PUTRAJAYA (April 1): In what is being held as a landmark decision, the Court of Appeal unanimously ruled that company directors who are eligible for re-election, cannot be automatically retired without holding an annual general meeting (AGM), even if the directorship timeframe has lapsed.

The ruling by judge Datuk Mohd Nazlan Mohd Ghazali, together with Datuk P Ravinthran and Datuk Dr Choo Kah Sing, clarified the legal position on director retirement in absence of an AGM due to external circumstances.

The external circumstance was a court injunction, in the case of the appeal filed by Datuk Seri Andrew Kam Tai Yeow against five companies that deemed he had automatically retired without an AGM. The five companies are Grandfoods Sdn Bhd, Granny’s Kitchen Sdn Bhd, Lead Enterprises Sdn Bhd, Raub Mining & Development Company Sdn Bhd, and Raub Oil Mill Sdn Bhd.

“The retirement of directors, particularly by way of rotation, is inextricably intertwined with their eligibility for re-election,” said Mohd Nazlan in a 45-page judgement, which overturned a High Court decision which had ruled that Kam was automatically retired due to the lapse of time, even though no AGM was held.

The bench noted that neither the Companies Act 2016, nor the companies’ Articles of Association, had said that the non-convening of an AGM to be grounds for automatic retirement. 

As a re-election can only happen if an AGM is convened, allowing automatic retirement just because the timing to hold an AGM had lapsed alone, would rob the director of the right to seek re-election, and the shareholders’ right to vote for or against it.

“In that sense, the retirement and re-election are intertwined and are but a single process at the general meeting. This is where the directors concerned retire at the end of the meeting but whose re-election, if voted for at the meeting, takes effect upon the conclusion of the same meeting. 

“This is an important aspect of shareholder democracy in modern company law, which did not appear to feature in any substantive fashion in the submissions of counsel for parties before us,” Mohd Nazlan said. 

Therefore, the Court of Appeal surmised that the High Court had erred in allowing the respondents declaration that Kam had automatically retired and vacated his office as a director of the five companies, and said the High Court’s ruling cannot be sustained.

The full judgement can be read here.