Directors

Definition of Director
• Definition – S.2
• "director" includes any person occupying the
position of director of a corporation by
whatever name called and includes a person in
accordance with whose directions or
instructions the directors of a corporation are
accustomed to act and an alternate or
substitute director;
 Types of Director

• ‘includes a person who occupies the

position of director’ meaning that it
includes
• de facto director
• Shadow director
• Substitute director
• Independent director
• Non-Executive director
• 1. De facto directors
• De facto directors are persons who claim or purports to act as
director or as directors.
• Corporate Affairs Commission v Drysdale [1978] HCA52
• Facts: D was no longer of the company as his term has expired
and was not re-elected. However, he continued to participate in
the management as if he were the director
• Held: Despite the defect in his appointment, he was deemed to be
a director and subject to various duties of directors.

• It also means if he acts as a controller of the company

regardless of whether he is held out or claims to be a director.
• 2. Shadow directors
• Shadow directors are person whose
directions or instructions are customarily
followed by the Board of Directors of a
company. A holding company may be a
shadow director of a subsidiary company if
the directors of the latter follow the
instructions or directions of the former.
• 3. Substitute directors
• Substitute director is a person who sits in as
a director only when one of the directors
unable to act as a director. When one of the
director goes on leave, another director may,
with the approval of the board, appoint
another to be the alternate or substitute
director in her place during such period as it
thought fit
• 4. Independent Director
• An independent director is a person who
does not have a contract of services with the
company and does not involved in the day-to
day running of the company. He should not
have any relationship with the company
which could impair his independent
judgment.
• 5. Non-Executive directors
• A non-executive director normally appointed
to overview the management of the
company. His function is by express
delegation and sometimes he is representing
the shareholders in the board.
 REQUIREMENTS OF
DIRECTORSHIPS
• Section 196 of the CA 2016:
• Every company must have at least 1 director for a
private company OR 2 directors for a public company
who each is ordinarily resident and has his principal or
place of residence within Malaysia.
• S 196(4) - an alternate or substitute director shall not be
included in counting the number of directors resident in
Malaysia.
• Shall be a natural person of full age – s196(2).
• The minimum requirements/qualifications for
directorship:
• be a natural person
• of full age
• of sound mind; and
• not disqualified under the CA 2016
 Disqualification

• Ground for disqualification

• Sec 198
• Undischarged bankrupt
• Convicted of an offence relating to the
promotion, formation or management of a
corporation
• Convicted for bribery, fraud or dishonestly
• Has been disqualified by the court under sec
199
Disqualification by court

• Sec 199- The court may, on application by

the registrar, make an order to disqualify
any person from acting as a director if-
• (a) within 5 years, the person has been a
director of 2 or more companies which went
into liquidation due to his conduct;
• (b) Due to his contravention of the duties of a
director; or
• (c) due to his habitual contravention of this Act
 How disqualified director may hold office?

S.198 (3) Director Any person referred

who is undischarged A person intending to to in S.198 (1)(b), (c),
bankrupt may hold a person who has (d) or (e) shall not be
apply for a leave of
office as a director been disqualified required to obtain a
the Court shall—
with the leave of— under S.198 (1)(b), leave from Court
(c), (d) or (e) may after
be re-appointed the expiry of 5 years
or hold office as a calculated from the
director with the date he is convicted
leave of the Court. give the Registrar a
notice of not less or if he is sentenced
the Official to imprisonment,
Receiver; or than 14 days of
the peƌsoŶsŶ from the date of his
intention to do so; release from prison.
and

the Court provided

that a notice of
intention to apply for make the Registrar a
leave has been
served on the Official party to the
Receiver and the proceedings.
Official Receiver is
heard on the
application.
 Disqualification of a directors of
insolvent
companies - s 199 of CA
2016 The Registrar is empowered
under s199 to make an
application to the court for an
order to disqualify a person to
act as director without leave
of the court if:

within the last 5 years, the

person has been a director of due to his
two or more companies which due to his habitual
went into liquidation resulting contravention contravention
from the company being of the duties of this Act.
insolvent due to his conduct as a of a director;
director which contributed
wholly or partly to the
liquidation;
•Court may require any person—
• to furnish the court with such information with
respect to the company; and
• to produce and permit inspection of such books or
documents relevant to the company
 Share qualification of
directors
• Definition - The minimum number of shares director
needs to hold in order to be appointed as a director.
• There is no provision on share qualification under the
Companies Act 2016. However, the constitution
would normally provides the requirement for
qualification shares .
• Where there is no share qualification requirements, a
director is entitled to attend and speak at the general
meetings. However, he cannot vote at the meeting as
he is not a shareholder, unless he is the chairman,
who is entitled to exercise a casting vote
 Criteria that the Court may
consider to grant a court leave

• The nature of the offence committed.

