Being Removed As A Director : Oppression?

Everyone knows that a director can be removed. However, what happens when such removal was not done properly? Can the director sue for oppression? 

What does the law say in regard to removal?

The Companies Act enables the removal of directors. However, such removal must comply with Section 206 of the Act, namely:

1. If it is a private company, a director may be removed before the expiration of the director’s period of office via ordinary resolution, subject to the company’s constitution.
2. If it is a public company, the removal is via an ordinary resolution, notwithstanding anything in the constitution or any agreement between the company and the director. However:
   1. A special notice is required of the resolution to remove the incumbent director/ appoint another person to be the new director in the meeting;
   2. A director who was appointed to represent the interest of any particular class of shareholders/ debenture holders cannot be removed until a successor has been appointed.

What is oppression?

First and foremost, what is oppression? Simply put, oppression is an act whereby the action of the company (against their shareholders) departs from the standard of fair dealing and violates the conditions of fair play which a shareholder of the company is entitled to expect as a shareholder of the company.

Does the removal of one director automatically constitute an act of oppression?

No. In fact, the court stated in Yeung Bing Kwong Kenneth v Mount Oscar stated that no reason is needed to remove a director:

“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 doing so. There is simply no requirement that the power to remove a director must be exercised for a cause…”

However, this does not mean that the removal of one director will not be considered an act of oppression- it all depends on the facts and the circumstances of each case and whether, as mentioned above, the act of doing so departs from the standard of fair dealing and violates the conditions of fair play which a shareholder of the company is entitled to expect as a shareholder of the company.

When removal does not equate oppression

In Oon Hoon Wah v Noble Global Sdn Bhd & Ors, an action that was brought by one of the feuding family members of the company was dismissed by the courts on the ground that the removal of that particular family member was done in a properly constituted extraordinary general meeting as the majorities in the company have spoken out against that particular family member and there was no reason why the views of the majority should be silenced or should not be respected. 

In Hiew Tze Min v Teo Hua Chong & Ors, Tze Min claimed that he was improperly removed as a director of the company. However, upon further inspection, it was noted that: 

1. There was no complaint by Tze Min that his removal was bad or not valid or that it was not served on him;
2. There was no complaint by him that his removal was not in accordance with the M&A of the company;
3. He showed up for the EGM (that eventually removed him as a director); and
4. He was even given an opportunity to defend himself against the accusations against him before the EGM passed a resolution to remove him as a director.

The court noted that since he could not prove any oppression and his removal was done in accordance to the rules stated in the Companies Act, he could not then bring his grievances to court and claim for oppression.

When removal = oppression

In contrast to the previous case, the court Tan Kian Hua v Colour Image Scan Sdn Bhd & Ors noted that Kian Hua’s removal constituted oppression on the grounds that (amongst others), there was a total disregard by the majority shareholders of a minority shareholder’s (Kian Hua) interest when it comes to the running of the company. It was also made worse by the fact that he contributed a lot to the betterment of the company even though he was a minority shareholder of the company.

In Wong Shee Cheong & Anor v Lee Industries Sdn Bhd & Ors, the court noted that there are multiple instances where removal could constitute oppression:

1. Where the removal of a director representing the interest of minority shareholders in circumstances where the competency of the replacement director is dubious;
2. where a minority shareholder alleges entitlement to participate in the management of a company based on a legitimate expectation following many years of appointment;
3. Where the payment of directors’ fees and other emoluments is excessive, particularly when the directors deriving such fees and emoluments are also the majority shareholders and coupled with the fact that no dividends were declared/ the majority shareholders failed to declare dividends in such instance.