cap 50, 2006 Rev Ed
Payments to director for loss of office, etc.
168.—(1) It shall not be lawful —
(a) for a company to make to any director any payment by way of compensation for loss
of office as an officer of the company or of a subsidiary of the company or as
consideration for or in connection with his retirement from any such office; or
unless particulars with respect to the proposed payment, including the amount thereof, have
been disclosed to the members of the company and the proposal has been approved
by the company in general meeting and when any such payment has been unlawfully made
the amount received by the director shall be deemed to have been received by him in trust
for the company.
As to payments to directors
(5) Any reference in this section to payments to any director of a company by way of
compensation for loss of office or as consideration for or in connection with his retirement
from office shall not include —
(a) any payment under an agreement entered into before 1st January 1967;
(b) any payment under an agreement particulars of which have been disclosed to and
approved by special resolution of the company;
(c) any bona fide payment by way of damages for breach of contract;
(d) any bona fide payment by way of pension or lump sum payment in respect of past
services, including any superannuation or retiring allowance, superannuation
gratuity or similar payment, where the value or amount of the pension or payment,
except in so far as it is attributable to contributions made by the director, does not
exceed the total emoluments of the director in the 3 years immediately preceding
his retirement or death; or

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(e) any payment to a director pursuant to an agreement made between the company
and him before he became a director of the company as the consideration or part of
the consideration for the director agreeing to serve the company as a director.

 Note: As the definition of “officer” includes a “person employed in an executive


position”, any payment of compensation to a person who resigns as managing director
or executive officer but who remains on the board of directors will similarly be subject
to the approval requirement
 A further exception to the restrictions would be that there is no need for approval by
the company if the compensation payment to a salaried director arises out of an
existing obligation of the company which was not entered into in consequence of
the event giving rise to the compensation payment, and is for an amount that does
not exceed the total emoluments of the director for the year immediately
preceding his termination of employment

COMPANIES ACT
Cap 50, 2006 Rev Ed
Payments to director for loss of office, etc.
168.— (1A) The requirement for approval by the company in subsection (1) shall not apply
in respect of any payment to a director holding a salaried employment or office in the
company by way of compensation for termination of employment pursuant to an existing
legal obligation arising from an agreement made between the company and the director if

(a) the amount of the payment does not exceed the total emoluments of the director for
the year immediately preceding his termination of employment; and
(b) the particulars with respect to the proposed payment, including the amount thereof,
have been disclosed to the members of the company upon or prior to the payment.

 What is the status of a payment made in breach of section 168(1)?

Listed-company directors
The remuneration and other benefits accorded to directors and senior executives of listed
companies have become a controversial topic around the world in recent decades. One big
question is how to link these to the listed company’s financial performance, so as to
incentivise directors to focus on returns to shareholders. SGX-listed companies are now
subject to rules and procedures for setting remuneration in both the SGX Listing Manual
and the MAS’s Code of Corporate Governance. However neither of the latter give
shareholders the right to vote on remuneration of directors or executives.
Why do you think s 169 by itself has proven inadequate in this regard?

4.2 RESTRICTION ON FINANCIAL TRANSACTIONS WITH DIRECTORS OR


THEIR CONNECTED COMPANIES

 Note: Credit requires a time gap between the performance of one party and the
performance of another

Page 109 of 153


4.2.1 RESTRICTED TRANSACTIONS FOR THE BENEFIT OF
DIRECTORS

 Loans by all companies, with the exception of exempt private companies (section
162(2)), to their directors, or directors of related companies, are subject to statutory
control
 The rationale for such prohibitions, where the CA prohibits companies from making
such loans, is so as to guard against the risk of directors acting in their own
interests
 In this case, a restricted transaction extends beyond loans in the conventional sense;
not conventional loans in that no funds move directly to the director, but they are
nevertheless analogous to loans in practical effect (section 162(1))
 Conventional loan definition can be found in Creanovate Pte Ltd v Firstlink
Energy Pte Ltd

Creanovate Pte Ltd v Firstlink Energy Pte Ltd


[2007] 4 SLR(R) 780
Conventional definition of loan

A contract of loan of money is a contract whereby one person lends or agrees to lend a sum
of money to another, in consideration of a promise express or implied to repay that sum on
demand, or at a fixed or determinable future time, or conditionally upon an event which is
bound to happen, with or without interest.

 Transactions involve the company taking on the risk of financial benefits


received by the director
 Include quasi-loans and credit transactions
 Quasi-loans: Transactions in which the company agrees to pay for the
receipt by a director of some financial benefit, but for which payment
the director is liable to make reimbursement to the company
 Credit transactions: Include hire purchase, conditional sale and lease
and hire agreements, involve the supply of goods, services or
immovable property to the director but for which payment is deferred in
some way

COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(1) For the purposes of this section, a company makes a restricted transaction if it —
(a) makes a loan or quasi-loan to a director —
i. of the company; or
ii. of a company which by virtue of section 6 is deemed to be related to that
company,
(referred to in this section as a relevant director);
(b) enters into any guarantee or provides any security in connection with a loan or quasi-
loan made to a relevant director by any other person;

Page 110 of 153


(c) enters into a credit transaction as creditor for the benefit of a relevant director;
(d) enters into any guarantee or provides any security in connection with a credit
transaction entered into by any person for the benefit of a relevant director;
(e) takes part in an arrangement under which —
i. another person enters into a transaction that, if it had been entered into by
the company, would have been a restricted transaction under paragraph (a),
(b), (c), (d) or (f); and
(f) arranges the assignment to the company, or assumption by the company, of any
rights, obligations or liabilities under a transaction that, if it had been entered into by
the company, would have been a restricted transaction under paragraphs (a) to (e).
(11) In this section and section 163 —
“conditional sale agreement” has the same meaning as in section 2 of the Hire-Purchase
Act (Cap. 125);
“credit transaction” means a transaction under which one party
(referred to in this section and section 163 as the creditor) —
(a) supplies any goods or disposes of any immovable property under a hire-
purchase agreement or a conditional sale agreement;
(b) leases or hires any immovable property or goods in return for periodic payments;
or
(c) otherwise disposes of immovable property or supplies goods or services on the
understanding that payment (whether in a lump sum or instalments or by way of
periodic payments or otherwise) is to be deferred;
“quasi-loan” means a transaction under which one party (referred to in this section and
section 163 as the creditor) agrees to pay, or pays otherwise than in pursuance of an
agreement, a sum for another (referred to in this section as the borrower) or agrees to
reimburse, or reimburses otherwise than in pursuance of an agreement, expenditure
incurred by another party for another (referred to in this section and section 163 as the
borrower) —
(a) on terms that the borrower (or a person on his behalf) will reimburse the creditor;
or
(b) in circumstances giving rise to a liability on the borrower to reimburse the
creditor;
“services” means any thing other than goods or immovable property.

 Certain arrangements are prohibited even if not entered into by the company
 Idea is to prevent the company from circumventing the prohibition by getting a
third party to provide the benefits to the director
 These are arrangements that are entered into for the benefit of the director,
but in respect of which that other person obtains a benefit from the company,
or a related company
 Such arrangements are caught if, had they been entered into by the
company, they would fall to be treated as restricted transactions

Page 111 of 153


4.2.1.1 EXCEPTIONS

 Section 162(3) expressly states that the restrictions do not apply in 4 specific situations

COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(3) Subject to subsection (4), nothing in this section shall apply to any transaction
which would otherwise be a restricted transaction that is —
(a) made to or for the benefit of a relevant director to meet expenditure
incurred or to be incurred by him for the purposes of the company or for the
purpose of enabling him to properly perform his duties as an officer of the
company;
(b) made to or for the benefit of a relevant director who is engaged in the full-
time employment of the company or of a corporation that is deemed to be
related to the company, as the case may be, for the purpose of purchasing or
otherwise acquiring a home occupied or to be occupied by the director,
except that not more than one such restricted transaction may be outstanding at
any time;
(c) made to or for the benefit of a relevant director who is engaged in the full-
time employment of the company or of a corporation that is deemed to be
related to that company, as the case may be, where the company has at a
general meeting approved of a scheme for the making of such transaction
to or for the benefit of employees of the company and the restricted
transaction is in accordance with that scheme; or
(d) made to or for the benefit of a relevant director in the ordinary course of
business of a company whose ordinary business includes the lending of
money or the giving of guarantees in connection with loans, quasi-loans
or credit transactions made or entered into by other persons if the activities
of that company are regulated by any written law relating to banking,
finance companies or insurance or are subject to supervision by the Monetary
Authority of Singapore.

 Note: Company’s approval in general meeting must be obtained in respect of the


exception in section 162(3)(a) and (b)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(4) Subsection (3)(a) or (b) shall not authorise the making of any restricted
transaction, except —
(a) with the prior approval of the company given at a general meeting at which the
purposes of the expenditure and the amount or extent of the restricted transaction
are disclosed; or

Page 112 of 153


(b) on condition that, if the prior approval of the company is not given as aforesaid at
or before the next following annual general meeting, the amount of or liability
under the restricted transaction shall be repaid or discharged, as the case may be,
within 6 months from the conclusion of that meeting.

 The prohibition extend to restricted transactions benefitting a director’s family


members

COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(8) For the purpose of subsection (1), a reference to a director or relevant director
therein includes a reference to the director’s spouse, son, adopted son, step-son, daughter,
adopted daughter and step- daughter.

 The consequences of contravening section 162(2) is laid out in sections 162(6) and
(7)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Loans and quasi-loans to directors, credit transactions and related arrangements
162.—(6) Where a company contravenes this section, any director who authorises the
making of the restricted transaction shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $20,000 or to imprisonment for a term not exceeding 2
years.
(7) Nothing in this section shall operate to prevent the company from recovering the amount
of any loan, quasi-loan, credit transaction or arrangement or amount for which it becomes
liable under any guarantee entered into or in respect of any security given contrary to this
section.