• The nature of the directors’ involvement.
• The general character of the director.
• The interests of the shareholders,
creditors and employees
• Risks to the public should the director
resume a management position.
 Appointment of frst directors –
s202

• A person named as a director in an

application for incorporation of a
company shall hold office as a director
from the date of incorporation until that
person ceases to hold office as a director
in accordance with CA2016.
• First Director - a person named as director in an
application of incorporation shall hold office as
director.

202.- Subsequent directors may be appointed by

ordinary resolutions.
Subject to Constitution, the Board may, at any
time, appoint a director in addition to existing
directors:

• Private company - duration of holding office

is based on terms of appointment
• Public company - duration of office is until
the next AGM
PROCEDURE OF THE APPOINTMENT

Procedure of the appointment of directors

(subsequent and additional):
• The person to be appointed must execute a
declaration by a person before appointment
as a director – Section 201.
• The Board will pass a resolution regarding
the appointment.
• Make an immediate announcement to
Bursa Malaysia (if listed company).
• Notify the Security Commission(SC)
within 2 weeks of the
appointment (if listed company).
• File a copy of section 58 form and
section 201 form to CCM within 14
days.
• Update Register of Directors, Managers
& Secretaries.
 Procedure of the appointment of
alternate/substitute directors:

• The substantive director who wishes

to appoint an alternate director shall
approach the alternate to obtain his
consent to act.
• The substantive director executes
and deposits a letter of appointment
of his alternate director and the duly
execute section 201 form with the
company.
• The letter and section 201 form shall
be tabled at the board meeting for
• If approve, make immediate announcement
to Bursa Malaysia (if listed company).
• The company then need to notify the SC
within 2 weeks of the appointment (if listed
company).
• File a copy of section 201 and section 58 form
to CCM within 14 days.
• Update the Register of Directors, Managers
& Secretaries.
 Necessary action subsequent to
the appointment of new director

• If the company is a listed company an immediate

announcement to Bursa Malaysia and the SC must be
notified and arrange for the director to execute the
necessary undertaking and statutory declaration
required under the Bursa Malaysia Listing
Requirements (BMLR).
• If there is any share qualification, remind him of the
time within which he must obtain the qualification
shares.

• Remind him of his duty to make disclosure for

compliance with s.219 and s.222.
• Suggest to him that he may give general notice of his
interest in any contract, property, office as required
by s.221.
• Forward him with a copy each of the constitution,
accounts and directors report, interim reports and
circulars to shareholders for the past few years, trust
deeds relating to debenture stock or loan stock.
• Advise him of the dates of board meetings.
• If the company is an active company, the press shall
be informed.
• Update the Register of Directors, Managers &
Secretaries.
VACATION OF OFFICE – S.
208
• Resign – S.208(2)
• has retired in accordance with this Act or the
constitution of the company but is not re-
elected – S.205(6)
• is removed from office in accordance with this
Act or the constitution of the company –
S.206(1)
• becomes disqualified from being a director
under section 198 or199
• becomes of unsound mind or a person
whose person or estate is liable to be
dealt with in any way under the Mental
Health Act 2001.
• Dies.
• otherwise vacates his office in
accordance with the constitution of the
company.
 REMOVAL

• POWER OF REGISTRAR TO REMOVE

DIRECTORRS NAME
• S.200: Notwithstanding any provision in
the Act or the constitution of a company,
the Registrar has power to remove name
of a director who has been disqualified
under S.198 or 199 from the register.
 Private Company
• The removal of directors must be exercise in the
interests of the company, as it is a fiduciary power.
• S.206 (1) (a) - A director may be removed before
the expiration of the director’s period of office subject
to the constitution, in the case of a private company,
by ordinary resolution.
• Alternatively, a director can be removed by not re-
electing him at the AGM / by written resolution when
he retires by rotation provided that the constitution
require directors to retire by rotation
 Public Company

