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Resignation and Removal of Directors

Resignation and Removal of Directors

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Resignation and Removal of Directors

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  1. Resignation and Removal of Directors LEE SWEE SENGLLB, LLM, MBA Advocate & SolicitorNotary Public, Trademark, Patent Agent Certified Mediator sweeseng@tm.net.my www.leesweeseng.com

  2. Appointment of Directors

  3. Who can be appointedas a director? • The person appointed must:- • Consent to the appointment (s123 Companies Act 1965) • be an individual and not a company (s 122(2) Companies Act 1965) • At least 18 years old (s 122(2) Companies Act 1965) • Not disqualified from being a director

  4. Appointment of Directors • Section 122(3) provides that the first directors of a company shall be named in the Memorandum and Articles of Association (M&A). • The first directors are deemed to have been appointed on the incorporation of the company. • The first directors will hold office until the first Annual General meeting (AGM) where they will retire. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 85

  5. Appointment of Directors • Any subsequent appointment is governed by the M&A and they are usually appointed by the directors themselves for filling of casual vacancy or as an additional director. • The Articles of the company usually provides that directors appointed to fill casual vacancies or as additional directors shall hold office until the next AGM where they shall be eligible for re-election. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 85

  6. Casual Vacancy • May arise as a result of : - • Death; • Insanity; • Resignation; • Disqualification due to absence from board meetings; • Bankruptcy • Failure to obtain qualification shares • Becomes prohibited from being a director by reason of an order made under the Act. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 85

  7. Statutory Declaration before Appointment as a Director • Form 48A • Before a person is appointed as a director, he must lodge with the ROC a statutory declaration using Form 48A that :- • He consents to act as a director; • He is not an undischarged bankrupt; • He has not been convicted of any offence whether within or outside Malaysia; • He has not been imprisoned for any offence within the period of 5 years immediately preceding the date of the declaration.

  8. Statutory Declaration before Appointment as a Director • An updated Form 49 must be lodged with the ROC for any appointment of directors. • The Register of Directors, Managers and Secretaries must be updated.

  9. Resignation of Directors

  10. Resignation of Directors Table A art 72(e) The office of director shall become vacant if the director – resigns his office by notice in writing to the company;

  11. Resignation of Directors • S141(6)(b) states thatthe company must notify the ROC of the director’s resignation. • If the company refuses to give notice to the ROC so that the director’s name remain on records of the company, this will not affect the validity of the resignation. • The failure to comply with the procedural requirement to notify ROC on the director’s resignation will not force a person to remain as director without his consent. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 90

  12. Resignation of Directors Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch 409 The facts:- A company's articles of association provided that the office of a director should ipso facto be vacated if by notice in writing to the company he resigned his office. Two of the directors orally tendered their resignations at the annual general meeting of the company and their resignations were accepted by the meeting.

  13. Resignation of Directors Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch 409 Held:- Where the company accepts the notice, oral notice will suffice even where written notice is required. Notice is presumably effective not on posting but only on receipt by the company.

  14. Resignation of Directors Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch 409 Held:- A director’s position is analogous to an employee as far as resignation is concerned. An employee is entitled to resign any time, provided that he pays damages if he breaches his contract by not giving sufficient notice. The company cannot on principle refuse to let him go.

  15. Resignation of Directors Jimat bin Awang v Lai Wee Ngen [1995] 3 SLR 293 The facts:- The petitioners were directors and shareholders of the company. They argued that their resignation as directors was invalid as there were no resolutions accepting their resignation;

  16. Resignation of Directors Jimat bin Awang v Lai Wee Ngen [1995] 3 SLR 293 Held:- The validity of any resignation did not depend on whether it was accepted by resolution unless this was provided for in the contract or in the articles of association of the company.

  17. Resignation of Directors • Glossop v Glossop [1907] 2 Ch 370 Neville J “I have no doubt that a director is entitled to relinquish his office anytime he pleases by proper notice to the company, and that his resignation depends upon his notice and is not dependant upon any acceptance by the company, because I do not think that they are in a position to refuse acceptance.”

  18. Signed but Undated Resignation Letter • Khoo Choon Yam v Gan Miew Chee [2000] 6 MLJ 20 The facts:- The Plaintiff was a director of the company. A resolution was passed by for the appointment of additional directors of the company. This resolution was not sent to the plaintiff.

