Proposed rules on shareholder-requisitioned meetings can reduce uncertainty
THE Singapore Exchange Regulation (SGX Regco) proposed new rules last week that would require listed issuers to facilitate shareholder-requisitioned meetings so that such meetings take place as soon as practicable.
It builds upon existing legislation in the Companies Act as well as an SGX Regco regulator’s column last year that set out expectations on what boards and requisitionists should do in such situations.
With more shareholders now willing to step up and challenge incumbent boards and management, the move is important to support shareholders’ ability to exercise their fundamental rights without unnecessary hurdles.
The proposed rules set clearer expectations on the timeline and actions that issuers must take when faced with legitimate shareholder actions, which can help avoid protracted delays and reduce uncertainties for all shareholders as a whole.
It is clear that having such rules in place would be better for shareholders, and this column had previously argued for a clearer framework on such matters.
What remains to be seen is whether boards and management would genuinely act in accordance with the spirit of the rules, given the high-stakes nature of boardroom challenges.
Boardroom battles
Under the Companies Act, members holding at least 10 per cent of the paid-up shares of the company can requisition a general meeting. And more minorities have been doing so.
Between April 2021 and April 2023, at least 13 Sgx-listed issuers have faced requisitionists seeking an extraordinary general meeting (EGM) – often to replace incumbent directors, data compiled previously by The Business Times showed.
Most companies that have encountered such challenges have been small, with market capitalisations below S$100 million. This included USP Group, Asti Holdings, Kitchen Culture and Metech International.
While shareholders have the legal right to requisition a meeting, boardroom fights have often been messy affairs in practice, with varying degrees of success.
Some cases have seen parties disagreeing on nearly everything. At times, this has led to a stalemate – with both parties unable to come to an agreement on holding the meeting to allow the democratic process to take place.
Incremental steps
SGX Regco published a regulator’s column in April 2023 setting out its expectations on what boards and requisitionists should do, but it has gone a step further now.
Instead of simply persuading companies to act in the best interests of all shareholders, the regulator has drawn up new requirements.
Under the proposed listing rules, companies have 21 days from the submission of a requisition notice to either facilitate the convening of the meeting; or to apply for a court ruling disputing the validity of the requisition.
This approach is a sensible way to push both parties to the starting line of holding an EGM without a protracted delay.
Boards would need to act quickly rather than opt for delay tactics in the hope that requisitionists would give up.
Having to go to the courts for a firm ruling would also spare shareholders from a public dispute that creates only confusion and uncertainty.
Some issuers in the past have relied on legal advice to dispute the validity of meetings – sometimes relying on minor technicalities – but this is not always tested before the courts.
Boards that now need to go to court to get a definitive ruling may think twice on the merits of their case.
Those with a strong case may also consider whether it is worth the hassle, if the eventual outcome would still see them having to play a more facilitative role to requisitionists once the technicalities are sorted out.
Is it enough?
The incremental steps being taken by SGX Regco to drive market discipline would likely help shareholders, but they need to be complemented with strong enforcement.
After all, there is already legislation in the Companies Act that enables such meetings to be held but requisitionists have still faced challenges.
SGX Regco chief executive Tan Boon Gin said during the press briefing that those who do not comply with the listing rules would be subject to penalties, and this may include notices of compliance.
Even though boards would soon be expected to play a facilitative role for such EGMS, it remains to be seen how helpful directors would actually be if the resolutions are meant to kick the incumbents out.
It may be worth considering whether a neutral party, such as an independently appointed service provider or the sponsor in the case of Catalist-listed companies, can be engaged to assist with the facilitative actions that SGX has prescribed.
That may ensure greater certainty that meetings will be held in a timely fashion, instead of expecting that boards and management would fully comply with the new rules.
Apart from actions taken by SGX, there may also be room for other ecosystem changes.
Some experts whom I spoke with last year had also pointed out the need for changes in legislation as the current provisions allow members of a company rather than shareholders to call a meeting.
The terms “shareholder” and “member” are distinct, even if they are often used interchangeably. Under the Companies Act, a member is a person listed in the register of members kept by a company. A shareholder, however, may not necessarily be a member.
A person may be a shareholder by beneficially owning the shares which are held in the name of a nominee, but the nominee would be a member of the company as the nominee’s name is entered into the company’s register of members.
Amending the legislation to allow shareholders to be able to call the meeting may be helpful for shareholders to exercise their rights.
Meanwhile, there should also be firmer publicly visible enforcement action taken by other regulators such as the Accounting and Corporate Regulatory Authority against boards that do not comply with their obligations in respect of a valid requisition.
A concerted effort across the ecosystem could drive market discipline and improve outcomes in local listed companies.