“Quorum” is the minimum number of members (or their representatives) required for company meetings such as board meetings or shareholder meetings to be carried out. In order for the meeting to be valid and legally binding, quorum needs to be properly tallied and met at the time when the meeting proceeds to business. A failure to meet the requisite quorum, on the other hand, will mean that any resolutions passed or decisions made during that meeting maybe be invalid. 

The key provision under the Companies Act 2016 governing quorum of members’ meetings is Section 328(2). In brief, the required quorum for members’ meetings of a company is 1 member for a company that only has one sole shareholder, and for any other case, a minimum of 2 members personally present, unless a higher number is provided in the company’s constitution.

The phrase ‘personally present’ includes not only individuals who physically attend the meeting but also those who attend virtually, especially in the context of electronic or hybrid general meetings.

Section 328(5) of the Companies Act also helpfully prescribes a default procedure to have a members’ meeting either dissolved, or, adjourned for a week, if the meeting does not meet quorum within 30 minutes from the time appointed. This procedure can be amended or customized through the company’s constitution, hence, the importance of having a tailored constitution to govern such an essential component of corporate decision-making.

Unlike for members meetings, the Companies Act 2016 does not specifically prescribe quorum for board meetings. Instead, it is usually determined by the company’s constitution or board charter if there is one. If no provision is made in the company’s constitution, it is common practice for the quorum to be 2 directors. Again, therein lies the importance of a company’s constitution to be customized to fit the actual number of directors and quorum for its specific needs.

Practical tips before convening meetings:

  1. Check the Constitution: The company’s constitution may set a different or higher quorum than the default quorum under the Companies Act 2016.
  2. Notice of Meeting: Ensure that notice of the meeting specifies the quorum requirements, as well as the procedure and forms to appoint proxies or representatives to attend such meeting.
  3. Attendance Tracking: Keep a record of members who are “present” at the start of the meeting and the exact time the meeting starts, including for virtual meetings.
  4. Quorum Lapse: If quorum is satisfied at the start but is lost during the meeting, consider adjourning to a later date especially if the resolution could potentially be contentious.

In some circumstances, companies may encounter situations involving unwilling member(s) who refuse to cooperate or attend meetings, resulting in quorum not being met and the company or board ‘being stuck’ and unable to pass any formal resolutions. Fortunately, there are exceptions to quorum, and the law provides for alternatives. 

One of the exceptions to quorum is provided under Section 314 of the Companies Act 2016. This allows for the power of court order a meeting, if it is impracticable for a members’ meeting to be called or conducted as prescribed by the constitution or the Companies Act 2016. 

Test of Impracticability 

In order for the court to intervene, the applicant would need to prove impracticability which has been illustrated in several case laws. In Tamabina Sdn Bhd v Nakamichi Corporation Berhad [2016], it was held that to show impracticability, evidence of attempts and efforts to call or hold a meeting and that such attempts have been futile must be proven. A non-exhaustive list of common circumstances would include; an intentional uncooperative conduct of the directors, a persistent effort to derail a meeting, and a deliberate non-attendance at the meeting despite a proper and valid notice being issued to force the meeting to be called off. 

In accordance with the decision above, in the case of Chuah Sean Kin & Ors (supra), the Court said that the following conditions would need to be met; it must be impracticable to call for a meeting pursuant to section 310 of the Companies Act; and secondly, it must be impracticable to conduct a meeting in par with the Company’s constitution or the Act. The case at hand was dismissed as the respondent was unable to prove to the court that it was impracticable to conduct the meeting. Additionally, in the case of Tan Swee You v Sahiron Mohd Yunus & Anor [2021], it was reaffirmed that impracticability extends to situations where members deliberately fail to attend a general meeting to prevent the satisfaction of a proper quorum, especially when a deadlock exists. 

If the elements under section 314 are met, and a court steps in to order that a meeting be called, held, and the court can also give any ancillary or consequential direction as it thinks expedient, which may include a direction that one member alone can be deemed to satisfy quorum. 

Key takeaways

A company can easily become stuck and unable to call or conduct board or members meetings if quorum is not satisfied. A useful pre-emptive action is to adopt a tailored constitution providing procedures or quorum rules to be more easily met, compared to the default requirements prescribed under the Companies Act 2016. In a situation where quorum is demonstrably impracticable and cannot be satisfied, the assistance of the court can be sought to called, hold and conduct a meeting of the company.

***

This article was written by Naina (Intern) edited by Shawn Ho (Partner). Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021.  We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.

Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysian start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds.  Feel free to contact us if you have any queries.

 

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