What Does S.85 CA 2016 Actually Protect?

S.85(1) CA 2016 provides that:

“Subject to the constitution, where a company issues shares which rank equally to existing shares as to voting or distribution rights, those shares shall first be offered to the holders of existing shares in a manner which would, if the offer were accepted, maintain the relative voting and distribution rights of those shareholders.” (emphasis added)

At first glance, the provision appears straightforward: where a company issues qualifying new shares, the existing shareholders should first be given the opportunity to subscribe to preserve their relative voting and distribution rights in the company.

However, there is an important qualification in the opening words of S.85 – “subject to the constitution”. Ex facie, this suggests that the shareholders may, through the company’s constitution, determine the extent to which their pre-emptive rights apply.

This was recognised by the Federal Court (“FC”) in Dato’ Azizan bin Abd Rahman & Ors v Concrete Parade Sdn Bhd & Ors and other appeals[1] (“Dato’ Azizan”), where the FC held that the pre-emptive rights afforded by S.85(1) are:-

“dependent on how the shareholders, as investors, have contracted in their AA (or constitution), firstly with the company and secondly with other shareholders or members inter se”.[2]

Accordingly, where a company has a constitution, the constitution should be the starting point in determining whether and to what extent pre-emptive rights apply. The constitution may fortify such rights, modify their operation, or provide for their disapplication[3]. Where there is no constitution, S.85 provides the statutory framework governing those rights.

How Are Pre-Emptive Rights Displaced or Waived?

At its core, a pre-emptive right is a right of priority or first preference. It does not confer an interest in the shares themselves; rather, it gives shareholders a right of first choice. Such a right may be waived even if it arises from statute[4].

The more difficult question is: what is sufficient to establish a valid disapplication or waiver of pre-emptive rights?

Interaction Between S.75 and S.85 CA 2016

Briefly, S.75 CA 2016 requires shareholders’ approval before directors may exercise certain powers to allot shares. S.75(2) provides the exceptions to this general rule.

In Pan Choon Weng, the defendants argued that S.75 and S.85 should be construed such that, where an allotment falls within an exception under S.75(2), the shares need not first be offered to existing shareholders under S.85[14].

The High Court ultimately dismissed the plaintiff’s claim. In this regard, the High Court held that the two provisions should be construed so as to “complement” each other and applied according to the circumstances of each case; otherwise, the statutory exception under S.75(2)(c) would be deprived of its efficacy[15].

However, this position must be considered alongside the subsequent FC decision of Dato’ Azizan. While the FC also emphasised that S.75 and S.85 should be read harmoniously, it expressly observed that S.85(1) is “not subject to s.75”[16].

The extent to which an exception under S.75(2) affects the operation of S.85 therefore warrants careful consideration.

What Happens When Pre-Emptive Rights Are Breached?

When a company proceeds with issuance of shares without complying with applicable pre-emptive rights, the affected shareholder may have various remedies depending on the circumstances, including declaratory relief[17], rectification of the register of members[18], oppression relief[19] or other appropriate orders.

However, a breach of pre-emptive rights does not necessarily mean that the resulting allotment is incapable of being cured. The Court may, in appropriate cases where it is just and equitable to do so and where no substantial injustice would result, exercise its statutory powers to validate or regularise any issuance or allotment of shares that would otherwise be irregular[20].

[1] [2024] 3 MLJ 223.

[2] ibid, para 136-138 & 15

[3] ibid, para 122 & 158.

[4] LGB Engineering Sdn Bhd & Ors v Rayston Resources Sdn Bhd [2022] MLRAU 196, para 82-83.

[5] Dato’ Azizan (n 1), para 174-176.

[6] ibid, para 171-187.

[7] [2026] MLRHU 2410.

[8] ibid, para 80-87.

[9] [2023] 10 MLJ 544.

[10] ibid, para 83 & 90-91.

[11] ibid, para 85-89.

[12] [2019] CLJU 2392, para 133-135.

[13] [2003] 1 MLRA 264, pg 267.

[14] Pan Choon Weng (n 9), para 49.

[15] ibid, para 80-81.

[16] Dato’ Azizan (n 1), para 128 & 134.

[17] TAS Capital (n 7), where the Plaintiff successfully sought inter alia a declaration that the issuance of shares was void and illegal.

[18] Pioneer Motor (n 13), where the Respondent sought inter alia rectification of the register of members under S.162 of the Companies Act 1965 to remove a third-party company as the holder of shares.

[19] Chiptar Holdings Sdn Bhd v THC Rice (K.L.) Sdn Bhd & Ors [2023] 1 LNS 585, where the Plaintiff successfully established a case of oppressive conduct under S.346 of the CA 2016.