4.2.2 RESTRICTED TRANSACTIONS FOR THE BENEFIT OF


COMPANIES CONNECTED WITH DIRECTORS

 A company, apart from an exempt private company, is also not permitted to enter into
restricted transactions where the counterparty is a company or limited liability
partnership in which its directors have an interest amounting to at least 20% or
more of the total voting power in the counterparty unless there is prior approval by
the company in general meeting
 Interested directors and their family members are required to abstain from
voting on this resolution

Raffles Town Club Pte Ltd v Lim Eng Hock Peter


[2013] 1 SLR 374
 Held: Loan was made by RTC to RTCI (Raffles Town Club International Ltd), but
all RTCI did was to place the proceeds in the bank accounts of the companies

Page 113 of 153


controlled by PL and the former directors. This showed that the loan was clearly
meant for the former directors and not RTCI. Therefore, this case does not merely
fall under s 163, which prevents companies from making loans to another
company
 This was in fact an illegal loan under s 162(1) that was not capable of being
ratified by the shareholders
 However, since the loan had been repaid, there is no need to see if the
loan was in breach of s 162(1) since that would require the court to
consider if the directors had committed an offence under s 162(4) of the Act

 The definition of “company connected with the directors” is stipulated in section 163(1)
and (3)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(1) Subject to this section and sections 163A and 163B, it shall not be lawful for a
company (other than an exempt private company) —
(a) to make a loan or quasi-loan to another company or a limited liability partnership;
(b) to enter into any guarantee or provide any security in connection with a loan or quasi-
loan made to another company or a limited liability partnership by a person other
than the first-mentioned company;
(c) to enter into a credit transaction as creditor for the benefit of another company or a
limited liability partnership; or
(d) to enter into any guarantee or provide any security in connection with a credit
transaction entered into by any person for the benefit of another company or a
limited liability partnership,
if a director or directors of the first-mentioned company is or together are interested in 20%
or more of the total voting power in the other company or the limited liability partnership, as
the case may be, unless there is prior approval by the company in general meeting for the
making of, provision for or entering into the loan, quasi-loan, credit transaction, guarantee
or security (as the case may be) at which the interested director or directors and his or their
family members abstained from voting.
(3) For the purposes of subsection (2), a director or directors of a company —
(a) have an interest in the other company if —
a. in the case of a company with a share capital, the director or directors is or
together are interested in 20% or more of the total voting power in the
other company; or
b. in the case of a company without a share capital, the director or directors
exercises or together exercise control over the other company (whether
by reason of having the power to appoint directors or otherwise); or
(b) have an interest in a limited liability partnership if the director or directors is or
together are interested in 20% or more of the total voting power in the limited
liability partnership.

Page 114 of 153


 Note that “interests in voting power” is equivalent to “interests in shares” as defined in
section 7

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(3D) For the purposes of this section —
(b) “interest in shares” has the meaning assigned to that expression in section 7;
(c) a person who has an interest in a share of a company under section 7 is to be
treated as having an interest in the voting power conferred on the holder by that
share;

 Exclusion of interests held through lending company

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(3D) For the purposes of this section —
(a) where a company makes a loan or quasi-loan to another company, enters into a
credit transaction for the benefit of another company, gives a guarantee or
provides security in connection with a loan, quasi-loan or credit transaction made
to or entered into for the benefit of another company, or enters into an
arrangement referred to in subsection (3A), a director or directors of the first-
mentioned company shall not be taken to have an interest in shares in that other
company by reason only that the first-mentioned company has an interest in
shares in that other company and a director or directors have an interest in
shares in the first-mentioned company;
(b) “interest in shares” has the meaning assigned to that expression in section 7;
(c) a person who has an interest in a share of a company under section 7 is to be
treated as having an interest in the voting power conferred on the holder by that
share;
(d) a reference to prior approval of the company in subsection (1) shall not include
any approval of the company that is given after the loan, quasi-loan, credit
transaction, guarantee or security referred to in that subsection has been made,
provided for or entered into (as the case may be); and
(e) a reference to prior approval of the company in subsection (3A) shall not include
any approval of the company that is given after the arrangement referred to in
that subsection has been entered into.

 Interests of director’s family members

COMPANIES ACT
Cap 50, 2006 Rev Ed

Page 115 of 153


Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(5) For the purposes of this section —
(a) an interest of a member of a director’s family shall be treated as the interest of
the director; and
(b) a reference to a member of a director’s family shall include the director’s spouse,
son, adopted son, step-son, daughter, adopted daughter and step-daughter.

 Connected companies incorporated outside Singapore

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(2) Subsection (1) shall extend to apply to —
(a) a loan or quasi-loan made by a company (other than an exempt private
company) to another company or a limited liability partnership;
(b) a credit transaction made by a company (other than an exempt private company)
for the benefit of another company or to a limited liability partnership; and
(c) a guarantee entered into or security provided by a company (other than an
exempt private company) in connection with a loan or quasi-loan made to
another company or a limited liability partnership by a person other than the first-
mentioned company or with a credit transaction made for the benefit of another
company or a limited liability partnership entered into by a person other than the
first-mentioned company,
where such other company or such limited liability partnership is incorporated or formed, as
the case may be, outside Singapore, if a director or directors of the first-mentioned company
have an interest in the other company or the limited liability partnership, as the case may
be.

4.2.1.2 EXCEPTIONS

 Restrictions in section 163 do not apply in the following situations


 Prior approval given

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(1) Subject to this section and sections 163A and 163B, it shall not be lawful for a
company (other than an exempt private company) —
(a) to make a loan or quasi-loan to another company or a limited liability partnership;

Page 116 of 153


(b) to enter into any guarantee or provide any security in connection with a loan or
quasi-loan made to another company or a limited liability partnership by a person
other than the first-mentioned company;
(c) to enter into a credit transaction as creditor for the benefit of another company
or a limited liability partnership; or
(d) to enter into any guarantee or provide any security in connection with a credit
transaction entered into by any person for the benefit of another company or a
limited liability partnership,
if a director or directors of the first-mentioned company is or together are interested in 20%
or more of the total voting power in the other company or the limited liability partnership, as
the case may be, unless there is prior approval by the company in general meeting for the
making of, provision for or entering into the loan, quasi-loan, credit transaction, guarantee
or security (as the case may be) at which the interested director or directors and his or their
family members abstained from voting.
(3A) Subject to this section and sections 163A and 163B, a company (other than an exempt
private company) shall not —
(a) take part in an arrangement under which —
i. another person enters into a transaction that, if it had been entered into
by the company, would have required approval under this section; and
ii. that person, in pursuance of the arrangement, obtains a benefit from the
company or a related company; or
(b) arrange the assignment to it, or assumption by it, of any rights, obligations or
liabilities under a transaction that, if it had been entered into by the company,
would have required such approval,
unless there is prior approval by the company in general meeting for taking part in such
an arrangement or for arranging the assignment or assumption of rights, obligations or
liabilities under such a transaction at which the interested director or directors or his or their
family members abstained from voting.
(3C) The requirement in subsections (1) and (3A) that the interested director or directors or
his or their family members abstain from voting at the general meeting of the company shall
not apply where all the shareholders of the company have each voted to approve the
arrangement.

 Transaction between related companies or by regulated financial institutions

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.
163.—(4) This section shall not apply —
(a) to anything done by a company where the other company (whether that
company is incorporated in Singapore or otherwise) is its subsidiary or holding
company or a subsidiary of its holding company; or

Page 117 of 153


(b) to a company, whose ordinary business includes the lending of money or the
giving of guarantees in connection with loans made by other persons, to anything
done by the company in the ordinary course of that business if the activities of
that company are regulated by any written law relating to banking, finance
companies or insurance or are subject to supervision by the Monetary Authority
of Singapore.

 Funding defence of legal proceedings

COMPANIES ACT
Cap 50, 2006 Rev Ed
Exception for expenditure on defending proceedings, etc.
163A.—(1) Sections 162 and 163 shall not apply to anything done by a company —
(a) to provide a director of the company with funds by way of any loan to meet
expenditure incurred or to be incurred by him —
(b) in defending any criminal or civil proceedings in connection with any alleged
negligence, default, breach of duty or breach of trust by him in relation to the
company; or
(c) in connection with an application for relief; or
(d) to enable any such director to avoid incurring such expenditure,
if it is done on the terms provided in subsection (2).

 Funding defence of regulatory investigation

COMPANIES ACT
Cap 50, 2006 Rev Ed
Exception for expenditure in connection with regulatory action or investigation
163B.—(1) Sections 162, 163 and 172 shall not apply to anything done by a company —
(a) to provide a director of the company with funds by way of any loan to meet
expenditure incurred or to be incurred by him in defending himself —
i. in an investigation by a regulatory authority; or
ii. against any action proposed to be taken by a regulatory authority,
in connection with any alleged negligence, default, breach of duty or breach of trust
by him in relation to the company; or
(b) to enable any such director to avoid incurring such expenditure.

 The consequences of contravention are laid out in the following sections

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for loans and quasi-loans to, and credit transactions
for benefit of, persons connected with directors of lending company, etc.

Page 118 of 153


163.—(6) Nothing in this section shall operate to prevent the recovery of the amount of any
loan, quasi-loan, credit transaction or arrangement or the enforcement of any guarantee or
security whether made or given by the company or any other person.
(7) Where a company contravenes this section, any director who authorises the making of
any loan or quasi-loan, the entering into of any credit transaction, the entering into of any
guarantee, the providing of any security or the entering into of any arrangement contrary to
this section shall be guilty of an offence and shall be liable on conviction to a fine not
exceeding $20,000 or to imprisonment for a term not exceeding 2 years.

5. BOARD DECISION-MAKING: PROCEDURES

 As noted, the board formally acts through passing resolutions, usually at board
meetings
 Generally, there are no mandatory legal rules on how a board should conduct its
meetings or make decisions
 Decision-making by the directors is left to be regulated by the company’s
constitution which tends to leave such matters to the discretion of the board
itself’
 Board meetings can therefore be as formal or informal as the directors decide
 Barron v Potter: However, a casual meeting between directors cannot be
considered a valid board meeting if one or more of the directors present were
not willing participants in the meeting
 Majority principle applies to board resolutions
 Except where constitution expressly provides otherwise, a simple majority will
carry the motion or proposal
 However, note that powers are conferred on the directors for their conscious
and collective decision as a board, and directors owe duties collectively
and individually to the company
 No individual director can be improperly excluded by his fellow
directors from board deliberations or from providing his input before a
decision is taken
 A board meeting where notice is given only to some directors is
ineffective, and the court will intervene by granting an injunction against
the exclusion
 Review Arts 79 to 90A TA; Regs 83-94 MC, which (other than Art 81 TA; Reg 85
MC) are fairly typical of the provisions found in a company’s constitution governing
“Proceedings of Directors”
 Note that Art 81 TA; Reg 85 MC is often modified to allow a director to have an interest
in a transaction with the company, so long as he has properly disclosed his interest.
The modified article sometimes also permits the director to vote on such a disclosed
transaction. See further Topic 5 Directors’ Duties

COMPANIES ACT
Cap 50, 2006 Rev Ed
Articles 79 – 90A of Table A (Proceedings of Directors)

