Minority Protection In Malaysia

Do you own some shares in a company? Did you buy the said shares because you thought the company has a great future profit potential? That sounds like a great decision. But how many shares did you buy? Less than 51% of the issued shares? If so, then you are a "minority shareholder".

Shares allow voting rights but if you are not a majority or substantial shareholder, then there is every chance that you maybe outvoted on a matter that may be crucial to you. What if you feel what the directors/majority shareholders are doing is wrong? Can you take action?

The general answer is no. There is a rule called the "Foss v Harbottle" rule which states that "the proper plaintiff in respect of wrong committed against a company, is the company; not the shareholder". In such a scenario, if you feel that the directors/majority shareholders are doing something wrong, they are committing that wrong against the company, not against you personally. Therefore, the entity which has the right to take any action, is the company and not you.

Therefore, that leads to a conundrum. How can action be taken by the company if the wrongdoers (being majority shareholders) are already in control of the company? Surely they would never cause the company to take action against themselves. What then can you (as a minority shareholder) do?

Fret not! There is Section 181 of the Companies Act 1965: Remedy in cases of oppression. But it should firstly be borne from the outset that this is not a remedy to be used "willy-nilly". A person who joins a company (as a member/shareholder) must bear in mind that he/she does so on the understanding that he/she may be outvoted. This is called the "majority rule" - which simply means the will of the majority should prevail, just like democracy. You therefore may not challenge a decision of the majority just because you do not like it. There must be "oppression".

What amounts to "oppression" (for the purposes of our Companies Act)? Lord Wilberforce in Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 2 MLJ 227 states:

"The mere fact that one or more of those managing the company possess a majority of the voting power and, in reliance upon that power, make policy or executive decisions, with which the complainant does not agree, is not enough. Those who take interests in companies limited by shares have to accept majority rule. It is only when majority rule passes over into rule oppressive of the minority, or in disregard of their interests, that the...