• The statutory rights of shareholders to remove director by

ordinary resolution as conferred by s206.
• S206 (2) gives the members to remove the director before the
expiration of the director’s tenure of office by ordinary resolution.
• Where a director is removed from office, the listed issuer
must forward to the Exchange a copy of any written
representations made by the director in question at the same
time as copies of such representations are sent to members of
the listed issuer under S.207(3)(b), unless copies of such
representations need not be sent out by reason of the
circumstances specified in S.207(5) of the Companies Act
2016. (BMLR Para15.05(5).
Procedure for removal of
director
• 1. A shareholder gives special notice to the
company of his intention to propose the
resolution for removal of a director at the next
AGM or EGM (as the case may be)- s206
• 2. The company shall send a copy of the special
notice to the director concerned. S206(3)
• 3. In the case of AGM - Board meeting called to
decide on the date and venue of meeting of
AGM and authorising the issue of notice of
AGM.
• In the case of EGM - The board shall convene a
board meeting not later than 21 days of the deposit
of the requisition by member to convene an EGM, to
authorised the necessary actions to be taken to
convene the EGM and the preparation of circular to
member (if necessary).
• 4. The director concerned is entitled to make
representation in respect of the resolution, and may
request the company to notify the shareholders.
• 5. If the representation is then received,
but before the notice is sent out, the
company should arrange for the
representation to be dispatched with the
notice to the shareholders.
• 6. If the representation is received after
the notice is sent out, arrange for the
representation to be sent to the
shareholders.
• 7. A copy of the representation must be submitted to
Bursa Malaysia at the same time as copies of the
representation are sent to the shareholders (listed
company).
• 8. If the copy of the representations is received late
or by the company’s default it is not sent, the director
concerned may require that the representations be
read out at the meeting.
• 9. At the general meeting, if the resolution carried at
the general meeting, the director is REMOVED from
the board.
• 10. Immediate announcement should
be made to Bursa Malaysia in respect of
the resolution passed and the removal.
(listed company).
• 11. Section 58 form should be lodged
with the CCM within 14 days after the
passing of the resolution.
• 12. The register of directors,
managers & secretaries must be
updated accordingly.
• The vacancy so created, if it is not filled at the
meeting, may be filled as casual vacancy;
• A person appointed as director in place of the director so
removed is to be treated as if he had become a
director on the day on which the director so removed
is appointed as a director for the purpose of
determining the turn for retirement by rotation
Directors’ Duties
Introduction
• Directors are ‘agents’ of a company having the
capacity to enter into contract on behalf of the
company.
• Directors owed duties to the company and any
breach of the duties will entitle the company to sue
the directors.
• Director has three type of duties:
• 1. Fiduciary duties
• 2. Duties of Care, skill and diligence
• 3. Other statutory duties
 Fiduciary duties

• A fiduciary relationship is the relationship between a

person in a position of trust, the fiduciary and the person
for whose benefit the fiduciary acts.
• Fiduciary powers are exercised on behalf of others who
are in a position of dependence. Fiduciaries also control
property in which others have an interest. There are
numerous relationships which can be categorized as
fiduciary.
Fiduciary duties
To act bona fide in the interest of the
company. Since company places its
trust in the directors they must display
the utmost good faith towards the
company in their dealings with it or on
its behalf.
Not to place himself in a position
where there is a conflict between their
duty to the company and his personal
interests or duties of others. This is
the no-confict rule, and

Not to make any secret profit out of the

position as director. This is the no-
proftt rule
Duty to exercise power in accordance with the Act,
for a proper purpose and in good faith in the best
interest of the company

• Sec 213 - A director of a company shall at all times

exercise his powers for a proper purpose and in good
faith in the best interest of the company
• Basically means that the director must view the company
as a going concern and have regard to the interests of the
present and future members of the company and not to
individual shareholders.
• Common law cases have shown that a director
must act for proper purpose and in the best
interest of the company.
• Duty to act with good faith (bona fide) is a subjective test.
• In other words, it is based on director’s honest opinion and
not based on the court’s opinion. So, if the director thinks
that the project is good for the interest of the company even
though the court thinks otherwise, the director would still
regarded as having discharged its duties to act with bona fide.
• Re Smith and Fawcett Ltd [1942]

