Company’s Constitution Over Legislation?
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Company’s Constitution Over Legislation?
Which one has primacy over the other? Is it the company’s constitution or the legislation (Companies Act 2016)? This issue is a common point of contention in corporate disputes. It was specifically dealt with in the case of Low Thiam Hoe & Anor v Sri Serdang Sdn Bhd & Ors. Understanding the hierarchy between internal company rules and statutory law is crucial for Directors and Shareholders alike.Case Study: Low Thiam Hoe & Anor v Sri Serdang Sdn Bhd
A restructuring exercise was conducted by a parent company, passing a resolution to restructure the Board of wholly-owned subsidiaries. The parent company appointed a representative to convey to the subsidiaries (including Sri Serdang) to call for an EGM to remove certain directors (including Thiam Hoe). Aggrieved by this decision, Thiam Hoe filed an originating summons to challenge the validity of the EGM and the resolutions passed therein.Disputes often arise during restructuring exercises when established directors are removed via EGM.
The Parties’ Contentions
The dispute centered on the procedural requirements for removing a director. The Plaintiff (Thiam Hoe) contended that special notice was required before the convergence of the EGM to remove him as a director. He relied on the precedent set in Tien Ik Sdn Bhd & Ors v Kuok Khoon Hwong Peter to support his conclusion. The Defendant (Sri Serdang) argued that such notice is not required if the constitution of the company says otherwise, pointing specifically to the wording of Section 206(1)(a) of the Companies Act 2016.
The Decision and Rationale of the Court
The court ruled in favor of the company’s constitution having primacy in this context. Section 206(1)(a) is expressly made ‘subject to the constitution’ of the private company. Therefore, if the removal of a director is catered for in a private company’s constitution, reliance need not be placed on the legislation.“Section 206(1)(a) gives primacy to the constitution of the private company; in which case, there would not be any removal of a director under s 206. Instead, it would be a removal of a director under the constitution of the company.”
Comparison: 1965 Act vs. 2016 Act
The legislative shift demonstrates a move towards empowering internal company governance.| Legislation | Section | Key Wording |
|---|---|---|
| Companies Act 1965 (Old) | Section 128(2) | “Notwithstanding anything to the contrary in the memorandum or articles…” |
| Companies Act 2016 (New) | Section 206(1) | “Subject to the constitution…” |
- Under the 1965 Act: The legislation overrode the company articles. Special notice was mandatory regardless of what the company documents said.
- Under the 2016 Act: The Act defers to the Constitution. If the Constitution provides a specific method for removal, that method prevails over the default statutory requirement for special notice.
Need Legal Advice on Company Constitutions?
Consult with our Company Secretaries and Business Lawyers to ensure your company’s internal governance is compliant and protects your interests.- Drafting Company Constitutions
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Frequently Asked Questions
1. Does a private company need a Constitution?
Under the Companies Act 2016, a company is not strictly required to have a Constitution. If it does not, Section 31(3) states that the company, directors, and members shall have the rights, powers, duties, and obligations as set out in the Act. However, having a Constitution allows you to customize rules (like director removal) to suit your business.
2. Can a director be removed without special notice?
Yes, in a private company, if the Company Constitution provides a specific mechanism for removal that does not require special notice. As ruled in Low Thiam Hoe, Section 206(1)(a) allows the Constitution to take precedence over the statutory requirement for special notice.
3. What happens if a company has no Constitution?
If a company has no Constitution, it must strictly follow the provisions of the Companies Act 2016. In the context of removing a director, the default statutory rules (requiring special notice and ordinary resolution) would apply.
4. Why was the Tien Ik case precedent rejected?
The court rejected the Tien Ik precedent because it was decided under the old Companies Act 1965. The old Act explicitly stated “Notwithstanding anything to the contrary in the memorandum,” whereas the new 2016 Act states “Subject to the constitution,” effectively reversing the priority.