In this article, we shall discuss the possibilities for director’s vacant office. In addition to this, necessary decorum and set of rules for holding a board meeting will be discussed.
Freezing of Directorial Services
In the following conditions, director will cease to operate in its directorial capacity, if:
Insolvency of Board
Possibility exists where whole board of director gets retired and thus board becomes insolvent. Such situation may arise in the situation where, company’s article has the provision to retire all board members after every specified time frame. If there is no Annual General Meeting in this situation then board will be considered insolvent and company would not have any board member.
Removal by Board
If company’s articles allow, then board may request the resignation of their fellow director in written form and the subjected director is supposed to resign on such written request. Merely because there is the probability that board may have wrote this request in bad faith, then factually this argument is not enough to question the validity of the written request.
Members prerogative to remove any director(s)
Section 462 of Cap.622 permits member to terminate the services of any director(s) through an ordinary resolution in the condition where the said director(s) is not complying with company’s constitution and their agreement with the company. It must be noted that, this Section 462 does not apply to the directors of private companies, even if they hold office for life.
It is noted that past practices involved the mechanism where director has the shares in company, he or she carries greater number of votes, merely to entrench director. But Section 462 (7) of Cap.622 abolished this and made voting rights of director as equal to others vote, for the matters involving removal of any director(s) in general meeting.
For the resolution regarding removal of director, a Special notice should be issued to call a meeting for such agenda. It must be noted that, the replacement should be appointed in the same meeting in which former director is removed from his or her position. As soon as the company receives such a notice to put forward the resolution for removal of director, copy of this notice must be sent to the concerned director and his or her narrative should be heard in the meeting.
Terminated directed reserves the right to seek for damages and compensation if he or she is removed from the position of director before the end of his or her entitled period of appointment. There is the need to understand that, damages or compensation will only be awarded if there exists the legal contract between the director and company with having period of service mentioned and if the concerned director is removed from his or her before the completion of his or her entitled term. Otherwise, if any such contract between the director and the company does not exists then the concerned person cannot be held liable for seeking damages and compensation.
Legislation provides the way for exception handling and as in the comments of Justice Harris in Re Mandarin Capital Advisory ltd states: there is the way out for directors who are an appointee of shareholder or a shareholder itself, as it is very uncommon that establishment of understanding exists between the shareholder and the company to appoint their director to have a scrutiny over their invested money in company. Harris J communicated that removal of such directors will be seen as breach of agreement clauses and proceedings as per Section 724-725 could be initiated against the breaching authority.
In another case of Lo Sui Lin circumstances reported of the situation where general meeting requested to grant an order to proceed for the removal of director , this case took a dramatic turn when it was found that minority shareholders of the company including the director who was the defendant in Lo Sui Lin has already put forward a petition to grant order to windup the company on equitable and just basis. It was noted that majority shareholder as per an informal agreement never took part in company’s managerial affairs for the past 28 years. Noting the facts presented in this case, Deputy Judge Le Pichon denied granting orders as per Section 570 of Cap. 622 as he believes that it will be unjust to give an order to impeach a director, where the petition to wind up company is still pending.
Where the articles of the company allow for any alternative procedure to remove director, members can use that alternative, provided that, alternative does not harm the basics of Section 462(1) of Cap.622. As per the Section 462(3) of Cap.622:
“Even though there is provision to adopt any alternative for removal of director as mentioned in company’s articles, procedural requirements as mentioned in Section 462-463 stills remains applicable such as requirements for a special notice, damages for before the term removal of director and restrictions on weighted voting rights.”
Despite out of term removal, director can resign any time provided the company’s article and his or her agreement with the company authorises this resignation. This resignation would not be considered effective unless it reaches the registered office of the company either by post or in person, demands Hong Kong company registration service.
It is the requirement, of the Hong Kong company registration service, to notify the Registrar office about any change in company’s board and pursuant to the Section 641 of Cap.622, company’s register of directors must also be updated with said change in company’s board of directors.
Rules on calling Meetings of Company’s Board of Directors
Board meetings are called to discuss the issues of corporate operations and adopt the unanimous strategy to deal with corporate challenges. So, it is required for board to act unanimously rather not on individuality, where one director acts for the company and imposes his or her decisions over the decisions of majority. As per the model articles, any director may call the board meetings prior to the issuance of notice to all the directors through company secretary Hong Kong.
For company secretary Hong Kong, it is mandatory to give notice to all the directors as well as all the alternate directors so that they may attend the meeting in case his or her appointor would not be attending the notified meeting. Model Articles does not bound this notice to be in written format.
