Background to the case, Nanyang Commercial Management Pte Ltd v. Matex International Ltd [2025] SGHC 190
Matex International Ltd is a company listed on the Catalist board of the Singapore Exchange Securities Trading Limited. Nanyang Commercial Management Pte Ltd (NCM), the largest shareholder of Matex, requisitioned an extraordinary general meeting (EGM) with a view to voting two executive directors off Matex’s board of directors. Prior to the EGM being held, a written board resolution was signed by three out of six directors sanctioning two share subscription agreements (Subscription Agreements), which share issuances, if completed, would dilute NCM’s controlling stake from 29.86% to 21.22%. NCM sought an injunction from the High Court of Singapore (Court) to prevent Matex from completing the Subscription Agreements until the requisitioned EGM is held.
NCM’s originating application (OA) was based on two grounds:
- First, the Subscription Agreements were motivated by an improper purpose to dilute NCM’s voting power, thereby frustrating its plan to vote the two executive directors off Matex’s board (the First Ground).
- Second, the steps taken by Matex’s board of directors to sanction the Subscription Agreements were invalid as they contravened the constitution (the Constitution) of Matex (the Second Ground).
The Court’s decision
The parties signed a settlement agreement prior to the release of the judgment by the Court, and the OA was discontinued. However, the parties nevertheless requested that the Court release its judgment as the submissions had traversed various issues of law. The Court agreed that there was some benefit in publishing its views and therefore exercised its discretion to publish its judgment.
In the judgment, the Court found that the First Ground involved factual disputes unsuitable for resolution via an OA and based on affidavit evidence.
On the Second Ground, the Court came to the view that the board resolution purporting to sanction the Subscription Agreements failed to comply with the requirements in the Constitution. Accordingly, had the matter not been discontinued, the Court would have granted an injunction to restrain the completion of the Subscription Agreements unless they were either approved by a board resolution that complies with the Constitution or by a resolution of Matex’s shareholders at a general meeting.
This article highlights the following key views published by the Court in relation to the case:
1. A corporate action that is not validly sanctioned in accordance with the requirements of the constitution amounts to a violation of the constitution
In this case, the Constitution requires that share issuances must be approved by the shareholders in general meeting. A general shareholder mandate for share issuances was obtained at an annual general meeting on 28 April 2025, which required share issuances to be further sanctioned by the directors of the company. While a written board resolution approving the Subscription Agreements was purportedly passed on 11 July 2025, only three out of six directors had signed the board resolution. The board resolution was therefore invalidly passed because the Constitution stipulated that written board resolutions have to be passed by a majority of the directors.
In addition, while a board meeting was subsequently held on 12 July 2025 purporting to ratify and approve the Subscription Agreements, the Court found that the meeting focused more on whether the Subscription Agreements could be announced despite Matex’s sponsor not having cleared the text of the announcement, rather than on the ratification and approval of the Subscription Agreements. In any event, any approval obtained at such meeting would have been invalid as the board meeting lacked a quorum.
Given that the Subscription Agreements were executed without being sanctioned by a valid board resolution, the Court held that there was a violation of the Constitution, and they were therefore invalid.
2. Shareholders’ remedies in relation to a violation of a company’s constitution
The Court then turned to consider what might have been the appropriate remedy, given the circumstances.
Given that the company’s constitution constitutes a contract between the members and the company as well as between the members inter se, where there has been a clear violation of the company’s constitution, the shareholders possess the standing in their capacity as members of the company to bring a court application to restrain the violation.
The Court will look at both the injury complained of and the relief sought, in deciding whether an action to restrain a violation of the company’s constitution may be properly pursued by a shareholder personally. For a shareholder to bring an action to restrain a violation of the company’s constitution, such violation must have trampled directly on the shareholder’s personal rights as a shareholder and must not be just a corporate wrong that would be better redressed by way of a derivative action or a suit by the company.
In the present case, the Court was of the view that NCM would suffer a significant dilution of its shareholdings should the share issue under the Subscription Agreements be completed. It was also commercially unfair to NCM given that the Subscription Agreements were entered into just four days after NCM’s requisition for the EGM to remove the two executive directors.