  19. Signed but Undated Resignation Letter • Khoo Choon Yam v Gan Miew Chee [2000] 6 MLJ 20 The facts (contd):- The Defendants contended that the Plaintiff had resigned from the company, and the resignation was effected through an undated letter of resignation given by the Plaintiff upon his appointment as a director. The Plaintiff contended that he never signed such resignation letter and his signature was forged.

  20. Signed but Undated Resignation Letter • Khoo Choon Yam v Gan Miew Chee [2000] 6 MLJ 20 Held:- Whether or not the Plaintiff signed the undated letter of resignation could not be decided on conflicting affidavit evidence. However, even if the plaintiff had signed such a letter, it was void and of no effect.

  21. Signed but Undated Resignation Letter • Khoo Choon Yam v Gan Miew Chee [2000] 6 MLJ 20 Held (contd):- A resignation letter under compulsion is no resignation in law. When a person is required to sign an undated resignation letter as a condition for appointment as a director, what other inference can be drawn except that it was signed under compulsion or duress

  22. Signed but Undated Resignation Letter • Khoo Choon Yam v Gan Miew Chee [2000] 6 MLJ 20 Held (contd):- There is a procedure by which the board and the company may get rid of their directors. All that needs to be done is to follow the procedure.

  23. Resignation of Directors • Notwithstanding anything in the Articles, a director may not resign if his resignation will leave the company with less than 2 directors, or with no directors. • Therefore, the last 2 directors of a company may not resign. • However, a person who is disqualified from being a director by the provisions of the Act or the Articles, may resign notwithstanding that he is one of the last 2 directors, since continuing in office would be an offence. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 90

  24. Retirement of Directors

  25. Retirement by Rotation • The Articles of the company will usually contain provisions relating to retirement by rotation. • The purpose is to give the shareholders an opportunity to review the directors’ performance and to replace them, if necessary. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 90

  26. Retirement by Rotation • At the first AGM. all directors shall retire from office. • At the subsequent AGM, one third of the directors for the time being shall retire from office. The directors who have been longest in office since their last election shall retire. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 90

  27. Retirement by Rotation • A director appointed to fill casual vacancy or as additional director in between two AGMs is required to retire at the forthcoming AGM. • When considering the number to retire by rotation, directors appointed between two AGMs and managing director is not to be taken into account in determining the directors to retire by rotation. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 91

  28. Retirement by Rotation • The Articles usually provide that the retiring director shall be eligible for re-election. • However, a company may elect some other person in place of the retiring director at the meeting. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 91

  29. Retirement by Rotation • Failing this, the retiring director will be deemed to have been re-elected, unless: • another person is elected • a resolution not to fill the vacancy is passed • a resolution for the re-election of that director is lost. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 91

  30. See Teow Chuan & Anor v YAM Tunku Nadzaruddin Ibni Tuanku Jaafar & Ors [2007] 2 MLJ 212 • The facts:- The Board of Directors made a resolution that all executive directors must retire on attaining 55 years of age. The Plaintiffs brought an action challenging the introduction of a new term into their existing contract that they should retire.

  31. See Teow Chuan & Anor v YAM Tunku Nadzaruddin Ibni Tuanku Jaafar & Ors [2007] 2 MLJ 212 • Held:- The power to pass the resolution as to retirement of directors was a fiduciary power entrusted by the memorandum and articles of the Company. That power was used for a collateral or improper purpose, namely to remove the Plaintiffs and was invalid.

