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Company Law 101: Minority Protection

Nurul Hanani A.
Legal Associate

In Malaysia, minority shareholders have legal remedies available to them when their rights as shareholders are infringed upon by the majority shareholders or the directors of a company. 

Two common legal remedies available are the Minority Oppression Suit and the Derivative Action. While both legal remedies can be used to protect the rights of minority shareholders, they differ in their nature and the circumstances under which they can be filed.

Minority Oppression Suit

A legal remedy available to minority shareholders who have suffered oppression or unfair prejudice from the actions of the majority shareholders or the directors of a company. Minority oppression occurs when the majority shareholders or directors of a company abuse their power and authority to the detriment of the minority shareholders. 

Examples:

Exclusion of minority shareholders from important decisions, mismanagement of the company’s affairs, and financial impropriety.

Section 346 of the Companies Act 2016:

Brought by a minority shareholder against the company or its directors if they can show that their rights as shareholders have been unfairly prejudiced or that the affairs of the company have been conducted in a manner oppressive to them.

Reliefs that may be ordered: the winding up of the company, the purchase of shares by the company or the majority shareholders, or the appointment of a receiver or manager to manage the affairs of the company.

Derivative Action

A legal remedy available to directors or shareholders (“complainant”) to enforce a right of action belonging to the company. This legal remedy is available where the directors of a company have breached their duties to the company, but have failed to take appropriate action to remedy the breach. In this case, a complainant may bring a derivative action on behalf of the company to recover damages or seek injunctive relief against the directors.

Section 347 of the Companies Act 2016: 

if they can show that the directors of the company have acted in breach of their fiduciary duties owed to the company. 

Reliefs that may be ordered: the recovery of damages or the imposition of injunctions against the directors.

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