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Case Update: Company does not have power to suspend its directors

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15 July 2021

COMPANY LAW
Directors – Court Declaration – Whether company could suspend its directors – Effect in law of exclusion of directors from Board Meeting on the Board’s decisions – Exclusion was not deliberate or intentional – Mere irregularity – Companies Act 2016, Section 211 – Interpretation Act 1967, Section 2

Dato’ Shun Leong Kwong & Anor v Menang Corporation (M) Bhd & Ors
[2021] MLJU 870, High Court
- see the grounds of judgment here

Facts Dato’ Shun Leong Kwong and Marianna binti Aly Shun (collectively referred to as “Plaintiffs”) were two directors out of a total of nine directors in Menang Corporation, a company listed on Bursa Malaysia (“1st Defendant”). Pursuant to a due diligence exercise conducted on the 1st Defendant which showed irregularities on the part of the Plaintiffs, a director’s written resolution was passed to suspend the Plaintiffs from exercising their duties and functions as directors of the 1st Defendant. On 22 February 2021, a Notice of Requisition for an Extraordinary General Meeting (“EGM”) was issued by two shareholders of the 1st Defendant to move the resolution to remove the Plaintiffs as directors of the 1st Defendant. On 25 February 2021, a virtual Board Meeting (“the Board Meeting”) was held whereby the date for the EGM which was requisitioned by the two shareholders was fixed on 30 March 2021. Notice of the Board Meeting and a Microsoft Teams link was given to the Plaintiffs prior to the Board Meeting. However, the particular Microsoft Teams link was not used for the Board Meeting. As a result, the Plaintiffs were not able to attend the Board Meeting. On 16 March 2021, a Directors’ Circular Resolution (“DCR”) of the 1st Defendant was issued to ratify, confirm, accept and/or approve the decisions made by the Board during the Board Meeting. The Plaintiffs did not sign the DCR. On 18 March 2021, the DCR was approved by seven out of the nine directors of the 1st Defendant and the resolutions contained therein were carried out. The Plaintiffs filed court proceedings, among others, to seek declarations (i) that their suspension as directors of the 1st Defendant is null and void; and (ii) that their exclusion from the Board Meeting is unlawful thereby rendering all and any decisions made during the Board Meeting including the decision to call for the EGM null and void in law.

Issues The main issues are (i) whether the 1st Defendant company could suspend the Plaintiffs as directors; and (ii) whether the other directors had deliberately or intentionally excluded the Plaintiffs from the Board meeting.

Held The High Court held that the suspension of the Plaintiffs as directors of the 1st Defendant is null and void because neither the Companies Act 2016 (“CA 2016”) nor the 1st Defendant’s Company Constitution provide for any express or implied power for the company to suspend its directors. The wording of Section 211 of CA 2016, which sets out the Board’s power to manage the business and affairs of the company cannot be stretched to include the power to suspend directors. Section 2 of the Interpretation Act 1967 (“IA 1967”) similarly does not assist the interpretation of the Company’s Constitution because it applies only to written law and since CA 2016 does not make it mandatory for a company to have a constitution, constitutions established under CA 2016 regime does fall within the IA 1967. On the issue of exclusion of the Plaintiffs from the Board Meeting, it was a pure question of facts. The Court held that the exclusion was not deliberate or intentional. Therefore, the exclusion was a mere irregularity capable of being ratified by the directors subsequently. The irregularity in the Board Meeting was validly ratified by the issuance of the DCR to the Plaintiffs.

ZUL RAFIQUE & partners
{15 July 2021}

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