LANDMARK HIGH COURT CASE ON THE REQUISITIONING OF EGMS OF PUBLIC LISTED COMPANIES IN SINGAPORE – THE USP GROUP CASE
In its regulator’s column on 27 April 23, SGX RegCo said that the Boards of listed companies should seriously consider the objects and proposed resolutions of a general meeting requisitioned by shareholders and conduct the meetings expeditiously. RegCo also said that boards should consider reaching out to the requisitionists to discuss their concerns and find a common ground.
SGX RegCo’s public position on the requisitioning of EGMS comes at a very timely moment. Of late, there has been a number of such EGM requisitions by shareholders of listed companies. There has been considerable public disquiet raised by shareholders who have encountered resistance and great difficulties from the board to convene general meetings that have been requisitioned. Some of these cases have gone to court, such as the Kitchen Culture case and the USP Group case.
The USP Group case led to a landmark decision of the High Court of Singapore. In the light of the High Court’s ruling for the USP Group case, it is important that shareholders have to ensure that they can properly requisition for and/or conduct EGMS on their own in accordance with the Companies Act and the constitution of the company.
I set out below a summary of the salient points of the recent High Court’s decision on the USP Group case.
1. section 176 of the companies act
Under Section 176 of the Companies Act (“CA”), members of a company are empowered to convene extraordinary general meetings (“EGM”) on requisition. Section 176(1) – (2) is reproduced for reference as follows:
(1) The directors of a company, despite anything in its constitution, must, 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.
(1A) For the purposes of subsection (1), any of the company’s paid‑up shares held as treasury shares are to be disregarded.
(2) The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office of the company, and may consist of several documents in like form each signed by one or more requisitionists.
2. TANOTO SAU IAN V USP GROUP LTD [2023] SGHC 106
2.1 Brief facts
On 26 October 2022, a group of shareholders (the “Requisitionists”) sent a requisition notice (the “Requisition Notice”) under Section 176(1) of the CA for USP Group Limited (“USP Group”) to convene an EGM. The purpose of the EGM was to remove USP Group’s existing directors and to appoint new directors in their place.
USP Group sought for two declarations. First, a declaration that the Requisitionists are not members of USP Group for the purposes of Section 176(1) of the CA (the “First Declaration”). Second, a declaration that the Requisition Notice is invalid for the purposes of Section 176(1) of the CA (the “Second Declaration”). As a result of certain delays on the part of USP Group’s response to cooperate in the convening of the EGM, the Requisitionists had to apply for an extension of the validity of the Requisition Notice. The application for extension was granted (the “Extension Order”).
In response to the two declarations sought, the Requisitionists relied on three arguments:
(i) USP Group’s conduct since receiving the Requisition Notice estops it from claiming that the Requisitionists are not members of USP Group, or that the Requisition Notice is invalid;
(ii) The First Declaration and Second Declaration were sought to mount a collateral attack on the Extension Order. This is not permissible under the extended doctrine of res judicata; and
(iii) The Requisitionists will suffer prejudice if they are asked to procure the transfer of the shares to themselves now.
Mr Tanoto (“Tanoto”), the Chief Executive Officer and Executive Director of USP Group, also sought for permission to bring an action pursuant to Section 216A of the CA (the “S 216A Application”). This was to enable Tanoto to bring an action in the name and on behalf of USP Group against the Requisitionists for an injunction to prevent them from ever requisitioning an EGM under Section 176(1). Until this prayer is resolved, Tanoto also sought for an interim injunction against the Requisitionists to prevent them from holding the EGM pursuant to the Requisition Notice (the “Interim Injunction Application”).
2.2 Holding
(I) The First Declaration: The Requisitionists are not members for the purposes of s 176(1)
The Requisitionists were beneficial owners of a total of 11.01% of the total issued and paid-up ordinary shares of USP Group. These shares were held through their nominees – various brokerage houses. Thus, at the time when the Requisition Notice was sent, the Requisitionists’ names were not shown in the USP Group’s Register of Members. Instead, the names of the various brokerage houses appeared on the Register of Members. It should be noted that the Requisition Notice was signed off by the Requisitionists in their personal capacities, on behalf of the brokerage houses.