Page 119 of 153


79. The directors may meet together for the despatch of business, adjourn and otherwise
regulate their meetings as they think fit. A director may at any time and the secretary shall
on the requisition of a director summon a meeting of the directors.
80. Subject to these Regulations, questions arising at any meeting of directors shall be
decided by a majority of votes and a determination by a majority of directors shall for
all purposes be deemed a determination of the directors. In case of an equality of votes
the chairman of the meeting shall have a second or casting vote.
81. A director shall not vote in respect of any contract or proposed contract with the
company in which he is interested, or any matter arising thereout, and if he does so vote
his vote shall not be counted.
82. Any director with the approval of the directors may appoint any person, whether a
member of the company or not, to be an alternate or substitute director in his place during
such period as he thinks fit. Any person while he so holds office as an alternate or substitute
director shall be entitled to notice of meetings of the directors and to attend and vote thereat
accordingly, and to exercise all the powers of the appointor in his place. An alternate or
substitute director shall not require any share qualification, and shall ipso facto vacate office
if the appointor vacates office as a director or removes the appointee from office. Any
appointment or removal under this regulation shall be effected by notice in writing
under the hand of the director making the same.
83. The quorum necessary for the transaction of the business of the directors may be fixed
by the directors, and unless so fixed shall be 2.
84. The continuing directors may act notwithstanding any vacancy in their body, but if and
so long as their number is reduced below the number fixed by or pursuant to the regulations
of the company as the necessary quorum of directors, the continuing directors or director
may act for the purpose of increasing the number of directors to that number or of
summoning a general meeting of the company, but for no other purpose.
85. The directors may elect a chairman of their meetings and determine the period for which
he is to hold office; but if no such chairman is elected, or if at any meeting the chairman is
not present within 10 minutes after the time appointed for holding the meeting, the directors
present may choose one of their number to be chairman of the meeting.
86. The directors may delegate any of their powers to committees consisting of such
member or members of their body as they think fit; any committee so formed shall in the
exercise of the powers so delegated conform to any regulations that may be imposed on it
by the directors.
87. A committee may elect a chairman of its meetings; if no such chairman is elected, or if
at any meeting the chairman is not present within 10 minutes after the time appointed for
holding the meeting, the members present may choose one of their number to be chairman
of the meeting.
88. A committee may meet and adjourn as it thinks proper. Questions arising at any meeting
shall be determined by a majority of votes of the members present, and in the case of
an equality of votes the chairman shall have a second or casting vote.
89. All acts done by any meeting of the directors or of a committee of directors or by any
person acting as a director shall, notwithstanding that it is afterwards discovered that
there was some defect in the appointment of any such director or person acting as

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aforesaid, or that they or any of them were disqualified, be as valid as if every such person
had been duly appointed and was qualified to be a director.
90. A resolution in writing, signed by all the directors for the time being entitled to receive
notice of a meeting of the directors, shall be as valid and effectual as if it had been passed
at a meeting of the directors duly convened and held. Any such resolution may consist of
several documents in like form, each signed by one or more directors.
90A. Where the company has only one director, he may pass a resolution by recording it
and signing the record.

Regulations of Model Constitution (Proceedings of Directors)


83.—(1) The directors may meet together for the despatch of business, adjourn and
otherwise regulate their meetings as they think fit.
(2) A director may at any time summon a meeting of the directors.
(3) The secretary must, on the requisition of a director, summon a meeting of the
directors.
84.—(1) Subject to this Constitution, questions arising at any meeting of directors must be
decided by a majority of votes and a determination by a majority of directors is for all
purposes treated as a determination of the directors.
(2) In case of an equality of votes the chairman of the meeting has a second or casting
vote.
85.—(1) A director must not vote in respect of any transaction or proposed transaction with
the company in which the director is interested, or in respect of any matter arising from such
transaction or proposed transaction.
(2) If a director referred to in paragraph (1) does vote in respect of any transaction or
proposed transaction referred to in that paragraph, the director’s vote must not be
counted.
86. The quorum necessary for the transaction of the business of the directors may be fixed
by the directors, and unless so fixed is 2.
87.—(1) Subject to paragraph (2), the directors may act despite any vacancy in their body.
(2) If and so long as the number of directors is reduced below the number fixed by this
Constitution as the necessary quorum of directors, the continuing directors or director
may not act except for the purpose of increasing the number of directors to that number
or for the purpose of summoning a general meeting of the company.
88.—(1) The directors may elect a chairman of their meetings and determine the period for
which the chairman is to hold office.
(2) If no chairman is elected, or if at any meeting the chairman is not present within 10
minutes after the time appointed for holding the meeting, the directors present may
choose one of their number to be chairman of the meeting.
89.—(1) The directors may delegate any of their powers to committees consisting of any
member or members of their body as the directors think fit.
(2) Any committee formed under paragraph (1) must in the exercise of the delegated
powers conform to any regulation that may be imposed on it by the directors.

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90.—(1) A committee may elect a chairman of its meetings.
(2) If no chairman is elected, or if at any meeting the chairman is not present within 10
minutes after the time appointed for holding the meeting, the members present may
choose one of their number to be chairman of the meeting.
91.—(1) A committee may meet and adjourn as it thinks proper.
(2) Questions arising at any meeting must be determined by a majority of votes of the
members present, and in the case of an equality of votes the chairman has a second or
casting vote.
92. All acts done by any meeting of the directors or of a committee of directors or by any
person acting as a director is as valid as if every such person had been duly appointed and
was qualified to be a director, even if it is afterwards discovered that —
(a) there was some defect in the appointment of any director or person acting as a
director; or
(b) the directors or person acting as a director or any of them were disqualified.
93.—(1) A resolution in writing, signed by all the directors for the time being entitled to
receive notice of a meeting of the directors, is as valid and effectual as if it had been passed
at a meeting of the directors duly convened and held.
(2) Any resolution in writing under paragraph (1) may consist of several documents in
like form, each signed by one or more directors.
94. Where the company has only one director, the director may pass a resolution by
recording it and signing the record.

6. SHAREHOLDER DECISION-MAKING: PROCEDURES

 Decision-making in a company is, as a general rule, a collective exercise, and is


expressed through statements referred to as “resolutions”
 Majority principle is fundamental to this exercise, and the collective will is determined
through the mechanism of the meeting
 Especially so for shareholders, whose meetings are subject to procedural rules
laid down in the CA (sections 174-189) and by the constitution (Articles 43-62
TA; Regulations 51-66 MC)
 It is not dictated that shareholder decisions can only be made through resolutions
passed at properly held meetings, and therefore, it is permitted for private companies
to take decisions through the passing of written resolutions instead
 Even at general law, decision-making without a formal meeting is
recognised through what is often referred to as the Duomatic principle

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6.1 GENERAL MEETINGS – TYPES AND PROCEDURES

 Meetings to which virtually all members have a right to attend are general meetings

6.1.1 ANNUAL GENERAL MEETING

 As per section 175, every company is required to at least one general meeting, to be
called the “annual general meeting”, every calendar year

COMPANIES ACT
Cap 50, 2006 Rev Ed
Annual general meeting

175.—(1) A general meeting of every company to be called the “annual general meeting” shall in addition to
any other meeting be held once in every calendar year and not more than 15 months after the holding of the
last preceding annual general meeting, but so long as a company holds its first annual general meeting within
18 months of its incorporation, it need not hold it in the year of its incorporation or in the following year.

(2) Notwithstanding subsection (1), the Registrar may extend the period of 15 months or 18 months referred
to in that subsection, notwithstanding that the period is so extended beyond the calendar year —

(a) upon an application by the company, if the Registrar thinks there are special reasons to do so; or
(b) in respect of any prescribed class of companies.

(3) Subject to notice being given to all persons entitled to receive notice of the meeting, a general meeting
may be held at any time and the company may resolve that any meeting held or summoned to be held shall
be the annual general meeting of the company.

(4) If default is made in holding an annual general meeting —

(a) the company and every officer of the company who is in default shall be guilty of an offence and
shall be liable on conviction to a fine not exceeding $5,000 and also to a default penalty; and

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(b) the Court may on the application of any member order a general meeting to be called.

 The main purpose of such a meeting is to:


 Provide the opportunity for shareholders to query the directors about the
company’s affairs and financial well-being
 May be seen as a mechanism to encourage directorial accountability
 Allow shareholders to consider matters such as the company’s annual financial
statements and the directors’ and auditors’ reports thereon, and the
appointment or reappointment of auditors and directors, and the declaration of
dividends
 Shareholders may also raise other issues for deliberation
 As seen in section 175, all companies are required to hold an annual general meeting
as required (within an interval of not more than 15 months between AGMs), if not the
company and very officer of the company who is in default shall be guilty of an offence
 However, as seen below, section 175A entitles private companies to dispense
with the holding of annual general meetings, provided the resolution for
dispensation has been passed by all members who are entitled to vote at the
meeting

COMPANIES ACT
Cap 50, 2006 Rev Ed
Private companies may dispense with annual general meetings

175A.—(1) A private company may, by resolution passed in accordance with subsection


(2), dispense with the holding of annual general meetings.

(2) Notwithstanding any other provision of this Act, a resolution referred to in subsection (1)
shall only be treated as passed at a general meeting if it has been passed by all of such
members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy
present at the meeting.

 This practice acknowledges the informality often associated with the operations
of private companies and permits the company to effect, by way of written
resolutions, matters which would otherwise have to be done formally held at
AGMs
 To look at what items are required to be considered at the AGM, we refer to sections
201, 205(2)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Financial statements and consolidated financial statements

201.—(1) The directors of every company shall, at a date not later than 18 months after the
incorporation of the company and subsequently at least once in every calendar year at
intervals of not more than 15 months, lay before the company at its annual general
meeting the financial statements for the period since the preceding financial statements

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(or in the case of the first financial statements, since the incorporation of the company)
made up to a date

(a) in the case of a public company that is listed, not more than 4 months before the
date of the meeting; or
(b) in the case of any other company, not more than 6 months before the date of the
meeting.

Appointment and remuneration of auditors

205.—(2) A company shall at each annual general meeting of the company appoint an
accounting entity or accounting entities to be the auditor or auditors of the company, and
any auditor or auditors so appointed shall, subject to this section, hold office until the
conclusion of the next annual general meeting of the company.

 For other items usually considered at the AGM, we refer to section 161 and Articles
63, 98 of Table A

COMPANIES ACT
Cap 50, 2006 Rev Ed
Approval of company required for issue of shares by directors
161.—(1) Notwithstanding anything in a company’s constitution, the directors shall not,
without the prior approval of the company in general meeting, exercise any power of the
company to issue shares.
Article 63 of Table A
63. At the first annual general meeting of the company all the directors shall retire from
office, and at the annual general meeting in every subsequent year one-third of the directors
for the time being, or, if their number is not 3 or a multiple of 3, then the number nearest
one-third, shall retire from office.
Article 98 of Table A

98. The company in general meeting may declare dividends, but no dividend shall exceed
the amount recommended by the directors.

 With regards to the issue on whether shareholders are able to add items to the
agenda for an AFM, as long as the matter is one which falls rightly within the
shareholders’ power to decide, any number of members who represent not less
than 5% off the total voting rights of those entitled to vote on the matter may
requisition the company to circulate, with the agenda for the next AGM, notice of
resolutions concerning the matters which the members intend to table at that meeting

COMPANIES ACT
Cap 50, 2006 Rev Ed
Circulation of members’ resolutions, etc.