  32. See Teow Chuan & Anor v YAM Tunku Nadzaruddin Ibni Tuanku Jaafar & Ors [2007] 2 MLJ 212 • Held:- In common law, an attempt by a party to a contract to unilaterally introduce a new term into it is regarded as a breach of contract. This amounts to an ‘intimation of an intention to abandon and altogether to refuse performance of the contract’

  33. Removal of Directors

  34. How can a director be removed? • It may be that a dispute in the company leads to either some of the directors or members wanting to remove a director from office. A director may have a service contract with the company • If the company terminates the director’s appointment in breach of the contract, the director may be entitled to damages. • The rights that a director may have under a contract will depend upon the provisions contained in the contract. Commercial Applications of Company Law in Malaysia, 2002 CCH Asia Pte Ltd, pg 227

  35. Removal of Directors • of Public Companies

  36. Removal of Directorsof Public Companies • Removal by other directors It is not possible for directors of a public company to remove another director. This is prohibited by section 128(8)

  37. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) • Section 128 of the Companies Act gives the members of a public company the power of control over the directors. • The members of a public company can remove a director by giving special notice to the company to remove him, (usually a simple majority) notwithstanding any provision in the Articles Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 87

  38. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) S128(1) Companies Act 1965 A public company may remove a director by ordinary resolution before the expiration of his term of office.

  39. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) S128(1) Companies Act 1965 If the director who is being removed was appointed to represent the interests of a specific class of shareholders or debenture holders, the resolution to remove him will not be effective until a successor has been appointed.

  40. Removal of Directorsof Public Companies • Resolutions coupled with special notice (S153 Companies Act) S128(1) Companies Act 1965 Transposed to s. 128(1) of our Act the proper meaning of "A public company may by ordinary resolution remove a director ..." means that a simple majority of the shareholders of the company may vote to remove a director and no agreement made by the directors or the company can fetter that right.

  41. Removal of Directorsof Public Companies • The Courts will not interfere with the statutory right of shareholders to remove directors: Soliappan v Lim Yoke Fan [1968] 2 MLJ 21; Dato' H.M. Shah & Ors. v. Dato' Abdullah b. Ahmad [1991] 1 MLJ 91 - a Supreme Court decision which applied s. 128(1) and upheld the shareholders' right to terminate the appointment of the executive chairman and managing director of the company in the 9 month of a three-year contract with the company appointing him to those positions: Tuan Ishak Ismail v Leong Hup Holdings & Or Appeals [1996] 1 CLJ 393

  42. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) S128(2) Companies Act 1965 Special notice of the resolution to remove a director is required – that is not less than 28 days notice to the company of the intended resolution.

  43. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) • S153 Companies Act 1965 defines special notice as the notice of intention of its member(s) to move the resolution proposed, served to the company not less than 28 days before the meeting at which the resolution is to be moved.

  44. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) • The 28 days grace period is to allow the directors who are to be removed time to prepare for their defences. • On receipt of the special notice of resolution, the company must then give notice of the resolution to its members at least 14 days before the meeting. Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 124

  45. Removal of Directorsof Public Companies • Removal by members • Resolutions coupled with special notice (S153 Companies Act) • If the twenty-eight days grace period was not complied with, the resolution shall not be effective. • Malaysian Company Secretarial Practice, Prentice Hall 2006 by Zubaidah Zainal Abidin at page 124

  46. Removal of Directorsof Public Companies • Removal by members • Rights of director to be heard - S128(2) The director who is being removed has an opportunity to defend himself. He is entitled to be heard on the resolution at the meeting and to make written representations to the company and request the company to send copies of the representations to every member if the company notified in the meeting. Guide to Company Law in Malaysia & Singapore, 2nd Ed, CCH Asia Ltd, pg 67

  47. Removal of Directorsof Public Companies • Removal by members • Rights of director to be heard - S128(3) If copies of the representations are not sent out because they were received too late, the director may ask for the representations to be read out at the meeting without affecting his right to be heard orally. Guide to Company Law in Malaysia & Singapore, 2nd Ed, CCH Asia Ltd, pg 67

  48. Removal of Directorsof Public Companies • Removal by members • Rights of director to be heard - S128(4) However, the director’s right to be heard is not absolute. That director cannot use his right to attract publicity for defamatory matter. If a director does that, the company or any affected person may apply to court to stop him from sending or reading out the representations at the meeting.

  49. Removal of Directorsof Public Companies • Removal by members • Rights of director to be heard In practice, it will usually be easier to proceed under the articles of association of the company rather than under the statutory procedure. Company articles usually provide that the company may by resolution remove a director before his term expires. Guide to Company Law in Malaysia & Singapore, 2nd Ed, CCH Asia Ltd, pg 67

  50. Removal of Directorsof Public Companies • Where a company adopts • Table A as • its articles or association