• Fact: Company’s Constitution states that Directors can (in

absolute/uncontrolled discretion) refuse to register transfer of shares.
2 Directors (Smith, Fawcett) hold all shares. Fawcett died and his son
(who is also his executor) wanted shares registered in his name.
Smith refused.
• The issue was whether Smith can refuse to register shares?
• Held: Yes
o Directors powers may be unlimited – except for good faith.
o Directors must exercise discretion bona fide (not mala fide) in
what they (not Court) considers in company’s best interests (not
collateral purpose).
• In Intraco Ltd v Multi-Pak Singapore Pte Ltd
[1995] 1 SLR 313,
• The Court held that the proper test in determining
whether the directors have acted bona fide was whether
an honest and intelligent man in the position of a director
in the whole of the existing circumstances, have
reasonably believed that the transactions were for the
benefit of the company.
• Petra Perdana Bhd v Tengku Dato’ Ibrahim Petra
Tengku Petra & ors
• Issue on duty to act for best interest of the company
• The court held that shareholders’ resolution provided a
barometer as to what the shareholders gauge as being in
the best interest of the company. As a matter of law, it
was held that a director was required to take into account
the shareholder’s view.
• Failure to act bona fide for the best interest of the
company
• Re W & M Roith Ltd (1967)
• A director, Mr Roith, entered into a service contract with his
company providing for pension to be given to his wife in the
event of his death without taking into consideration as to
whether the contract was for the benefit of the company.
The object of the contract was considered not to be binding
on the company as it did not benefit the company but Mrs
Roith.
• Sec 213- should exercise their powers for proper purposes
and in the interest of the company as whole rather than
individual shareholders.
• The ‘proper purpose’ doctrine requires all company power to
be exercised for the purpose for which it was originally
conferred.
• Must exercise powers for proper purpose and not
any collateral purpose
• So, if the director has exercise its power with bona
fide for the best interest of the company but this
power was not exercised for proper purpose. Then,
the director is liable for breach of duty to exercise
power for proper purpose.
- How do courts determine whether a director has
acted for a proper purpose?
• The court will adopt a two-step analysis to determine if
there is a breach of duty:
(a) First, the court will ascertain what is the particular power
in question and also for what legal purposes this power
may be used;
(b) Secondly, the court will examine the facts of the case
before it and intentions of the director and decide what was
the actual purpose for which the director exercised the
power in question.
Howard Smith Ltd v Ampol Petroleum Ltd [ 1974]
AC 821
• Ampol Petroleum and Bulkships Ltd together owned 55% of the
issued share capital of R W Miller (Holdings) Ltd. Ampol and Howard
Smith Ltd were making competing takeover bids for R W Miller
(Holdings) Ltd. The directors of Miller favored Howard Smith’s bid,
which was higher, but there was no prospect of this bid succeeding
because Ampol and Bulkships would not have accepted Howard
Smith’s offer. The evidence showed that Miller was in need of further
capital. The directors of Miller resolved to allot new shares to Howard
Smith for two purposes; firstly, to raise the capital needed, and
secondly to reduce the holdings of Ampol and Bulkships to enable
Howard Smith’s bid succeed. Ampol challenged the validity of the
allotment.
• It was held that the allotment was not valid. Its
dominant purpose was to alter the balance of power
(to reduce the majority holding of two other
shareholders who made a rival bid), and this was
not the purpose for which the director’s power to
allot shares had been given (the proper purpose is
raising capital for purpose benefiting the company
as a whole).
• In short, the case of Howard Smith Ltd v
Ampol Petroleum Ltd is about failure to act for
proper purpose where the board of directors
of R.W. Miller (Holdings) Ltd issued shares to
assist a takeover and to block the existing
majority shareholding. The Court held that
they had breached their duty since the
allotment which was made purely to destroy
an existing majority shareholding or to create
a new majority and not for raising capital.
• Hogg v Crampton Ltd

• Fact: Mr Baxter approached the board of directors of

Cramphorn Ltd. to make a takeover offer for the company. The
directors (including Colonel Cramphorn who was managing
director and chairman) believed that the takeover would be bad
for the company. So they issued 5707 shares with ten votes each
to the trustees of the employee’s welfare scheme (Cramphorn,
an employee and the auditor). This meant they could outvote
Baxter's bid for majority control. A shareholder, Mr Hogg, sued,
alleging the issue of the shares was ultra vires. Cramphorn
argued that the directors' actions were all in good faith. It was
feared that Mr Baxter would sack many of the workers.
• Held: The new shares issued by the directors are
invalid. The directors violated their duties as directors
by issuing shares for the purpose of preventing the
takeover. The power to issue shares creates a
fiduciary duty and must only be exercised in order to
raise capital and not for any other purposes such as to
prevent a takeover. The act could not be justified on
the basis that the directors honestly believed that it
would be in the best interest of the company.
• Duty to retain discretion

• The director’s duties are similar to that of the trustees

and they cannot limit their exercise of their future
discretions.
• Duty to avoid Conflict of Interest

• Conflict of interest can be described as one situation whereby one

profits by one’s position as a director at the company’s expense.
• Circumstances whereby conflict of interest might occur (S. 218 (1))
• a) Use property to gain profit
• b) Use any information acquired by virtue to his position as officer or
director
• c) Use his position as such director or officer
• d) Use any corporate opportunities
• e) Engage in the business which is competing with the company
• Section - disclosure
• S 221(1) - required director to disclose any potential conflicts
of interest at the meeting of board of directors
• S222 – A director who directly or indirectly interested in the
contract or proposed contract shall not vote on the contract or
proposed contract.
• S 219 General duty to make disclosure
• Particulars related to share, debentures, participatory,
interests, rights, options and contract
• Cook v Deeks
• The Toronto Construction Co. had four directors, Mr GM Deeks, Mr
GS Deeks, Mr Hinds, and Mr Cook. It helped in construction of
railways in Canada. The first three directors wanted to exclude Mr
Cook from the business. Each held a quarter of the company's shares.
GM Deeks, GS Deeks, and Hinds took a contract with the Canadian
Pacific Railway Company (for building a line at the Guelph Junction
and Hamilton branch) in their own names. When this was queried by
some minority shareholders, a special resolution was passed to
confirm that the company had no interest in the contract.
• The court held that the resolution , being purported ratification to
justify the acts of the directors, was a fraud on the minority and
ineffective. The directors had to account to the company for their
profits made in the transaction.
• Case: Aberdeen Railway Co v Blaikie Brothers