Page 125 of 153


183.—(1) Subject to this section, a company shall on the requisition of such number of
members of the company as is specified in subsection (2) and, unless the company
otherwise resolves, at the expense of the requisitionists —

(a) give to members of the company entitled to receive notice of the next annual
general meeting notice of any resolution which may properly be moved
and is intended to be moved at that meeting or (if the resolution is proposed
to be passed by written means under section 184A) for which agreement is
sought; and
(b) circulate to members entitled to have notice of any general meeting sent to them
any statement of not more than 1,000 words with respect to the matter referred
to in any proposed resolution or the business to be dealt with at that meeting.

(2) The number of members necessary for a requisition under subsection (1) shall be —

(a) any number of members representing not less than 5% of the total voting rights
of all the members having at the date of the requisition a right to vote at the
meeting to which the requisition relates; or
(b) not less than 100 members holding shares in the company on which there has
been paid up an average sum, per member, of not less than $500.

 The holding in Credit Development v IMO Pte Ltd stated that section 183(1)
requires the company to give notice of “any resolution which may properly be
moved”
 Directors need not act on a requisition for a meeting if the object of the
meeting is to do that which cannot legally be carried into effect or to
pass a resolution which is ultra vires the meeting
 If such a meeting was in fact held and a resolution passed, the directors
are not bound to comply with it
 Company cannot be required to include such a resolution in the agenda
of an annual general meeting and such a resolution is one which may
not be properly moved

6.1.2 EXTRAORDINARY GENERAL MEETINGS

 All other general meetings additional to the annual general meeting are usually
referred to as “extraordinary general meetings”

6.1.3 CONVENING OF GENERAL MEETINGS

6.1.3.1 AUTHORISATION FOR CONVENING

 In practice, the board of directors convenes most general meetings (reflected in


Article 44 of Table A and Regulation 48 of the Model Constitution

COMPANIES ACT
Cap 50, 2006 Rev Ed

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Article 44 of Table A
44. Any director may, whenever he thinks fit, convene an extraordinary general meeting,
and extraordinary general meetings shall be convened on such requisition or in default may
be convened by such requisitionists as provided by the Act.

 Additionally, subject to minimum shareholding or numerical requirements, members


are also given the right to convene or requisition a meeting

COMPANIES ACT
Cap 50, 2006 Rev Ed
Convening of extraordinary general meeting on requisition
176.—(1) The directors of a company, notwithstanding anything in its constitution, shall, on
the requisition of members holding at the date of the deposit of the requisition not less
than 10% of the total number of paid-up shares as at the date of the deposit carries the
right of voting at general meetings or, in the case of a company not having a share capital,
of members representing not less than 10% of the total voting rights of all members
having at that date a right to vote at general meetings, immediately proceed duly to
convene an extraordinary general meeting of the company to be held as soon as
practicable but in any case not later than 2 months after the receipt by the company of the
requisition.
Calling of meetings
177.—(1) Two or more members holding not less than 10% of the total number of
issued shares of the company (excluding treasury shares) or, if the company has not a
share capital, not less than 5% in number of the members of the company or such
lesser number as is provided by the constitution may call a meeting of the company.

 The court may also direct a meeting to be held and conducted in a manner it thinks fit
where it is “impracticable” to call or conduct a meeting in the usual manner
 Impracticability provides the threshold requirement for the exercise of and
underpins the court’s jurisdiction
 In deciding whether to exercise its discretion, the court takes a holistic
assessment of the circumstances; which entails a consideration of whether
there is, in the first place, impracticability and then whether the impracticability
is such as to call for the court’s intervention
 Note: Court will not exercise its jurisdiction under the section to override class
or other substantive rights or to shift the balance of power between
shareholders who have agreed to share control equally

Page 127 of 153


COMPANIES ACT
Cap 50, 2006 Rev Ed
Power of Court to order meeting
182. If for any reason it is impracticable to call a meeting in any manner in which meetings
may be called or to conduct the meeting in the manner prescribed by the constitution or this
Act, the Court may, either of its own motion or on the application of any director or of
any member who would be entitled to vote at the meeting or of the personal
representative of any such member, order a meeting to be called, held and conducted in
such manner as the Court thinks fit, and may give such ancillary or consequential directions
as it thinks expedient, including a direction that one member present in person or by proxy
shall be deemed to constitute a meeting or that the personal representative of any deceased
member may exercise all or any of the powers that the deceased member could have
exercised if he were present at the meeting.

6.1.3.2 NOTICE PERIOD

 The CA stipulates that a minimum notice period of 14 days must be given for all
meetings except a meeting of a public company for the passing of a special
resolution, for which a period of 21 days is prescribed
 It is possible for meetings to be called on shorter notice
 Must be agreed to by a majority in number of the members who together hold
not less than 95% of the total voting rights of all the members having a right to
vote at that meeting
 However, AGMs may only be called on shorter notice if this is agreed to by all
the members who are entitled to attend and vote thereafter

COMPANIES ACT
Cap 50, 2006 Rev Ed
Calling of meetings
177.—(2) A meeting of a company or of a class of members, other than a meeting for the
passing of a special resolution, shall be called by notice in writing of not less than 14 days
or such longer period as is provided in the constitution.
(3) A meeting shall, notwithstanding that it is called by notice shorter than is required by
subsection (2), be deemed to be duly called if it is so agreed —
(a) in the case of a meeting called as the annual general meeting, by all the
members entitled to attend and vote thereat; or
(b) in the case of any other meeting, by a majority in number of the members
having a right to attend and vote thereat, being a majority which together holds
not less than 95% of the total voting rights of all the members having a right
to vote at that meeting.
(4) So far as the constitution does not make other provision in that behalf, notice of every
meeting shall be served on every member having a right to attend thereat in the manner in
which notices are required to be served by the model constitution prescribed under section
36(1) for the type of company to which the company belongs, if any.

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Special resolutions
184.—(1) A resolution shall be a special resolution when it has been passed by a majority
of not less than three-fourths of such members as, being entitled to do so, vote in person
or, where proxies are allowed, by proxy present at a general meeting of which —
(a) in the case of a private company, not less than 14 days’ written notice; or
(b) in the case of a public company, not less than 21 days’ written notice,
specifying the intention to propose the resolution as a special resolution has been duly
given.
(2) Notwithstanding subsection (1), if it so agreed by a majority in number of the members
having the right to attend and vote at the meeting, being a majority which together holds
not less than 95% of the total voting rights of all the members having a right to vote at
that meeting, a resolution may be proposed and passed as a special resolution at a meeting
of which written notice of a period less than that required under subsection (1) has been
given.

 The calculation for notice period is laid out in Articles 45 and 108 of Table A, and
their counterparts Regulations 49 and 113 of the Model Constitution respectively

COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulation 49 of Model Constitution
49.—(1) Subject to the provisions of the Act relating to special resolutions and any
agreement amongst persons who are entitled to receive notices of general meetings from
a company, at least 14 days’ notice (exclusive of the day on which the notice is served
or treated to be served, but inclusive of the day for which notice is given) of any
general meeting must be given to persons entitled to receive notices of general meetings
from the company.
(2) A notice of a general meeting must specify the following:
(a) the place at which the general meeting is held;
(b) the date and time of the general meeting;
(c) in case of special business to be transacted at the general meeting, the general
nature of that business.
Regulation 113 of Model Constitution
113.—(1) A notice may be given by the company to any member either personally or by
sending it by post to the member —
(a) at the member’s registered address; or
(b) if the member has no registered address in Singapore, to the address, if any, in
Singapore supplied by the member to the company for the giving of notices to
the member.
(2) Where a notice is sent by post, service of the notice is treated as effected by properly
addressing, prepaying, and posting a letter containing the notice.
(3) Where a notice is sent by post, service of the notice is treated as effected —

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(a) in the case of a notice of a meeting, on the day after the date of its posting;
and
(b) in any other case, at the time at which the letter would be delivered in the
ordinary course of post.

Isetan (S) Ltd v Wisma Development Pte Ltd


[1992] 1 SLR(R) 845
Whether proper notice was given
Facts
The plaintiff held 25.77% of all the share values in Wisma Atria while the first defendant
held the remaining 74.23% of the share values. The second defendant were the
management corporation (“MC”) of Wisma Atria. The first defendant, on behalf of the MC,
gave notice to the plaintiff of the holding of the first annual general meeting of the MC on 27
September 1991. The plaintiff wanted clarification and information on certain issues in the
proposed agenda from the first defendant before attending the meeting. The first defendant
suggested in a letter to the plaintiff dated 12 October 1991 that the meeting be held on
24October 1991 wherein they would clarify the plaintiff’s queries. The plaintiff again
requested that clarification be given as soon as possible so that the meeting may be duly
convened. The meeting was held on 24 October 1991 without the plaintiff being present.
The plaintiff applied for a declaration that the meeting was null and void on the ground that
there was only one subsidiary proprietor present and that no proper notice had been given.
Issue
Whether proper notice of the meeting was given
Held

 Application was allowed


Judgment
 Para 1 to the Third Schedule of the Land Titles (Strata) Act provides that there has
to be at least 14 days between the issue of the notice and the day of the meeting
o Every notice for an AGM must specify the place, day and hour for the
meeting, as well as the proposed resolution to be considered at the meeting
 Letter of 12 October 1991 was not a proper notice and is found to be only a
suggestion made by the first defendants, not a firm notice for a meeting
o Asked for confirmation that the “time, date and venue of the meeting was
acceptable”
o It was only a proposal subject to any counter-suggestion
 To be valid, a notice must be definite; a contingent notice is not a sufficient notice
 Notice was also not served on the plaintiffs at least 14 days before the meeting
o Where the rules or regulations of a body provide for a stated period of notice
to be given, that requirement must be complied with otherwise the meeting
will be invalid. Things will only be different if by words or conduct, members
expressly or impliedly consented to a shorter notice.

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 In cases such as the removal of directors (section 152(1)) and the removal of an auditor
(section 205), special notice (laid out in section 185) is required

COMPANIES ACT
Cap 50, 2006 Rev Ed
Removal of directors
152.—(1) A public company may by ordinary resolution remove a director before the
expiration of his period of office, notwithstanding anything in its constitution or in any
agreement between it and him but where any director so removed was appointed to
represent the interests of any particular class of shareholders or debenture holders the
resolution to remove him shall not take effect until his successor has been appointed.
Resolution requiring special notice
185. Where by this Act special notice is required of a resolution, the resolution shall not be
effective unless notice of the intention to move it has been given to the company not less
than 28 days before the meeting at which it is moved, and the company shall give its
members notice of any such resolution at the same time and in the same manner as it gives
notice of the meeting or, if that is not practicable, shall give them notice thereof, in any
manner allowed by the constitution, not less than 14 days before the meeting, but if after
notice of the intention to move such a resolution has been given to the company, a meeting
is called for a date 28 days or less after the notice has been given, the notice, although not
given to the company within the time required by this section, shall be deemed to be properly
given.
Appointment and remuneration of auditors
205.—(1) The directors of a company shall, within 3 months after incorporation of the
company, appoint an accounting entity or accounting entities to be the auditor or auditors
of the company, and any auditor or auditors so appointed shall, subject to this section, hold
office until the conclusion of the first annual general meeting.
(4) An auditor of a company may be removed from office by resolution of the company at a
general meeting of which special notice has been given, but not otherwise.

