A. Introduction
Removal of directors is provided for under section 206(1) of the Companies Act 2016 (“CA“).
Section 206(1) reads:
"A director may be removed before the expiration of the director's period of office as follows:
(a) subject to the constitution, in the case of a private company, by ordinary resolution; or
(b) in the case of a public company, in accordance with this section."
Further, section 206(3) provides that “a special notice is required of a resolution to remove a director under this section“.
In this article, we will cover recent issues relating to the removal of directors of a private company.
B. Can a Company Rely on the Right of Removal in Its Constitution instead of the Companies Act?
One recent issue in relation to the removal of directors of a private company under section 206(1)(a) of the CA is whether a company can rely on its constitution instead of the CA to remove its directors.
The High Court in Low Thiam Hoe v Sri Serdang Sdn Bhd [2020] 10 MLJ 137 answered this in the affirmative. The High Court held that if the constitution of a private company provides for removal of director, the company does not need to rely on section 206 of the CA to remove its directors. This means that the company does not need to issue a special notice to call for removal, as provided under section 206(3) of the CA.
In Low Thiam Hoe specifically, the constitution of the company in question provides for removal of directors. The constitution has no requirement of special notice before the company can pass a resolution to remove its directors.
What happens then if the constitution of the company does not provide for removal of its directors? What if the private company does not have a constitution? Under such circumstances, section 206 needs to be complied with. To remove its directors, the company needs to pass an ordinary resolution with a special notice.
C. Can the Right of Removal be Excluded By Way of a Company’s Constitution?
While a private company can rely on its constitution to remove its directors, can the company exclude the right of removal by way of its constitution?
The High Court in Chan Eng Leong v Goh Choon Kim [2021] 10 CLJ 87 implied that you can do so. In Chan Eng Leong, the plaintiffs argued that only public companies have an absolute statutory right to remove its directors. However, since the right to remove directors of a private company is made “subject to the constitution” under section 206(1)(a) of the CA, this right can be restricted.
The High Court held that the distinction drawn between a private and a public company is only significant if the company has a constitution that expressly excludes the statutory right to remove a director by ordinary resolution. If such prohibition does not exist in the constitution, this distinction is purely artificial.
It can then be implied from Chan Eng Leong that because of the phrase “subject to the constitution” under section 206(1)(a) of the CA which only applies to a private company, a private company can exclude the right to remove its directors.
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