• Facts: The plaintiff (Aberdeen Railway Co) needed a large quantity of

iron chairs (rail sockets) and contracted for their supply over an 18-
month period with Blaikie Bros a partnership (defendant). Thomas
Blaikie was the managing partner of Blaikie Bros and a director and
the chairman of the Aberdeen Railway Company. The contract was
partly performed but, having taken delivery of about two-thirds of the
iron chairs, the Aberdeen Railway Company refused to accept any
more. The defendant (Blaikie Brothers partnership) sought to enforce
the contract or for damages for breach.
• The court held that the contract is voidable and the director has
breached his duty to avoid conflict of interest by entering into
transaction with the company.
• Case: Canadian Aero Service Ltd v O’Mally
• The director who has resigned with the intention to obtain
opportunity for himself may not be able to do so as he still owes
duty. Court held that the resignation was irrelevant as the purpose of
the resignation was to take opportunity for himself.

• Case: Queensland Mines Ltd v Hudson

• The director had fully informed the company about his interest in
the contract. Court held that the director is not liable to the company
for his profit.
• Case: Industrial Development Consultants v Cooley - the
managing director of IDC attempted to secure a contract with
EBG on behalf of the company. EBG indicated to the managing
director that they were not prepared to deal with IDC but the
director personally. Later on, he quit and obtained the consultancy
for himself.
• Court held: director breach his duty to the company.

• Read also: Case Regal Hastings v Gulliver

• Relief of directors from liability for breach of duty
• By resolution in general meeting A directors FD is owed to
the company as represented by the members as a body. Thus
the majority of members in general meeting may waive a
breach of the directors FD provided there is a full disclosure
of all material circumstances
• FD = Fiduciary Duties
• By the court
• The court may grant the director relief, whether in whole or
in part from liability for negligence, default , breach of duty,
breach of trust if it appears that the directors has acted
honestly and reasonably and that in all circumstances
Duty to exercise reasonable care skill and diligence .

• Sec 213 (2)- A director of a company shall

exercise reasonable care, skill and diligence with
—
• (a) the knowledge, skill and experience which
may reasonably be expected of a director having
the same responsibilities; and
• (b) any additional knowledge, skill and
experience which the director in fact has.
• General Duty of Care and Skill
• As such, the court adopts objective test in determining
the minimum standard of directors’ duties.
• The objective test refers to the opinion of other
directors having the same responsibilities in the same
business line.
• So, it depends on whether or not most of the directors
having the same responsibilities in the same business
line would consider the alleged director’s had exercised
reasonable care, skill and diligence.
• However, if the director has additional knowledge,
skill and experience, then the director must act
according to the additional knowledge, skill and
experience which the director in fact has.
• Case: Daniels v AWA Ltd (1995) 13 ACLC 614.

• The Court held that the minimum standards of care, skill and diligence expected
of all directors are that:
• (a) A director must acquire a basic understanding of the business of the company
and must be familiar with the fundamentals of the company’s business
• (b) Directors are under a continuing obligation to keep informed about the
activities of the company
• (c) Detailed inspection of the day-to-day activities is not required but what is
required is a general monitoring of the company’s business affairs. A director
should attend board meetings regularly
• (d) Although directors are not required to make an audit of the company’s
books, directors should be familiar with the financial status of the company
which includes conducting regular reviews of financial statements.
• Business judgment

• Section 214(1) - A director who makes a business judgment is deemed to meet the
requirements of the duty under subsection 213(2) and the equivalent duties under the
common law and in equity if the director—

• (a) makes the business judgment in good faith for a proper purpose;

• (b) does not have a material personal interest in the subject matter of the business
judgment;

• (c) is informed about the subject matter of the business judgment to the extent the
director reasonably believes to be appropriate under the circumstances; and

• (d) reasonably believes that the business judgment is in the best interest of the company.
STATUTORY
DUTIES
Interest In Contracts, Property, Offices
Etc -S 221, CA2016

• It is the duty of every director who:

• Is in any way directly or indirectly interested
in a contract or proposed contract with the
company; or
• Holds any office or possesses any property
whereby directly or indirectly duties or
interests might be created in conflict with his
duties or interest as director.
• Section 221 (6) to declare at a meeting of
directors of the company the nature of his
interest of the fact and the nature character and
extent of the conflict respectively as the case may
be.
• Sec 221(7) the declaration must be made:
• In the case of interest in contract – as soon as
practicable after he has knowledge of
relevant facts.
• In the case of interest in property or offices –
at the first meeting of the directors held:
• After he becomes a director, or
•Sec 221(4) - A general notice given to the board of directors of a
company by a director:
• to the effect that he is an officer or member of a
specified corporation or a member of a specified firm;
and
• is to be regarded as interested in any contract which
may, after the date of the notice, be made with that
corporation or firm, will be deemed sufficient
declaration of interest in relation to any contract so
made, if it specifies the nature and extent of his
interest in the specified corporation or firm and his
interest is not different in nature or greater in extent
than the nature and extent so in the general notice at
the time any contract is so made.
• S.221(5) - Such notice must be given at a
board meeting or the director ensures
that it is brought up and read at the next
board meeting after it is given.
•Sec 222 – Interested director and not to participate or vote.
•Subject to section 221 a director who is in any
way directly or indirectly interested in a
contract or proposed contract with the
company, unless the interest is one that need
not be disclosed under section 221, shall be
counted only to make the quorum at the
board meeting but shall not participate in
any discussion while the contract or proposed
contract is being considered at the board
meeting and shall not vote on the contract
or proposed contract.
•S.222(2) - this subsection will not apply to:
• a private company unless it is a subsidiary of a
public company;
• a private company which is a wholly-owned
subsidiary of a public company – in respect of
contract by the private company with the holding
company or with another wholly-owned subsidiary
of that same holding company;
• any contract or proposed contract of indemnity
against any loss which any director may suffer by
reason of becoming or being a surety for a company;
• Any contract or proposed contract entered
into or to be entered into by a public company or
a private company which is a subsidiary of a
public company with another in which the
interest of the director consists solely:
• in him being a director of the company and the holder
of the shares not more than the number or value as
is required to qualify him for the appointment as a
director; or
• in him having an interest in not more than fve per
cent of its paid up capital .
• A director who knowingly contravenes
this section shall be guilty of an offence
against the Act and the penalty is
imprisonment not exceeding 5 years or a
fine not exceeding 3 million ringgit or
both.
 DISCLOSURE OF INTEREST IN SHARES AND
DEBENTURE -
S 219 OF CA 2016

• Every director is under obligation to

notify the company by notice in writing of
his interest in the company’s share,
debentures, participatory interests,
rights, options and contracts relating to
the above to which the director is
entitled to a benefit and any changes in
respect of those interest.
 S.59 – Register of directors’ shareholdings,
etc.
S.219(1)- Directors duties to make
disclosure of his interest, rights, options
and contract inclusive of any change to
register thereof.
 An interest of the spouse and child (include
adopted and stepchild) shall be treated as
the interest of the director.
 Section 219(2) & 4-Notice must be given to the company
within 14 days or 5 days (for listed company) after:
• The date of his appointment as director;
• (if already a director) the date on which he
acquired an interest in the shares, debenture,
participatory interest, rights, options or contract;
or
• The occurrence of the event of any change in
respect of the particulars of his interest in the
securities in the company.
• S219(1) - the information he must give shall consist of:
• Particulars relating to shares, debentures,
participatory interest, rights, options or contracts.
• Particulars of any changes in respect of the above
of which notice has been given to the company
and the consideration received or paid resulting
from the changes.
• Events or matter affecting or relating to him are
necessary for the purpose of compliance by the
company with the requirement of CA 2016.
• Interest of spouse
• For the purpose of this section, an interest of the
spouse (not being herself or himself a director) and
a child, including adopted child or stepchild (not
being herself or himself a director) of a director in
the shares or debenture of the company will be
treated as an interest in the contract and proposed
contract -sec 221(9).
• The penalty on a director for failing to comply with
this obligation is imprisonment not exceeding 5 years
or a fine not exceeding 3 million ringgit or both.
COMPLIANCE
DUTIES
• A director also responsible for ensuring the
following requirement are complied:
• Power to require directors to convene meetings
of members – S.311 & 312
• The holding of AGM – s340.
• Making Annual Return and its lodgment with the
CCM – s68.
• Keeping of proper accounting records – s248.
• Recording the minutes of all meetings – s341.
• Registration of certain resolutions and
agreements – s344.
• Tabling of accounts, balance sheets & directors
report at AGM – s340.
• Circulation of accounts, balance sheets and
directors reports to members s257-s258members
– s257 & s258.
• Appointment of first auditors – s267.
• Complying with the instruction of the CCM to
change the company name – s28 & s29.
• Ensure proper system of internal control – S.246.
• Complying with the restriction, limitation or
prohibition of a private company – s43
• Issuance of prospectus for unlisted
recreational club or to public company - s152
• Complying with the requirements of the CA
1965 as to the content of the prospectus for
unlisted recreational club – s159
• Ensuring the statements contained in the
prospectus are true – s159
• Complying with the required procedures for
reduction of share capital –s117
• Maintaining a registered office – s46
• Publication of company name – s30
• Making declaration of solvency–s112
• Ensuring that payment of dividend is from
profits only – s131
• Registration of transfer and issuing share
certificate – S.112
 DIVISION OF POWERS WITHIN A COMPANY

