Mar 2024
In Ho Kwok Leung Glen, Hau Kai Ling and Ge Jun v Nan Hai Corporation Limited [2024] SC (Bda) 2 Civ, 31 January 2024, the Supreme Court of Bermuda (the “Court”) rejected the Plaintiffs’ application for a declaration that seven directors were validly appointed at a special general meeting convened pursuant to the Plaintiffs’ requisition.
Background
The Defendant company (the “Company”) was formerly listed on the Hong Kong Stock Exchange. Some of the Company’s issued shares were charged in favour of a creditor, which in turn appointed the Plaintiffs to act as receivers (the “Receivers” or the “Plaintiffs”) over the said shares.
The Receivers requisitioned a special general meeting (the “SGM”) to consider resolutions for the appointment of seven new directors to the Company’s Board.
At the time of the SGM the Company had six serving directors. In accordance with its bye-laws, the Company had previously set a maximum number of directors. There was a dispute about whether the Board was limited to eight or nine directors but it was common ground that the Receivers’ slate of new directors could not all be seated without raising the cap.
The chairman of the SGM purported to adjourn the SGM on the basis that the proposed appointments would take the composition of the Board above the prescribed maximum. The chairman invited the Receivers to deposit a revised requisition for a separate resolution to increase the cap of the board.
Notwithstanding the purported adjournment, the Receivers took over the conduct of the SGM with one of their number acting as the new chair. The resumed SGM adopted the resolutions for the appointment of all seven new directors. The pre-SGM Board refused to recognize the new ‘directors’.
The Receivers did not accept the Company’s invitation to requisition a new meeting with a separate resolution to increase the cap of the Board. They applied to the Court for declaratory reliefs confirming the validity of the appointment of the seven new directors.
Ruling
There were two principal issues to be decided by the Court (Subair Williams J): firstly, whether the SGM was lawfully adjourned and secondly whether the resolution(s) passed at the SGM to appoint the seven new directors were valid in accordance with the Company’s bye-laws.
Issue 1
Having considered the Company’s bye-laws and Kawaley CJ’s decision in Oung Shih Hua James v Paladin Limited [2014] Bda LR 80, the Court found that the SGM was invalidly adjourned. The Court found that it was not open to the chairman of the SGM to unilaterally decide or impose his choice for an adjournment on the members of the SGM against their wishes.
Issue 2
Section 91 of the Companies Act provides:
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Election of directors91(1) The affairs of the company shall be managed by at least one director who shall be a person elected in the first place at the statutory meeting and thereafter elected or appointed by the members at each annual general meeting of the company or in such other manner and for such term as may be provided in the bye-laws.
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- 91(1A) A maximum number of directors may be determined by the members at a general meeting of the company or in such other manner as may be provided in the bye-laws.”
Since the statutory provision gives way to any bye-laws which empower members to vote for the appointment of additional directors at a special general meeting, the Court found that this issue would hinge on the construction of the relevant bye-laws.
The key bye-law of the Company is as follows:
“The Company in general meeting shall from time to time fix and may from time to time by Ordinary Resolution, increase or reduce the maximum and minimum number of Directors but so that the number of Directors shall never be less than two.”
The Company argued that the appointments purportedly made at the SGM were null and void in the absence of a separate resolution to raise the Board cap to allow for the appointment of seven new directors. The Receivers submitted that a quorate vote in favour of the appointment of seven new directors necessarily implied that the members wished to increase the Board maximum, as was within their power to do.
The Court resolved Issue 2 in favour of the Company. The Court found that:
- The wording of the bye-law shows that the fixing of a maximum number of directors is a mandatory step.
- The draftsman would not have imported mandatory wording had it been otherwise capable of being disregarded by implication.
- While it is within the power of the members to increase the maximum number of directors, they must do so formally by way of a requisition notice and a quorate vote.
- The purpose of a requisition notice is to alert all voting members to the proposed resolutions for voting. It would then be open to any member to decide whether to partake in any such vote. To call for a vote on a resolution which was not the subject-matter of a requisition notice would, in a general sense, amount to procedural unfairness and even perversity.
- Without a requisition notice clarifying an intention to increase the number of directors, the members’ approval of the proposed new appointments might be made without the necessary awareness of a resulting effect of an increase on the maximum cap.
The Court concluded that the Receivers’ failure to include a separate resolution to increase the maximum cap “nullified” any vote for the appointment of additional directors in circumstances where the total number of additional appointments exceeded the prescribed maximum.
Takeaways
Management of a Bermuda company should carefully consider the bye-laws when seeking to adjourn a general meeting. In most cases, the ability of a chair to adjourn without the consent of the meeting will be very limited.
The judgment in Nan Hai also underscores that notices of general meetings – whether those meetings are convened by the company or requisitioned by its shareholders – are not mere formalities. A material omission from a meeting notice may invalidate some or all of the business conducted at the meeting.
Likewise Bermuda companies and requisitionists should take care in the drafting of resolutions to be put to general meetings. Nothing that is sought to be achieved by resolution should be left to implication, but rather should be set out in clear terms. Where it is proposed to increase the composition of a board of directors beyond its existing number, a company or requisitionist should verify the maximum size of the board (if any) and propose a separate resolution either to increase the cap or to disapply it.
Conyers represented the Company in this case.