Directors are central to the management of a company in Malaysia, carrying both fiduciary and statutory duties under the Companies Act 2016. However, there are times when a director may no longer remain in office, whether by choice or by the decision of shareholders. The two most common ways this happens are through resignation and removal. While both result in a director leaving office, the legal processes and implications are quite different.

A director’s resignation is a voluntary act. Under the Companies Act 2016, a director may resign by giving notice in writing in accordance with the company’s constitution. In most cases, the resignation takes effect upon receipt of the notice by the board or on the specified date stated in the notice. Resignation is relatively straightforward, but it does not absolve the director of liability for actions taken while in office. For example, a director who approved wrongful transactions before resigning may still face legal consequences even after leaving the board.

By contrast, removal of a director is initiated by the shareholders. Section 206 of the Companies Act 2016 gives shareholders the power to remove a director by ordinary resolution, notwithstanding anything in the constitution or in an agreement with the director. This ensures that directors remain accountable to shareholders, even if they do not wish to step down voluntarily. However, the process must follow proper procedure. Notice of the proposed resolution must be given in advance, and the director concerned has the right to be heard before the resolution is put to vote.

The removal process is often more contentious than resignation. Directors may resist removal, especially if there are disputes among shareholders. In such cases, the outcome usually depends on the voting power of different shareholder groups. For minority shareholders, the ability to remove directors is limited unless they have special contractual rights under a shareholders’ agreement. For majority shareholders, removal is a powerful tool to protect the company from directors who are negligent, conflicted, or acting against the company’s interests.

It is also important to note that removal may have contractual implications. If the director also serves under an employment contract, termination of directorship may amount to a breach of contract unless handled carefully. Companies must therefore ensure that both corporate and employment law aspects are addressed to avoid unnecessary litigation or claims for compensation.

For directors, both resignation and removal carry reputational and legal consequences. Resignation may be seen as a professional choice, often due to personal reasons or disagreements over strategy. Removal, on the other hand, may signal a loss of shareholder confidence or dissatisfaction with performance. Either way, directors remain accountable for their conduct during their tenure and may still face claims or investigations even after leaving office.

In conclusion, the departure of a director—whether through resignation or removal—must be handled in accordance with the Companies Act 2016 and the company’s constitution. Companies should seek legal advice to ensure proper procedure is followed, while directors should understand their rights and responsibilities when stepping down or being removed. By managing the process correctly, companies can avoid disputes and maintain stability in their corporate governance.

Written by Lawyer Khoo, Ng, Zainurul, Seke & Khoo