Directors

A company being a persona ficta can only act through the agency of natural persons. Thus,
the management of the company is entrusted under the AOA to a body of persons known as
‘directors’ (Art. 73, Table A).
- Sec. 122(1) provides: A company must have at least two directors.
- Sec. 4: A director is an officer of the company.
There are two types of directors:
- Non-executive director: Only takes part in the collective decision of the board of
directors, and has no other function, except by express delegation.
- Executive director: Not only has the function of attending board meetings, but also
actively participates in the management of the company.
Position of directors:
- Directors as an employee: A director is not an employee of the company, but may
become on through a separate contract of service entered into with the company.
- Directors as trustees: A director is not a trustee, but may become one when he
entrusted with the possession of certain property given to him for a particular
purpose, or to hold on behalf of the company.
- Directors as a representative of shareholders: Depending on the type of shareholder
that a director is, the director is regarded as the representative of such shareholders.
Thus, a director who is a preferential shareholder will be regarded as the
representative of preferential shareholders.
- Directors as agents of the company: A director is only considered as an agent of the
company when he is acting on behalf of the company.
- Directors as the alter ego of the company: Where a director is considered as the other
half (alter ego) of the company, the mens rea of a director constitutes the mens rea of
the company.
- Leonard’s Carrying Co v Asiafic Petroleum: Where an act of a director is
attributed to the company, a fault of the director amounts to a fault of the
company.
Appointment:
- Initial appointment:
- Sec. 122(1) & (3): The first two directors (at least) shall be named in the MOA
or AOA.

- Subsequent appointment:
- Art. 63 & 64: A director appointed under the MOA or AOA will only hold office
until the first AGM, at which point he will retire and be eligible for re-election
- In every subsequent AGM, 1/3 of the directors shall retire and be
eligible for re-election.
 - Art. 65: Retirement is determined by the period of time a person has held
office since their last election.
- Art. 66: A vacated office must be filled through an election.

- Art. 68: Directors have the power to appoint any person as a director to:
- Fill in a vacancy
- Add on to the existing number of directors

- Act. 67 & 69: A company may, by an ordinary resolution:

- Increase or reduce the number of directors, or
- Remove any director and appoint a replacement
- The replacement director shall be appointed at the time when the director
which he is to replace is scheduled to retire

Qualifications:
- Sec. 122(1): His principal or place of residence is in Malaysia
- Sec. 122(2): He is a natural person of full age
- Sec. 125(1): He is not an undischarged bankrupt
- Sec. 130(1): He is not a person convicted of any offence within or outside Malaysia
- Sec. 124: Share qualification of directors:
- A company’s AOA may impose a requirement that a director must also be a
member of the company.
- The requirement will then only be satisfied if the director is a registered holder
of a required number of shares, which is known as the share qualification.
- The share qualification serves two purposes:
- To provide directors with an added incentive to ensure the financial
success of the company
- For the shareholders to see that the directors are risking their own
money, and the members’.
- Sec. 129(1): Not of or older than 70 years old
- Sec. 129(2): The office of a director shall become vacant upon him reaching 70.
- Art. 72, Table A: Must not satisfy any of the grounds of disqualifications:
- Insane
- Absent for more than six months without the permission of the board
- Is directly or indirectly interested in a contract, or proposed contract, with the
company and fails to disclose his interest.
Defective appointment:
- Sec 127: The acts of directors shall be valid despite any defect in his qualification
discovered after his appointment.
- This is to assist a third party who contracts with a director acting on behalf of the
company who in actual fact does not have authority to do so.
Remuneration of directors:
- In the absence of a provision in the MOA or AOA stating otherwise, a director who is
not the employee of the company is not entitled to remuneration.
- However, Art. 70, Table A: Remuneration of directors may from time to time be
determined by the company in a general meeting.
- Nevertheless, a director is not entitled to enforce the AOA upon failure of the
company to pay for the remuneration.
Removal of directors:
- Private companies:
- Procedure is governed by the company’s AOA
- Art. 69: May remove a director by ordinary resolution

- Public companies:
- Sec. 128(1): The general meeting may by ordinary resolution remove a director
before the expiration of his period of office.
- Sec. 128(2): Special notice of 28 days must be given to the director concerned,
who has the right to be heard through a representation made in writing.
- Sec. 128(3): Where the representation is received too late, or there is failure
to distribute copies of it to every member, it may be read out at the meeting
upon request.
- Soliappan v Lim Yoke Fan: The company’s AOA provided that a director may be
removed and that a 7 days’ notice had to be given of a general meeting. The
plaintiff, who wanted to remove all the directors, sent a notice, 3 days before
the meeting, of a resolution for the directors’ removal. At the meeting, the
defendant refused to vacate the office. Held: Sec. 128 is not mandatory, thus
it is not necessary to provide 28 days’ notice where the AOA has specified
otherwise. However, in this case, proper notice (of 7 days) had not been given,
causing the defendant’s removal to be improper.

