MEMBERSHIP OF COMPANIES

AZAHARI ABDUL AZIZ

LAW D EPARTMENT
UiTM TERENGGANU
SIGNIFICANCE OF BEING A MEMBER
1. Only members or their proxies are entitled to vote at general
meeting;
2. Only members are entitled to receive dividends;
3. Members is liable to contribute towards debts of company in event
of winding up;
4. If company have surplus assets on a winding up, members is entitled
to share the assets;
5. Member may enforce AOA against any other members and the
company;
6. Members can petition for court remedy under S.346.
WHEN DOES SOMEONE STOP BEING A
MEMBER OF A COMPANY?
1. They transfer their shares to another person and transferee is
registered as the new shareholder.
2. They transfer their shares back to the company under a “buy-back” –
S.127 CA 2016
3. The shares have been cancelled by the company under a reduction
of capital – S.116 CA 2016
4. Partly paid shares are forfeited when the person fails to pay a call
5. The company is deregistered and ceases to exist.
Owen Sim Liang Kim v Pisau Jaya Sdn Bhd & Anor
The Appellant applied to the court for a remedy under S.181 of CA
1965*. In defence, the Respondent company argued that the Appellant
lacked standing as his name was no longer in the register of members
when he initiated the action.
Held: a petitioner who applies under S.181 of CA 1965* must be able to
demonstrate that his name appears in the register of members at the
date of the petition.
REGISTER OF MEMBERS
• All companies must keep a register of their members and the register
must contain all information that is listed in S.101(1). Such entry into
the Register constitute a prima facie evidence of legal title.
• This includes:
1. Names and address of the members, number of shares held and
amount paid up on the shares;
2. Date on which the name of the member was entered;
3. Date on which a person ceased to be a member for the past seven
years;
4. Date of allotment and number of shares allotted to each member
• The register must be kept at the company’s registered office –
S.159(1)(a) CA 1965*
• The register of members is prima facie evidence of any matters
inserted in that register in accordance with the Act – S.158(4) CA
1965*
• The fact that someone is a shareholder does not mean he is a
member. To qualify as members, the name must be inserted and
registered in the register of members.
• It is important that the name of the member be inserted in the
register of members because member will lose membership rights if
the name does not appear.
Majujaya Holdings Sdn Bhd v Pens -Transteel Sdn Bhd
A member had petitioned to the court to have the company wound up. The defence
against the petition is that the member had no standing as he was no longer a member of
the company because the name had been struck out from register of members.
Held: the directors of the Defendant company could not strike out a name from register of
members without first making an application to the court for striking out order.

