SC: Wing Tiek must go back for shareholders’ approval

The Securities Commission (SC) today required Wing Tiek Holdings Bhd (WTHB) to go back to its shareholders for approval on proposals related to its corporate and debt restructuring scheme. The condition was imposed as part of the SC’s approval for an extension of time sought by WTHB for the scheme.

WTHB, a PN4 company, had on 30 September 2002 submitted to the SC proposals for the scheme, as required under Section 176 of the Companies Act (CA) 1965. The approval sought from the SC was, at all times, conditional upon WTHB securing, amongst others, its shareholders’ approval on the scheme. The SC granted its approval on the scheme on 2 January 2003.

Under the scheme, WTHB was required to procure its shareholders’ approval for the following:

  1. a share exchange proposal between its shareholders and JAKS Resources Berhad (the white knight)
  2. a disposal of land by WTHB to JAKS Resources for a purchase consideration of RM75 million
  3. a disposal of Wing Tiek Steel Pipe Sdn. Bhd. by WTHB to JAKS Resources Berhad

All the above proposals were, however, defeated at the shareholders’ meetings held on 24 September 2003.

Notwithstanding that the proposals were defeated, SC subsequently noted that a Consent Order was recorded on 5 December 2003 in an action instituted by two shareholders of WTHB against WTHB and two other shareholders, which had the effect of varying the votes cast at the shareholders’ meetings held on 24 September 2003. The Consent Order was then used as a basis to obtain a Court Order sanctioning the scheme under Section 176 of the CA.

Shareholders’ Rights and Corporate Governance

The SC’s concern is founded on the means by which the earlier rejection by shareholders at a properly convened meeting was subsequently overturned by a private agreement among a select group of shareholders. Matters falling within the purview of a shareholders’ meeting can only be decided by the shareholders themselves and the decision of the shareholders at a properly convened meeting is sacrosanct.

In the WTHB case, since the expressed wishes of the shareholders of WTHB were to reject the proposed resolutions, there could not be a valid shareholders’ approval. A Consent Order amongst a few shareholders subsequent to the meeting of shareholders cannot unilaterally convert the earlier rejection by shareholders into a decision of the same members approving the resolutions.

The reversal of such decisions in the manner of discounting votes already cast, threatens the core foundation of a company’s governance system – the exercise of shareholder rights.

Decision on WTHB

In the interest of facilitating the restructuring scheme and taking into account that matters concerning the scheme of arrangement rest solely with WTHB shareholders, the SC has extended the period by which WTHB is to implement the scheme, on the condition that it goes back to its shareholders to seek their approval for the resolutions proposed.

22 March 2004