[20] CA 2016, S.108. See also Kelapa Sawit (Teluk Anson) Sdn Bhd v Dr. Yeoh Kim Leng & Ors [1991] 1 CLJ (Rep) 194 at pg 204, where the Supreme Court drew a distinction between an act which does not bind the company and an act that is capable of regularisation or validation.

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice.

If you found this article useful, please feel free to download the PDF document in the link here.

The Statutory Right of Members to Requisition a Meeting

S.311(1) and (3) CA 2016 confer upon members who satisfy the prescribed statutory threshold the right to require the directors to convene a meeting of members.

The requisite threshold is: –

• at least 10% of the issued share capital carrying voting rights; or
• where the company has no share capital, at least 5% of the total voting rights of all members.

At first glance, the use of the plural word “members” in S.311 may suggest that a requisition must be made by more than one member.

However, it has been held that S.311 is equally capable of applying to a single member[2], provided that the requisite statutory threshold is satisfied.

In addition, S.311(2) CA 2016 prescribes several formal requirements for a valid requisition. The requisition must: –

• be in hard copy or electronic form;
• state the general nature of the business to be transacted;
• where appropriate, include the text of the proposed resolution; and
• be signed or otherwise authenticated by the requisitioning member(s).

Statutory Timeframe to Call the Meeting

Upon receipt of a requisition, the statutory timeframe is clear. The directors shall: –

• call the meeting within 14 days of receiving the requisition; and
• ensure that the meeting is held within 28 days after the notice convening the meeting is issued.

Where the directors fail or refuse to do so, S.313 CA 2016 entitles the requisitioning members to convene the meeting themselves, subject to compliance with the remaining statutory requirements.

Significantly, any reasonable expenses incurred by the requisitioning members are reimbursable by the company, which is in turn entitled to retain the corresponding amount from any fees or other remuneration payable to the defaulting director(s)[3].

Do the Directors Have No Discretion?

The statutory framework naturally raises an important question.

Does it mean that directors are obliged to convene every requisitioned meeting?

This is not merely a theoretical question. It was, in fact, the central issue in a shareholder dispute in which we previously acted successfully for the directors of a company. In that matter, the directors were required to determine whether they were legally obliged to convene a members’ meeting pursuant to requisitions which, amongst others, contained proposed resolutions that were prima facie unlawful.

Taken to its logical conclusion, an interpretation that the directors have no discretion whatsoever would effectively require the directors to convene meetings even where the proposed business or resolution is plainly unlawful, contrary to the company’s constitution, or incapable of being validly implemented.

Such a result would be difficult to reconcile with the directors’ broader duties to act in the best interest of the company and in accordance with its constitution.

This issue must also be considered in light of S.311(5) CA 2016, a provision introduced under the CA 2016, which provides that: –

(5) A resolution may properly be moved at a meeting unless the resolution: –

(a) if passed, would be ineffective whether by reason of inconsistency with any written law or the constitution;

(b) is defamatory of any person;

(c) is frivolous or vexatious; or

(d) if passed, would not be in the best interest of the company.

Presently, to the best of our knowledge, there appears to be no reported Malaysian decision directly considering the scope or application of S.311(5) in the context of directors refusing to convene a meeting pursuant to a members’ requisition.

Guidance from Other Commonwealth Jurisdictions

In the absence of direct Malaysian authority, guidance may be drawn from other Commonwealth jurisdictions.

A. Position in the United Kingdom

In this regard, S.303(5) of the UK Companies Act 2006 is substantially similar to S.311(5) of our CA 2016.

S.303(5) of the UK Companies Act 2006 provides that:-

(5) A resolution may properly be moved at a meeting unless:-

(a) it would, if passed, be ineffective (whether by reason of inconsistency with any enactment or the company’s constitution or otherwise);

(b) it is defamatory of any person; or

(c) it is frivolous or vexatious.

In Kaye v Oxford House [2019] EWHC 2181 (Ch), the English High Court considered the purpose and operation of S.303(5) of the UK Companies Act 2006 and observed, amongst others, that:-

• upon receiving a members’ requisition, the directors are entitled to consider the proposed business and the text of the proposed resolutions (if applicable) during the statutory period prescribed for convening the meeting;
• the purpose of that statutory period is to enable the directors to determine whether the proposed resolutions may properly be moved at the meeting;
• where a proposed resolution falls within one of the statutory exceptions in S.303(5), the directors are not required to convene the meeting;
• S.303(5) serves as a safeguard against abuse of the requisition process by the “lunatic fringe” (i.e. “those individuals whether alone or in concert with others, who wish to abuse the requisition process as a means of causing trouble, or making themselves a nuisance or trying to obtain the oxygen of publicity for causes that are only indirectly associated with the business and affairs of the company”);
• where the requisitioning member disputes the directors’ decision, the issue ultimately falls to be determined by the Court.