• Rectification of the Register of Members under S.162 of CA 1965*

• S.162 of CA 1965* provides remedy to an aggrieved person when their name is
purposely omitted from the register of members.
• The court may summarily make an order of rectification and may award damages to the
aggrieved person.
• However, if there is serious dispute regarding title, the proceeding cannot be summarily
conducted – Central Securities (Holding) Bhd v Haron Mohamed Zain.
DUTY OF A MEMBER TO A COMPANY
• A member of a company does not by reason of his position as
member owe any fiduciary duty to the company – Kuwait Asia Bank
EC v National Mutual Life Nominees
• Since company can sue and be sued under law, a member is not liable
for the debts of the company.
SECTION 101 - SHARE-HOLDER’S RIGHTS
1. Voting Rights
2. Receive Notice
3. Distribution Rights
4. Class Rights - When There Are More Than One Classes Of Shares.
• Right to take actions is always given to the board of directors and they
will definitely decide not to take actions against themselves.
• Even if the AOA or Constitution provides that right to take actions
belongs to the company in general meeting, it is still impossible as the
directors are also the majority shareholders and they will vote not to
take any action against any wrong done by them.
• Therefore, it is a problem where minority shareholder is concerned.
The Proper Plaintiff Rule
• The proper plaintiff is the company. However, as the wrong was committed
against the company by those in control, the chance of the company taking
actions against the wrongdoers is slim. Being a plaintiff is not possible as
the power to bring action is vested with the wrongdoers who will not
consent to the company being named as plaintiff.
• By naming the company as a party to the action, the court can order
damages to be paid by the wrongdoers to the company. The company will
be bound and no further action can be taken by the company against the
wrongdoer in the future. This is to avoid multiplicity of actions for the same
wrong committed by the wrongdoers against the company.
• A derivative action is allowed only if the wrongdoers are in control of the
company and thus have prevented the company from taking actions.
• Impact of Doctrine of Separate Legal Entity - ONLY the parties to the
contract CAN sue and be sued ensure that if the company suffers
losses resulting from a breach of contract, only the company can sue
the other contracting party.
• Doctrine of Privity - a member, being a separate person from the
company CANNOT sue the other contracting party.
MAJORITY RULE AND MINORITY PROTECTION
• Problems in relation to enforcement of directors’ duties
• Directors may breach their duty as a director but when that director is also a
majority shareholder, he may ratify his own conduct and proceed not to take
actions against himself. Therefore, when the directors are also the majority
shareholders in the company, it is very difficult to enforce the director’s duties
towards the company.
• For example, the directors may pay themselves excessive remuneration and, at
the same time, refuse to have the company pay dividends to members. They may
also divert the business opportunity away from the company and ratify their
conduct so that the company and its members suffer financial harm. They may
also issue shares to other person so that the other person votes in their favor if
the needs arise. The minority shareholders have problems to enforce the
director’s duties because they need approval of general meeting in order to take
actions against the directors. This is because the wrong done is to the company
and only the company has the capacity to take actions.
The rule in Foss v Harbottle has been used in Pavlides v Jensen.
A minority shareholder brought an action for damages against 3 directors
and against the company itself on the ground that they had been negligent in
selling a mine owned by the company at an under value.
Held: the action was not maintainable.
• The advantage of the rule is of course to prevent multiplicity of action and
to prevent unnecessary litigation. The principle however, produce an unfair
or unsatisfactory result particularly to the minority. Therefore, there are a
numbers of exceptions under which the minority shareholders are allowed
to bring action against the majority.
THE EXCEPTION TO THE RULE IN FOSS V
HARBOTTLE
1. Acts of the company which are ultra vires
• Where the act is illegal or ultra vires, the company or any individual
member may sue because the act cannot be confirmed by the majority.
The minority members may sue to restrain the company from performing
ultra vires or illegal activities.
Simpson v Westminster Palace Hotel Co
A minority argued that a decision to lease a major portion of the hotel as
offices was not within the objects of the hotel company and therefore was
ultra vires.
Held: that a single member can maintain a suit for declaration.
• In Malaysia, this exception is no longer of much significant because of S.20
which preserve the validity of ultra vires act.
2. Infringement of member’s personal rights
• The rights of the members attached to their shares are found in the
CA 2016 as well as in the company’s constitution. Eg S.71 of the CA
2016 confers on the members the right to attend, participate and
speak at the company’s general meeting.
• The AOA or Constitution or the Act may give to each member
personal rights and he can use his rights almost as a form of property;
eg. his right to vote and variation of class right under S.65 CA 1965*.
These personal rights cannot generally be ousted by the rule in Foss v
Harbottle. If these rights were infringed by the controllers or the
company, members are entitled to bring action to enforce them.
Pender v Lushington
AOA provided that members were entitled to only one vote for every company share held, up to a
maximum of 100 votes. A member who held a large numbers of shares, knowing of this restriction
on voting, transferred a numbers of his shares to Pender, who was to vote in accordance with the
transferor’s direction. At a general meeting of the company, Pender’s votes were disallowed. This
resulted in the passing of a resolution for which he would not have voted had his votes been
counted. Pender brought an action against the directors to overturn the disallowances of his vote
and to restrain them from acting on the resolution.
The court upheld his right to bring an action and decided that he come within an exception to the
rule in Foss v Harbottle because he was enforcing a personal right conferred on all members to have
their vote counted.

In Boschock Prop Co v Fuke, court allowed a minority to enforce his right to have dividends paid in
accordance with the AOA.
In Baillie v Oriental Telephone & Electric Co, court allowed a minority to enforce his right to have a
proper notice of meeting.
3. Acts requiring special majority
• There are transactions which require special majority, for example, the passing of a members’ special
resolution. If only an ordinary resolution was passed, the majority who objected to the resolution may apply
to the court to restrain the company from acting on it. Where the transaction in question is outside the
scope of the Constitution/AOA and can therefore be only authorized by a special resolution to alter the AOA,
or for any other reason it requires a special majority to sanction it, non-compliance of this requirement by
the majority give a right to bring an action.

