Pursuant to the gazette notification dated 26 January 2017, the new Companies Act 2016 (“new Act”) came into force on 31 January 2017, save for section 241 and Division 8 of Part III. Section 241 requires a person to be registered with the Registrar of Companies before they can act as a company secretary and Division 8 of Part III deals with corporate rescue mechanisms, including corporate voluntary arrangements and judicial management.
With the coming into force of the new Act, the Companies Act 1965 (“CA 1965”) has been repealed.
Simultaneously, the following came into force on 31 January 2017:
In this alert, we continue our series on key changes brought about by the new Act and discuss the concept of management review by shareholders that was introduced by the new Act. With increasing awareness of shareholders’ rights and the rise of shareholder activism, this development is welcomed by many, particularly, shareholders of public listed companies. This provides an avenue for shareholders to be more proactive in voicing their opinions and empowers them to make binding recommendations to the board of directors on matters relating to the management of the company.
Shareholders’ rights of management review: A tug of war between shareholders and directors?
Under the CA 1965, members had the right to question the board at general meetings on matters relating to the management of the company.
The new Act has expanded on this by giving members the statutory right to conduct a management review, where members may debate, challenge or make recommendations on the management of the company.
These questions frequently arise:
1. When can a member exercise their right to a management review?
The new Act provides that it is the responsibility of the chairperson to allow a reasonable opportunity for members at a meeting to question, discuss, comment or make a recommendation on the management of the company.
2. How do members make a recommendation on the management of a company?
Under the new Act, a meeting of members may pass a resolution which makes recommendations to the board of directors on matters relating to the management of a company.
3. Are all recommendations proposed by members binding on the board of directors?
No, unless they are in the best interest of the company and provided that the right to make a recommendation is provided for in the constitution or passed as a special resolution.
This begs the question: who determines what is in the best interests of the company? Is it the board of directors or the shareholders? What if they disagree?
As management powers are vested in the board of directors, one could argue that the directors’ viewpoint should prevail. However, it is still early days, and it remains to be seen how shareholders’ management reviews will be practically implemented under the new Act and the position that the courts will take in the event of a dispute between the directors and shareholders on what would be in the best interests of a company.
For our previous client alerts relating to the reforms under the new company law regime, please click on the following links:
The New Companies Act 2016 to be Implemented from 31 January 2017
The New Companies Act 2016: Raising the Bar for Directors
New Companies Act 2016 and Interest Schemes Act 2016 Gazetted
Key Changes to the Dividend Regime
Migration to No-Par Value Regime
Companies Bill 2015: Making the Transition
Major Reform as New Companies Bill 2015 Passed
This alert is for general information only and is not a substitute for legal advice.