Introduction
Directors are the management corner stones in every company, be it listed or unlisted. The governing board of directors (BODs) is entrusted by the shareholders to strive in every sound business decision for the growth and betterment of the company. In the case of public listed companies where shareholders are large in number, and whose characters and opinions differ, they may in some instances, combine efforts and attempt to remove the directors through calling for an extraordinary general meeting (EGM) and replace with the appointment of directors of their choice.
Since the removal of the director is a serious matter of consideration and may cause destruction to the company’s operation, the company secretary needs to advise the BODs or the shareholders on the needed procedures and the processes in accordance with the provisions stated in the Companies Act 2016 (CA 2016).
1.0 Proper and valid notice – the guiding steps
The momentums to initiate the process of removing directors require a proper and valid notice of the EGM. The notice has to be issued to every shareholder, director and auditor of the company.
Section 321(1) provides:
“Notice of a meeting of members shall be given to every member, director and auditor of the company.”
The process and procedure in calling a meeting of the shareholders should be carefully planned out and adhere strictly to the needed provisions of the CA 2016.
2.0 Essential perquisite of a notice of meeting
Generally, the form and format of a notice of meeting comprise the parties to the notification and the contents of the notice followed by the proposed resolutions to be passed by shareholders.
(a) Parties to the notification
The notice of meeting is normally served by the company secretary upon being instructed by the BOD, to the shareholders, the members of the BOD, and the auditor, either by email or other means of telecommunication as provided in the constitution.
The shareholders are obliged to inform the company of their email addresses or other addresses to facilitate the issuance of the notices to them.
(b) Contents of the notice – venue
The notice convening a meeting must state:
(i) the venue;
(ii) the day;
(iii) the hour,
of the meeting together with the provision of the minimum notice period for a shareholder to make the needed preparation either to attend the meeting personally or to appoint a proxy to represent him in the meeting.
3.0 Minimum threshold of notice
The Companies Act 2016 sets out two categories of resolutions which require the approval of the shareholders, namely an ordinary resolution and a special resolution. The grace periods of the notices needed prior to the meeting of
shareholders are either:
(a) at least 14 days – ordinary resolution [s 316(2)(b)]; or
(b) at least 21 days – special resolution [s 292(1)].
The CA 2016 sets out the minimum period required, providing sufficient time for the shareholders to make plans to attend the meeting. It also allows them time to understand the agenda of the meeting and the various proposed resolutions to be passed. The compliance to the time is strictly required. Any non-compliance would result the EGM to be void and the proposed resolutions to be ineffective.
In HLB Nominees (Tempatan) Sdn Bhd v SJA Bhd & Anor [2005] 1 CLJ 23, the appellant deposited with the respondent a requisition for an EGM together with a special notice of the intended resolutions to remove the second respondent as the director and to appoint two other persons as independent and non-executive directors.
The said notice was dated 22.4.2002 and the EGM was to be held on 7.8.2002. The Court of Appeal held that the EGM was null and void as it was not carried out within 3 months from the requisition as required by s 144(3) of the then Companies Act 1965 (CA 1965).
Mokhtar Sidin JCA held on p 56:
“In the present appeal, the purpose of the meeting to be held is to remove some of the existing directors including the 2nd plaintiff and in their place to elect the directors of the defendant’s choice. To do that, a proper and valid notice of such a meeting should be issued because that meeting would affect the right of those directors to be removed who had been duly elected at a proper and valid AGM of the company. For that, the process and procedure for calling such a meeting should be adhered to strictly.”
In Granasia Corporation Bhd & Ors v Choong Wye Lin & Ors [2008] 4 CLJ 893, the appellants made an application to the High Court to declare the EGM, which was convened by the company on 20.7.2017 for the requisition of the 2nd defendant who was a shareholder of the company, null and void, in view of the short notice. There were irregularities in the process by which the EGM was convened. The service of the notice was made 2 days short of the required 14 days pursuant to the then s 145(2) of the then CA 1965.
Kang Hwee Gee J held that it was a trite law that any general meeting of a company which contravenes the provision with respect to the service of the notices to members and directors must comply with the procedural requirements under the Act and the Articles of Association. The Lordship opined on p 904:
“The 2nd defendant was perfectly competent to requisition the EGM but it had failed to comply with the requirement of s 145 of the Act and the Articles of Association of the company with respect to the service of the notice as described, the effect of which will render the meetings and the decision made thereunder void.”
4.0 Days or clear days?
Section 316(2)(b) uses the phrase ‘… at least 14 days …’, which must denote 14 clear days needed. Neil Kaplan J held in The Securities and Future Commission v The Stock Exchange of Hong Kong Limited [1992] 1 HKLR 135:
“I am quite satisfied that there is no difference in construction between ‘not less than 21 days’ and 21 clear days. There phrases were used in the light of the common law rule above referred namely that fraction of a day are not taken into account.”