Quin & Axtens Ltd v Salmon

The company’s constitution provided that certain contracts must be approved by Salmon and Axtens. In one
instance, Salmon refused to consent and the directors called for a members’ meeting to approve the
transaction. Upon application by Salmon, the court granted an injunction to restrain the company from acting
on the members’ resolution.
Held: an ordinary resolution to authorize a sale of the company’s property is ineffective because the AOA
prohibited disposal without the consent of the Plaintiff. The only course open to the company was a special
resolution to amend the Constitution/AOA before they could validly dispose any property and this was not
done. Plaintiff was allowed to take actions.
Edward v Halliwell
The constitution of a trade union provided that alteration of the
contributions of employed members could only be made by a ballot vote of
the members and ¾ majority must be obtained. During the second world
war, a meeting of the union was made and a resolution increasing the
amounts of contributions was passed without taking a ballot and without
obtaining ¾ majority. Two members of the union sued for a declaration that
the resolution is invalid. The defence was that the rule in Foss v Harbottle
debarred the members from taking actions.
The defence was rejected and the court held that the resolution was invalid.
The rights infringed were individual membership rights. The ¾ majority
requirement also has not been complied with and for that reason, the rule in
Foss v Harbottle did not apply, the individual members were entitled to sue.
4. Fraud on minority
• Fraud on minority is actually a fraud committed against the company
where minority is directly or indirectly affected by a decision of a
controlling majority. Fraud in the context of company law means an abuse
of power whereby the majority secures an unfair gain at the expense of the
minority, the injured party need not actually be the minority shareholders,
it may also be the company itself.
• It is well-known as exception to the proper plaintiff rule and arises from the
general principal that holders of powers should not abuse their powers.
• S.213 of CA 2016 which provides that a director exercise his powers for a
proper purpose and in good faith in the best interest of the company.
Abdul Rahim Bin Aki v Krubong Industrial Park (Melaka) Sdn Bhd
Gopal Sri Ram made the following points in relation to fraud on minority:
1. ‘Fraud on minority’ is a term of art and has absolutely nothing whatsoever
to do with actual fraud or deception at common law;
2. It is not necessary to prove dishonesty before a minority shareholder may
claim relief under the exception;
3. It is sufficient for a plaintiff to show that the majority had abused their
power vested in them in the sense that they used their power for a collateral
purpose and not for the true purpose for which such powers were granted.
Fraud On The Minority Has Been Held To Have
Been Present In The Following Cases:
1. Expropriation of the company’s money, property or opportunities;
• A fraud on the minority exists where the majority decided directly or indirectly to appropriate to
themselves money, property or advantages which belong to the company. It is an established
principle that the majority members or the directors cannot expropriate the company’s property
or assets. Even if the wrongful conduct of the directors and shareholders is ratified by the
members at a general meeting and thus, does not come within the ambit of either of the above
provisions, action may still be taken against them at common law.

Cook v Deek
The company had four shareholders, all of whom were directors. The three Defendants decided to
break relations with the Plaintiff. They diverted a contract to another company which they set up.
The Plaintiff sued to make the Defendants account for their profits to the company on the ground
that they had breached their duties as directors. The question arose on whether the Defendants as
majority shareholders could ratify the transaction and defeated the Plaintiff’s action.
Held: they were not entitled to do so and Plaintiff was allowed to sue on behalf of the company.
2. Majority obtaining a benefit at the expense of the company;
• If a majority member has obtained a benefit at the expense of the company, a
minority shareholder might be permitted to maintain an action even if the acts
complained of are not fraudulent in the true sense.

