IN his speech to the US House of Congress in 1951, General Douglas MacArthur famously said, “Old soldiers never die, they just fade away.” This week, we take a look at the Companies Act 2016, which puts a twist on that saying to suggest that old directors never leave, they just stay put for as long as they can.
The Companies Act 2016, which is now in force, is essentially a “new and improved” version of the Companies Act of 1965.
Of particular interest is the discussion about the 70-year age limit for directors that used to be a statutory requirement under the old Act.
With the Companies Act 2016, there is no longer an age limit for directors. What this means is that directors over the age of 70 can now technically serve until they retire, are removed or expire naturally.
The more astute company secretaries are discussing the issue as there are a few directors who were, in 2016, “re-appointed to hold office until the conclusion of the next AGM”, under Section 129 of the Act. The discussion focuses on what was agreed upon at the last AGM, which was held under the previous Companies Act. Under Section 129 (Companies Act 1965), their term is only for another year up to the next AGM. (Under the old Act, directors aged 70 and above have to offer themselves for re-appointment every year).
Now, here comes the thought process and discussion that is filtering its way through the investment circles. With the abolishment of Section 129, the directors technically have to offer themselves for re-appointment in 2017, as their term would end at the conclusion of the 2017 AGM. If they are re-appointed in 2017, then their tenure will now go on until they are up next for retirement by rotation, which is once every three years.
Interestingly, Public Bank Bhd’s AGM notice for 2017 shows that the chairman has offered himself for re-election (re-election applies to directors who retire by rotation). The speculation surrounding this fact is that it must be the chairman’s turn to be up for retirement.
However, LPI Capital Bhd’s AGM notice did not reflect that the co-chairman is offering himself for re-appointment or re-election. The market was speculating that this could indicate that he may step down at the end of the AGM, although there are also no statements or notices suggesting that. And indeed, at the AGM on Tuesday, nothing was mentioned regarding the co-chairman. Is he still a director or has he retired? Even the watch group did not raise this.
To this end, there are certain quarters who are watching these upcoming AGMs to see if any companies have chosen to ignore the “term of 1 year” under Section 129, and take it that since Section 129 is now abolished, directors can just continue to serve an unlimited tenure. The question that needs to be asked is: if no one questions the absence of a re-appointment at the end of the term, or if the authorities take no action, will his continuation as “director” be valid?
Another case is Cypark Resources Bhd, where the chairman and two other directors are aged 78, 77 and 79, respectively. They were all re-appointed under Section 129 last year to hold office until the conclusion of the next AGM (to be held in 2017). Similar to LPI Capital in this year’s AGM, these directors are not offering themselves for re-appointment.
If Section 129 follows that concept of annual re-appointment for directors aged 70, then these directors should be re-appointed this year to continue in office without fixed tenure. The following year, they should join the pool when the company decides on which directors are due to retire by rotation.
One of the burning questions we are now clearly forced to ask:
Are these companies’ advisors taking the easy way out?
Or are the big bosses happy to interpret the new law to mean that Section 129 no longer applies in 2017 and, therefore, whatever was agreed upon by shareholders before 2017 can also be ignored?
We believe that it would be appropriate to follow the decision of the last AGM, whereby the directors aged 70 were appointed for a fixed term that ends at the conclusion of the next AGM. Are we to accept that the shareholders’ votes are no longer deemed important? That would certainly be the implication if the companies decide to simply ignore the shareholders’ votes for the directors to serve for a stipulated time period.
Something simply doesn’t seem to add up. Company directors cannot arbitrarily interpret the law to suit their own interests, while marginalising the shareholders who, by right, have the final say.
© CORSTON-SMITH ASSET MANAGEMENT SDN BHD 2014