In fact, this was not a new principle. Even prior to S.303(5) of the UK Companies Act 2006, the English Courts had recognised that directors need not convene meetings solely for the purpose of considering resolutions that were incapable of producing any legal effect[4].

B. Other Commonwealth Jurisdictions

Similarly, the underlying principle stated above has also been recognised in other Commonwealth jurisdictions.

C. Position in Malaysia Prior to S.311(5) CA 2016 

Back in Malaysia, even prior to the enactment of S.311(5) CA 2016, the learned authors of Halsbury’s Laws of Malaysia observed that: –

“If the object of the meeting is to do that which cannot legally be carried into effect or to pass a resolution which is ultra vires the meeting, then the directors ought not to be required to convene the meeting. If such a meeting is in fact held and a resolution is passed, the directors are not bound to comply with it. The resolution is void and of no effect. There is nothing in the Companies Act 1965 to suggest that the directors must act on requisition for a meeting having as an object that which is not within the powers of the meeting. The directors are well entitled, on such a requisition, to decline to call a meeting…”

Viewed in this context, S.311(5) of the CA 2016 appears to reflect a principle long recognised across Commonwealth jurisdictions, namely that the statutory right to requisition a meeting does not ordinarily require directors to convene meetings for the purpose of considering resolutions which are unlawful, beyond the powers of the general meeting, or otherwise incapable of being validly implemented.

It is also noteworthy that, unlike S.303(5) of the UK Companies Act 2006, our S.311(5) CA 2016 contains an additional limb [i.e. limb (d) – a resolution, if passed, would not be in the best interest of the company].

The additional limb suggests a wider basis upon which directors may determine whether a proposed resolution may properly be moved. However, in the absence of judicial consideration of S.311(5)(d) CA 2016 by the Malaysian Courts, the precise scope and operation of this provision remain open to discussion.

[1] Golden Plus Holdings Bhd v Teo Kim Hui [2021] 7 MLJ 852. para [28]

[2] EKA Noodle Bhd v Norhayati bt Tukiman [2021] MLJU 1586, para [28] – [31]

[3] S.313(6) & (7) CA 2016

[4] Rose v McGivern and others [1998] 2 BCLC 593, p.604 – 605

[5] Credit Development Pte Ltd v IMO Pte Ltd [1993] 1 SLR (R) 68. para [14] – [19]

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice.

If you found this article useful, please feel free to download the PDF document in the link here.

An Overview: Quorum Requirements and Deadlock

In our recent article, Nicholas Yap examined how quorum requirements may, in certain circumstances, contribute to a shareholder deadlock under the Companies Act 2016.

This overview highlights:

• how deliberate non-attendance may prevent meetings from proceeding;
• the legal consequences of the absence of quorum;
• the Court’s power to intervene under section 314 of the Companies Act 2016, where it is impracticable to convene a meeting; and
• the use of written resolutions as a practical alternative for private companies.

The visual summary is intended to provide a concise snapshot of the key legal issues and practical considerations arising from quorum-related deadlock.

If you missed the full article, please read it here: Shareholder Dispute Briefs | When Quorum Requirements Are Used to Create Deadlock

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this post is intended for general informational purposes only and does not constitute formal legal advice.

In Malaysia, a members’ meeting serves as the primary forum for decision-making by shareholders and the exercise of their rights.

Generally, a member is entitled to request that a members’ meeting be held, subject to compliance with the requirements under the Companies Act 2016 (“CA 2016”) and the company’s constitution.

These members’ meetings are vital because there are matters of utmost significance that often require sanction or approval from the members under, amongst others, the CA 2016. For example, under Section 223(1)(b) CA 2016, the disposal of a substantial portion of the company’s property is not to be carried into effect unless the disposal has been approved by the members.

Quorum Requirements: The Potential Abuse

Pursuant to S.328(1) – (2) CA 2016, the default requisite quorum for a members’ meeting is two members (save for a single-member company), unless otherwise provided in the company’s constitution.

In a scenario where there are only two members, a deadlock may occur when one of the two members deliberately refuses to attend the meeting, thereby resulting in the lack of the requisite quorum for the meeting to convene.

This will give rise to a decision-making deadlock.

Pursuant to S.328(4) – (5) CA 2016, without the requisite quorum, no business shall be transacted, and the meeting shall be either dissolved or adjourned.

What happens if a resolution is passed without the requisite quorum? 

The Federal Court affirmed the Court of Appeal’s decision to validate the share issuances, but did so on a different basis – relying on the specific statutory provisions under S.63 and/or S.355 CA 1965.

In Malaysia, it has been held by the Courts[1] that a meeting convened without the requisite quorum would be a nullity, rendering any resolution passed in the said meeting to be invalid.

