Sunday, August 14, 2011

Bar warns GLCs over Tajudin affair

Bar warns GLCs over Tajudin affair
Aug 13, 11 11:52am

The Bar Council has warned the board of directors of government-linked corporations that they can be subject to negligence and legal suits by shareholders if found to have failed in their duties in the handling of an out-of-court settlement with Tajudin Ramli.


NONECouncil chairperson Lim Chee Wee said the board in determining whether to discontinue legal proceedings against the one-time Malaysia Airlines executive chairperson or otherwise, must take into account whether such a decision (if taken), is in line with their duties as GLC directors.

"If they fail in their duties, these directors will be exposed to suits for negligence by any shareholder or the next set of directors, as we have seen in recent cases.

"Therefore, withdrawal of a suit against Tajudin may constitute a breach of duties on the part of the directors of the GLCs," warned Lim, adding that as directors' they are also responsible to shareholders.

"However, if the shareholders pass a resolution to ratify the breach or to say that there was no breach, then arguably the directors may have to withdraw the suit, unless there are elements of fraud or illegality," Lim told Malaysiakini.

Going against what Minister in the PM's Department Nazri Abdul Aziz had directed in a letter earlier this week to GLCs wanting them to look into settling Tajudin's drawn out saga, Lim reminded that the proper person to give instructions for the commencement of an action to enforce any right of the company, or to obtain redress or to recover its property and to withdraw a suit, are the directors.

'Directors not servants for shareholders'

"Even a resolution of a majority at a general meeting of the company (i.e. shareholders) cannot impose its will upon the directors, when they (directors) have control of the company's affairs.

"Directors are not servants to obey directions given by the shareholders as individuals, they are not agents appointed by and bound to serve the shareholders as their principals.

"Directors are persons who may by the regulations be entrusted with the control of the business, and if so entrusted they can be dispossessed from that control only by the statutory majority which can alter the articles or remove the directors," he said.

The only way, Lim said that the general body of shareholders could control the exercise of the powers vested by the articles in the directors was by altering the articles, or, if opportunity arose under the articles, by refusing to re-elect the directors whose actions they disapproved.

Lim, an experienced corporate lawyer, said the shareholders general meeting by itself could not usurp the powers which by the articles were vested in the directors, any more than the directors could usurp the powers vested by the articles in the general body of shareholders.

"Thus, the power to decide as to whether a company will initiate or discontinue with legal action against another party (which lies with the directors), cannot be usurped by the shareholders, regardless of whether one is a holder of golden share or otherwise.

"This is provided that the Articles of Association of the GLCs does not provide for specific powers to the holder of golden share to decide on such matters," he said.

Best interests of the company

The Bar Council chairperson reminded it is also trite law that company directors shall at all times exercise their powers for a proper purpose and in good faith in the best interest of the company.

He added that to act in the best interest of the company is also a statutory duty under Section 132 of the Companies Act 1965.

"Further, a director owes fiduciary duties to the company and shall at all times act honestly and use reasonable diligence in the discharge of the duties of the office," he stressed.

That is why if they fail, these directors will be exposed to suits for negligence by any shareholder or the next set of directors, he said.

Lim added that the government may have a golden share in the GLCs which gives shareholders (basically the government) veto power over changes to a company's articles of association.

"This share gives the government the right of decisive vote, thus to veto all other shares in a shareholders-meeting. It is a type of share with special voting rights that gives it peculiar power over other shares."

"The purpose of a golden share is as a means of protecting key national interests, and are limited to certain matters specified in the company's articles of association, and confer no right to interfere on other issues," he said.

He further explained that golden share features may include:

  • The holder does not have the ability to influence the day to day management of a company but has power to assert influence in major decisions;
  • The share(s) is usually retained by the government to enable it to have a say in companies which deal with public infrastructures, utilities, mining operations, national defence and the space industry.
  • This allows government to block business moves and counter management decisions, which may be detrimental to national security, economy, or to the provision of public services (especially where markets fail);
  • A golden share may also enable the government to regulate the prices of certain basic goods and services - such as energy, food staples, sewage, and water; and,
  • A golden share is often retained only for some defined period of time to allow a newly privatised company to become accustomed to operating in a public environment, unless ownership of the organisation concerned is deemed to be of ongoing importance to national interests, for example for reasons of international security.
The Bar Council has warned the board of directors of government-linked corporations that they can be subject to negligence and legal suits by shareholders if found to have failed in their duties in the handling of an out-of-court settlement with Tajudin Ramli.

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