Practical Considerations for Removal of Company Directors in Hong Kong
Today we go through some practical considerations for the removal of company directors in Hong Kong.
Shareholders of a Hong Kong private company may remove a director without cause in accordance with the requirements set out in the Companies Ordinance (Cap. 622) (the “CO”). This is usually triggered when an amicable handshake is impossible and the director is not willing to tender a resignation.
It is for this reason the procedural requirements are set out in sections 462 and 463 of the CO must be observed:
A director may be removed in a general meeting by an ordinary resolution of shareholders prior to the expiration of his/her term of office. Ordinary resolution of the shareholders means a resolution that is passed by a simple majority of the shareholders present at the meeting. The ordinary resolution must be passed in a general meeting and not by way of a written resolution of the shareholders.
Any shareholder proposing the removal of a director must first give a “special notice” notifying the company of the proposed resolution to remove a director. The special notice must be given by a shareholder to the company at least 28 days before the general meeting.
A general meeting should be called by the Board by giving the shareholders at least 14 days’ notice.
The director being removed may make written representations in relation to the proposed removal and require them to be circulated to the shareholders of the company or read out at the general meeting itself. The director is also entitled to be heard at the meeting.
The removal of a director is not to be considered as depriving the director of any compensation or damages which may be due and payable (e such as payment of damages for breach of a service contract with the director).
In practice, companies normally require an outgoing director to sign a formal letter of resignation. It is often stipulated within the resignation letter that the director does not have any claim or demand whatsoever whether present or future, actual or contingent against the company whether in respect of compensation for loss of office, unpaid fees or otherwise.
However, it may be the case where the removal of the director is contentious, therefore obtaining this waiver or resignation letter may not be possible – this is where shareholders should rely upon the statutory procedures stated within sections 462 and 463 of the CO.
In both instances, an ND2A (Notice of Change of Company Secretary and Director (Appointment / Cessation) form should be signed by the Company Secretary or director, and filed into the Companies Registry within 14 days after the intended resignation date of the director.
Alternatively, a ND4 (Notice of Resignation of Company Secretary and Director) form can be signed by the resigning director and filed into the Companies Registry by the resigning director, if the resigning director has reasonable grounds for believing that the company will not deliver a ND2A form for filing into the Companies Registry.
Reasons required for removal?
In Re Mount Oscar Ltd (2019), the applicant disputed his removal on the grounds that he was not given reasons for his removal. The applicant was a director of the respondent company. The company had removed the applicant as a director by way of an ordinary resolution passed at a general meeting. The applicant appealed for a declaration that the resolution was invalid on the grounds that he had been given no reasons for the proposal to remove him as a director. The director concerned argued that he had the right to be informed of the reasons for removal so that he could make representations in a meaningful manner. The Court of Appeal dismissed the appeal and was of the view that it was not the legislative intent for directors to be given reasons for their removal under section 462 of the CO.
The Court stated that the protection given to the concerned director in section 463 were already sufficient, given that the concerned director is entitled to make written representations and be heard on the resolution at the meeting at which the resolution is voted on.
There are some specific procedural requirements that must be followed before the ordinary resolution for removing the director can be presented in the general meeting and voted on.
As set out in Re Mount Oscar Ltd, the Court restated that the procedural protection given by sections 462 and 463 of the CO to directors is “to prevent a director from being deprived of an office of profit on a snap vote and without having had a full opportunity of stating the contrary case” (paragraph 26) and no further protection is offered by the CO. If the legislature intended to provide further protection, it would have been mentioned expressly in it.
The procedural protection set out in sections 462 and 463 of the CO is to allow affected directors to make representations and to state their case, but it does not go further to provide protection of requiring reasons to be given for their removal.