6.1.3.3 CONTENT OF NOTICE OF GM

 As the notice serves to give “fair warning” of the business intended to be transacted, it
should contain enough detail to enable the members to make informed choices as to
whether or not to attend the meeting or to take other steps
 Depends on the particular circumstances of each case and the specific context
of the matters to be transacted at the meeting will have to be considered in light
of the circumstances of the company concerned
 However, take note of Regulation 49 of the Model Constitution (stated above), where
certain details had to be specified in the notice (place at which the general meeting is
held; the date and time of the general meeting; and in case of special business to be
transacted at the general meeting, the general nature of that business)

6.1.4 CONDUCT OF GENERAL MEETINGS

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 Regulations of the Model Constitution that are related to the conduct of general
meetings (equivalent to Articles 47 – 62 of Table A)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulations 51 – 66 of Model Constitution (Proceedings at General Meetings)
51.—(1) No business is to be transacted at any general meeting unless a quorum of
members is present at the time when the meeting proceeds to business.
(2) Except as otherwise provided in this Constitution, 2 members present in person form a
quorum.
(3) In this regulation, “member” includes a person attending as a proxy or as representing
a corporation or a limited liability partnership which is a member.
52. If within half an hour after the time appointed for a general meeting a quorum is not
present, the meeting —
(a) in the case where the meeting is convened upon the requisition of members, is
dissolved; or
(b) in any other case, is adjourned to the same day in the next week at the same
time and place, or to another day and at another time and place as the directors
may determine.
53. The chairman of a general meeting is —
(a) where the board of directors has appointed a chairman amongst the directors,
the chairman; or
(b) where —
i. the chairman of the board of directors is unwilling to act as the chairman of
the general meeting;
ii. (ii) the chairman is not present within 15 minutes after the time appointed for
the holding of the general meeting; or
iii. (iii) the board of directors has not appointed a chairman amongst the
directors,
the member elected by the members present for the purpose of being the
chairman of the general meeting.
54.—(1) The chairman may, with the consent of a general meeting at which a quorum is
present, and must if so directed by a general meeting, adjourn the general meeting from
time to time and from place to place.
(2) No business is to be transacted at any adjourned meeting other than the business left
unfinished at the general meeting from which the adjournment took place (called in this
regulation the original general meeting).
(3) There is no need to give any notice of an adjourned meeting or of the business to be
transacted at an adjourned meeting unless the adjourned meeting is to be held more than
30 days after the date of the original general meeting.
55.—(1) At any general meeting, a resolution put to the vote of the meeting must be
decided on a show of hands unless a poll is (before or on the declaration of the result of
the show of hands) demanded —

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(a) by the chairman;
(b) by at least 3 members present in person or by proxy;
(c) by any member or members present in person or by proxy and representing not
less than 5% of the total voting rights of all the members having the right to vote
at the meeting; or
(d) by a member or members holding shares in the company conferring a right to
vote at the meeting being shares on which an aggregate sum has been paid up
equal to not less than 5% of the total sum paid up on all the shares conferring
that right.
(2) Unless a poll is demanded, a declaration by the chairman that a resolution has on a
show of hands been carried or carried unanimously, or by a particular majority, or lost, and
an entry to that effect in the book containing the minutes of the proceedings of the company
is conclusive evidence of the fact without proof of the number or proportion of the votes
recorded in favour of or against the resolution.
(3) The demand for a poll may be withdrawn.
56.—(1) Subject to paragraph (2), if a poll is demanded it must be taken in such manner
and either at once or after an interval or adjournment or otherwise as the chairman directs.
(2) A poll demanded on the election of a chairman or on a question of adjournment must
be taken immediately.
(3) The result of the poll is a resolution of the meeting at which the poll was demanded.
57. In the case of an equality of votes, whether on a show of hands or on a poll, the
chairman of the meeting at which the show of hands takes place or at which the poll is
demanded is entitled to a second or casting vote.
58.—(1) Subject to any rights or restrictions for the time being attached to any class or
classes of shares, at meetings of members or classes of members, each member entitled
to vote may vote in person or by proxy or by attorney.
(2) On a show of hands every member or representative of a member who is present in
person has one vote.
(3) On a poll every member present in person or by proxy or by attorney or other duly
authorised representative has one vote for each share the member holds.
59.—(1) In the case of joint holders, the vote of the senior who tenders a vote, whether in
person or by proxy, is accepted to the exclusion of the votes of the other joint holders.
(2) For the purposes of paragraph (1), seniority is to be determined by the order in which
the names stand in the electronic register of members.
60. A member who is mentally disordered or whose person or estate is liable to be dealt
with in any way under the law relating to mental capacity may vote, whether on a show of
hands or on a poll, by a person who properly has the management of the estate of the
member, and any such person may vote by proxy or attorney.
61. No member is entitled to vote at any general meeting unless all calls or other sums
presently payable by the member in respect of shares in the company have been paid.
62.—(1) No objection may be raised as to the qualification of any voter except at the
meeting or adjourned meeting at which the vote objected to is given or tendered.

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(2) Any objection made in due time must be referred to the chairman of the meeting, whose
decision is final and conclusive.
(3) Every vote not disallowed at the meeting is valid for all purposes.
63.—(1) The instrument appointing a proxy must be in writing, in the common or usual form
and —
(a) where the appointer is a corporation or a limited liability partnership, either under
seal or under the hand of an officer or attorney duly authorised; or
(b) in any other case, under the hand of the appointer or of the attorney of the
appointer duly authorised in writing.
(2) A proxy may but need not be a member of the company.
(3) The instrument appointing a proxy is treated as conferring authority to demand or join
in demanding a poll.
64. Where an opportunity of voting for or against a resolution is to be conferred on
members, the instrument appointing a proxy may be in the following form or such other form
as the board of directors may approve:
“I/We*, [name(s)], of [address(es)], being a member/members* of the abovenamed
company, appoint [name] of [address], or failing him/her, [name] of [address], as
my/our* proxy to vote for me/us* on my/our* behalf at the [annual or extraordinary, as
the case may be] general meeting of the company, to be held on [date], and at any
adjournment of the meeting.
Signed on [date].
This form is to be used in favour of/against* the resolution.
*Delete whichever is not applicable. [Unless otherwise instructed, the proxy may vote
as he or she thinks fit.]”.
65.—(1) The following documents must be deposited at the registered office of the
company, or at such other place in Singapore as is specified in the notice convening the
meeting by the time specified in paragraph (2) for the purpose of appointing a proxy:
(a) the instrument appointing a proxy;
(b) the power of attorney or other authority, if any, under which the instrument
appointing the proxy is signed, or a notarially certified copy of that power of
attorney or authority.
(2) For the purposes of paragraph (1), the time is —
(a) in the case of a poll, not less than 24 hours before the time appointed for the
taking of the poll; or
(b) in any other case, not less than 72 hours before the time for holding the meeting
or adjourned meeting at which the person named in the instrument proposes to
vote.
(3) An instrument of proxy is not valid if paragraph (1) is not complied with.
66.—(1) Subject to paragraph (2), a vote given in accordance with the terms of an
instrument of proxy or attorney is valid despite —
(a) the previous death or mental disorder of the principal;

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(b) the revocation of the instrument or of the authority under which the instrument
was executed; or
(c) the transfer of the share in respect of which the instrument is given.
(2) Paragraph (1) does not apply if an intimation in writing of such death, mental disorder,
revocation, or transfer has been received by the company at its registered office before the
commencement of the meeting or adjourned meeting at which the instrument is used.

6.1.4.1 QUORUM

 A quorum is basically the minimum number of members entitled to vote who must
be present in order for the meeting to be properly constituted and the proceedings
thereat valid
 While the constitution of the company will normally specify the quorum for meetings of
the company, where the constitution does not specify, refer to section 179(1) below
or Regulation 51 of the Model Constitution above

COMPANIES ACT
Cap 50, 2006 Rev Ed
Quorum, chairman, voting, etc., at meetings
179.—(1) So far as the constitution does not make other provision in that behalf and subject
to sections 64 and 64A —
(a) 2 members of the company personally present shall form a quorum;
(b) any member elected by the members present at a meeting may be chairman
thereof;
(c) in the case of a company having a share capital —
(i) on a show of hands, each member who is personally present and entitled to
vote shall have one vote; and
(ii) on a poll, each member shall have one vote in respect of each share held by
him and where all or part of the share capital consists of stock or units of
stock each member shall have one vote in respect of the stock or units of
stock held by him which is or are or were originally equivalent to one share;
and
(d) in the case of a company not having a share capital every member shall have
one vote.

 Re Hartley Baird Ltd: No legal requirement for the quorum to be present throughout,
subject of course to there being at least two persons throughout

6.1.4.2 PROXIES

 While members have a right to attend any general meeting of the company (section
180(1)), they need not attend a meeting in person and may appoint a proxy and
authorise him to represent and vote for the member (section 181(1))
 The proxy need not be another member, and as a general rule, a member is
not entitled to appoint more than two proxies for the same meeting (section
181(1A))

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Unless the constitution otherwise provides, a proxy is entitled to vote only on
poll (section 181(1A)); but may, however, demand or join in demanding a poll
 Likewise, a corporate representative as defined in section 179(3) is authorised to
exercise the same powers on behalf of the corporation as the corporation could
exercise

COMPANIES ACT
Cap 50, 2006 Rev Ed
Quorum, chairman, voting, etc., at meetings
179.—(3) A corporation may by resolution of its directors or other governing body —
(a) if it is a member of a company, authorise such person as it thinks fit to act as its
representative either at a particular meeting or at all meetings of the company or
of any class of members; or
(b) if it is a creditor, including a holder of debentures, of a company, authorise such
person as it thinks fit to act as its representative either at a particular meeting or
at all meetings of any creditors of the company, 


and a person so authorised shall, in accordance with his authority and until his authority is
revoked by the corporation, be entitled to exercise the same powers on behalf of the
corporation as the corporation could exercise if it were an individual member, creditor or
holder of debentures of the company.
As to member’s rights at meetings
180.—(1) A member shall, notwithstanding any provision in the constitution of the company,
have a right to attend any general meeting of the company and to speak on any resolution
before the meeting.
Proxies
181.—(1) Subject to this section, a member of a company entitled to attend and vote at a
meeting of the company, or at a meeting of any class of members of the company, shall be
entitled to appoint another person, whether a member or not, as his proxy to attend and
vote instead of the member at the meeting and a proxy appointed to attend and vote instead
of a member shall also have the same right as the member to speak at the meeting.
(1A) Subject to this section, unless the constitution otherwise provides —
(a) a proxy shall not be entitled to vote except on a poll;
(b) a member shall not be entitled to appoint more than 2 proxies to attend and
vote at the same meeting; and
(c) where a member appoints 2 proxies, the appointments shall be invalid unless he
specifies the proportions of his holdings to be represented by each proxy.

