Case Update: Golden Plus Decision – Removal of Directors under the Companies Act 2016

In the Golden Plus Holdings decision, the High Court sets out give important points relating to the removal of directors under the Companies Act 2016 (CA 2016).  You can read the grounds of judgment dated 14 January 2020.

The decision deals with the issues relating to requisitioning an EGM, the unavailability of some directors to attend a Board meeting, whether there can be first a requisition and then a convening of an EGM, the special notice requirement for removal of a director, and whether there can be improper motives to invalidate the removal of a director.

Brief Facts

In July 2019, the Board of Directors of Golden Plus Holdings Berhad (GPLUS) passed a directors’ resolution to remove certain directors of the four wholly-owned subsidiaries of GPLUS and to appoint other directors.

The directors’ resolution also authorised GPLUS’ corporate representative, Tan, in these four subsidiaries to take all such steps to give effect to the removal and appointment of those directors.

Tan, the corporate representative, signed four requisitions, one for each of the subsidiaries, to request that the directors of the subsidiaries 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.

Separately, the company secretary of each of the four subsidiaries emailed all the directors of the subsidiaries. The company secretary stated that a director had convened a Board meeting with the agenda to call an EGM. Some of the directors stated that they were unable to attend that particular date for the Board meeting. Nonetheless, one of the Board meetings proceeded as two directors attended and quorum was met.

Eventually, for some of the subsidiaries, the EGM was not called within the 21 days required under the requisition notices. GPLUS, as the sole member of these subsidiaries, then appeared to exercise its right pursuant to section 310(b) of the CA 2016 to convene and hold an EGM.

The EGMs were held and the specified directors were removed. These removed directors then filed a court action to invalidate certain board meetings and the the various resolutions at the EGMs removing them as directors.

Important Points of Law

#1: Requisitioning an EGM and Role of Corporate Representative

The removed directors first challenged the ability of the corporate representative to issue the requisition notices for the EGM. The argument was that the corporate representative’s power under the Companies Act 1965 (CA 1965) was to merely attend and vote on behalf of the corporate shareholder. They cited the Court of Appeal decision of Zung Zang (a decision I have written about here).

The Judge disagreed. The Judge decided that Tan (being the corporate representative) derived his authority to sign the requisition notices from the GPLUS Board resolution and not section 147(3) of the CA 1965 or the instrument of his appointment as corporate representative.

Hence, the requisition notices were of GPLUS, as the sole shareholder of the subsidiaries, and merely made on behalf of GPLUS by Tan.

#2: Board Meeting and Unavailability of Some Directors

Next, the removed directors challenged the validity of the Board meetings of the subsidiaries convened without having first checked on their availability to attend.

The Judge decided that there was nothing to suggest that Board meetings may only be convened on a date when all board directors were available. Such a requirement would result in an enormous impediment to the management of the affairs of a company.

Generally, the articles of association or constitution of the company generally provide for a minimum quorum for a board meeting. Clearly, 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: Once Section 311 Invoked, can section 310 be invoked subsequently?

The Judge also dismissed the argument that once a shareholder 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 the shareholders to requisition the directors and for the directors to then convene and hold the general meeting. On the other hand, section 310 of the CA 2016 allows for the shareholder to directly convene and hold the general meeting (thus bypassing the need to go to the directors).

#4: Special Notice of Resolution to Remove Director Only For Removal Under Section 206

The Judge also disagreed that there was any blanket requirement under section 206(3) of the CA 2016 that there must always be special notice for any removal of directors.

The section 206 mechanism sets out a few parts. In relation to a private company being the case at hand, subject to the constitution, a private company director may be removed by ordinary resolution. Next, special notice is required of a resolution to remove a director “under this section. Therefore, the special notice requirement is only needed if the removal of the director was made under the section 206 mechanism.

But in this case, the removal of the director was made under the specific procedure and requirements spelled out in the subsidiaries’ constitution. The constitution in this case required a removal by either special resolution or ordinary resolution and with no requirement of special notice. Thus, it was a proper removal under the constitution and it was not a removal of a director under section 206.

#5: Improper Motive for Removal of Directors?

Finally, the removed directors attempted to argue that the exercise of the shareholder’s power to vote on the removal was not bona fide. It was argued that there was a misuse of corporate power by GPLUS.

The Judge also dismissed this argument. The statutory right to remove a director was unqualified, and with constitution not requiring any reason or cause to be established for the removal of the director.

 

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