SINGAPORE Trends and Developments Contributed by: Mark Lee and Sarah Yeo, WMH Law Corporation
ment is a private contract and therefore bears the fol- lowing traits: • “It derives its contractual force purely from the private law of obligations.” • For any obligation to be binding, there must first be a “coincidence of offer, acceptance and considera- tion”. • “At common law, nobody who is not a party to the contract can be bound by its provisions or can claim any rights under its provisions.”On the other hand, a company’s constitution “derives its con- tractual force from company law, not private law. Section 39 (1) of the Companies Act provides that the constitution of a company binds the company and its members as if the constitution had been signed and sealed by each member and contained covenants on the part of each member to observe its provisions. The constitution is therefore a deemed contract which binds immediately by force of statute upon and by virtue of registration. As such, it binds without any need for offer, accept- ance or consideration.”As a result of the funda- mentally different legal character of a shareholders agreement and constitution, poorly conceptualised contracts starved of intellectual capital can result in deep complications. This is particularly since the Singapore High Court made clear that “the private law plane is subordinate to company law” and “company law allows a shareholders’ agreement to supplement company law but never to supplant it”. For illustration, the Act makes clear that where certain prohibitions/requirements apply under the Act, these cannot be contracted away by parties, including but limited to: • Section 75: “Rights of holders of preference shares to be set out in constitution; 75.—(1) No company may allot any preference shares or convert any issued shares into preference shares unless there are set out in its constitution the rights of the hold- ers of those shares with respect to repayment of capital, participation in surplus assets and profits, cumulative or non cumulative dividends, voting and priority of payment of capital and dividend in relation to other shares or other classes of prefer- ence shares. (2) If default is made in complying
with this section the company and every officer of the company who is in default shall be guilty of an offence and shall be liable on conviction to a fine not exceeding $2,000.”Section 160: “Approval of company required for disposal by directors of com- pany’s undertaking or property; 160.—(1) Despite anything in a company’s constitution, the directors must not carry into effect any proposals for dispos- ing of the whole or substantially the whole of the company’s undertaking or property unless those proposals have been approved by the company in general meeting.”Section 163: Subject to certain exceptions and conditions being satisfied (includ- ing obtaining prior approval of shareholders at a general meeting), a company (other than an exempt private company) cannot make a loan to a director which would be regarded as a “restricted transaction”. On that same note, the blind adoption of template company constitutions also often land parties in unin- tended predicaments. For instance, where a director is removed by shareholders through an ordinary reso- lution. Such an article (eg, “The company may by ordinary resolution remove any director before the expiration of this period of office and may by an ordinary resolu- tion appoint another person in his stead …”) would be standard and can be found in template constitu- tions and typically go unnoticed until a dispute arises between opposing camps, a director is actually stra- tegically removed by a rival majority and that director attempts to challenge his/her removal from the board. In such instances, an aggrieved director (often also a shareholder) may likely only be able to restrain the shareholders’ exercise of their voting power by bring- ing his/her claim “within the statutory exceptions to majority rule established by s 216 or s 216A [of the Act]”. If no such allegations can be established, the shareholders will be deemed as merely (and lawful - ly) exercising their majority will at a general meeting (see Debotosh Lodh v Boustead Services Pte Ltd and another [2019] SGHC 52). Shareholders’ Rights Further to such rights conferred upon a shareholder by the company’s constitution or expressly agreed to
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