 However, a member who has appointed a proxy for a particular meeting may
nonetheless turn up at the meeting and vote in accordance with his own wishes even
if the proxy was in attendance
 In such a case, the votes, if any, that have been tendered by the proxy will be
rejected

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 Proxy mechanism may also be used to solicit support for a particular proposal or
resolution to be tabled at the meeting being convened
 Thus, members may be invited to appoint as proxy certain persons who will
vote in favour of the proposed resolutions at the meeting
 If this was done in the company’s best interests, it will generally be
permitted; however, the proxy invitations must be sent out to all members
otherwise it will amount to an offence
 A proxy is considered an agent of the member for the purposes of attending and
voting at the meeting
 It would therefore be logical to expect that he proxy should vote in accordance
with the instructions given by the members who appointed him and should
exercise all the proxies held
 However, as a proxy is a gratuitous agent, it appears that there is no legal
obligation for the proxy to carry out the appointer’s instructions or even to act
at all
 Tong Keng Meng v Inno-Pacific Holdings Ltd: Proxy was ‘under no
contractual obligation to nor did she owe any fiduciary duty to [the
appointing member]’

6.1.4.3 VOTES

 As a general rule, a share in a company confers on the holder of the share to one
vote on a poll at a meeting of the company on any resolution
 But this may be negated, altered or added to by the company’s constitution
 Constitution may therefore provide for certain classes of shares to have
weighted voting right, or to be without voting rights at all

COMPANIES ACT
Cap 50, 2006 Rev Ed
Rights and powers attaching shares
64.—(1) Subject to subsections (2) and (3), sections 21 and 76J, and any written law to the
contrary, a share in a company confers on the holder of the share the right to one vote on
a poll at a meeting of the company on any resolution.
(2) A company’s constitution may provide that a member shall not be entitled to vote unless
all calls or other sums personally payable by him in respect of shares in the company have
been paid.
(3) Subject to subsection (4) and section 64A, a right specified in subsection (1) may be
negated, altered, or added to by the constitution of the company.
(4) Notwithstanding subsection (3), the right of a holder of a specified share of a company
to at least one vote on a poll at a meeting of the company on the following resolutions may
not be negated or altered:
(a) a resolution to wind up the company voluntarily under section 290; or
(b) a resolution to vary any right attached to a specified share and conferred on the
holder.
Issue of shares with different voting rights by public company

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64A.—(1) Different classes of shares in a public company may be issued only if —
(a) the issue of the class or classes of shares is provided for in the constitution of
the public company; and
(b) the constitution of the public company sets out in respect of each class of shares
the rights attached to that class of shares.
(2) Without limiting subsection (1) but subject to the conditions of subsection (1)(a) and (b),
shares in a public company may —
(a) confer special, limited, or conditional voting rights; or
(b) not confer voting rights.
(3) Notwithstanding anything in subsection (1) or (2), a public company shall not undertake
any issuance of shares in the public company that confers special, limited or conditional
voting rights, or that confers no voting rights unless it is approved by the members of the
public company by special resolution.
(4) Where a public company has one or more classes of shares that confer special, limited
or conditional voting rights, or that confer no voting rights, the notice of any general meeting
required to be given to a person entitled to receive notice of the meeting must specify the
special, limited or conditional voting rights, or the absence of voting rights, in respect of
each such class of shares.
(5) This section shall not operate so as to limit or derogate from the rights of any person
under section 74.
(6) Nothing in this section shall affect the right of a private company, subject to its
constitution, to issue shares of different classes, including shares conferring special, limited
or conditional voting rights or no voting rights, as the case may be.
Quorum, chairman, voting, etc., at meetings
179.—(1) So far as the constitution does not make other provision in that behalf and subject
to sections 64 and 64A —
(c) in the case of a company having a share capital —
(i) on a show of hands, each member who is personally present and entitled to
vote shall have one vote; and
(ii) on a poll, each member shall have one vote in respect of each share held by
him and where all or part of the share capital consists of stock or units of
stock each member shall have one vote in respect of the stock or units of
stock held by him which is or are or were originally equivalent to one share;
and
in the case of a company not having a share capital every member shall have one vote.

 It is usual for a vote on a resolution to be done on a show of hands


 Each member who is entitled to vote shall have one vote regardless of the
number of shares he holds
 Result is obviously not reflective of the actual balance of voting power at the
meeting
 A member may wish to demand that a poll be taken
 Requires the formal recording and counting of the actual number of votes
attached to the shares held by each member

Page 138 of 153


 Right of a member to demand a poll at the general meeting is statutorily
preserved (Regulation 55 of Model Constitution and Article 51 of Table A),
although the constitution may provide that the election of the chairperson of the
meeting or the adjournment of the meeting may be decided on a show of hands
 Whilst right cannot be excluded, conditions for its exercise will be
voided if it is caught by section 178(1)(b)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulation 55 of Model Constitution
55.—(1) At any general meeting, a resolution put to the vote of the meeting must be decided
on a show of hands unless a poll is (before or on the declaration of the result of the show
of hands) demanded —
(a) by the chairman;
(b) by at least 3 members present in person or by proxy;
(c) by any member or members present in person or by proxy and representing
not less than 5% of the total voting rights of all the members having the right
to vote at the meeting; or
(d) by a member or members holding shares in the company conferring a right to
vote at the meeting being shares on which an aggregate sum has been paid up
equal to not less than 5% of the total sum paid up on all the shares conferring
that right.
(2) Unless a poll is demanded, a declaration by the chairman that a resolution has on a
show of hands been carried or carried unanimously, or by a particular majority, or lost, and
an entry to that effect in the book containing the minutes of the proceedings of the company
is conclusive evidence of the fact without proof of the number or proportion of the votes
recorded in favour of or against the resolution.
(3) The demand for a poll may be withdrawn.
Right to demand a poll
178.—(1) Subject to subsection (1B), any provision in a company’s constitution shall be void
in so far as it would have the effect —
(b) of making ineffective a demand for a poll on any question or matter other than
the election of the chairman of the meeting or the adjournment of the meeting
that is made —
(i) by not less than 5 members having the right to vote at the meeting;
(ii) by a member or members representing not less than 5% of the total
voting rights of all the members having the right to vote at the meeting; or
(iii) by a member or members holding shares in the company conferring a
right to vote at the meeting, being shares on which an aggregate sum has
been paid up equal to not less than 5% of the total sum paid up on all the
shares conferring that right

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6.1.4.4 MINUTES

 Minutes of all proceedings of meetings must be kept and entered in minute books
within a month of the date upon which the relevant meeting was held
 Minutes serve as records of the proceedings of the meetings and must be signed by
the chairperson of the meeting at which the proceeding were had or by the
chairperson of the next succeeding meeting
 Unless contrary is shown, minutes that have been signed and entered into the books
provide prima facie and not conclusive evidence that the meeting was duly
convened and held, and that the proceedings to which the minutes relate have been
duly conducted
 An unrecorded resolution may, however be independently proved to have been passed

COMPANIES ACT
Cap 50, 2006 Rev Ed
Registration and copies of certain resolutions
186.—(1) A copy of —

(a) every special resolution; and 



(b) every resolution, including any resolution passed under section 175A(1), which
effectively binds any class of shareholders whether agreed to by all the members
of that class or not, 


shall, except where otherwise expressly provided by this Act within 14 days after the passing
or making thereof, be lodged by the company with the Registrar.
(2) Where the constitution of a company has not been registered a printed copy of every
resolution to which this section applies shall be forwarded to any member at his request on
payment of $1 or such less sum as the company directs.
(3) In the event of any default in complying with subsection (1) the company and every
officer of the company who is in default shall be guilty of an offence and shall be liable on
conviction to a fine not exceeding $1,000 and also to a default penalty.
(4) In the event of any default in complying with subsection (2) the company and every
officer of the company who is in default shall be guilty of an offence and shall be liable on
conviction to a fine of $50 for each copy in respect of which default is made.
Minutes of proceedings
188.—(1) Every company shall cause —
(a) minutes of all proceedings of general meetings and of meetings of its directors
and of its chief executive officers, if any, to be entered in books kept for that
purpose within one month of the date upon which the relevant meeting was held;
and
(b) those minutes to be signed by the chairman of the meeting at which the
proceedings were had or by the chairman of the next succeeding meeting. 


(2) Any minutes so entered that purports to be signed as provided in subsection (1) shall be
evidence of the proceedings to which they relate, unless the contrary is proved.

Page 140 of 153


(3) Where minutes have been so entered and signed, then, until the contrary is proved —
(a) the meeting shall be deemed to have been duly held and convened;
(b) all proceedings had thereat shall be deemed to have been duly had; and
(c) all appointments of officers or liquidators made thereat shall be deemed to be
valid.
(3A) Every company shall keep minute books in which it shall cause to be entered the
following matters:
(a) if the company has only one director —
(i) the passing of resolutions by that director; and
(ii) the making of declarations by that director;
(b) resolutions passed by written means under section 184A,
within one month of the passing or making of each resolution or declaration.
(3B) The company shall ensure that minutes of the passing of a resolution referred to in
subsection (3A)(b) are signed by a director within a reasonable time after the resolution is
passed.
(3C) The director of a company with only one director who has passed a resolution or made
a declaration shall sign the minutes thereof within a reasonable time after the resolution is
passed or the declaration is made.
(3D) Minutes entered in accordance with subsection (3A) and purportedly signed in
accordance with subsection (3B) or (3C) (as the case may be) shall be evidence of the
resolution or declaration to which they relate, unless the contrary is proved.
(4) If default is made in complying with this section, the company and every officer of the
company who is in default shall be guilty of an offence and shall be liable on conviction to a
fine not exceeding $2,000 and also to a default penalty.
Inspection of minute books
189.—(1) The books referred to in section 188(1) and (3A) shall be kept by the company at
the registered office or the principal place of business in Singapore of the company, and
shall be open to the inspection of any member without charge.
(2) Any member shall be entitled to be furnished within 14 days after he has made a request
in writing in that behalf to the company with a copy of any minutes specified in section 188(1)
or (3A) at a charge not exceeding $1 for every page thereof.
(2A) Subsection (1) shall not apply to books containing minutes of proceedings of meetings
of a company’s directors and of its chief executive officers, or (as the case may be) books
containing minutes of the passing of resolutions and the making of declarations by the
director of a company that has only one director; and subsection (2) shall not apply to any
of those minutes.
(3) If any copy required under this section is not so furnished the company and every officer
of the company who is in default shall be guilty of an offence and shall be liable on conviction
to a fine not exceeding $400 and also to a default penalty.