In terms of remedy, restraining the completion of the irregular share issue would meaningfully redress the prejudice suffered by NCM as the irregular share issue was manoeuvred to neuter NCM’s ability to use its substantial voting stake to halt the share issue – the quantum of the shares to be issued under the Subscription Agreements was pegged to fall just shy of the 15% mark that would have required shareholder approval under the Catalist Rules. NCM was thus warranted in asking the Court for help, and the Court concluded that there would have been good reason to exercise discretion in favour of granting an injunction restraining the violation of the Constitution if the matter had not been discontinued.
3. Caution should be exercised in implying terms in a company’s constitution proscribing directors from doing things in breach of their fiduciary duties
The Court also held that it was not necessary to imply a term in a company’s constitution that the allotment of shares must accord with the directors’ fiduciary duties.
In the Court’s view, caution should be exercised before acceding to a shareholder’s request to imply terms in a company’s constitution proscribing the directors from doing things in breach of their fiduciary duties, given that an overly indulgent response could potentially pave the way for shareholders to bring personal actions that seek to remedy what are in essence purely corporate wrongs under the guise of exercising their personal right to restrain a breach of the contract deemed by section 39 of the Companies Act 1967 to exist between them and the company.
4. Remedies in relation to a breach of directors’ fiduciary duties
While the Court’s judgment does not discuss whether there was a breach of fiduciary duty by the directors of Matex, it did discuss, in general terms, the remedies that shareholders may avail themselves of when seeking redress for a breach of directors’ fiduciary duties:
- If the breach of fiduciary duty by a director violates an express term of the company’s constitution, the shareholder possesses the standing to personally apply to the court for an order restraining the violation.
- If no express term of the company’s constitution has been violated but the breach of the director’s fiduciary duty prejudices the company, shareholders can take steps under section 216A of the Companies Act (derivative or representative actions) to commence a derivative action on behalf of the company.
- If the breach of fiduciary duty constitutes oppression that impacts upon the shareholders’ personal rights, shareholders can consider personally commencing an action under section 216 of the Companies Act (personal remedies in cases of oppression or injustice).
In addition, the Court highlighted that breaches of directors’ fiduciary duties are typically construed as wrongs against the company. Legal actions seeking redress for purely corporate wrongs should be commenced by the proper plaintiff, being the company itself, or via a derivative action in the company’s name. Shareholders are not entitled to bring personal actions under the auspices of section 216 of the Companies Act to remedy breaches of directors’ fiduciary duties that are solely corporate wrongs.
5. Other points of interest
In the case, the Court also considered whether issuing new shares when a company is not in need of fresh capital would necessarily mean that the shares must have been issued for an improper purpose, and answered the question in the negative.
The Court’s views mirrored Australian and English jurisprudence, emphasising that it is too narrow an approach to consider capital raising as the sole valid purpose for issuing shares. The Court was not prepared to simply dismiss other purposes (for example, commercial considerations such as strategic partnership) as improper simply because they do not relate to the raising of capital.
The Court concluded that whether an improper purpose existed in fact, as well as the weight to be attributed to it (vis-à-vis any other legitimate commercial purposes) in motivating the Subscription Agreements, ought to be determined at trial as these are matters that cannot be properly resolved under the OA process, where the evidence given on affidavit is not tested by way of cross-examination.
Conclusion
This High Court decision underscores the importance of adherence to the requirements of the company’s constitution in order for corporate actions to be validly taken. The decision also provides clear guidance as to the remedies available in relation to a violation of a company’s constitution and in the case of a breach of a director’s fiduciary duty. Shareholders are reminded not to bring personal actions under the auspices of section 216 of the Companies Act to remedy breaches that are solely corporate wrongs as such actions should be commenced by the proper plaintiff, being the company itself, or via a derivative action in the company’s name.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style Reed Smith Pte Ltd (hereafter collectively, "Reed Smith"). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith's Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.
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