A Brief Note on Removal of Directors under Hong Kong law and Australian law

/ 04:47 PM/ Blog News/ 0 comments

There are a lot of reasons why a director is removed from his office. These include his incompetence, his relationship with his peers and other colleagues of the company, and sometimes misconducts such as breach of fiduciary duties etc.

Generally, only shareholders can remove a director, the reason being that directors are considered as quasi-agents for the company or the shareholders as a whole and it is therefore axiomatic that only the shareholders as the principals should be entitled to fire him.

For shareholders to remove a director they are not required to provide any reason.

In Hong Kong, the relevant law is contained in s.462 of the Companies Ordinance which provides a director can be removed by an ordinary resolution passed at a general meeting of shareholders, and this is so notwithstanding any contrary provisions in the articles of the company or any agreement between the director and the company. Section 462 is applicable to both private companies or listed companies. However, s.463 gives the director a right to be heard at the general meeting, and he is entitled to make a written representation to be circulated to shareholders before the meeting.

In Australia, the law is a bit relaxed and flexible, and it differentiates between a private company and a listed company. As far as a listed company is concerned, the position is more or less the same as that of Hong Kong where section 203D(1) of the Corporations Act provides that a director of a public company can only be removed by shareholders and a director is also given the right to be heard and make written representation. If the company is a private company, however,  s.203C empowers the company to provide by its constitution that a company may remove a director by either a resolution of shareholders or the board.

More often than not, shareholders or at least substantial shareholders of a private company would have proportionate representation on the board. If the majority of the board members resolves that a particular director be removed the same result can likely be achieved at its shareholder meeting. This however may not necessarily be the case of a listed company. Therefore, it seems that by differentiating between private companies and public companies,  the Australian law provides more freedom and flexibility to private companies which can save the time and costs for holding a shareholder meeting where the same resolution as that passed by the board is likely to be passed.


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