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Introduction
Every director understands that stepping down should generally be a straightforward process--submit your resignation notice, receive acknowledgement from the board, formally exit, and move on. But what happens when the lines blur between being in and out?
The following reported case serves as a clear reminder that poorly managed resignations can lead to prolonged legal
complications.
Every director understands that stepping down should generally be a straightforward process--submit your resignation notice, receive acknowledgement from the board, formally exit, and move on. But what happens when the lines blur between being in and out?
The following reported case serves as a clear reminder that poorly managed resignations can lead to prolonged legal
complications.
The Case of Bhavin Rashmi Mehta v Chetan Mehta and others [2023] SGHC(A) 19
Background
A jewellery company (the “Company”) was led by a five-person board, including Mr. B, Mr. C, Mr. S, and Mr. Q, and a fifth director, Mr. M (“the Board”). Both Mr. B and Mr. C were shareholders of the Company, and the Company was the majority shareholder with majority control over its subsidiaries.
In 2015 and in 2018, Mr. S had submitted two resignations respectively. Despite his supposed resignations, Mr. S continued operating as a director as if nothing had changed. He was still treated like a director by the Board and remained active in that capacity: he signed off on the Company’s documents, managed liquidation affairs, liaised with auditors, and even received directors’ fees—all without objection from the Board.
Dispute
This arrangement worked fine until 2021, when a boardroom dispute emerged. Mr. C proposed to sell a key property owned by one of the Company’s subsidiaries to an acquaintance. However, Mr. B objected. To push the sale forward, Mr. C convened meetings and prepared board resolutions to appoint himself as proxy and secure necessary voting rights.
Mr. B claimed he had not been consulted on the preparations of such documents. Subsequently, he received copies of the signed draft resolutions, constituting the requisite board majority for the resolutions to pass. Mr. B challenged the validity of the signed resolutions, arguing that Mr. S had no authority to vote upon the effective receipt of his resignations in 2015 and 2018.
Outcome
The High Court rejected Mr. B’s claim, stating that it was the Company—not Mr. B personally— that should have disputed Mr. S’s status as a director. There was also not enough evidence to show that Mr. S’s resignations had ever been acted upon.
The Court of Appeal confirmed the legal position that a director’s resignation may be withdrawn by mutual agreement, even after it has become effective, provided both the director and the company agree, whether explicitly or through their actions. Indeed, it was found that Mr. S had continued to act as a director and had been permitted to do so by signing audited accounts, receiving directors’ fees, and co-signing financial statements in the capacity of a director alongside other board members, including Mr. B.
Together, these actions indicated that there was mutual withdrawal of Mr. S’s resignation through conduct.
Background
A jewellery company (the “Company”) was led by a five-person board, including Mr. B, Mr. C, Mr. S, and Mr. Q, and a fifth director, Mr. M (“the Board”). Both Mr. B and Mr. C were shareholders of the Company, and the Company was the majority shareholder with majority control over its subsidiaries.
In 2015 and in 2018, Mr. S had submitted two resignations respectively. Despite his supposed resignations, Mr. S continued operating as a director as if nothing had changed. He was still treated like a director by the Board and remained active in that capacity: he signed off on the Company’s documents, managed liquidation affairs, liaised with auditors, and even received directors’ fees—all without objection from the Board.
Dispute
This arrangement worked fine until 2021, when a boardroom dispute emerged. Mr. C proposed to sell a key property owned by one of the Company’s subsidiaries to an acquaintance. However, Mr. B objected. To push the sale forward, Mr. C convened meetings and prepared board resolutions to appoint himself as proxy and secure necessary voting rights.
Mr. B claimed he had not been consulted on the preparations of such documents. Subsequently, he received copies of the signed draft resolutions, constituting the requisite board majority for the resolutions to pass. Mr. B challenged the validity of the signed resolutions, arguing that Mr. S had no authority to vote upon the effective receipt of his resignations in 2015 and 2018.
Outcome
The High Court rejected Mr. B’s claim, stating that it was the Company—not Mr. B personally— that should have disputed Mr. S’s status as a director. There was also not enough evidence to show that Mr. S’s resignations had ever been acted upon.
The Court of Appeal confirmed the legal position that a director’s resignation may be withdrawn by mutual agreement, even after it has become effective, provided both the director and the company agree, whether explicitly or through their actions. Indeed, it was found that Mr. S had continued to act as a director and had been permitted to do so by signing audited accounts, receiving directors’ fees, and co-signing financial statements in the capacity of a director alongside other board members, including Mr. B.
Together, these actions indicated that there was mutual withdrawal of Mr. S’s resignation through conduct.
Key Takeaways
To prevent the chaos that befell Mr. S and the Company, both directors and companies must commit to a clean, unambiguous resignation process pursuant to the laws of Singapore and the Company’s constitution. It is not sufficient for directors to merely submit written resignations with clear effective dates. They must also immediately cease all director activities—e.g. no signing documents, attending meetings, or collecting fees in the capacity of a director of the company.
Simultaneously, companies must formally acknowledge resignations in writing, update all records, prevent resigned directors from continuing any directorial functions, and ensure proper handovers to remaining board members.
The key is recognising that the law takes mutual consent through conduct as a consideration, not just the resignation letter as conclusive. Hence, if a director continues acting like a director and the company treats them as one, the resignation becomes legally meaningless, creating the exact legal uncertainty that can later expose all parties to unnecessary and costly disputes.
Conclusion
In a world where corporate governance failures can result in significant legal and financial consequences, half-measures and ambiguous actions can lead to expensive consequences. Companies must approach internal matters with precision, transparency and adherence to proper protocols to safeguard the interests of the company.
To prevent the chaos that befell Mr. S and the Company, both directors and companies must commit to a clean, unambiguous resignation process pursuant to the laws of Singapore and the Company’s constitution. It is not sufficient for directors to merely submit written resignations with clear effective dates. They must also immediately cease all director activities—e.g. no signing documents, attending meetings, or collecting fees in the capacity of a director of the company.
Simultaneously, companies must formally acknowledge resignations in writing, update all records, prevent resigned directors from continuing any directorial functions, and ensure proper handovers to remaining board members.
The key is recognising that the law takes mutual consent through conduct as a consideration, not just the resignation letter as conclusive. Hence, if a director continues acting like a director and the company treats them as one, the resignation becomes legally meaningless, creating the exact legal uncertainty that can later expose all parties to unnecessary and costly disputes.
Conclusion
In a world where corporate governance failures can result in significant legal and financial consequences, half-measures and ambiguous actions can lead to expensive consequences. Companies must approach internal matters with precision, transparency and adherence to proper protocols to safeguard the interests of the company.
