In Expo Holdings Sdn Bhd & Ors v Toyo Ink Group Bhd [2014] 10 MLJ 674, it was held that:-
"...[47] The underpinning principle on amendments is that a company may always alter or amend any of its articles. As observed by Latham CJ of the High Court of Australia in Peters' American Delicacy Company Ltd v Heath & Others (1938-1939) 61 CLR 457 at p 479:
A company cannot deprive itself of this statutory power either by agreement or by a provision contained in the articles [#8918] It is not possible, by articles of association, to make an unalterable article.
[48] Such amendment to the company's articles is however subject to the Act and to the conditions in the memorandum. This is provided under s 31 of the Companies Act 1965 which provides:
- (a)
subject to this Act and to any conditions in its memorandum, a company may by special resolution alter or add to its articles; and
- (b)
any alteration or addition so made in the articles shall subject to this Act, on and from the date of special resolution or such later date as is specified in the resolution, be as valid as if originally contained therein and be subject in like manner to alteration by special resolution.
[49] The plaintiffs have cited two textbooks in further support of their case. The plaintiffs submitted that in both Arjunan: Company Law in Malaysia (Lexis Nexis, 2006) and Chan & Koh: Malaysian Company Law Principles & Practice Sweet & Maxwell, (2nd Ed), the authors considered similar cases when expressing the view that the articles cannot be altered in a manner which infringes on the rights of minorities. In Chan & Koh on Malaysian Company Law Principles & Practice, the authors opined that 'the fundamental issue whether the exercising of a power by majority shareholders to alter the articles to expropriate compulsorily the shares of the minority shareholders will be valid' had been considered in at least three English cases. The authors went on to discuss those cases, namely Brown v British Abrasive Wheel Co Ltd [1919] 1 Ch 290; Sidebottom v Kershaw Leese & Co Ltd [1920] 1 Ch 154; and Dafen Tinplate Co Ltd v Llanelly Steel Co (1907) Ltd [1920] 2 Ch 124.
[50] Having examined those cases, I must express a note of caution. A distinction actually has to be drawn between the facts and circumstances in the present case from all cases discussed by the authors of Malaysian Company Law Principles & Practice. In the three English cases discussed, the courts there were concerned with the exercise of power by majority shareholders to alter the articles of association so as to expropriate compulsorily the shares of the minority. That is entirely different from the present case. Here, we are not dealing with any expropriation or anything of that nature. This is an exercise to raise capital for the defendant in order to meet the funding requirements of the defendant and, to settle outstanding banking facilities. Such objectives surely can only work in the best interest of the defendant, which is paramount; and indirectly the plaintiffs as shareholders of the defendant.
[51] As for the facts in Pang Ten Fatt & Anor v Tawau Transport Co Sdn Bhd & Ors [1986] 1 MLJ 179, they were peculiar. There, the amendment was to alter the rights and privileges of founding members and permanent directors. It was in that context that the court ruled that such amendments were null and void. Again, that is quite a different exercise from the instant case.
[52] The other decision discussed by both authors was the decision of the High Court of Singapore in Tong Kok Chai v Ocean Front Pte Ltd & Anor [1988] 3 MLJ 125. According to the authors, this case is authority for the proposition that amendments to the company's articles and memorandum must be done in good faith and in the interests of the company as a whole.
[53] With respect, a careful reading of this decision will show that this was not the ratio decidendi in the case. There, the plaintiff was seeking an interlocutory injunction restraining the first defendant from altering one of the articles of association until the hearing or until further order. The plaintiff was a shareholder of the first defendant and he had deposited his shares with Ka Wah Bank Ltd, the second defendant as security for banking facilities that he was seeking from the bank.
[54] The bank commenced legal proceedings against the plaintiff to recover monies due under the facilities granted to the plaintiff. The plaintiff denied that any monies was due and alleged that the bank in any case had violated the Banking Act of Singapore in that it had conducted banking business in Singapore without a banking licence in which case the overdraft granted to the plaintiff was illegal, null and irrevocable. The plaintiff counterclaimed for the return of his shares.