Where the company’s article specifies time period between the subsequent board meetings, then compliance with such time period is mandatory and failure may result in ineffectiveness of company’s board meetings.
Reasonableness of the Notice
Another important rule in issuing notice is the timing of notice. It is normally called as “Reasonableness of the Notice” and it is measured against the time, notice is issued. For instance, where the company’s director is just five minutes away then notifying ten minutes before the meeting would be considered reasonable but where the director is 1 or few hours away then in such scenario any such notice would not be considered “reasonable”. There can be an abuse in this matter too where short notice is served to make any director deprive from his or her right to attend corporate meetings and take part in decision making process of the company. If the evidence reports of such short notice where one or more directors were intentionally made deprived of their right, then in the presence of such evidences, meeting pursuant to this short notice will be considered invalid and decisions made in this meeting held no legal sanctity.
Composition of Call Notice
As per the Model Articles it is mandatory to mention the meeting time, date and place in call notice for the board meeting. It is generally not required to mention the agenda of the meeting or any specific business that deems to be transacted in the notified meeting. Legal Commentators believes that subject and agenda of the meeting should be mentioned in the call notice as possibility exists that any director may miss the meeting for any reason and if any resolution is passed which should not be passed without the absence of those absent director(s). So, to avoid this condition and to let the directors know in advance the agenda of the meeting then this would add some bonus points to the reasonableness of the notice.
If any director is out of personal reach or board has permitted him or her to remain absent from the board’s meeting, then sending notice to such an exempted director would not be necessary as it has already been established that he or she would not attend the meeting. As per the Table A, Regulation 100 (repealed) it is unnecessary to send call notice to the director, who is overseas. But as of today, it is not a difficult task to send notice to anyone, stationed anywhere, So Model Articles for starting a business in Hong Kong did not reproduce Table A, Regulation 100 (repealed).
Quorum of the Board Meeting
As per the Model Articles, standard quorum for the board meeting is two or any numeric value as determined by company’s directors. But, where the agenda involves the matter in which any directors has personal interest conflict of interest exists then that director would not come in the counting to identify meeting’s quorum. If company’s articles permit, then alternate directors may also be counted.
Appointment of Meeting’s Chairperson
As per the provisions in Model Articles, board may elect any of its member as chairperson for the meetings. For the situation where company’s chairperson or deputy chairperson does not attend the meeting within 10 minutes of mentioned meeting time on the call notice then in this situation, present directors can choose anyone from the present directors to chair the meeting.
As per the Model Articles, board can decide for the fate of every presented resolution through voting and resolution will be considered passed, if majority votes for it. While for the condition where votes get equal that is both the affirmers and negaters established the situation of tie, then chairperson could vote to decide and solve the matter. It must be noted that as the directors having interest in proposed resolution would not be allowed to vote.
Recording Meeting’s Minutes
All proceeding of the board meeting must be recorded and record be kept for 10 years with effect from the date of meeting. Violation of this recording obligation will be considered as an offence. Director may inspect proceedings of the meetings however, members cannot inspect but pursuant to the Section 740 of Cap.622, they may seek court for inspection. To authorise and give proceedings of the meeting a legal status, minutes must be signed by chairperson of the meeting as to make evident that proceedings reserves a legal sanctity for the purpose of starting a business in Hong Kong.
If the proceedings of the meeting, as minutes depicts, are found to be contradictory to the prescribed instructions in company’s constitution or law, then such meeting could be held invalid. However, there is the possibility where taking the help of unanimous consent doctrine and irregularity principle, probability of irregularity be ruled out and meeting’s proceedings may be called valid.
If company’s articles ignore the procedural irregularity, then such procedural irregularity won’t affect the decisions of the meetings and would stand valid. If director is not given the notice of meeting and within 7 days of meeting proceedings, director can give company a notice to waive his or her entitlement. Meeting would stand valid, if such waiver exists.
Decisions of Board and Irregularity Principle
Irregularity Principle states decision of the board valid, if there is sufficient evidence of the fact that, decision won’t be different if there has been the avoidance of procedural irregularity, says comments of Le Pichon J in Peter H Yip’s case.
Irregularity Principle also negates the possibility of its application, where irregularity is cure-able and thus rejects the possibility of relief in such cases. However, it is observed that, Irregularity Principle does not proves to be much valuable to board meetings than its application on members meetings, due to narrower scope of it for board meeting.