Clearer guidelines needed to help investors requisition EGMs: Opinion

Recent boardroom tussles, including at companies such as Asti Holdings and USP Group, are turning the spotlight again on the requisitioning of extraordinary general meetings (EGMs) by dissident shareholders.

Such scuffles, which usually result in a public battle between the requisitioning parties and the incumbent directors, are not uncommon. And they sometimes get escalated to the courts.

In past cases involving Singapore Exchange (SGX)-listed companies, parties have been known to disagree on nearly everything. In more than one instance, this has led to a stalemate – with the wider body of shareholders unable to even cast their votes and decide on the matters at hand.

Surely, there must be a better way.

It may be helpful for the relevant authority to explore whether a fresh framework or improved guidelines can be applied to such requisitioned EGMs.

Even as boardroom battles rage on, a more structured approach could prove less destructive for issuers and minority shareholders.

Acrimonious encounters

To be sure, boardroom battles where shareholders seek to propose resolutions to remove an existing director are always going to be acrimonious encounters.

Such options are often taken by shareholders as a last resort, when they have exhausted all other means of addressing their concerns with the existing board or management.

It is also likely done only when shareholders feel the existing board or management is underperforming or incapable of acting in the company’s best interest.

On the part of the incumbents, a notice that some shareholders are looking to boot them out is unlikely to be welcome.

Nobody likes to be kicked out of a job, or face accusations of poor performance or mismanagement.

Incumbents may also genuinely believe that preventing a hostile takeover is in the interest of the company, as requisitioning shareholders may at times have unknown or self-interested motives.

With tensions rising on both sides, it is little wonder that a clean and fair fight is rare.

Both parties often resort to public accusations about each other’s conduct and motivations, and legal technicalities are often cited to challenge the validity or necessity of a meeting.

Such disputes leave minority shareholders confused and frustrated. They are also unhelpful for the issuer and can reduce confidence in the wider market ecosystem.

To be fair, requisitioning parties have the option of bringing such matters before the court to get a judge to rule definitively on matters. But this takes significant resources and time.

Not all requisitioning parties have the financial ability to fight through a prolonged court battle, even if they have a meritorious case.

Rather than double down on an underperforming investment, and fighting for their rights as set out in the Companies Act (CA), some may simply decide to give up and sell their shares.

This cannot be a desirable outcome for shareholders in our market.

Regardless of the motivations of either party, the fair approach would be to allow valid meetings to be held, and have shareholders democratically decide on the merits of each proposal.

First principles

At least one regulatory authority has taken notice of such issues in the market.

Singapore Exchange Regulation (SGX RegCo) chief executive Tan Boon Gin noted in a column last month that boards should “seriously and objectively” consider requisitions and the proposed resolutions.

SGX RegCo added that requisitioned meetings should be conducted expeditiously.

The move by the frontline regulator is a welcome one. While the provisions allowing members to requisition an EGM come under the CA and not SGX listing rules, moral suasion can still potentially convince some boards to do right by their shareholders.

Shareholders also now have a starting baseline to determine whether companies are acting in line with the broader market expectations.

Yet, more could be done.

The Accounting and Corporate Regulatory Authority (Acra), which administers the CA, previously told The Business Times that it will not hesitate to investigate and undertake enforcement actions against errant directors who do not comply with their obligations in respect of a valid requisition.

There has not been any public enforcement action relating to such breaches recently, but Acra has showed its willingness to act in other cases of CA contraventions.

The agency is bringing USP Group to court this month to face charges for failing to hold its AGM within four months of its financial year-end.

One would hope that the agency would also closely monitor whether parties that are obliged to hold an EGM are fulfilling their responsibilities, and take the necessary steps to enforce these requirements.

Given the acrimonious backdrop behind requisitioned meetings and boardroom battles, it would also perhaps be helpful for a clearer framework or guidelines to be drawn up.

This would minimise the need for parties to have to wade through technicalities and pursue lengthy and expensive lawsuits just to exercise a fundamental shareholder right.

Source: Business Times © SPH Media Limited. Permission required for reproduction.

ADV: [In Person] Competition, Business, And Consumers: A Conversation On How Business And Consumers’ Rights and Welfare Can Be Protected Through Competition Law, 6 Jun (1 public CPD Point) 15 years’ jail for man, 86, who hacked ex-partner to death for not giving him bigger room