A director’s removal that does not comply with the Companies Act 2016, your Constitution, or Shareholders’ Agreement can be challenged and potentially reversed.
To help shareholders prevent this, our guide breaks down the legal basis and procedures for properly removing a director in Malaysia.
Removal by ordinary resolution
If a private company does not have a Constitution, Section 206(1)(a) of the Companies Act allows shareholders to remove a director by ordinary resolution (more than 50% vote).
However, the following legal procedures under the CA 2016 must be followed:
1. Serve a special notice
A special notice (at least 28 days) to the company proposing the resolution to remove the director (Sections 206(3) & 322).
- the notice does not need to state the grounds for removal
- upon receiving the notice, the company must send a copy to the director
- the director has the right to make oral or written representations at the meeting considering the resolution (Section 207)
2. Call for a shareholders’ meeting
Under Sections 310 & 311, the meeting may be:
- convened by the Board, or
- convened by any shareholder holding at least 10% of the issued share capital of the company, or such shareholder may require the directors to convene the meeting
3. Pass an ordinary resolution
At the meeting, a simple majority will be required to pass the ordinary resolution to remove the director.
Note: Director removals cannot be done via written resolutions (Section 297(2)). This requirement cannot be varied by the constitution or shareholders’ agreement.
4. Notify the Registrar (SSM)
Once the resolution is passed, the company must lodge the changes with SSM within 14 days (Section 58).
It’s important to ensure full compliance with notice and meeting procedures, as any shortcuts may give rise to claims of procedural unfairness — even if the removal is legally justified.
Removal by Constitution / SHA
If your company has a Constitution or Shareholders’ Agreement (SHA), you can set your own rules for how directors are appointed and removed, including:
- right to appoint and remove directors
- whether removal requires consent from a specific shareholder
- conditions that must be met before a director can be removed
Once in place, these rules take priority over the Companies Act.
In such cases, a majority vote alone may not be enough to remove a director. Any attempt to remove a director must comply with the specific terms set out in the Shareholders’ Agreement and Constitution, or the company may be exposed to legal disputes.
Case study: Enforceability of customised provisions in SHA
WHL Creations Sdn Bhd v. Asia Metro Marketing Sdn Bhd
In this case, the majority shareholder exercised his voting power to remove a director who was also a shareholder and co-founder of the company.
However, the court reinstated the director, ruling that the removal breached the Shareholders’ Agreement (SHA).
The SHA clearly stated:
“Subject to the terms of this Agreement, each Shareholder to this Agreement will be a director of the Company.”
The term “Shareholder” included the removed director. The court emphasised that the SHA was intended to preserve the rights
of the founders, especially minority shareholders, and found that the removal contradicted that intent.
The court noted: “After all, a shareholders agreement typically aims to protect the minority shareholders and prevents the majority shareholder from riding roughshod over the minority.”
Final thoughts
When it comes to director rights and board control, it’s best to ensure your Shareholders’ Agreement and Constitution are aligned with company intentions from the outset and reviewed as the business grows.
If these issues haven’t been addressed in your current setup, it may be the right time to consider putting the proper structure in place, and we would be glad to be of assistance.