• The Board of Directors and general meeting are

both organs of the company with their respective
powers determined by the CA and constitution.
• The general meeting has specific powers but the
residual powers vest with the directors.
• If the members in general meeting disapprove of
the actions of the board they can alter the articles to
deprive the directors of some of their powers or they
can exercise the power given to them by the
articles to vote in directors whose policies they
approve.
• The company’s constitution usually confer wide powers
of management of a company’s affairs on the Board of
Directors.
• A question often arises whether the general meeting of
members can override the directors and involve itself in
the management of their company.
• The general principle was established in the early English
case of Automatic Self-Cleansing Filter Syndicate Co v
Cuninghame where it was held that the members cannot
interfere with directors' decision.
• The principle that members in general meeting cannot
override management decisions made by the board was
confirmed in a different context in the English case of John
Shaw & Sons (Salford) Ltd v Shaw.
• While the general power of management is
exercised by or under the direction of the
company's directors, there are certain specific
provisions in the Act stipulating that
directors may not exercise certain powers
without the approval of the company in general
meeting. The important statutory powers of the
general meeting include the following:
• Disposal or acquisition of company's main undertaking-s 223
• The directors shall not enter into any transaction for the acquisition
of an undertaking or property of substantial value, or the disposal of
a substantial portion of the company's assets which would materially
and adversely affect the company's financial position, unless the
proposal has been approved by the general meeting.
• Acquisition or disposal of substantial non-cash
assets –s228
• Certain property transactions of a substantial value,
between directors and their companies are voidable at
the instance of the company, unless the company in
general meeting ratifies the transactions within a
reasonable time. Transactions entered into in breach of
s 228 are voidable at the instance of the company and
the directors are liable for severe criminal penalties.
• Issue of shares by directors- s75 & 76
• With the exception of shares issued as
consideration for the acquisition of shares or
assets by the company, any issue of shares
by directors, grants right, conversion of any
securities into shares and allot shares under
an agreement or option or offer require the
prior approval of the general meeting
(shareholders’ approval).
• Payments made to directors upon retirement or
resignation-s 227
• The directors’ fees and any proposed benefits to
directors by way of compensation for the loss of office
or retirement from office must be disclosed to the
members. The payment of such benefits is unlawful
unless they are approved by the members in general
meeting.
• Directors’ fees s230, BMLR 7.24
• The fees of the directors, and any benefits payable to
the directors including any compensation for loss of
employment of a director or former director of a public
company or of a listed company and its subsidiaries
shall be approved at a general meeting.
• Loans to directors –sec 224
• A company shall not (a) make a loan to a director of a
company or of a related company, or (b) enter into any
guarantee or provide any security in connection with a
loan made to such a director by any other person,
except with the prior approval of the company.
• Prohibition against improper use of property,
position, etc. – sec 218
• A director or office shall not, without consent or
ratification of a general meeting, use the company’s
property, information, position, etc. to gain directly or
indirectly, a benefit for himself or any other person or
cause detriment to the company.
• Sec218(1) - A director or officer of a
company shall not, without the consent
or ratification of a general meeting:
• use the property of the company;
• use any information acquired by virtue of
his position as a director or officer of the
company;
• use his position as such director or officer;
• use any opportunity of the company which
he became aware of, in the performance of
his functions as the director or officer of the
company; or
• engage in business which is in competition
with the company to gain directly or
indirectly ‘ a benefit’ for himself or for any
other person, or cause detriment to the
company.
• S218(2) An officer or agent or officer of the
Stock Exchange who commits a breach of this
section shall be:
• liable to the company for any profit made by him or
for any damage suffered by the company as a result
of the breach; and
• guilty of an offence against this Act.

