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Company Directors in Malaysia

A limited and Private Limited company in Malaysia must have at least two directors at all times. They must be a natural persons (living persons, not organizations) who must have their principal or only place of residence within Malaysia.

1.

What does it mean by Directors?

 

S122

A company must have at least 2 directors, both of them must be residence of Malaysia.

No comprehensive definition of director but the term director include any person occupying the position of director by whatever name called.

In large and medium size business organizations, a company secretary role includes incorporation of the Company, processing applications for management appointments, remunerations, inter-corporate investment and loans, handling public issues including listing of shares and debentures, conducting both board and general meeting, maintenance of records, registers and minutes of the meetings. In short, it would suffice to say that all legal and procedural matters as per the Companies Act and all other applicable laws fall under the duties of a Company Secretary.

S4(1)

“Includes any person occupying the position of a director of a corporation by whatever name called and include a person in accordance with whose directions and instructions the director of a corporation are accustomed to act and an alternate or substitute director”

A director is an officer of a company but he is not an employee unless he has separate contract of employment as a salaried executive.

   

2.

Types of Directors

 

Non-executive director

Take part in the collective decision of the BOD.

He has no other function except by express delegation.

Managing or Executive Director

Who is in addition to their function of attending board meeting (as full members).

But also work, usually full-time, in the management of the company as employee.

   

3.

First Director

 

S122(3)

Memorandum Of Articles also contained names of the first directors of the company.

S16(7)

The Registrar must not register a Memorandum Of Articles.

MOA / Articles Of Associations.

AOA unless it contain the names of at least 2 persons who are to be the first directors of the company.

   

4.

Definition of Director

 

Definition of director under Section 4 of the Companies Act 1965: Any person who occupies the position of Director of a corporation described by

  • Whatever name;
  • Full age,
  • sound mind,
  • Not an un-discharged bankrupt.
  • Includes Alternate / substitute.

Person whose habitual directions/ instructions are habitually followed by the directors of the company though not formally appointed.

A director is an officer of the company;12 as such he is liable to the prescribed penalties in the event of default in complying with the CA 1965. Every company must have at least two directors who each has his principal or only place of residence within Malaysia.13 Note that alternate director or substitute director would not be taken into consideration in determining the number of directors resident in Malaysia.

   

5.

Criteria to be a Director

 
  • Natural person
  • Not Insane
  • Not an un-discharged bankrupt
  • Full age (18+)
  • Principal or only place of residence within Malaysia [Sec.122 ]
  • Holds qualifying shares [Sec. 122 and Article 71 Table A]
  • Age not > 70 years for public company (S.129) unless sanctioned by 75% of shareholders at the AGM.
  • Private Companies no age limitation
   

6.

Who Cannot become a Director

 

Un-discharged bankrupt (Sec. 125) unless special leave granted by High Court.Convicted of offences connected with promotion and management of corporation, fraud & dishonesty punishable with imprisonment for 3 months or more, offence under Sec.132, 132A &303 of the Act. (within 5 years from his conviction unless with special leave by the court [Sec.130]

The following persons are prohibited from being appointed or from acting as director without the leave of the court:

  • A person who has been convicted of any offense in connection with the promotion, formation or management of a company
  • A person who has been disqualified by a court order under s 130A for directorship in insolvent companies
  • A person who has been convicted of any offence involving fraud or dishonesty on conviction with imprisonment for three months or more
  • A person who has been convicted for failing to act honestly and use reasonable diligence in the discharge of the duties of directorship
  • A person who has been convicted for improper use of any information acquired by virtue of his position as an officer or agent of the company or officer of the Stock Exchange to gain directly or indirectly an advantage for himself or for any other person or to cause detriment to the company
  • A person (who is an officer, agent or employee of a company or officer of the Stock Exchange) who has been convicted for dealing in securities of the corporation by making improper use of specific confidential price sensitive information acquired by virtue of his position to gain advantage for himself or any other person
  • A person who has been convicted for not keeping proper books of accounts throughout the period of two years immediately preceding the commencement of an investigation or winding up (or between the incorporation of the company and the commencement of the investigation or winding up if the company was formed for less than two years)
  • An undischarged bankrupt

The period of disqualification for cases of all the above is five years, i.e. within the period of five years after his conviction or if he is being sentenced to imprisonment, after his release from prison.

   

7.

Directors' Duties and Responsibilities

 

Directors owe a duty to act for a proper purpose and in good faith in the best interest of the company.

They must manage the company’s affairs in accordance with:-

  • Related statutes
  • Principles of the common law
  • The company’s memorandum & articles of associations
   

8.

How Director can be Appointed?

 

S122(3) & S123(1)

First 2 directors must be appointed and named in Memorandum Of Articles – MOA

Articles Of Associations – AOA

It is more common that they are appointed by subscribers to the Memorandum Documents which are lodged with the Registrar

It must include particulars of the first directors and their signed consent to act as such

Subsequent appointments of directors are arranged by the AOA of the company. The AOA of most public or private company are in accordance with Table A (Article 63-71)

S129

Appointment & reappointment for director at age 70 years old or older.

   

9.

How Director can be Removed?

 

In certain events directors may be removed from office by disqualification arising under the statutory provisions or under the terms of the articles.S28

For public companies, general meeting may by ordinary resolution remove a director before the expiration of his or her period in office notwithstanding the provision of the articles of any other agreement between the director and the company.

The office of director then becomes vacant on the passing of the resolution.

This is not the case where the director was appointed to represent the interest of a particular class or shareholder or debenture holder. In such case, the resolution to remove the director does not take effect until a successor has been appointed.S123(2)&(3)

Special notice to the director within 28 days must be given for him or her to defense himself both by written representation and by addressing the meeting before a vote is taken.S128(2)

Independent right of removal without giving special notice.

A proper procedure must be followed whether a director is removed in accordance with the AOA or under section 128.

   

10.

What are the three types of Director's Duties

 
  • Fiduciary Duties
  • Duties of skill, care and diligence
  • Statutory duties

The role of a director is often likened to that of a trustee/quasi trustee (as directors being the holders of the company assets they owe fiduciary duty of loyalty and good faith to the beneficiaries (company & its stakeholders) of that trust).

   

11.

Director's Fiduciary Duties

 

Directors stand in a fiduciary relationship to the company in the performance of their duties. New sections 132(1), (1A), (1B), (1C),(1D), (1E), (1F) (1G) and 132(2) of CA provides for statutory fiduciary duties upon directors.

S.132(6) & S. 4 of CA define ‘officer’ as to include:

  • Any director, secretary or employee
  • A receiver & manager appointed under an instrument
  • A liquidator appointed in voluntary winding up

The role of a director is often likened to that of a trustee/quasi trustee (as directors being the holders of the company assets they owe fiduciary duty of loyalty and good faith to the beneficiaries (company & its stakeholders) of that trust).

   

12.

What Duties included under Fiduciary Duties?

 

Duty to exercise power in good faith and in the interest of the company.

The directors occupy a fiduciary position and must therefore exercise their power in good faith and in the interest of the company as a whole.S132

“ A director shall at all times at honestly…”

   

13.

Can a Company Loaned Fund to it Director?

 

S133

A Company shall not make a loan to a director of the company and vice versa.

S6

Deemed to be related to the company, or enter any guarantee or provide any security in connection with a loan made to such a director by any other person.

   
 
 

L & Co

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81800 Ulu Tiram, Johor, Malaysia.
Tel +607-861 7402
Fax +607-863 1003
Email liew@liew.my
 
     

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