Without the requisite quorum to convene the meeting, this may jeopardise the company’s operation due to the inability to pass a resolution to, amongst others:

• approve directors’ remuneration;
• appoint the company’s auditor;
• approve the company’s annual audited financial statements;
• reappoint the directors who are retiring.

What is designed as a procedural safeguard, if misused, may be deployed by a minority member as an instrument of obstruction capable of paralysing the company’s operations.

Judicial Intervention: The “Impracticability” Test

In such a scenario, an aggrieved shareholder cannot be left without recourse.

Under S.314 CA 2016, the Court may order a meeting to be called in any manner that the Court thinks fit, including a direction that the presence of a single member shall be deemed to constitute a sufficient quorum. (See: S.314(2) & (4) CA 2016).

That said, such a remedy is not available as of right. The Court generally expects the members to first exhaust the internal mechanisms under the CA 2016.

Judicial intervention under S.314 CA 2016 will typically only be invoked where it is impracticable to convene or conduct a meeting in the usual manner (See: S.314(1) CA 2016).

This raises the critical question: what amounts to “impracticable”?

It has been held that impracticability is not narrowly confined. It will “cover a potentially wide range of factual situations, including but not limited to a case where the members have deliberately failed to attend a general meeting so that a proper quorum cannot be constituted…”[2]

Quorum provisions, after all, are not intended to operate as a veto mechanism in the hands of a minority where a deadlock exists.

In Tamabina Sdn Bhd & Anor v Nakamichi Corporation Berhad [2016] 10 CLJ 148, the Malaysian Court of Appeal held that:-

“[22]… to show impracticability it is necessary to show evidence of attempts or efforts to call and hold a meeting and such attempts or effort have been futile. The reason for the futility in calling or holding a meeting must be attributed to some circumstances that make it almost impossible to hold the meeting. These circumstances could be due to a deadlock situation, an intentional un-cooperative attitude of the directors, a persistent effort to derail the meeting or deliberate non-attendance at meeting after a proper and valid notice had been issued so as to force the meeting to be called off for want of quorum. The categories of such reasons are never closed.”

Lee Yee Wuen v Kien Yiap Trading [2020] 1 LNS 236

• The Court affirmed that a minority cannot use the quorum provisions as a ‘veto’ to deny the majority’s rights.

Abdul Halim bin Mutaref v ALM Autoserve Sdn Bhd & Anor [2023] MLJU 2358

• The Court intervened where a shareholder’s acknowledged “deliberate refusal to attend the meeting” resulted in a lack of quorum, thereby creating an impasse.

Golden Crescent v PDC Associates [2025] CLJU 915

• Judicial intervention was warranted as the Court found strong evidence of a genuine deadlock arising from a member’s “systemic non-attendance at properly noticed meetings”.

Alternative to Members’ Meeting: Written Resolutions

Under the new CA 2016, members of a private company may pass resolutions by way of a written resolution, without the need to convene a members’ meeting. This is governed under, amongst others, S.297 to S.308 CA 2016.

A key advantage to this mechanism is that it is not subject to the quorum requirement[3], unlike the resolutions sought to be passed in a members’ meeting.

In the circumstances, where a company is unable to pass a resolution due to the inability to convene a valid meeting for want of quorum, it may consider utilising the written resolution procedure.

This provides a practical alternative mechanism to effect members’ decisions without the need for a meeting.

That said, this remains subject to the company’s constitution, which may modify or restrict the use of written resolutions and compliance with any applicable legal requirements.

Looking Ahead: Other Possible Instances

Quorum-related deadlock is only one of several challenges that may arise in convening meetings. Other scenarios where a meeting cannot be convened may include, amongst others, a director’s refusal to convene a meeting requested by the members – an issue we will explore in a future article.

[1] Geointelligence Sdn Bhd v Azhar bin Hj Ismail & Anor [2022] MLJU 2881; 
Lee Nyuk Heng & Anor v Pembangunan Ladang Hassan Sdn Bhd & Ors [2002] MLJU 684

[2] Tan Swee You v Sahiron bin Mohd Yunus & Anor [2021] MLJU 2244, para [28]

[3] LGB Engineering Sdn Bhd & Ors v Rayston Resources Sdn Bhd [2023] 1 MLJ 649

Our Dispute Resolution practice specialises in high-stakes civil, commercial and corporate disputes, including shareholders’ disputes, breach of contract, and debt recovery. We have experience representing clients at all levels of the Malaysian Courts, providing strategic and commercially sensible solutions to complex legal challenges.

If you require advice or representation in a legal dispute, please reach out to our team via our contact page.

Disclaimer: The content of this article is intended for general informational purposes only and does not constitute formal legal advice.

If you found this article useful, please feel free to download the PDF document in the link here.