Complicity between significant shareholders and the board of directors in expropriating corporate property was among the key concerns highlighted in Malaysia following the Asian financial crisis. As with several other countries affected by the crisis, Malaysia adopted substantial reforms to strengthen the rights of minority shareholders in line with international recommendations. The adoption of international best practices resonates with broader global trends which reflect an increasing convergence in shareholder protection law across countries. Nonetheless, studies suggest that greater differences emerge when laws are implemented in a local context. My article focuses on the derivative action, which is an important means by which minority shareholders may seek redress for breaches of directors’ duties in situations of complicity between significant shareholders and the board of directors. The article explores how the statutory derivative action has been interpreted and applied across two countries – Malaysia and Australia. It further investigates reasons for the jurisdictional differences and seeks to gain a more nuanced understanding of the interactions and influences which may contribute to diversity in the operation of regulations across countries.
The statutory derivative action was introduced to the Malaysian regulatory framework following the Corporate Law Reform Committee’s report highlighting the limitations of the common law derivative action. The reforms allow the courts to grant shareholders leave to bring derivative actions on less onerous criteria than that imposed by common law. In order to alleviate some of the practical challenges to shareholders’ derivative actions, the courts have also been given powers to allow shareholders access to corporate information and to order that litigation costs should be borne by the company.
In considering the extent to which the statutory derivative action has achieved its underlying objective of facilitating better shareholder access to redress, the analysis employs a combination of research methods. First, all available Malaysian judicial decisions from 2008 to 2015 involving applications for leave to bring derivative actions for alleged breaches of directors’ duties are analysed by way of descriptive statistics. The analysis considers the rate of success in obtaining leave and the grounds commonly cited for the refusal of leave. Secondly, the decisions are examined by way of doctrinal analysis in order to better understand how the courts have been interpreting and applying the criteria for granting leave. These are then compared with equivalent Australian data from 2008 to 2015. The findings are placed in a broader comparative context and possible explanations for the differences between the Malaysian and Australian approaches to the statutory derivative action are considered.
The article finds that the Malaysian statutory derivative action has, to some extent, achieved its objective of facilitating shareholder access to redress through derivative proceedings. Some success in achieving this objective is reflected in the finding that leave was granted in 25 percent of applications decided under the statutory derivative action from 2008 to 2015, a higher proportion of cases than that found amongst the decisions made under common law. Nonetheless, Australian judicial decisions had a significantly higher success rate of 58 percent. Further, Australian cases reveal a more liberal and pragmatic judicial approach than the one adopted by Malaysian courts, the latter commonly reiterating the need for a restrictive interpretation of the statutory derivative action. Greater flexibility on the part of the Australian courts in finding that specific criteria for granting leave have been met, and more extensive use of the courts’ power to order access to the company’s books are likely to have contributed to the higher rate of success in obtaining leave in Australia.
Comparative studies suggest the relevance of individual countries’ economic and socio-political influences and institutions in explaining differences in the implementation of corporate law across countries when formal regulations are similar. My study indicates that corporate ownership structures and perceptions of the role of legal institutions may provide some explanations for the observed differences in the implementation of the statutory derivative action in Malaysia and Australia.
Vivien Chen is a Lecturer at Monash Business School, Monash University, Australia.