Background
On 16 July 2019, the board of directors of the holding company passed a resolution to, amongst others, remove the 1st and 2nd plaintiffs as directors of the subsidiary companies. In order to effectuate the removals, the resolution also stated that the holding company’s corporate representative was “
…authorised and empowered to do all acts and things and take all such steps as may be considered necessary to give full effect to the removal and appointment in the abovementioned companies and in all matters relating thereto.” As such, the 6th defendant, who is the corporate representative of the holding company, signed four (4) requisitions (i.e. one for each of the subsidiary companies) to convene EGMs to, amongst others, remove the plaintiffs as directors of the subsidiary companies.
On 8 August 2019, an EGM was held for the 1st subsidiary company. The 6th defendant attended the EGM on behalf of the holding company. The resolution removing the plaintiffs as directors of the 1st subsidiary company was passed at the EGM. As for the 2nd, 3rd and 4th subsidiary companies, EGMs were convened on 26 August 2019. The 6th defendant attended these EGMs and resolutions were passed to remove the 1st plaintiff as a director of these subsidiary companies.
Decision
In dismissing the originating summons, the High Court held that a corporate representative was not restricted from requisitioning EGMs. The plaintiffs argued that as the certificate of authority, through which the 6th defendant was appointed as the corporate representative of the holding company, was granted pursuant to Section 147(3) of the
Companies Act 1965, and that the extent of the corporate representative’s powers were therefore, confined solely to this provision.
Section 147(3) of the
Companies Act 1965 states: “
A corporation may by resolution of its directors or other governing body – (a) if it is a member of a company, authorize such person as it thinks fit to act as its representative, either at a particular meeting or at all meetings of the company or of any class of members; or (b) if it is a creditor (including a holding of debentures) of a company, authorize such person as it thinks fit to act as its representative either at a particular meeting or at all meetings of any creditors of the company, and a person so authorized shall, in accordance with his authority and until his authority is revoked by the corporation be entitled to exercise the same powers on behalf of the corporation as the corporation could exercise if it were an individual member, creditor or holder of debentures of the company.”
Section 333 of the Malaysian
Companies Act 2016 reads as follows:
“
(1) If a corporation is a member of a company, the corporation may by resolution of its Board or other governing body authorize a person or persons to act as its representative or representatives at any meeting of members of the company.
(2) If the corporation authorizes only one person, the person shall be entitled to exercise the same powers on behalf of the corporation as the corporation could exercise if he was an individual member of the company.
(3) If the corporation authorizes more than one person as its representative, every one of the representative is entitled to exercise the same powers on behalf of the corporation as the corporation could exercise if every one of the representative was an individual member of the company.
(4) If the corporation authorizes more than one person and more than one of the representatives purport to exercise the power under subsection (3)-
(a) if the representatives purport to exercise the power in the same way, the power is treated as exercised in that way; or
(b) if the representatives do not purport to exercise the power in the same way, the power is treated as not exercised.
(5) A certificate of authorization by the corporation shall be prima facie evidence of the appointment or the revocation of the appointment, as the case may be, of a representative under this section.”
The High Court rejected this argument as the 6th defendant acted pursuant to a resolution by the holding company, authorising and empowering him to carry out the necessary steps to give effect to the removal of the plaintiffs as directors of the subsidiary companies. In this regard, the High Court distinguished the earlier Court of Appeal case of
Kwang Hung Cheong & Anor v Zung Zang Trading Sdn Bhd [2018] 10 CLJ 517, where the corporate representative in that case did not receive such authorisation, and was therefore held to only be able to act within the authority conferred by Section 147 of the
Companies Act 1965.
Importantly, the High Court held that “
[e]qually important is that Section 147 does not proscribe a corporate representative from doing any other act which the company may authorise him to perform. Therefore, s.147 does not preclude a corporate representative from performing any act that is not within the powers or authority prescribed by that Section.”
In addition, the High Court also rejected the plaintiffs’ contention that the defendants had not exercised their powers for a bona fide purpose. The High Court held that the plaintiffs’ allegation of lack of bona fide, predicated in the main, upon the bases given for the alleged invalidity of the convening of the EGMs and the resolutions passed, were not made.
Furthermore, the High Court opined that the “expedited process and the alacrity in which the plaintiffs were removed as directors” do not alone show a lack of bona fide. However, most importantly, the High Court rejected the argument of lack of bona fide on the ground that powers conferred to shareholders are unfettered, and are permitted, by resolution, to remove any or all of the directors from office without having to assign a reason for so doing.
In coming to its judgment, the High Court followed the recent Hong Kong Court of Appeal case of
Yeung Bing Kwong Kenneth v Mount Oscar Ltd [2019] HKCU 2413, which held:-
‘
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 so doing’.
Comment
The High Court’s decision is useful on two (2) counts. Firstly, it gave guidance on the powers of a corporate representative under the Malaysian
Companies Act 1965 and
Companies Act 2016. Secondly, the Learned High Court Judge, Darryl Goon JCA, after reviewing a series of High Court decisions, gave guidance on the power of shareholders to remove directors, and whether such removal must be in the interest of the company.
In this regard, Darryl Goon JCA citing the recent Hong Kong Court of Appeal case of
Yeung Bing Kwong Kenneth v Mount Oscar Ltd [2019] HKCU 2413, opined as follows:-
“
The Hong Kong Court of Appeal also observed that as the statutory right to remove a director was unqualified, there was no requirement that reasons be provided for a director's removal or the director to be given a right to be heard.”
Our Leong Wai Hong, Anita Natalia and Alya Hazira acted as counsel for the 1st to 7th Defendants.
You may contact partner, Leong Wai Hong (lwh@skrine.com), and senior associate, Anita Natalia (anita.natalia@skrine.com), for enquiries.