Daniels v Daniels
A director purchased land from his company at a very low price and later resold it
at a large profit. The minority shareholders brought action alleging that the
directors who were the majority shareholders, had sold the land at a gross
undervalue. The directors relied on the decision of Pavlides v Jensen and argued
that as fraud had not been alleged against them, the minority were unable to sue.
Held: the minority could bring an action because the directors had benefited from
their negligence. Directors cannot be released from their duties, even in the
absence of fraud, where they make an unfair profit at the expense of the company.
3. Preventing an action being brought;
• Majority’s attempt to prevent an action being brought could amount to fraud on minority. The plaintiff needs to establish tha t
fraud has been committed by the person who is in control and who decides whether action is to be taken by the company. Thus, it
is important to establish control.
Ting Chong Maa v Chor Sek Choon (1989)
The plaintiff and defendant had equal shares in the company but the defendant was the managing director. Clearly, the defendant
was in control.
Estmanco (Kilner House) Ltd v Great London Council
The Defendant owned a block of flats. The flats were sold to tenants on long leases and were to be managed by Plaintiff. The
Defendant held majority shares in Plaintiff, the minority shares were held by the tenants which carried no vote. It was understood
that when all units were sold, Defendant would drop out of the picture and the tenants would manage the flats through Plaintiff
where at that point they were entitled to vote. To this end, the Plaintiff entered into agreement with Defendant where Defendant
promised to use their best effort to dispose of all the flats.
Before all the flats were sold, political control in Defendant changed and they decided not to sell all the flats. This was a breach of the
agreement and Plaintiff brought an action against Defendant for specific performance of the agreement. Defendant was the only
shareholder entitled to vote in Plaintiff and it passed a resolution directing that the action be discontinued.
Minority shareholder however attempted to carry on the action in the name of the company and the action was allowed by the court
on the ground that there was fraud on minority
4. Expropriation of members’ property.
• It may be fraud on the minority for the majority shareholders to use their voting power so as to deprive a member of his shar es in
the company. This is usually achieved by altering the AOA and may only be done if adequate compensation is paid and it can be
shown to be bona fide for the interest of the company as a whole.

Sidebottom v Kershaw Leese & Co Ltd (1920)

The minority members were doing a competing business. The company passed a members’ resolution to alter its articles to the effect
that a member who was in a competing business could be required by the directors to transfer his shares to another member.
Held: The resolution was valid and the alteration effective as it was for the benefit of the company as a whole.

Brown v British Abrasive Wheel Co

A company required further capital. The majority shareholders held 98% of the issued capital but would only provide further capital if
they could buy up the remaining issued shares. The minority shareholders refused to sell, so the general meeting passed a special
resolution to alter the AOA, so as to require minority shareholders to sell their shares if requested by 9/10 of the shareholders.
Held: that the alteration was a fraud on the minority because the majority were trying to achieve by compulsion which they had
failed to achieve by negotiation. The minority shareholder was allowed to maintain the action.
The Requirement Under The Rule In Foss V
Harbottle
The following three ingredients must be shown:
1. The majority obtained some sort of benefit;
2. The benefit was obtained at the expense of the company or that
some loss or detriment be caused to the company;
3. Majority used their controlling power to prevent an action being
brought against them by the company
Procedure in Minority Shareholder’s Action
• Under common law, for a minority shareholder to bring action against the
controllers of the company, he must establish that the case comes within an
exception to the rule in Foss v Harbottle and the action can either be personal
action, a representative action and a derivative action.
• For personal action, the minority seeks to enforce a personal right conferred on
members individually against the company and this may happen if the company
infringes the minority’s rights under the AOA or the Act.
• A member is allowed to take actions if:
(a) He is deprived of his rights as a member - Pender v Lushington
(b) His property is expropriated - Brown v British Abrasive Wheel Co.