It is respectfully submitted that despite s 449(3)(a) having used ‘clear days’ in contrast with s 316(2)(b) which had used ‘days’, there remains no distinction between the two, the main purpose is that all denoted days that must exclude:
(a) the day of service; and
(b) the day of the event.
To say that ‘day’ includes the day of service is an attempt to read the law in minute and is akin to stirring a storm in the teacup without giving regard to the entire legislation of the CA 2016 in its purpose and object.
In Extreme System Sdn Bhd v Ho Hup Construction Company Bhd (Ho Hup) & 28 Ors [2010] 1 LNS 338, the 3rd and 8th defendants had called for the EGM to move resolutions by the members of Ho Hup for the removal of seven (7) directors of the current BOD of Ho Hup and to appoint six (6) new ones. A special notice dated 7.1.2010 calling for the EGM to be held on 4.2.2010 at 10 a.m. was issued. The law then required a duration of ‘not less than 28 days’ before the meeting [s 153 of CA 1965].
Mah Weng Kwai JC, presiding at the HC, held that the scope of meeting of ‘not less than 28 days’, namely the exclusion of the day of service of the notice (7.1.2010) and also exclusive of the day on which the meeting is to be held (4.2.2010) was to be abided by. In this regard, there were only 27 clear days’ notice given and therefore the notice was invalid.
In Tan Than Kau & Anor v RHB Nominees (Asing) Sdn Bhd & 2 Ors [2020] 1AMR 93, the first and second defendants representing at least 10% shares of the company deposited with a special notice under s 206(3) read with s 322 gave a notice of the intention to remove all the four (4) incumbent directors of the company and appoint three (3) other directors. The said notice was dated 28.5.2019 with the proposed EGM to be held on 12.6.2019. The said notice is deemed served on 29.5.2019.
The High Court held that it was a short notice, which was not in compliance to s 316(2)(b) as it only had 13 days, short by 1 day.
5.0 Removal of a director
The removal of a director requires an ordinary resolution in a meeting as provided in s 206(2) of CA 2016.
Section 206(2) provides:
“Notwithstanding anything in the constitution or any agreement between a public company and a director, the company may by ordinary resolution at a meeting remove the director before the expiration of the director’s tenure of office.”
A special notice, however, is required to bring attention of the shareholders for the removal of a director in the notice calling an EGM.
Section 206(3) provides:
“Special notice is required of a resolution to remove a director under this section or to appoint another person instead of the director at the same meeting.”
6.0 Shareholders’ quorum
The meetings of members are generally convened by the existing BOD, to seek permission for the approval of:
(a) the financial statement;
(b) the dividend proposed/payment;
(c) the directors’ remuneration;
(d) the appointment/retirement of directors;
(e) the reappointment of auditors;
(f) other matters arising.
Having said that, s 310(b) allows the aggregate shareholding of at least 10% of the issued shares capital of the company to give notice to the BOD, requesting a shareholders’ meeting of the company, which is generally termed as EGM.
7.0 Agenda of the meeting
The agenda of the meetings must be enclosed in the shareholders’ requisition for a meeting. The removal of the director needs only an ordinary resolution.
Section 206(1) provides:
-
- subject to the constitution, in the case of a private company, by ordinary resolution;
- in the case of a public company, in accordance with this section.”
It is axiomatic that the removal of the directors be synchronised with the appointment of the intended directors.
The proposed resolutions for the removal/appointment of
the directors would be as follows:
Ordinary resolution
Special notice on the removal/appointment of
directors It must be resolved that:
- the appointment of A (IC No. xxxxxx-xxxxxx) with immediate effect, is subject to her being consented to act as a director.
- the removal of B (IC No. xxxxxx-xx-xxxx) from office as a director of the company, is with immediate effect.
Conclusion
The provisions in the CA 2016 set out the statutory minimum period for compliance for an effective notification. However, the best practice is needed to ensure a slightly longer period to prevent unforeseen human errors due to a short notice.
Any attempt to issue a notice which sets the very minimum timeline with no room of error may find that the corners have been cut at the unexpected turns. The failure to fulfil the requisite notice period for the service of notice is fatal. It would render the resolutions approved in the EGM null and void.
References:
- Hallmark Legal Principles on Companies Act 2016, Choong Consultants Plt, 2019, 1st ed.
- Dr Choong on Interpretation of Companies Act 2016, 2019, Peng You Solutions Plt, 2020, 1st ed.
- Dr Choong on Companies Act 2016, Peng You Solutions Plt, 2020, 3rd ed.
- Single Person Company, InfoWorld, 2018, 2nd ed.
- To order the book, please email pengyou.solutions@gmail.com.
