Shareholders' Reserve Powers: Implied Terms and Public Policy

摘要

It is a modem orthodoxy of company law that a company's management power is usually vested exclusively in its board of directors. Shareholders may not, therefore, interfere with business decisions unless specifically empowered to do so by statute or the company's constitution. What is less clear, however, is whether shareholders are nevertheless vested with reserve or residual powers of management when the board is the primary organ for making management decisions. At common law, a handful of authorities affirm the existence of such residual power. But the juridical basis of such power is by no means clear. Against that backdrop, it is significant that the Singapore Court of Appeal has recently confirmed in Chan Siew Lee v TYC Investment Pte Ltd (TYC Investment) that shareholders do have residual or reserve management power when the board is deadlocked. Such power is conferred on shareholders by a term implied in the company's constitution on the basis of necessity or business efficacy. This article examines the reasoning in TYC Investment. It observes that although the court had identified the issue of reserve powers as one sounding in contract alone, its analysis is ultimately of a hybrid nature that takes on board both contractual as well as public policy concerns. This approach aptly reflects the complex nature of the company's internal workings and warns against a reductionist approach that tackles the issue from a monolithic (contractual) perspective. Before proceeding to consider the facts of holding of the case, it is helpful to first recapitulate the principles and rationale relating to the division of power between the board and shareholders.