- Sec. 137: A company is prohibited from making any payment to any director by way
of compensation for loss of office (removal before the expiry of his office).
- However, if the director served under a separate contract of service, removing
him before the expiry of his office will be a breach of contract, causing the
company to be liable for damages.
Resignation of directors:
- Art. 72(e), Table A: A director of a company may resign at any time by giving proper
notice to the company.
- Sec. 122(6): None of the directors can resign if such resignation will cause the number
of directors to fall below two.
- However, if a director is disqualified, he must vacate the office regardless of
whether the number of directors will be less than two (Sec. 122(7))
Directors’ powers:
- Directors have a general power of management conferred upon them by the
company’s AOA.
- Art. 73, Table A: The business of the company shall be managed by the
directors who may exercise all such powers of the company that are not
required by the Act or the AOA to be exercised by the company in general
meeting.
- The powers of directors are also subject to regulations (consistent with the Act
and the AOA) prescribed by the company in a general meeting.

- Thus, a board of directors have the power to decide in all matters other than those
expressly mentioned to be within the powers of shareholders in:
- The AOA
- The Act
- A valid resolution by the company in general meeting
Directors’ duties
- Directors are the anchor of a company, who are entrusted to manage the company in
order to meet its object and purpose, as well as to generate the highest profit for the
company and its members.
- As directors are granted broad powers in order to act for the company, the law
imposes certain duties upon them in the interest of the public good and for the
protection of those who invest in the company.
- The breach of these duties will give rise to an action against the directors for any loss
suffered by the company as a result of the breach (Foss v Harbottle)

1) Fiduciary duties
- The Board of Trustees of Sabah Foundation v Datuk Syed Kechik Syed Mohamed,
‘fiduciary’: Someone who has undertaken to act for or on behalf of another in a
particular matter, or in circumstances which give rise to a relationship of trust and
confidence.
- Directors occupy a fiduciary relationship with the company as they act on behalf of
the company in its management.
There are four types of fiduciary duties:
Duty to act in good faith and in the best interest of the company
- Directors as fiduciaries must exercise their discretion in good faith, in what they
consider to be in the best interests of the company as a whole (Re Smith and Fawcett)
- Sec. 132(1): A director shall at all times exercise his powers for a proper purpose and
in good faith in the best interests of the company.

- There can be no breach of duty if the directors had acted in what they honestly
believed to be in the best interests of the company.
 - Mills v Mills: What is in the best interests of the company is actually what is fair among
the shareholders.

- In any case, directors are presumed to have acted bona fide for the benefit of their
company and those persons alleging a breach of duty bear the onus of proving that
the directors had not acted bona fide (Intrico Pte Ltd v Multi-Pak Singapore Ltd)
- Re W & M Roith Ltd: Roith was one of the three directors to the company which he
controlled. He entered into a contract with the company to ensure that his wife would
be paid a pension if he died. However, upon his death, the liquidators rejected the
executor’s claim for the pension. Held: When the directors of the company agreed to
make the contract, they were not considering the interests of the company, but
merely had the interests of Roith’s wife in mind.

- To whom is the duty owed:

- Directors owe a duty to the company as a whole.
- Although directors are to act in the interests of the shareholders, this does not
mean that they owe such duty to a particular shareholder.
- Percival v Wright: The shareholder took action against the director for
allegedly breaching his fiduciary duty by failing to disclose about an awaiting
takeover bid at a substantially high price. Held: The shareholder’s claim was
rejected as directors only owe such fiduciary duty to the company as a whole,
and not to an individual shareholder.

- Directors of a solvent company do not owe a duty to creditors.

- However, where the company is insolvent or nearing insolvency, the directors
must have due regard to the interests of the creditors, as in a state of
insolvency, where the company is required to pay its debts, the creditors’
interests overrides the members’ interests (Kinsella v Russel Kinsella Pty Ltd)
Duty to avoid a conflict of interests
- Directors should not engage in any transaction which would give rise to any possibility
for their personal interests to be in conflict with the interests of the company, which
they are meant to protect.

- This duty may be further subdivided into three forms:

- Directors contracting with the company
- A director, whether directly or indirectly interested, must not contract with the
company.
- Sec. 131(1): Every director of a company, who is in any way, whether directly
or indirectly, interested in a contract must disclose the nature of his interest at
a meeting with the directors of the company.

- Aberdeen Railway Co v Blaikie Bros: A railway company entered into a contract

with a partnership for the supply of a large quantity of iron seats. The company
 sought to avoid the contract on several grounds, including that at the time the
contract was entered into, one of the partners was a director of the company.
HOL held: The company could avoid the contract even though its terms were
fair. The duty of directors to avoid a conflict of interests must be strictly
applied, regardless of whether or not fraudulent motives were present.

