Company Directors – Malaysian Companies Act 2016 (Lecture Review)

These question-and-answer flashcards cover definitions, statutory provisions, qualifications, duties, prohibitions, procedural rules, and leading cases relating to Malaysian company directors under the Companies Act 2016.

Under s.2(1) CA 2016, who is included in the definition of “director”?

Any person occupying the position of director by whatever name, including de facto, shadow, alternate or substitute directors.

What is a de facto director?

A person not formally appointed but who acts as and is held out as a director in fact or in reality.

What is a shadow director?

A person on whose directions or instructions the majority of the board habitually act.

State the minimum number of directors required for a private company in Malaysia.

At least one director ordinarily resident in Malaysia.

State the minimum number of directors required for a public company in Malaysia.

At least two directors, both ordinarily resident in Malaysia.

What is the minimum age and status qualification for a company director?

The director must be a natural person who is at least 18 years old.

Which CA 2016 section requires a person’s written consent before appointment as director?

Section 201 – Directors’ consent required.

How are subsequent directors of a company appointed under s.202?

By ordinary resolution, unless otherwise provided in the constitution.

For a public company, how long may a board-appointed additional director hold office?

Until the next annual general meeting.

List three statutory grounds of disqualification found in s.198(1) CA 2016.

Bankruptcy, convictions involving fraud or dishonesty, and offences under the Companies Act (among others).

Can an undischarged bankrupt become a director?

Yes, but only with the leave of the Official Receiver (s.198(3)).

Which section empowers the court to disqualify a person from directorship for past insolvent liquidations?

Section 199(1)(a) CA 2016.

Give two common reasons for vacation of office by a director.

Resignation, retirement, removal, disqualification, unsound mind, death, or as provided by the constitution.

What procedural steps are required to remove a director?

Special notice, the director’s right to be heard, and an ordinary resolution passed at a general meeting.

State the core fiduciary duty articulated in s.213(1).

To act in good faith and for a proper purpose in the best interest of the company.

What standard of care must directors meet under s.213(2)?

They must exercise reasonable care, skill and diligence.

Name the statutory defence that protects directors who make informed, honest business decisions.

The Business Judgment Rule (s.214 CA 2016).

List the four considerations a court looks at under s.214(1) to decide if the Business Judgment Rule applies.

Whether the decision was made in good faith for a proper purpose, without material personal interest, with reasonable information, and in the company’s best interest.

What does s.215 CA 2016 permit directors to do regarding information?

Rely on information, advice or reports prepared by others if the reliance is made in good faith and independently assessed.

Under s.216, when may directors delegate their powers?

Only if delegation is allowed by the Act or the company’s constitution, and they remain responsible for the delegated acts.

State five things a director must not improperly use under s.218(1).

Company property, position, information, opportunity, or involvement in competing business.

What is the maximum criminal penalty for contravening s.218?

Up to 5 years’ imprisonment or RM3 million fine, or both.

Which section requires directors to disclose material interests in company contracts?

Section 221 CA 2016.

What remedy can a company seek if a director makes secret profit?

Recovery of the profit (account of profits) and/or equitable compensation; the director holds the benefit on constructive trust.

How did the court describe directors’ discretion in Re Smith & Fawcett Ltd (1942)?

They must act bona fide in what they, not the court, consider to be in the company’s interests, and not for collateral purposes.

Which case set aside a share issue used solely to dilute a majority’s voting power?

Howard Smith Ltd v Ampol Petroleum Ltd.

What principle did Re W & M Roith Ltd (1967) illustrate?

Directors breach duty when they favour personal or third-party interests over the company’s interest (pension for widow case).

In which case was a COO held to be a de facto director under s.210?

JLA Motorsports Sdn Bhd v Ahmad Suhaimi bin Abdullah (2020).

Identify the objective–subjective test for breach of duty highlighted in Petra Perdana (2018).

Subjective: director’s honest belief; Objective: court’s assessment of reasonableness of that belief in the circumstances.

What did Lim Weng Kee v PP [2002] clarify about the duty of care?

The standard is objective, varies with context, and cannot be lowered for a director’s lack of experience but rises with special expertise.

Which case held that passive directors may breach their duty of care?

Lim Weng Kee v PP and Ang Sae Ming v Chow Foong Yien (2019) illustrate that passivity can breach s.213 duties.

What constitutes a conflict of interest under CA 2016?

When a director’s personal or connected person’s interest competes or conflicts with the company’s interest (e.g., contracts, competing businesses, use of information).

Explain the rule from Aberdeen Railway Co v Blaikie Bros.

A director cannot contract with the company without disclosure as personal interest conflicts with duty; contract may be set aside.

Give an example where directors were liable for using company funds for personal property purchase.

Paul A Davies (Aust) Pty Ltd v Davies – interest-free loan from company for directors’ property.

Which Malaysian case involved breach by accepting a bribe leading to an overpriced land purchase?

Mahesan v Malaysia Government Officers’ Co-operative Housing Society.

What did Canadian Aero Service Ltd v O’Malley establish about ex-directors?

Resigning directors can still be liable for misuse of corporate opportunities acquired while in office.

In Industrial Development Consultants v Cooley, why was Cooley liable?

He resigned to take a contract personally that rightfully belonged to his employer; he failed to disclose the opportunity.

How did Peso Silver Mines v Cropper differ from Cooley?

Peso had formally rejected the opportunity and no confidential information was used; Cropper was not liable.

Name one remedy besides damages that a company may pursue for breach of fiduciary duty.

Rescission of the contract or imposition of a constructive trust over property or profits.

What is the role of a non-executive director?

To monitor management, provide independent judgment, and keep oversight over executive directors.

Who is a nominee director?

A director appointed to represent the interests of a creditor, investor, or specific stakeholder group.

When may an alternate director be appointed?

To act during the absence of an original director, if permitted by the constitution.

Which section states that directors must disclose any direct or indirect interest as soon as practicable?

Section 221(1) CA 2016.

What key factor justified the court’s refusal in Rajabali Jumabhoy v Ameerali Jumabhoy?

Directors granted an option over company assets without considering the company’s own commercial interests, breaching fiduciary duty.

Explain the importance of the Business Judgment Rule for directors.

It shields directors from liability for honest, informed business decisions taken in good faith and in the company’s best interest.

Under s.216, if directors delegate powers, are they still liable for misuse by delegatees?

Yes; directors remain responsible as if they exercised the power themselves.

What does s.219 CA 2016 impose on directors?

A general duty to make disclosures, including any benefit or interest capable of influencing their decisions.