REMOVAL OF DIRECTOR
By AZIZAM AZIZAN
A Pathway for Director Removal
The Companies Act 2016 of Malaysia introduces provisions that govern the removal of
directors from both private and public companies. This legal framework, encompassed in
Section 206 of the Act, empowers companies to remove directors before the expiration of their
term, presenting an avenue for corporate flexibility and governance. This article elucidates the
mechanisms and implications of director removal, shedding light on the procedural nuances
and the safeguards in place.
The Companies Act 2016, in Section 206, establishes the procedures for the removal of
directors from their office, irrespective of whether the company is private or public. This
departure from the previous Companies Act 1965 marks a significant shift, allowing both
private and public entities the statutory right to remove directors prior to the expiration of their
tenure.
When a Director Can Be Remove
court emphasized that the legal right to remove a director is unrestricted, meaning that there
is no obligation to provide reasons for their removal.
The authority granted to shareholders is absolute and can serve various purposes. Such as
a shareholder can remove directors who are performing poorly or even those who are
competent but act against the shareholders’ desires. This seemingly strict and mandatory
rule empowers shareholders, through a regular resolution, to remove any or all directors
without needing to explain the decision.
It’s important to note that the power to remove a
director doesn’t require justification. This concept is closely linked to the basic legal principle
that courts don’t interfere with a company’s internal management as long as it’s within their
legal authority. In fact, the court lacks the jurisdiction to meddle in such matters. However,
the removal of directors must be exercise in the interests of the company, as it is a fiduciary
power.
Distinct Processes for Private and Public Companies
Private Company:
A director may be removed before the expiration of the director’s period of office subject to the
constitution, by ordinary resolution.
Public Company:
In contrast, public companies have to follow both Section 206 and Section 207. Section 207
makes sure that the director is given the right to make oral representation or written
representation within a reasonable time from when he was removed as a director via the
resolution. Also, before the company votes to remove a director, S.206(3) requires that special
notice shall be given to the director concerned and he is entitled to be heard on the resolution
at the meeting and to make representation orally or in writing to the company and request that
the members of the company be notified accordingly. Thus, a resolution to remove the director
shall not take effect until the director’s successor has been appointed.
Compensation and Disclosure
Previously, the Companies Act 1965 granted removed directors the right to compensation
under Section 128(7). The Companies Act 2016, however, introduces a revised approach.
Section 227 mandates that any compensation for loss of office or retirement/transfers must
be disclosed to company members and receive their approval. This added layer of
transparency ensures that unauthorized payments are not made, safeguarding the company’s
interests.