• The action is taken by the member in his personal capacity to enforce his
personal rights against the company.
• A representative action is an action brought by or against one or more persons as
representative of a larger group but all the persons represented must have the same
interest in the action. Therefore, a representative action cannot generally be brought if
member of the group has a separate claim for damages. Action is taken by a member on
behalf of himself as well as other members. He represents himself and offer affected
members, for the rights of members generally are affected. Thus, the representative
action will avoid multiplicity if actions in respect of the same matter.
• A derivative action is a civil action brought by a minority shareholder in their own names
seeking a remedy for the company in respect of a wrong done to the company. Usually,
an action should be brought by the company it its own name. Derivative action means a
lawsuit brought by a shareholder of a corporation on behalf of the corporation to enforce
or defend a legal right. This action usually brought by a shareholder against insiders such
as the directors, management when there is fraud, mismanagement, dishonestly and
corruption while dealing in the company's affairs.
• A derivative action will only be permitted when a serious wrong to the company is
involved, and the majority refuse to sanction an action in the company’s name.
Requirement for derivative action:
1. Act complained of must amount to fraud on minority;
2. The wrongdoers must be shown to be in control and refuse to lend
the company’s name to an action to remedy the wrong;
3. Company must be made a defendant in the action;
4. Action must be brought on behalf of the other minority shareholder
except the wrongdoers;
5. The action is a product of equity and therefore is subjected to
equitable considerations.
Statutory Protection Of A Minority
• The affairs of the company are being conducted or powers of directors are
being exercised in a manner oppressive to one or more of the members or
debenture holders including himself or in disregard of his or theirs interests
as members, shareholders or debenture holders of the company.
• The Remedy of Oppression was previously under S.181 CA 1965*.

• The oppression remedy is now stated in S.346(1)(a) CA 2016 where the

court finds that:
the affairs of the company are being conducted; or
the powers of the company are being exercised either
(a) in oppressive manner to one of the members including the petitioner or;
(b) in disregard of the interest of members or debenture holder.
• The section provides for four grounds of protection which are oppression,
disregard of interest, discrimination and unfairly prejudicial.
• However, the wording of S.346(1)(a) suggests that members or debenture holder
must show present and continuing oppression or disregard of interest, while
S.346(1)(b) suggest that member or debenture holder must show past or future
discrimination or prejudicial conduct. Some act of the company has been done or
is threatened or that some resolution of the members, debentures holders or any
class of them has been passed or is proposed which unfairly discriminates against
or is otherwise prejudicial to one or more of the members or debentures holders,
including himself.

• Upon establishing of any one of these four, a member or debenture holder may
bring a personal action under this section against those responsible for the act.
This includes directors, majority shareholders or the company itself.
What Amount To Oppression?
• Oppression means conduct which is burdensome or harsh or
wrongful - Scottish Cooperative Co v Meyer.
Oppression was discussed in the following cases:

Re HR Harmer Ltd
The founder of the firm gave away his shares to his son and eventually become majority
shareholder. However, the father still controls the running of the business as though it was his own
and he disregarded the wishes of the fellow shareholder and refused to comply with any resolution
passed at a board meeting. As a result of his autocratic behaviour, it become impossible to the
company to be carried out successfully. A petition was made to the court under the equivalent
S.181 CA 1965*.
Held: the case oppression had been made out.

Re East West Promotion Pty Ltd

Cheetham and McCoy were directors and shareholders of a company. They agreed to end their
business relationship. Several months later, McCoy removed furniture, equipment and the
company’s book from the registered office. McCoy also removed the company’s stock from its
warehouse and started a new company which engaged in the same business.
Cheetham brought an action under the equivalent S.181 CA 1965* and the court held that McCoy’s
conduct was clearly oppressive.
Re Kong Thai Sawmills (Miri) Sdn Bhd
The company was a family company held by 6 brothers. The action was
brought by Sung against his brothers, Siew and Siong and the company. Sung
owned 2.5% shares while Siew and Siong together owned 63.5% shares. Siew
was the chairman of the board and Siong was a director. Sung was a director,
having left the board prior to the action.
Some of the relief sought were:
(a) Loan made by the company to one Harun Arifin;
(b) The purchase of yacht by the company;
(c) Donations made to certain political parties; and
(d) Drawings of company’s funds by Siew and Siong.
• For (a), the action failed as there were insufficient evidence to substantiate
allegation of wrongdoings. For (b), the purchase of the yacht was a matter within
the company’s capacity and if the members have choosed to approve
expenditure of doubtful value, that was their choice. For (c), the donations had
been validated by the board and general meeting. For (d), the trial judge had
found that there were misappropriation of funds by Siew and Siong, however
before the case was finally disposed of, both of them repaid the amount back to
the company.
• The Privy Council held there was no oppression as all the conduct was not
ongoing conduct. There must be a visible departure from the standard of fair
dealings and a violation of the conditions of fair play which a shareholder is
ENTITLED to expect before a case of oppression can be made. “Disregard”
involves something more than failure to take account of the minority’s interest.
• **The decision had been criticised!
Re Chi Liung & Son Ltd
The petitioner had been removed as MD of the company and his shares were transferred to the
Respondent. The company was incorporated by Chi Liung who then died. Before the death, she
appointed the petitioner as MD. Dispute arose as a result of 3 wills left by Chi Liung who appointed
both petitioner and Respondent as MD. While the matter was still unresolved, a resolution was
passed appointing the Respondent as MD. The Respondent also had fraudulently made use of blank
transfer form executed by the petitioner to transfer the petitioner’s share to himself.
Held: that there was oppression.

