Question

A, B, C and D are the directors of AK Bhd (the company). They were appointed as directors two years ago. C is the managing director of the company. Two weeks ago, C, who is now 71 years old, entered into a contract on behalf of the company to purchase office stationery from the company supplier, Omos Sdn Bhd, at a price of RM100,000. Last week, following an argument among the directors at a board meeting, B, C and D decided to remove A as a director. A notice signed by B, C and D was sent to A stating that A had been removed as a director with immediate effect.

Advise C and A, who wishes to know the following:

(a) Persons disqualified from being a director.

(b) Whether the contract for the purchase of office stationery can be invalidated on the claim that C was “disqualified to act as a director” of the company.

(c) Whether the removal of A as a director is valid.

Answer 1

ANSWER :

{a} Persons disqualified from being a director :

According to the companies act the following category of persons are expressly ineligible to be company directors :

1] Juristic persons, ie companies,corporations,trust ect.

2] Persons who have not attained the age of majority ie "minors".

3] Person suffering from some legal disability.

4] Person who does not satisfy the minimum requirement mentioned in the memorandum if any.

5] Person disqualified in terms of any other additional ground of ineligibility as mentioned in companies memorandum if any.

Apart from the above mentioned reasons a person may be disqualified from being a director if :

• A person has been prohibited by a court from being a director.
• A person has been declared delinquent by a court.
• A person has been considered insolvent.
• A person who has been removed from an office of trust on grounds of misconduct involving dishonesty ect.

{b} case study :

• Here in this question C one of the directors have entered into an contract on behalf of the company to purchase office stationary from the company supplier Omos Sdn Bhd for 100,000.
• Later he was removed as a director by giving a notice signed by the other directors.
• Here the question is that whether the contact entered by the removed director is valid or not.
• The supplier at the time of entering into the contract does not know that C the person with whom the contract has been entered is removed as director.
• He has entered into the contract in good faith.
• So the contract cannot be invalidated on the ground that C has been removed as a director ,as the supplier has entered into the contract in good faith.

So the contract for purchase of office stationary cannot be invalidated on the claim that C was disqualified to act as a director of a company.

{c} Removal of a director :

The following is the procedure for removal of a director :

1] Prepare notice of board meeting along with the draft resoluting to be passed in the board meeting.

2] Company should give intimation to the concern director about his removal.

3] Sending of notice along with agenda of board meeting to all directors of company.

4] Conduct board meeting and pass resolution for removal of directors and issue notice of general meeting to the members of company.

5] Sending the general meeting notice to all members atleast 14 days before the conduct of general meeting along with the special intention of removal of the director.

6] Holding of general meeting ,allowing the removing director to be heard and speak. Passing of ordinary resolution if it seems just and equitable.

7] Preparation of documents for removal of director,and intimation to concerned departments.

• So all the above steps must be followed in order to remove a director from the company.
• Here in this case the other directors ie B,C and D have decided to remove the director A due to an argument at the board meeting,and they have issued an notice signed by the other directors for removal of A as an director with immediate effect.
• So here the other directors have not followed the steps to remove A.
• They have not even given A an oppurtunity to be heard and speak.
• A director should be given an oppurtunity to be heard before his removal as director.
• so from all the above points it is clear that removal of A as a director is NOT VALID.