Removing a Director: Why a Written Resolution Will Not Work

The majority shareholder has the votes. The secretary drafts a written resolution removing the director, circulates it, collects signatures, and lodges the change with SSM. It looks clean, it looks fast, and it is defective on the face of the Act.

Section 297(2)(a) of the Companies Act 2016 states that a resolution under s.206 to remove a director before the expiration of his term of office shall not be passed as a written resolution. It is one of only two resolutions the Act carves out of the written-resolution regime — the other, in s.297(2)(b), is the removal of an auditor under s.276.

A general meeting is required. There is no workaround inside the Act.

What does s.206 allow?

Section 206(1) draws the line by company type:

• (a) private company — subject to the constitution, a director may be removed before the expiration of his period of office by ordinary resolution;
• (b) public company — removal is in accordance with the section, and s.206(2) provides that notwithstanding anything in the constitution or any agreement between the company and the director, the company may by ordinary resolution at a meeting remove the director before the expiration of his tenure.

The asymmetry is deliberate. In a private company the constitution can qualify the power. In a public company it cannot — the statutory power overrides both the constitution and any contract with the director.

Section 206(3) requires special notice of a resolution to remove a director under the section, or to appoint another person in his place at the same meeting.

Two further public-company rules follow. Under s.206(4), where a director was appointed to represent the interests of a particular class of shareholders or debenture holders, the resolution to remove him does not take effect until his successor has been appointed. And under s.206(5), a director appointed in place of a person removed is treated, for retirement-rotation purposes, as if he had become a director on the day the removed director was last appointed.

What rights does the director have?

Section 207 is written for public companies. On receipt of the special notice, the company must forthwith send the director a copy — s.207(1). He is entitled to make oral or written representation of reasonable length on the resolution — s.207(2). If he makes written representations and asks that members be notified, the company must state the fact in the notice of the resolution and send a copy of the representations to every member who receives notice of the meeting — s.207(3).

If the representations arrive too late, or the company defaults, s.207(4) lets the director require them to be read out at the meeting, without prejudice to his right to be heard orally. Section 207(5) allows the Court, on the application of the company or any aggrieved person, to relieve the company of these obligations where the rights are being abused, and s.207(6) allows the Court to order the director to pay the company’s costs of that application.

Section 207(7) is the provision to check in a private-company dispute: the constitution of a private company may provide these rights to its directors. They are not automatic — but where the constitution has adopted them, ignoring them is a defect in the removal.

What follows the vote?

Removal vacates the office under s.208(1)(c). That triggers:

• notification to SSM within fourteen days under s.58(1)(c), fine up to RM50,000 plus RM500 a day under s.58(4); and
• updating the company’s own register of directors within fourteen days under s.57(4).

Check s.196 before the meeting, not after. If removal would take the board below one director for a private company or two for a public company, or below the number of directors who ordinarily reside in Malaysia, appoint the replacement at the same meeting — s.206(3) contemplates exactly that.

Common mistakes

Using a written resolution. Prohibited by s.297(2)(a). This is the error the page exists to correct, and it appears in a large share of published Malaysian guidance.

Assuming the constitution is irrelevant. For a private company s.206(1)(a) is expressly subject to it. A constitution may require a higher majority or additional steps.

Skipping special notice. Section 206(3) requires it, and in a public company it starts the s.207 representation machinery.

Removing the last qualifying director. Nothing in s.206 suspends s.196(1) or s.196(4). Appoint the replacement in the same meeting.

Treating removal as ending every claim. Compensation for loss of office is separately regulated — see s.227 and s.230.

What’s next

If the departure is consensual, the mechanics are different and simpler — see appointing and resigning a director. Any payment made on exit needs to clear directors’ fees and compensation approval, and the underlying duties that usually prompt a removal are set out in directors’ duties.