Removed as a Director or Shareholder Without Your Knowledge? What to Do in Malaysia

How can a director lawfully be removed?

Under section 206 of the Companies Act 2016, a director of a private company may be removed in accordance with the constitution, usually by an ordinary resolution of the shareholders. For a public company, removal is by ordinary resolution at a meeting with special notice, whatever the constitution says.

The point to note is that removal is a decision of the shareholders. Unless the constitution provides otherwise, the remaining directors cannot remove a fellow director by a board resolution. A resolution that was never properly passed, was passed at a meeting you were not notified of, or carries a forged signature, does not lawfully remove you, even if the change has been lodged with SSM.

Once a change in directors occurs, the company must notify the Registrar within 14 days under section 58. That notification is usually lodged by the company secretary, so the secretary is often the first person to ask for the documents relied on. For the normal removal process, see How to Remove a Director in Malaysia.

How can my shares be transferred without my consent?

They should not be. Section 105 requires a proper instrument of transfer before a transfer of shares can be registered, and section 106 sets out how the company must register or refuse a transfer. Shares can also pass by operation of law, for example on death or bankruptcy.

Disputes arise when a transfer form is signed under pressure, signed in blank and later completed by someone else, or forged, or when new shares are allotted to others so that your percentage falls without any transfer at all. Dilution through a new allotment is a different problem, discussed in How to Stop a Share Issue Diluting Your Stake.

What should I do as soon as I find out?

Speed matters, because the new controllers may change bank mandates, move assets or allot shares. We usually advise clients to:

• obtain the company’s current information and the relevant lodgement records from SSM;
• write to the company and the company secretary demanding copies of the resolutions, minutes, notices and forms relied on;
• notify the company’s bank in writing that the change is disputed;
• make a police report if your signature appears on a document you did not sign;
• preserve your own records, such as emails, messages, share certificates and earlier minutes;
• avoid signing anything, including a resignation letter, until you have taken advice.

Can SSM correct its records?

Section 602 allows the Registrar to rectify the register where an entry is contrary to law, contains a material false or misleading statement, is incomplete because of an omission or misdescription, or is incorrect. An application is made in the prescribed form with supporting documents and a fee.

There is an important limitation. Under SSM’s practice notes, where the applicant is not the person who made the original lodgement, SSM may decline to rectify unless the application is supported by a court order. A director who has been removed without notice usually did not lodge the disputed documents, so a court order is often needed. SSM’s decision may be appealed to the court, and a court order directing rectification is then lodged with SSM.

What can the court order?

Depending on the facts, the court may grant:

• a declaration that the purported resolution, removal or transfer is invalid;
• an interim injunction restraining the newly recorded directors from acting, operating the bank accounts or disposing of assets until the dispute is decided;
• an order under section 103 that the register of members be rectified where a name has been wrongly entered or omitted, with compensation for loss payable by the company or the officer responsible;
• an order directing SSM’s records to be rectified;
• where the conduct is part of a wider pattern of unfair treatment, relief for oppression under section 346.

Interim injunctions require prompt action and full disclosure to the court. Delay can be treated as a sign that the matter is not urgent.

Is it a crime to lodge false information with SSM?

Yes. The Companies Act 2016 makes it an offence to make false or misleading statements, including in documents lodged with the Registrar, and section 593 deals with false reports and statements to the Registrar. Reported cases indicate penalties of up to 10 years’ imprisonment, a fine of up to RM3 million, or both. Forging a signature may also be an offence under the Penal Code.

A police report or a complaint to SSM does not by itself restore your position. The civil remedies above are what reverse the change, and the two routes are usually pursued together.

How can directors and shareholders protect themselves?

Simple safeguards make unauthorised changes much harder:

• check the company’s SSM information regularly, particularly during a dispute;
• never sign blank or undated transfer forms or resignation letters;
• keep your own copies of share certificates, the constitution and signed minutes;
• include in the shareholders’ agreement a right to appoint a director and a requirement for unanimous consent to changes in the board;
• use a company secretary you trust and require written confirmation of every lodgement.

For the wider picture, see Shareholder Disputes in Malaysia: A Practical Guide.