Removal of a Company Director in Malaysia

The High Court in Low Thiam Hoe & Anor v Sri Serdang Sdn Bhd & Ors⁷ (who relied upon the Hong Kong case of Yeung Bing Kwong Kennet v Mount Oscar Ltd⁸) noted that as the statutory right to remove a director was unqualified, there was no requirement that reasons be provided for a director’s removal. In this regard⁹:

“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 so doing. 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.”

When is the act of removal of the director considered illegal?

The court noted that even though the statutory right to remove a director was unqualified and as such there was no requirement that reasons be provided for a director’s removal, the court will still intervene when the power is used for collateral or improper purpose¹⁰. For example:

1. When no proper notice is given¹¹;
2. When a resolution to remove a director was tainted in bad faith¹²; and
3. When the removal was to prevent the director from continuing to bring an action against the company¹³.

What can a director do (before bringing the matter to court)?

1. For a director in a private company- refer to the company’s constitution.
2. For a director in 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 resolution¹⁴.