The Effectiveness of Malaysian Laws in Relation to Protection Given to the Minority Shareholders from Unfair Dominance of the Majority

The effectiveness of Malaysian laws in relation to protection given to the minority shareholders from unfair dominance of the majority.

The applications of Majority Rule cause the decisions and the wishes of the majority prevailed over the minority. Therefore, this application of the Majority Rule sometimes creates many problems. The majority shareholders maybe prejudice the interest of the company. So, the Majority Rule has been declared as not a universal rule. There are several exception to the rule in Foss v Harbottle.

Firstly, the effectiveness of the Malaysian laws in relation to protection given to the minority shareholders from unfair dominance of the majority can be refer to where the act of the company is ultra vires. Ultra vires is where the company does something which is beyond its power or outside its object clauses. The doctrine of ultra vires is found in Section 20(1) of the Companies Act 1965 in Malaysia which stated that the transaction is valid. Therefore, the company is not allowed to avoid transaction that is ultra vires. However, the member is given a power to restrain the company from entering into any ultra vires transactions. Unfortunately, the power to restrain ultra vires transaction will be lost if the transaction is fully executed.

In the above statement, the member should restrain the ultra vires transactions immediately to avoid the transactions fully executed. Where the act is illegal or ultra vires, the company or any individual member may sue because the act cannot be confirmed by the majority. The company or the other parties whom suffered losses or damage can claim compensation against member who brings the action to restrain the performance of the contract to the court. This is illustrated in the case of Simpson v Wesminster Palace Hotel Cc. (1860) where a minority argued that a decision to lease a major portion of the hotel as offices was not within the objects of the hotel co. A single member can maintain a suit for declaration.  

Secondly, the protection given to the minority shareholders in Malaysian laws can be found where the act of the company requires a special majority. The Companies Act 1965 has stated the certain number of provisions that require company to pass a special resolution at the general meeting before certain act can be done. Section 152(1) defines ‘Special Resolution’ as a resolution considered at a meeting to which 21 days notice has been given and passed by a majority of not less than ¾ of the members entitled to vote. There are several action which required special majority before the act be done for example the alteration of company documents, alteration of object clause and the reduction of share capital. These circumstances prevent the company from doing by bare majority. However, if the company does so, the law stated that the minority has a right to challenge the decision of the company or the majority. In this situation, the minority has right to challenge by the majority. So they can sue the wrongdoer.