The High Court held that the Requisitionists were not members within Section 176(1) of the CA as their names do not appear on USP Group’s Register of Members. Pursuant to Section 19(6) and 19(6A) of the CA, a member of a public company is a person whose name is entered in the register of members kept by the public company under Section 190 of the CA. As such, a member may not necessarily own shares and a shareholder may not always be a member.
Moreover, Section 81SJ(1) read with Section 81SF of the Securities and Futures Act (“SFA”) provides that for public listed companies whose shares may be held as book-entry securities through the Central Depository (Pte) Limited (“CDP”), only those who directly hold an account with the CDP are considered members. Section 81SJ(1) states:
- Despite anything in the Companies Act 1967 or any other written law or rule of law in any instrument or in the constitution of a corporation, where book-entry securities of the corporation are deposited with the Depository or its nominee
(a) The Depository or its nominee (as the case may be) is deemed not to be a member of the corporation; and
(b) the person named as the depositors in a Depository Register are, for such period as the book-entry securities are entered against their names in the Depository Register, deemed to be –
(i) members of the corporation in respect of the amount of book-entry securities (relating to the stocks or shares issued by the corporation) entered against their respective names in the Depository Register;…
Section 81SF of the SFA defines “depositor” as “an account holder or a depository agent but does not include a sub-account holder”. An “account holder” is defined as “a person who has an account directly with the Depository and not through a depository agent”. A “sub-account holder” is defined as a “holder of an account maintained with a depository agent. The term “depository agent” is defined as “a member of the SGX-ST, a trust company, a bank licensed under the Banking Act 1970, any merchant bank licensed under the Banking Act 1970 or any other person or body approved by the Depository who or which –
(a)Performs services as a depository agent for sub-account holders in accordance with the terms of a depository agent agreement entered into between the Depository and the depository agent;
(b)Deposits book-entry securities with the Depository on behalf of the sub-account holders; and
(c)Establishes an account in its name with the Depository;
The “Depository” is in turn defined to include the CDP, and “Depository Register” means “a register maintained by the Depository in respect of book-entry securities”.
As the names of the Requisitionists did not appear in USP Group’s Register of Members, the Court accordingly held that they were not members for the purposes of Section 176(1) of the CA.
For completeness, the Court also found that there were no other means for the Requisitionists to be recognised as members pursuant to Section 176(1) of the CA. The extended doctrine of res judicata and estoppel also did not apply.
(II) The Second Declaration: The Requisition Notice is invalid for the purposes of s 176(1)
As there were no other means by which the Requisitionists could be recognised as members, the Requisition Notice was therefore invalid.
(III) The Interim Injunction Application: No order as there is no longer any EGM to injunct against
The Court also made no order as to Tanoto’s application for interim injunction against the EGM. This was because there is no longer any EGM to be held pursuant to the Requisition Notice.
(IV) The S 216A Application: Permission denied for Tanoto to bring an action on behalf of USP Group to restrain the Requisitionists from ever requisitioning a EGM
The Court denied Tanoto’s request for permission to bring an action pursuant to Section 216A for a permanent injunction to restrain the Requisitionists from ever requesting for an EGM. The Court characterised such an injunction as a permanent freestanding injunction. Following the case of Sulzer Pumps Spain, SA v Hyflux Membrane Manufacturing (S) Pte Ltd and another [2020] 5 SLR 634, the purpose of granting a freestanding injunction is to prevent injustice. An important question to ask is whether the applicant has provided credible evidence to show that it would suffer unjust detriment if the respondent’s conduct were not restrained. The Court found that Tanoto has not provided such credible evidence for USP Group to seek a freestanding injunction. As such, the granting of the permanent injunction was not prima facie in the interests of USP Group.
The Court also found that Tanoto was not acting in good faith in seeking the permanent injunction. Tanoto did not honestly or reasonably believe that a good cause of action existed. He has not demonstrated to the Court any credible evidence which warrants the granting of a permanent injunction.