[55] In separate proceedings initiated by the bank against the first defendant, the bank sought for an order that the register of the company be rectified so as to strike out the name of the plaintiff as owner of the shares that it had pledged with the bank; and in lieu thereof, to insert the bank's name as holder of the shares. The plaintiff was enjoined in those proceedings. Pending the disposal of the case, the bank sold the shares to 'a majority shareholder of the company'. The plaintiff was notified of the sale and he disputed the bank's right to sell his shares.
[56] Subsequently, the first defendant issued a notice of an EGM to be convened for the purpose of passing, inter alia, a special resolution to alter the articles of association. Those alterations included a deletion of the existing article 26 which would restrict the transfer of shares and confer on the members a right to pre-empt in the event of a transfer of shares to a person who is not a member of the company; and the substitution of new articles which in effect gave a member a right to transfer all or any of his shares to any person, except an infant, bankrupt or person of unsound mind. No explanation was offered by the company as to why the alterations were made and why it had to be made at that stage.
[57] It was in that context that Thean J observed that the question of whether the proposed alteration of article 26 of the articles of association was bona fide for the benefit of the company as a whole was a serious question to be tried.
[58] Be that as it may, I would think that the bona fides of an act, especially one which seeks to alter the substratum of any arrangement, including a right, would require that it be done in good faith and in the best interests of the company. I would add that while the articles of a company cannot be altered such as to infringe on minority rights, the competing interests of the majority and the company as a whole must always be considered. Support for this can be found in Peters' American Delicacy where the High Court of Australia citing Allen v Gold Reefs of West Africa Ltd [1900] 1 Ch 656 said at p 480:
The power to alter articles must be exercise bona fide. It is generally said that the power must be exercised bona fide for the benefit of the company as a whole, and all recent authorities refer to the statement by Lindley MR in Allen's Case: 'The power thus conferred on companies to alter the regulations contained in their articles is limited only by the provisions contained in the statute and the conditions contained in the company's memorandum of association. Wide, however, as the language of s 50' [#8918] 'is, the power conferred by it must, like all other powers, be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are always implied, and are seldom, if ever, expressed.'
[59] The court went on to cite Allen's case where an article had been amended in such a way as to prejudice quite seriously a single person who was the only holder of fully paid up shares of the company. Despite that, the alteration was upheld as valid as it was bona fide made in order to enable the company to recover monies due to the company which surely must be for the benefit of the company.
[60] The burden of proof will lie with the plaintiffs. This was also expressed in Peters' American Delicacy, p 482 where Latham CJ wrote that:
When the validity of a resolution of shareholders is challenged, the onus of showing that the power has not been properly exercised is on the party complaining. The court will not presume fraud or oppression of other abuse of power [#8918] It cannot be the law that a resolution of shareholders is to be presumed to be invalid until the defendants in an action positively establish that it is valid.
[61] Having regard to my findings on the whole rationale behind the corporate exercise and given that there is no suggestion at all by the plaintiffs that the exercise is in bad faith, I cannot see how the articles cannot be amended as proposed. The exercise is in the view of the board in the best interests of the defendant. That view may be said to have been implicitly supported by Bursa when it approved the proposal before it was circulated to the shareholders. Most important and this fact should not be overlooked, the resolutions have been passed, approved and adopted by the majority of the shareholders at the EGM. The views and decisions of that majority must not be ignored and should never be allowed to be overtaken by the views of the minorities who have no real basis to challenge.
[62] In fact, in Peters' American Delicacy, p 480, Latham CJ had further opined that:
[#8918] The fact that an alteration prejudices or diminishes some of the rights of the shareholders is not in itself a ground for attacking the validity of an alteration [#8918] Any other view would, in effect, make unalterable and permanent any articles of association which conferred rights upon a class of shareholders, or possibly upon any shareholder, if they or he desired that those rights should continue to exist unchanged. It is plainly not the law that the fact that an alteration of articles alters the rights or prejudices the rights of some shareholders is sufficient to prevent the alteration from being validly made.
[63] Therefore, the amendment of article 130 is proper and in accord with the governing principles...."
