Malaysia - Removal Of Directors Under The Companies Act 2016.

Legal News & Analysis - Asia Pacific - Malaysia - Corporate/M&A - Regulatory & Compliance

1 April, 2020

 

Introduction

 

Under section 206(1) of the Companies Act 2016 (“CA 2016”), a director may be removed before the expiration of the director’s period of office, subject to the company’s constitution, by ordinary resolution.

 

The removal of a director of a private company cannot be made by written resolution; a general meeting needs to be convened for the purpose of removing a director before the expiration of his term of office2.

 

Members may convene a general meeting using either the method prescribed in section 310 or section 311 of the CA 2016. Section 311 of the CA 2016 allows any member holding at least 10% of the issued share capital of the company to require the directors to convene a meeting. In contrast, section 310 of the CA 2016 allows the board or any member holding at least 10% of the issued share capital of the company to convene a meeting.

 

The recent High Court decision of Low Thiam Hoe v Sri Serdang Sdn Bhd considered issues relating to the removal of directors under the CA 2016, that is, whether special notice is required, and on the holding of board meetings to consider resolutions to remove directors.

 

Salient Facts

 

On 16 July 2019, the board of directors of Golden Plus Holdings Berhad (“Golden Plus”) passed a directors’ resolution to remove certain directors of four of its wholly owned private subsidiaries and to appoint other directors.

 

The directors’ resolution also authorised the corporate representative for Golden Plus, Mr. Tan Say Han (“Mr. Tan”), who was to take all such steps to give effect to the removal and appointment of those directors. Mr. Tan was appointed as corporate representative of Golden Plus in March 2015.

 

Mr Tan signed four requisitions, one for each of the subsidiaries, to request that the board of directors of each subsidiary convene an extraordinary general meeting (“EGM”) to consider the resolutions to remove the specified directors. These requisition notices appeared to have been made pursuant to section 311 of the CA 2016.

 

Also, the company secretary of each of the four subsidiaries emailed all the directors of the subsidiaries informing them that a director in each of the subsidiaries had convened a board meeting of each of those subsidiaries with the agenda to call an EGM. Some of the directors stated that they were unable to attend the board meeting on that date.

 

Nonetheless, only one of the subsidiaries successfully held a board meeting as two directors attended, and the quorum was met.

 

However, for some of the subsidiaries, the EGM was not called within the 21 days required under the requisition notices. Golden Plus then exercised its right as sole member of the subsidiaries pursuant to section 310 of the CA 2016 to convene and hold an EGM.

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Eventually, the EGMs of all the subsidiary companies were held and the specified directors were removed. The removed directors then filed a court action seeking to invalidate certain board meetings and the various resolutions at the EGMs removing them as directors.

 

Issues and findings of the Court

 

1. Corporate representatives have power to requisition an EGM.

 

The removed directors first challenged the ability of Mr. Tan (as corporate representative) to issue the four requisition notices for the EGM. The removed directors argued that as a corporate representative, Mr. Tan did not have the capacity to requisition an EGM. The argument was that the corporate representative’s power under section 147(3) of the Companies Act 1965 (“CA 1965”) (now reintroduced in section 333 of the CA 2016) was to merely attend and vote on behalf of the corporate shareholder.

 

The Judge disagreed. The Judge decided that Mr. Tan derived his authority to sign the requisition notices from Golden Plus’ board resolution and not section 147(3) of the CA 1965.

 

Section 147(3) of the CA 1965 merely sets out what a company, which is a member of another company or a creditor, may do to appoint someone to represent it at meetings. Nothing in the section seeks to regulate how a company, which is a member of another, is to requisition an EGM. Also, section 147 does not proscribe a corporate representative from doing any other act which the company may authorise him to perform.

 

2. Board meetings need not be convened based on the availability of all board directors.
 

The removed directors argued that the board meetings of the subsidiaries were not valid as they were

convened without having first checked the directors’ availability to attend.

 

The Judge held that there was nothing to suggest that board meetings may only be convened on a date when all directors were available. The articles of association or constitution of the company generally provides for a minimum quorum for a board meeting. If that minimum quorum is met, the board will have the required numbers to make decisions and to pass resolution as are required that will bind the company.

 

3. Reliance on section 310 of the CA 2016 permitted following reliance on section 311 of the CA 2016.

 

The Judge also dismissed the argument that once a member had invoked the procedure under section 311 of the CA 2016, there could not be reliance on section 310 of the CA 2016.

 

Section 311 of the CA 2016 essentially provides for a member to requisition the directors to convene and hold the general meeting. On the other hand, section 310 of the CA 2016 allows a member to directly convene and hold the general meeting (thus bypassing the need to go to the directors).

 

The Judge held that should the invocation of section 311 fail to result in the EGM requisitioned, a member may still be able to invoke section 310 to secure the desired EGM. Both provisions are independent provisions and reliance on either should be mutually exclusive.

 

4. No blanket requirement of special notice for removal of directors.
 

The removed directors also contended that the subsidiary companies failed to provide valid special

notice of the removal of the directors, as less than 28 days’ special notice of the EGM was given.

 

However, it was held that the requirement for a special notice of a resolution to remove a director would only be required if the removal of directors was made pursuant to section 206 of the CA 2016. In this case, the procedure for the removal of directors was made pursuant to the constitutions of the subsidiary companies and therefore did not require special notice.

 

Section 206(3) of the CA 2016 provides that special notice is required to remove a director “under this section”, whereby a director may be removed by an ordinary resolution under section 206(1)(a). However, such removal is expressly provided under section 206(1)(a) to be “subject to its constitution”.

 

Therefore, if the removal of a director is effected pursuant to a private company’s constitution, the requirement for a special notice of the resolution removing the director does not apply.

 

Conclusion
 

Low Thiam Hoe has provided clarity and guidance on the procedures for the removal of directors, and the convening of meetings to give effect to the removal.

 

It is now clear that a corporate representative’s role is not solely limited to act at any meeting of members of the company but includes exercise of further powers conferred to him by the board of directors of the company.

 

In addition, the judgment held that in the event a member fails to require a director to requisition a meeting under section 311 of the CA 2016, the member may rely on section 310 of the CA 2016, by way of self-help, to convene the desired meeting.

 

Lastly, it is authority for the view that special notice for the removal of directors will only be required in the event procedures for the removal of directors were made pursuant to section 206 of the CA 2016.

 

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For further information, please contact:

 
Janice Ho Xiao , Shearn Delamore & Co​

janice.ho@shearndelamore.com

 

1 Originating Summons No. WA-24NCC-459-08/2019.

2 Section 297(2)(a) of the CA 2016.