Was removal valid? Managing director lost access to financial records
The General Division of Singapore's High Court recently dealt with a dispute between a managing director and his company regarding inspection of company records.
The managing director sought to inspect company records under Section 199 of the Companies Act 1967, which the court noted gives directors "an almost-presumptive right to inspect the documents of a company."
The managing director discovered his access to company accounts and human resource folders had been blocked, then only partially restored. He claimed he could not properly discharge his duties without full access to these records, which he needed to determine the company's financial position and verify documents presented to a potential investor.
The company maintained the managing director had no standing to pursue the application because he had been validly removed as a director. This central question—whether his removal followed proper procedure under the company's Articles of Association—formed the basis of the court's decision.
The managing director found in July 2024 that his access to company accounts and human resource folders had been blocked. Though partially restored in September, he claimed this limited access prevented him from fulfilling his responsibilities.
He owned 30% of company shares and had served as director since April 2018, becoming managing director in July 2018.
The company stated they had restricted the managing director's access because his duties had been reduced due to alleged misconduct. They claimed he had been "absent from the office during office hours since May 2024" and had "failed to perform his duties in relation to various construction projects."
On 18 October 2024, the company's board of directors (except the managing director) signed a resolution terminating his employment as managing director. At an Extraordinary General Meeting (EGM) on 1 November 2024, shareholders representing 69.2% of those present voted to remove him as director. Only the managing director himself voted against the resolution.
The case hinged on interpreting the company's Articles of Association, specifically Articles 72(a) and 74, which provided two different methods for removing directors.
Article 72(a) allowed members holding at least 75% of voting rights to remove a director through written notice without a meeting. Article 74 stated: "The Company in a General Meeting may appoint any person to be a Director for such term as may be resolved or may remove any existing Director and may by an Ordinary Resolution appoint another person in his stead."
The managing director argued his removal required a special resolution (75% majority) because the words "Ordinary Resolution" in Article 74 only appeared before the phrase about appointing a replacement. He maintained both provisions should be interpreted consistently, requiring the same 75% threshold regardless of removal method.
The managing director contended it would be "incongruous for Article 72(a) of the Articles to impose the [75% requirement] for the removal of a director via a 'notice in writing', but that the removal of a director in a General Meeting under Article 74 merely needs to fulfil a simple majority with an ordinary resolution."
The court disagreed with this interpretation, finding that "the positioning of the words 'Ordinary Resolution' in Article 74 is a result of poor drafting rather than a deliberate decision to apply two different requirements within the same provision." The judge determined that the Articles established two different methods with different thresholds.
The court explained: "by providing for two different methods of appointment, removal and replacement of directors... the Company and its members objectively intended for two different thresholds to apply depending on whether the appointment, removal or replacement is done via a written notice or via a General Meeting convened physically."
Different thresholds made commercial sense because each removal method had different procedural safeguards. For written notice under Article 72(a), a higher threshold was appropriate because "it is relatively easy for a member of the Company to provide notice in writing to remove a director."
General meetings, however, already had built-in protections. The court noted: "First, there is a minimum notice requirement under Article 48 of the Articles for the convening of a General Meeting. Second, Article 50(a) of the Articles provides that no business shall be transacted at a General Meeting unless there is a quorum of members present."
The court rejected the managing director's interpretation as it would create an inconsistency where "a special resolution is required to remove a director, but an ordinary resolution is sufficient to appoint his replacement." The judge found this would lead to "an absurd result that doesn't make commercial sense."
Having determined an ordinary resolution was sufficient under Article 74, the court concluded the managing director's removal was valid. The judge stated: "[The managing director's] removal as a director was valid and he does not have standing to pursue this Application."
Without director status, he had no right to inspect company records under Section 199 of the Companies Act. The court declined to address claims about unfair treatment or alleged misconduct, noting: "As for [the managing director's] other allegations pertaining to the Company's unfair treatment of him, and the Company's counter-allegations of [the managing director's] purported misconduct, I make no findings on these matters given my decision above."
Section 152(9) of the Companies Act further supported this conclusion, stating that "subject to any provision to the contrary in the constitution, a private company may by ordinary resolution remove a director before the expiration of his or her period of office." With no clear requirement for a special resolution in the Articles, an ordinary resolution sufficed.
