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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 was briefly dealt with in Low Thiam Hoe & Anor v Sri Serdang Sdn Bhd & Ors. We will briefly look at it below.

Brief fact of the case

A restructuring exercise was conducted by a parent company. It passed a resolution entitled ‘Restructuring of Composition to Board of Directors of Wholly Owned Subsidiary Companies’. The parent company appointed its representative to convey to the subsidiaries (Sri Serdang was one of them) to call for an EGM to remove certain directors in each of the companies (Thiam Hoe was one of them). Aggrieved by its decision, Thiam Hoe filed an originating summons in the court to (amongst others) challenge the validity of the EGM and the resolutions that were passed therein.

The parties’ contention

Thaim Hoe contended (amongst others) that special notice (before the convergence of the EGM) is required to remove him as a director. He referred to the case of Tien Ik Sdn Bhd & Ors v Kuok Khoon Hwong Peter in reaching his conclusion.

Sri Serdang on the other hand noted that such notice is not required if the constitution of the company says otherwise (by pointing towards the wording of section 206(1)(a) of the Companies Act 2016

The decision and rationale of the court

Section 206(1)(a) are 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 when it comes to the removal of a director (this, as the court noted, was further emphasized in section 31(3) of the Companies Act, which states that if a company has no constitution, the company, each director and each member of the company shall have the rights, powers, duties, and obligations as set out in this Act). 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.

The court also drew a distinction between the contention of Thiam Hoe (the reliance on Tien Ik’s case) and the current section 206(1)(a) of the Companies Act. The difference, as the court noted, is that the case Thiam Hoe relied upon relies on the now-repealed corresponding section in the Companies Act 1965 (section 128(2)). That reliance is flawed as there were changes made between the two corresponding sections- one gave primacy to the legislation (Companies Act 1965) while the other gave primacy to the company’s constitution (Companies Act 2016).

To put into context, Section 128(2) of the Companies Act 1965 read as follows:

Notwithstanding anything to the contrary in the memorandum or articles of the company, special notice shall be required of any resolution to remove a director or to appoint some person in place of a director so removed at the meeting at which he is removed, and on receipt of notice of an intended resolution to remove a director the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.”

While section 206(1) of the Companies Act read as follows:

“A director may be removed before the expiration of the director’s period of office as follows:

  1. Subject to the constitution, in the case of a private company, by ordinary resolution…”

Therefore, Thiam Hoe’s contention cannot stand.

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