• Penalty: Imprisonment for five years or

thirty thousand ringgit.
PAYMENTS TO DIRECTOR FOR LOSS OF OFFICE

–S227 (1)
• A company is prohibited from:
• Making any payment to any director by way of
compensation for loss of office as an officer of that
company or of its subsidiary or as consideration in
connection with his retirement from such office; or
• Making any payment to any part of the undertaking
or property of the company.
• Unless the particulars and the amount of the
proposed payment have been disclosed to the
members of the company and the proposal has
been approved by the company in general meeting
However, the following payments are not
payment for loss of office or as consideration for
or in connection with the retirement from office –
S227(5);

• Any payment under an agreement of which

entered into before the commencement of
CA 2016;
• Any payment under an agreement of which
particulars of the payment have been
disclosed to and approved by special
resolution of the company;
• Any bona fide payment by way of damages
for breach of contract;
• Any bona fide payment by way of pension or lump
sum payment in respect of past services where the
value or amount of the pension or payment does not
exceeds the total emoluments of the director in the 3
years immediately proceeding his retirement or
death; or
• Any payment to a director pursuant to an agreement
between the company and him before he become a
director of the company as the consideration or part
of the consideration for the director agreeing to
serve the company as a director.
 Remuneration
• Company’s constitution normally provides that the
remuneration of director shall be determined from time to
time by the company in general meeting and that the
remuneration is accrued from day to day.
• If the constitution is silent, directors are not entitled to
receive any remuneration.
• If the remuneration is voted to the directors, it constitutes a
debt due from the company, and the director can sue for it,
even if there is no profit incurred for the year.
• Listed Companies: Para 7.23 - Fees payable to non-executive
directors shall be by a fixed sum, and not by a commission on
or percentage of profits or turnover. Salaries payable to
executive directors may not include a commission on or
percentage of turnover
 Directors’ fees-S230
• The fees of directors, and any benefits payable to the
directors including any compensation from loss of
employment of a director or former director:-
• of a public company; or
• of a listed company and its subsidiaries, shall be
approved at a general meeting.
• In the case of a private company, the Board may, subject to
the constitution approve the fees of the directors and any
benefits payable to the directors including any
compensation for loss of employment of a director or
former director.
• Any approval for the fees and benefits shall be recorded in
the minutes of the directors’R meeting and the Board shall
notify the shareholders of the approval of the fees within
fourteen days from the date of the approval –S.230 (3)
• LISTED COMPANIES - 7.24 :The fees of
directors, and any benefits payable to directors
shall not be increased except pursuant to a
resolution passed at a general meeting, where
notice of the proposed increase has been given in
the
• Penalty for non-adherence:
• A fine not exceeding 3 million ringgit and any
payment in contravention of Sec 230 (1) shall
constitute a debt due by the director to the
company.
• The company and every officer who
contravene Sec 230 (3) commit an offence
and shall, on conviction, be liable to a fine
not exceeding RM250,000.
Loans to directors (s224)

• Companies is PROHIBITED from :

• Providing loans to its directors;
• Stand as guarantor or provide securities for
loans to director by any third party
• EXEMPTIONS: LOANS TO DIRECTORS
• An exempt private company.
• Funds provided to enable performance of duties
as a director / officer of the company.
• To acquirea home (full time directors only).
• Employees Share Option Scheme (full time
directors only).
 Loans to connected
persons
• S.225 - Subject to the provisions of this section, a
company, other than an exempt private company,
shall not—
• make a loan to any person connected with a
director of the company or of its holding
company; or
• enter into any guarantee or provide any
security in connection with a loan made to
such person by any other person.
•S.197 (1) - A person shall be deemed to be connected
with a director if the person is—
• A member of a director’s family;
• a body corporate which is associated with that director;
• a trustee of a trust, other than a trustee for an employee
share scheme or pension scheme, under which that
director or a member of the directors is a beneficiary; or
• a partner of that director or a partner of a person
connected with that director.
 Restrictions of loan to directors are
extended to person deemed connected to
the directors

• 1. a members of the director’s family

• Spouse
• Parent
• Child, including adopted child and stepchild
• Brother
• Sister and
• The spouse of the directors' child, brother or
sisters
• 2. A body corporate is associated with a director if –
• the body corporate is accustomed or is under an
obligation, whether formal or informal, or the majority
of directors of the body corporate is accustomed, to act
in accordance with the directions, instructions or wishes
of that director;
• that director has a controlling interest in that body
corporate; or
• that director, or persons connected with that director, or
that director and persons connected with him, are
entitled to exercise, or control the exercise of, not less
than twenty per centum of the votes attached to voting
shares in the body corporate
• The prohibition shall not apply:
• to anything done by company where the loan is made,
or the guarantee or security is provided in relation to
a loan made, to a subsidiary or holding company or a
subsidiary of its holding co;
• to a company whose ordinary business includes
lending of money or the giving of guarantee in
connection with loans made by other persons; or
• To any loan made to a person connected with
director who is engaged in the full-time
employment of a company or its related co.,
• (a) for the purpose of meeting
expenditure incurred or to be incurred by
him in purchasing a home; or
• (b) in accordance with a scheme for the
making of loans to employees approved by
the company in general meeting.