Re Lundie Bros Ltd

In this case, a director and shareholder of a small company was removed as a director and were
virtually excluded from taking part in the management of the company. The application under the
English equivalent of S.181 of CA 1965* failed because his main grievance was his removal as a
working director and this had nothing to do with his status as a member.
What Amount To ‘Unfairly Discriminatory’ And
‘Prejudicial’?
Re G Jeffry (Mens Stove) Pty Ltd
Held: that the company’s affairs had not been conducted in a manner unfairly prejudicial to the members and
had not discriminated them. All shareholders were treated equally. The petitioner complaint that directors
should declare higher dividends were held to be unjustified because the director had properly exercised the
powers. Further, the mere refusal by the other shareholders to purchase the petitioner’s share did not amount
to unfairly prejudicial or discriminatory.

Re Gee Hoe Chan Trading Co Pte Ltd

Held: that the act of the directors in paying themselves directors’ fees and salaries but not declaring dividend
had constituted as unfair prejudicial.

Sanford v Sanford Courier Service Pty Ltd

The majority had diverted away business of the company to themselves. They also made payment of high
salaries and provision for retirement benefits and at the same time refused to pay dividends. The court allowed
the minority to bring action under the equivalent of S.181 of CA 1965* and ordered the majority to buy the
minority’s shares.
Who may avail of S.347?

• Provides that a complainant may with the leave of the court

commence, intervene or defend an action on behalf of the company.
• A complainant is defined in S.345 as:
(a) A member of the company or a person who is ENTITLED to be
registered as a member
(b) A former of the company provided the application relates to
circumstances in which the member ceased to be a member
(c) Any director of the company
(d) The Registrar of Companies, in a case where the company is subject
to investigation under S.590.
Remedies Under S.346 (2)

• The court may make an order as it thinks fit and without prejudice
may:
1. Direct or prohibit any act or cancel any transaction or resolution
2. Regulate the conduct of the affairs of the company in future
3. Provide for the purchase of shares or debentures of the company by
other members or by the company itself
4. In the case of a purchase of shares by the company provide for a
reduction of share capital
5. Provide the company be wound up.
• S.349 provides that it is immaterial that the members have ratified or
approved the conduct complaint against.
• If a member of a company, ratify or approve the conduct of the subject
matter of the action:
(a) the ratification or approval does not prevent any person from bringing,
intervening in or defending proceedings with the leave of the court
(b) The application for leave or action brought or intervened in shall not be
stayed or dismissed by reason only of the ratification or approval
(c) The Court may take into account the ratification or approval in
determining what order to make.
Winding Up Petition
• Under Section 218(1)(I) CA 1965*
• It is another statutory remedy available to minority shareholders.
• However, what is just and equitable is not defined under the
Companies Act 2016, but it can be inferred from the circumstances of
each case.
Situations where court has granted the petition to
wind up the company under just and equitable
ground:
1. Main object of the company has failed – Re German Date Coffee
2. Business is carried on in a fraudulent manner – Re Thomas Edward
Brinsmead & Sons Ltd
3. Deadlock in the management – Re Yenidje Tobacco Co Ltd
4. Members have justifiable lost of confidence in the management – Loch &
Anor v John Blackwood Ltd
5. No bona fide intention on the part of the controllers to manage the
company in proper manner – Re London Country & Coal Co.
6. Mutual trust and confidence which is the basis of the company is gone –
Ebrahimi v Westbourne Galleries
7. Exclusion of management – Tay Book Choon v Tahansan Sdn Bhd
THANK YOU