 Certain important shareholder resolutions that must be filed at ACRA are found in
section 186
 Note:

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 “Ordinary” resolution refers to one that is passed by a simple majority of the
votes of members who vote in person or by proxy
 “Special” resolution: requires the majority of not less than 75% of the
members voting in person or by proxy at a general meeting and must have
been specified as a special resolution in the notice of the meeting sent out
to members

6.1.5 OTHER TYPES OF SHAREHOLDER MEETINGS

 Meetings which involve only a segment, or class, of members are referred to as class
meetings
 For public companies limited by shares, there is additionally a “statutory meeting”
which the company is required to hold within a period of not less than one month
and not more than three months after the date at which it is entitled to commence
business (section 174(1))
 Prior to the meeting, the directors are required to forward a “statutory report” to
every member of the company
 This report is to contain information about, inter alia, the shares allotted and
cash received, as well as details about the officers of the company
 The statutory meeting gives the members opportunity to discuss any matter
relating to the formation of the public company or arising out of the statutory
report
 Responsibility for ensuring that the statutory meeting is properly held lies with
the directors and every director who failed to take all reasonable steps to
ensure this is subject to criminal sanction

COMPANIES ACT
Cap 50, 2006 Rev Ed
Statutory meeting and statutory report
174.—(1) Every public company that is a limited company and has a share capital shall,
within a period of not less than one month and not more than 3 months after the date at
which it is entitled to commence business, hold a general meeting of the members of the
company to be called the “statutory meeting”.

6.2 WRITTEN RESOLUTIONS OF SHAREHOLDERS

 CA allows private companies to pass resolutions by written means


 Involves, in essence, sending to the member of the text of the resolution, and
the member indicating his agreement thereto in writing
 Passing resolutions in the manner generally translates into savings in terms of time
and resources as physical meetings are dispensed with
 Company’s constitution may, however, prohibit the passing of resolutions in this
manner
 The degree of support required for the passing of resolutions by written means may
be prescribed by the company’s constitution, but, in the absence of such provision:

Page 142 of 153



A special resolution is passed by written means if indicated as a special
resolution and if it is agreed to by members who represent at least a 75%
majority (section (184A(3))
 An ordinary resolution is passed by written means if the resolution is formally
agreed on by a simple majority (section (184A(4))
 Members representing at least 5% of the total voting rights of the
company may, by notice to the company, demand that a general
meeting be convened for that resolution (section 184D)
 Directors are obliged to convene a meeting and the resolution, if it had
been passed in the meantime, is invalid
 Where a resolution has been passed by written means, it is the responsibility of the
company to notify every member of the company of that fact

COMPANIES ACT
Cap 50, 2006 Rev Ed
Passing of resolutions by written means
184A.—(1) Notwithstanding any other provision of this Act, a private company or an unlisted
public company may pass any resolution by written means in accordance with the provisions
of this section and sections 184B to 184F.
(2) Subsection (1) shall not apply to a resolution referred to in section 175A(1) or a
resolution for which special notice is required.
(3) A special resolution is passed by written means if the resolution indicates that it
is a special resolution and if it has been formally agreed on any date by one or more
members of the company who on that date represent —
(a) at least 75%; or
(b) if the constitution of the company requires a greater majority
for that resolution, that greater majority, of the total voting rights of all the members who on
that date would have the right to vote on that resolution at a general meeting of the company.
(4) An ordinary resolution is passed by written means if the resolution does not indicate
that it is a special resolution and if it has been formally agreed on any date by one or more
members of the company who on that date represent —
(a) a majority; or
(b) if the constitution of the company requires a greater majority for that
resolution, that greater majority,
of the total voting rights of all the members who on that date would have the right to vote on
that resolution at a general meeting of the company.
(5) For the purposes of this section, a resolution of a company is formally agreed by a
member if —
(a) the company receives from the member (or his proxy if this is allowed) a
document that —
(i) is given to the company in legible form or a permitted alternative form; 


Page 143 of 153


(ii) indicates the member’s agreement (or agreement on his behalf) to the
resolution by way of the member’s signature (or his proxy’s signature if that
is allowed), or such other method as the constitution may provide; and
(iii) includes the text of the resolution or otherwise makes clear that it is that
resolution that is being agreed to; and 

(b) the member (or his proxy) had a legible text of the resolution before giving that
document.
(6) Nothing in subsection (3), (4) or (4A) shall be construed as requiring the requisite number
of members to formally agree to the resolution on a single day.
(6A) For the purposes of this section, something is “in legible form or a permitted alternative
form” if, and only if, it is sent or otherwise supplied —
(a) in a form (such as a paper document) that is legible before being sent or
otherwise supplied and does not change form during that process; or
(b) in another form that —
(i) is currently agreed between the company and the person as a form in which
the thing may be sent or otherwise supplied to the company; and 

(ii) is such that documents sent or supplied in that form can (where particular
conditions are met) be received in legible form or be made legible following
receipt in non-legible form.
Requirements for passing of resolutions by written means
184B.—(1) A resolution of a private company or an unlisted public company may only be
passed by written means if —
(a) either —
(i) agreement to the resolution was first sought by the directors of the
company in accordance with section 184C; or 

(ii) a requisition for that resolution was first given to the company in
accordance with section 183 and, by reason of that notice, the documents
referred to in section 183(3A) in respect of the resolution were served on
members of the company in accordance with section 183(3A);
(b) the constitution of the company does not prohibit the passing of resolutions
(either generally or for the purpose in question) by written means; and
(c) all conditions in the company’s constitution relating to the passing of the
resolution by written means are met.
(2) Any resolution that is passed in contravention of subsection (1) shall be invalid.
Where directors seek agreement to resolution by written means
184C.—(1) The directors of a private company or an unlisted public company who wish to
seek agreement to a resolution of the company and for it to be passed by written means
shall send to each member, having the right to vote on that resolution at a general meeting,
a copy of the text of the resolution.
(2) As far as practicable, the directors shall comply with subsection (1) as respects every
member at the same time and without delay.

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(3) Without prejudice to any other means of complying with subsections (1) and (2), the
directors shall have complied with those subsections if they secure that the same paper
document containing the text of the resolution is sent without delay to each member in turn.
(4) Subject to section 184D, if the resolution is passed before the directors have complied
with subsection (1) as respects every member, that fact shall not affect the validity of the
resolution or any obligation already incurred by the directors under subsections (1) and (2).
Members may require general meeting for resolution
184D.—(1) Any member or members of a private company or an unlisted public company
representing at least 5% of the total voting rights of all the members having the right to
vote on a resolution at a general meeting of the company may, within 7 days after —
(a) the text of the resolution has been sent to him or them in accordance with section
184C; or 

(b) the documents referred to in section 183(3A) in respect of the resolution have
been served on him or them,
as the case may be, give notice to the company requiring that a general meeting be
convened for that resolution.
(2) Where notice is given under subsection (1) —

(a) the resolution is invalid even though it may have in the 
 meantime been passed
in accordance with section 184A; and 

(b) the directors shall proceed to convene a general meeting for the resolution.
Period for agreeing to written resolution
184DA.—(1) Unless the constitution of a company otherwise provides, a resolution
proposed to be passed by written means lapses if it is not passed before the end of the
period of 28 days beginning with the date on which the written resolution is circulated to the
members of the company.
(2) The agreement to a resolution is ineffective if indicated after the expiry of that period.
Company’s duty to notify members that resolution passed by written means
184E.—(1) Where a resolution of a private company or an unlisted public company is
passed by written means, the company shall —

(a) notify every member that it has been passed; and 



(b) do so within 15 days from the earliest date on which a director or secretary of
the company is aware that it has been passed.
(2) Non-compliance with this section shall not render the resolution invalid.
Recording of resolutions passed by written means
184F.—(1) Where a resolution of a private company or an unlisted public company is
passed by written means, the company shall cause a record of the resolution, and the
indication of each member’s agreement (or agreement on his behalf) to it, to be entered in
a book in the same way as minutes of proceedings of a general meeting of the company.
(2) Non-compliance with subsection (1) shall not render the resolution invalid.

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(3) Any such record, if purporting to be signed by a director or the secretary of the company,
is evidence of the proceedings in passing the resolution.
(4) Where a record is made in accordance with this section, then, until the contrary is proved,
the requirements of this Act with respect to those proceedings shall be deemed to have
been complied with.
(5) Section 189 applies in relation to a record made in accordance with this section as it
applies in relation to minutes of proceedings of a general meeting.

6.3 UNANIMOUS CONSENT RULE

 At common law, an act which is intra vires (within the powers) the company and which
is assented to by every member of the company who is entitled to vote at a general
meeting is a valid act of the company
 This holds even if the members gave their assent informally and at different
times
 The doctrine, often referred to as the Duomatic principle, allows the company to
override the formal requirements in relation to the passing of resolutions at general
meetings
 Principle has also been applied to “cure” non-compliance with certain statutorily
imposed formalities
 Jimat Bin Awang v Lai Wee Ngen: Doctrine applied to validate an issue of
shares which had not been first approved by the company in general meeting
as required by the CA
 While it may be that there can be no general proposition one way or the other in
respect of such statutory requirements and that the particular provision has to be
examined to determine the underlying purpose and rationale for the particular
formality imposed, whether ordinary or special resolution
 If it is possible to discern that the formality is stipulated for the benefit of
some interest group apart from the present members or for a wider policy
reason, the application of the Duomatic principle may be displaced
 Re Barry Artist Ltd: Nourse J was uneasy with the application of the principle
to a reduction of capital exercise as the statutory requirements are imposed
to protect the interest of creditors
 In Dovechem Holdings Ote Ltd v Ng Joon Soon: CA noted that the alteration
of the particular articles had “a serious impact as it requires all
directors…including its very founder…to retire as directors on attaining the
age of 70”
 Other than shareholders’ decisions, this principle has been help to apply to board
decisions
 Where all the directors assent informally to a particular agreement, the assent
is tantamount to a resolution of the board and the agreement is binding
 Where all the directors are themselves all the shareholders, a unanimous
decision which they take as directors can be treated as having been made as
members
 Limitations on this principle include:
 Circumstance which special resolution is required

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 Dovechem Holdings Pte Ltd v Ng Joo Soon: 2011 CA case where CA
declined to accept that a purported alteration of the company’s
constitution could be effected through the unanimous assent of the
members in the absence of a special resolution
 Jimat bin Awang v Law Wee Ngen: 1995 CA case where it accepted
Cane v Jones as correctly stating the position that a shareholders’
agreement operated as unanimous assent to effectively alter the
company’s articles of association to remove the chairman’s right to
exercise a casting vote at board and general meetings
 Necessary that every member entitled to vote on a particular matter must
have applied his mind to it and agreed to it
 Yong Kheng Leong v Panweld Trading Pte Ltd:
 While Duomatic principle states that where all the shareholders,
particularly in a closed private company with a track record of
informality in their dealings, assent to a particular course of
dealing, even in relation to disposal of assets, it must be binding
on the parties
 There are limits to this; the conduct between the parties must
be such that there is sufficient basis for a court to infer: (i) that
there was in fact an agreement (ii) what the key contents of that
agreement were
 The other shareholder’s awareness merely supported
“inference that there was some degree of forbearance, but there
is no basis on which one could come to a clear conclusion that
there was in fact, an agreement, and what exactly the
arrangement was
 It could not therefore be said that there had been any
unanimous agreement that the director concerned be released
from his duties

