How Do You Boot A Director From His Office
Where to start and how?
Let us first take a look at Section 206 of the Companies Act, which states that:
- In a private company, a director (subject to the company’s constitution) may be removed before the expiration of the director’s period of office via ordinary resolution.
- In a public company, a director may be removed via an ordinary resolution (this is notwithstanding anything in the constitution or any agreement between the company and the director). In order to do so:
- A special notice is required prior to the removal of the director. Once that is done, the company must then appoint another person to be the new director in the meeting;
- A director who was appointed to represent the interest of any particular class of shareholders/ debenture holders cannot be removed until a successor has been appointed.
Anytime?
Yes. As long as it is done according to section 206 above.
Do you need a reason to boot a director out?
No. In Low Thiam Hoe & Anor v Sri Serdang Sdn Bhd & Ors, the court noted that there was no requirement that reasons are to be provided for a director’s removal since the statutory right to remove a director was unqualified. The court further explained the why behind the what in doing so
“The power given to the shareholders is unfettered and may be used for a number of aims. It allows shareholders to remove directors who are performing poorly, as well as those acting competently and within their powers but in a way that may be contrary to the wishes of the shareholders. This is an apparently ‘tough mandatory rule’ that allows the shareholders by ordinary resolution at any time to remove any or all of the directors from office without having to assign a reason for doing so. There is simply no requirement that the power to remove a director must be exercised for a cause.
Closely related to the above is the elementary principle of law that the court will not interfere with the internal management of companies acting within their powers and in fact, has no jurisdiction to do so. Further, the court holds fast to the rule not to interfere for the purpose of forcing companies to conduct their business according to the strictest rules, where the irregularity complained of can be set right at any moment. Hence, the court had refused to grant an interlocutory injunction to restrain a company from acting on a resolution to remove a director on the ground that the resolution was a nullity due to irregularities, as the irregularities could be cured by going through the proper processes and the ultimate result would be the same.”
Does this mean that you can boot a director out on your own whims and fancies?
No.
If you do so, the court will definitely intervene and slap you on the wrist for doing so.
When will the court intervene?
- When no proper notice is given before booting the director out of his office;
- When a resolution to remove a director was tainted in bad faith; and
- When the removal was to prevent the director from continuing to bring an action against the company.
What can the director do?
If it’s a private company- refer to the company’s constitution.
If it’s a public company- the director must be given the right to make oral representation or written representation within a reasonable time from when he was removed as a director via the resolution.
If all else fails, bring the matter to court. This, however, is a story for another day.
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