SGX RegCo should push companies to help minorities requisition resolutions at AGMs

When minority shareholders invoke their right to requisition an extraordinary general meeting (EGM), it often spells trouble for the incumbent board and management.

Yet, the requisitioning shareholders usually need the cooperation and support of the board and management to ensure the EGM is organised efficiently and expeditiously.

Last week, Singapore Exchange Regulation (SGX RegCo) said it will introduce rules to require companies to assist shareholders who have requisitioned a general meeting.

Specifically, the frontline market regulator will require companies to commence efforts to facilitate the meeting within 21 days of the requisition notice.

SGX RegCo will also require companies that dispute the validity of the requisition notice to apply for a court ruling within 21 days.

These proposed rules – which are now the subject of a month-long public consultation that ends on May 23 – could make it harder for companies to drag their feet and make lame excuses when faced with an unwelcome EGM requisition notice.

“If investors have a stronger say, companies will be more motivated to consider their interests by improving both operational performance and shareholder returns,” said SGX RegCo’s chief executive Tan Boon Gin, in a statement on the proposed rules on Apr 23.

“By enabling the convening of general meetings, we empower shareholders to drive change and exercise market discipline,” he added.

It seems strange to me, however, that SGX RegCo did not simultaneously introduce a similar requirement for companies to assist shareholders who put forward resolutions at annual general meetings (AGMs). This would arguably do more to empower small investors than smoothening the path to requisitioning EGMs.

Under the Companies Act, shareholders of a company can requisition an EGM if they hold 10 per cent or more of its shares.

Shareholders can requisition resolutions at AGMs if they hold 5 per cent or more of the company’s shares; or comprise not fewer than 100 shareholders, holding shares on which there is an average paid-up sum, per shareholder, of at least S$500.

For most small investors, rallying sufficient support to requisition resolutions at an AGM would be far easier than attempting to requisition an EGM – especially when dealing with large companies.

Requiring companies to either accept properly requisitioned resolutions at an AGM or explain their objections in court would strengthen the position of small investors, and make companies more wary of ever incurring their wrath.

Minorities face challenges

So, why is SGX RegCo not also pushing companies to assist shareholders who requisition resolutions at AGMs?

One explanation I have heard is that every listed company is required to hold an AGM anyway. Even if disgruntled minority shareholders do not succeed in having their resolutions tabled, they can still attend the meeting and make their concerns known to their fellow shareholders and the board.

On the other hand, an EGM may never take place without the cooperation of the company’s board. The requisitionists may not even be able to provide proper notice of the EGM to shareholders who hold their shares through The Central Depository (CDP).

While listed companies are able to obtain the particulars of depositors from CDP, the Personal Data Protection Act prevents CDP from providing the information to requisitionists. “In the absence of the board’s cooperation, requisitionists have limited recourse to obtain depositors’ particulars,” SGX RegCo noted in its consultation paper on the new rules.

“A failure to comply with, inter alia, the giving of proper notice could result in the risk that the shareholder-requisitioned meeting is declared invalid by the court,” it added.

Under the proposed rules, companies will be expected to help requisitioners of EGMs to send documents such as notices, circulars and proxy forms to shareholders; and publish relevant announcements and documents on SGXNet.

Companies will also be expected to collate proxy forms submitted by shareholders at their registered offices; and secure the attendance of board members at the requisitioned meeting.

Great Eastern, OCBC case study

Yet, minority shareholders who requisition resolutions at an AGM also risk being thwarted if the company’s board does not cooperate. Even if this does not prevent the requisitionists from raising their concerns at the AGM, it may weaken their ability to push the board to take remedial action.

An interesting case study is the attempt by minority investors to requisition three resolutions at Great Eastern’s recent AGM, in order to address the undervaluation of the insurer’s shares in the market.

The requisitionists proposed the resolutions to Great Eastern in a letter on Mar 1. The resolutions were for Great Eastern to withhold 30 per cent of its directors’ fees until its share price increases to 80 per cent of its embedded value; to reward its senior managers with its own shares instead of OCBC shares; and to appoint an independent financial adviser to explore options to boost shareholder value.

On Mar 6, Great Eastern said it had been advised the requisition for resolutions at its AGM did not satisfy all of the requirements necessary. It did not state what these requirements were, leaving minority shareholders in the dark.

On Mar 28, the company took a more conciliatory tone. It said its board and management understood the concerns raised and were prepared to discuss them at the AGM, “regardless of whether any additional resolutions are moved”.

While the issues raised by the requisitionists did receive an airing at that AGM on Apr 25, it is probably fair to say the requisitionists were not entirely satisfied.

In a statement following the AGM, the requisitionists said they remain concerned about Great Eastern rewarding its top officials with OCBC shares.

They added that the reasons put forward for the practice were “unconvincing”.

They also called on OCBC to demonstrate “corporate leadership” by safeguarding the interests of all Great Eastern shareholders.

Misaligned interests?

Under the proposed new rules requiring companies to assist shareholders in requisitioning EGMs, SGX RegCo expects companies to disclose the receipt of requisition notices immediately via SGXNet.

SGX RegCo has further said it expects boards to initially engage with the requisitionists and try to address their concerns.

“If the board and the requisitionists are ultimately unable to resolve the matter, and the board intends to dispute the validity of the requisition notice, the board should apply to the court for a ruling,” it said.

If similar rules had been applied in the case of Great Eastern, the company’s board would likely have engaged the requisitionists immediately. The legal advice Great Eastern received about the requisition of resolutions not satisfying all the necessary requirements might also have been tested in court.

The proposed resolutions – or any modified version of them – stood no chance of being passed, of course. OCBC holds more than 88.4 per cent of Great Eastern’s shares.

Yet, forcing OCBC to block the resolutions would have drawn public attention to a possible misalignment of interests between Great Eastern’s controlling shareholder and its minorities. This would have increased public pressure on Great Eastern’s board as well as OCBC to come up with meaningful value unlocking initiatives, in my view.

SGX RegCo should closely observe unfolding developments at OCBC and Great Eastern, and carefully consider if rules requiring companies to assist minority investors requisitioning resolutions at AGMs will enhance market discipline.