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6.4 SUMMARY

7. IRREGULARITIES OF PROCEDURE ETC

 Failure to follow the prescribed procedure in relation to a meeting may invalidate


the meeting, and thus any decisions taken at it
 Nevertheless, it is also the case that corporate proceedings should not be invalidated
by reason only of an over-concern for matters of form, especially where it is clear that
it would have been within the majority’s power to rectify the irregularity
 At common law, this principle was subsumed within the principle of ratification
and a minority shareholder would generally not be permitted to litigate the
matter
 Note, however, section 392 which enables the validation of irregular company
proceedings (including board and general meetings) if certain conditions are met. It
provides for two distinct spheres of operation:
 First sphere deals with irregularities or miscarriages of procedure that are
automatically validated without any need for a validating court order
 Subsections (1) and (2) apply to procedural irregularities affecting
proceedings under the CA
 Section 392(1) provides a non-exhaustive definition of
“procedural irregularity”
 Subsection (3) applies specifically to meetings in respect of which there
was an accidental omission to give notice of the meeting or which
notice was not received by an intended recipient
 Second sphere covers irregularities which do not otherwise fall within the
first sphere
 Subsections (4), (5) and (6) operate together to give the court a general
power to make validation and other stipulated orders in respect of
any contravention of the CA or of the company’s constitution
 Validating order may be made even where the contravention resulted
in the commission of an offence

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COMPANIES ACT
Cap 50, 2006 Rev Ed
Irregularities
392.—(1) In this section, unless the contrary intention appears a reference to a
procedural irregularity includes a reference to —
(a) the absence of a quorum at a meeting of a corporation, at a meeting of directors
or creditors of a corporation or at a joint meeting of creditors and members of a
corporation; and 

(b) a defect, irregularity or deficiency of notice or time.
(2) A proceeding under this Act is not invalidated by reason of any procedural irregularity
unless the Court is of the opinion that the irregularity has caused or may cause substantial
injustice that cannot be remedied by any order of the Court and by order declares the
proceeding to be invalid.
(3) A meeting held for the purposes of this Act, or a meeting notice of which is required to
be given in accordance with the provisions of this Act, or any proceeding at such a meeting,
is not invalidated by reason only of the accidental omission to give notice of the meeting or
the non-receipt by any person of notice of the meeting, unless the Court, on the application
of the person concerned, a person entitled to attend the meeting or the Registrar, declares
proceedings at the meeting to be void.
(4) Subject to the following provisions of this section and without limiting the generality of
any other provision of this Act, the Court may, on application by any interested person, make
all or any of the following orders, either unconditionally or subject to such conditions as the
Court imposes:
(a) an order declaring that any act, matter or thing purporting to have been done, or
any proceeding purporting to have been instituted or taken, under this Act or in
relation to a corporation is not invalid by reason of any contravention of, or failure
to comply with, a provision of this Act or a provision of any of the constituent
documents of a corporation;
(b) an order directing the rectification of any register kept by the Registrar under this
Act;
(c) an order relieving a person in whole or in part from any civil liability in respect of
a contravention or failure of a kind referred to in paragraph (a);
(d) an order extending the period for doing any act, matter or thing or instituting or
taking any proceeding under this Act or in relation to a corporation (including an
order extending a period where the period concerned expired before the
application for the order was made) or abridging the period for doing such an
act, matter or thing or instituting or taking such a proceeding,
and may make such consequential or ancillary orders as the Court thinks fit.
(5) An order may be made under subsection (4)(a) or (b) notwithstanding that the
contravention or failure referred to in the paragraph concerned resulted in the commission
of an offence.
(6) The Court shall not make an order under this section unless it is satisfied —
(a) in the case of an order referred to in subsection (4)(a) —

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(i) that the act, matter or thing, or the proceeding, referred to in that paragraph
is essentially of a procedural nature;
(ii) that the person or persons concerned in or party to the contravention or
failure acted honestly; or
(iii) that it is in the public interest that the order be made;
(b) in the case of an order referred to in subsection(4)(c), that the person subject to
the civil liability concerned acted honestly; and
(c) in every case, that no substantial injustice has been or is likely to be caused to
any person.

 Thio Keng Poon v Thio Syn Pyn: The process of determining substantial injustice
(mentioned in section 392(2)) involves a “holistic weighing and balancing of the various
interests of all the relevant parties”
 To determine whether a non-compliance is of a procedural or substantive
nature, one must examine the aim or object of the requirement which was
not complied with
 The following principles apply:
1) There must be a direct link between the procedural irregularity and
the injustice suffered
2) Injustice must be of a “substantial” nature – injustice must be real,
rather than theoretical or fanciful; there must be a basis that the
aggrieved party had suffered injustice or would suffer injustice as a
result of the procedural irregularity
3) Aggrieved party must show that there may or could have been a
different result, if not for the occurrence of the procedural irregularity
 Common-law principles, such as unanimous consent rule, may also have the effect of
curing defects in procedure

COMPANIES ACT
Cap 50, 2006 Rev Ed
Regulation 92 of Model Constitution (or Article 89 of Table A)
92. All acts done by any meeting of the directors or of a committee of directors or by any
person acting as a director is as valid as if every such person had been duly appointed and
was qualified to be a director, even if it is afterwards discovered that —
(a) there was some defect in the appointment of any director or person acting as a
director; or
(b) the directors or person acting as a director or any of them were disqualified.

8. COMPANY SECRETARY

 The company secretary is also an officer of the company, as is a receiver and manager
of any part of the undertaking of the company appointed under a power contained in
any instrument and any liquidator of a company appointed in a voluntary winding up
 Being considered the “chief administrative officer” of the company, his main function is
to see to due compliance with the disclosure and other administrative

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requirements of the CA and proper adherence to the processes stipulated by the
company’s constitution
 Presence is statutorily dictated
 Also clothed with ostensible authority to sign contracts on behalf of the
company as regards matters concerned with the company’s administration
 According to section 171(1), every company is required to have one or more
secretaries being natural persons who are resident in Singapore

 While there are no qualification requirements for a company secretary of


private companies, there are minimum professional and academic
requirements to meet for one of a public company (section 171(1AA) and
171(2))

COMPANIES ACT
Cap 50, 2006 Rev Ed
Secretary
171.—(1) Every company shall have one or more secretaries each of whom shall be a
natural person who has his principal or only place of residence in Singapore and who is not
debarred under section 155B from acting as secretary of the company
(1A) It shall be the duty of the directors of a company to take all reasonable steps to secure
that each secretary of the company is a person who appears to them to have the requisite
knowledge and experience to discharge the functions of secretary of the company.
(1AA) In addition, it shall be the duty of the directors of a public company to take all
reasonable steps to secure that each secretary of the company is a person who —
(a) on 15 May 1987 held the office of secretary in that company and continued to
hold that office on 15 May 2003; or
(b) satisfies such requirements relating to experience, professional and academic
requirements and membership of professional associations, as may be
prescribed.

 Note: A sole director of a company cannot act or be appointed to that position


 There are no qualification requirements for a company secretary of a private
company, although it is the responsibility of the directors to ensure that any
person appointed to the position is sufficiently competent and capable of
discharging the qualifications of a company secretary
 Role is frequently outsourced, especially by small companies, to “corporate
service providers” (eg, accountancy firms). Such CSPs are since 2014 subject
to regulation by ACRA

9. OFFICERS (OTHER THAN DIRECTORS)

 The definition of “officer” also includes a person “employed in an executive capacity by


the corporation”
 May be that an “executive” position is one which involves some level of
participation in the management of the company

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 The CA generally does not lay down either qualifications or powers of non-director
officers. These may sometimes be found in the constitution or a contract of
employment.
 Many offences under the CA apply to officers (whether or not they are directors)

COMPANIES ACT
Cap 50, 2006 Rev Ed
Interpretation
4.—(1) In this Act, unless the contrary intention appears —
“officer”, in relation to a corporation, includes —
(a) any director or secretary of the corporation or a person employed in an executive
capacity by the corporation;
(b) a receiver and manager of any part of the undertaking of the corporation appointed
under a power contained in any instrument; and
(c) any liquidator of a company appointed in a voluntary winding up,
but does not include —
(d) any receiver who is not also a manager;
(e) any receiver and manager appointed by the Court;
(f) any liquidator appointed by the Court or by the creditors; or
(g) a judicial manager appointed by the Court under Part VIIIA;

10. COMMUNICATIONS WITH SHAREHOLDERS

 The traditional method of giving notices to members is generally dealt with in the
constitution – see e.g. Art 108 TA

COMPANIES ACT
Cap 50, 2006 Rev Ed
Article 108 of Table A
A notice may be given by the company to any member either personally or by sending it
by post to him at his registered address, or, if he has no registered address in Singapore,
to the address, if any, in Singapore supplied by him to the company for the giving of notices
to him. Where a notice is sent by post, service of the notice shall be deemed to be effected
by properly addressing, prepaying, and posting a letter containing the notice, and to have
been effected in the case of a notice of a meeting on the day after the date of its posting,
and in any other case at the time at which the letter would be delivered in the ordinary
course of post.

 Electronic giving of notices etc. is permitted under certain conditions – s 387A


(notices), s 387B (other documents) and s 387C (electronic methods permitted under
constitution)

COMPANIES ACT
Cap 50, 2006 Rev Ed

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Electronic transmission of notices of meetings

387A.—(1) Where any notice of a meeting is required or permitted to be given, sent or


served under this Act or under the constitution of a company by the company or the directors
of the company to —
(a) a member of the company; or
(b) an officer or auditor of the company,
that notice may be given, sent or served using electronic communications to the
current address of that person.

Electronic transmission of documents


387B.—(1) Where any accounts, balance-sheet, financial statements, report or other
document is required or permitted to be given, sent or served under this Act or under the
constitution of a company by the company or the directors of the company to —
(a) a member of the company; or
(b) an officer or auditor of the company,
that document may be given, sent or served using electronic communications to the
current address of that person.

Electronic transmission in accordance with constitution, etc.


387C.—(1) Notwithstanding sections 387A and 387B, where a notice of meeting or any
accounts, balance-sheet, financial statements, report or other document is required or
permitted to be given, sent or served under this Act or under the constitution of a company
by the company or the directors of the company to a member of the company, that notice
or document may be given, sent or served using electronic communications with the
express, implied or deemed consent of the member in accordance with the constitution
of the company.

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