- The act of a director putting his personal interests in another company above
the interests of the company in which he is a director amounts to a conflict of
interest.
- E.g: Where a director in Company A is also a shareholder in Company
B, the director is said to be contracting with the company when
Company A enters into a contract with Company B.

- Directors competing with the company

- Common Law: A person is not prohibited from becoming the director of several
companies provided that he does not breach his duties by becoming a director
in rival companies (London & Mashonaland Exploration Company Ltd v New
Mashonaland Exploration Co Ltd)
- Sec. 132(2)(e): A director shall not engage in business which is in competition
with the company unless consent or ratification of a general meeting is
obtained.
- Sec. 131(5): A director must disclose to the company the fact, nature, character
and extent of any conflict with his duties or interests, whether directly or
indirectly, which may arise.

- Kea Holdings Pte Ltd v Gan Boon Hock: The defendant was a director in the
plaintiff company, which sells and purchases ships, as well as a director in
Sinindo. The defendant advised the plaintiff to cancel its order for barges to
avoid payment of export duty, and alleged that there would be no buyers. The
plaintiff cancelled the order and had to forfeit its deposit. The plaintiff sued
the defendant upon discovering that he was aware Sinindo was looking for
barges to purchase, and instead of ensuring that the purchase was made from
the plaintiff, Sinindo bought from another company. The plaintiff also
discovered that the defendant received commission for Sinindo’s purchase of
barges. Held: Although the defendant was not precluded from holding
directorship in another company, he owed a duty to not place himself in a
position where his duty to the plaintiff company and his own interests are in
conflict.

- Thus, where a director engages in the directorship of a rival company, he is

said to be competing with the company.
- Directors making secret profits using corporate property, information or
opportunities through the use of their position as directors.
- This form of conflict of interest can be further divided into four prohibitions which a
director must not engage in without the consent or ratification of a general meeting
(Sec. 132(2)):
- A director must not take corporate property (Sec. 132(2)(a))
- Directors may be said to be in a breach of their duty if they used the company’s
property for their own business and misappropriate such property
- Voo Nyuk Fah v Lam Yat Kheong: Where the tractors were to be used for
refinancing purposes, and there was no agreement that they were to be sold
to a company owned by the defendant, in doing so, the defendant had placed
his personal interests in conflict with his duties as a director.

- A director must not use corporate information (Sec. 132(2)(b))

- Information (about shares, mergers etc.) that a person receives in his capacity
as a director is considered private and confidential.
- Electro Cad Australia Pty Ltd v Metaji RCS Sdn Bhd: Where the defendant,
without the company’s knowledge, obtained technical and marketing data to
manufacture an identical product in direct competition with the company’s
product, the court ordered an injunction to restrain any further breach of
duties and the use of confidential information.

- A director must not use his position as a director (Sec. 132(2)(c))

- A director is prohibited from using his position as a director to obtain any
benefit.
- Mahesan v Government of Malaysia: In a transaction involving the purchase of
land, the director had breached his duty by accepting a bribe, which was ¼ of
the profit gained from the sale. Where the loss that the company suffered from
the transaction was greater than the bribe received, the director was ordered
to pay damages.

- A director must not take or use corporate opportunity (Sec. 132(2)(d))

- A director must only take or use corporate opportunity for the benefit of the
company, and not for his own personal benefit.
- Avel Consultant Sdn Bhd v Mohd Zain Yusof & Ors: Avel Consultants entered
into a contract with STMB which was to be terminated if there were
resignations of key personnel. The defendant who was the director of Avel,
informed STMB that several key personnel of Avel had resigned. The contract
with Avel was terminated and granted to Perunding AJZ, a partnership in which
the defendant was a partner. The defendant was sued for breach of his
fiduciary duty. Held: A director of a company is in a fiduciary relationship with
his company, and as such is precluded from acting in a manner which will bring
his personal interest into conflict with that of his company. In this case, the
 defendant had carefully planned the formation of Perunding AJZ, which later
obtained what was meant to be the Avel’s job.

- If the company cannot take the corporate opportunity (e.g: due to a failure to
secure the contract during the negotiation) the director is still prohibited from
taking such corporate opportunity for his own personal benefit.
- Industrial Development Consultants Ltd v Cooley: Eastern Gas Board, out of
dissatisfaction with the company’s structure, did not wish to award the
contract to the company. Cooley, the director of the company, was
approached by the Gas Board, and was offered the contract, after which he
resigned his directorship and took up the contract. Upon being sued for a
breach of duty, he argued that the Gas Board did not want to give the contract
to the company. Held: Although the company would not have been awarded
the contract, Cooley would not have known of the contract if he was not the
director. Thus, the strict fiduciary duty required Cooley to make a full and frank
disclosure, and not doing so caused him to be liable to account for the profits
made in taking up the corporate opportunity.

- Canadian Aero Service Ltd v O’Malley: Where a director resigns from a

company to take up corporate opportunity, the director will still be in breach
of his fiduciary duty by taking up the corporate opportunity without the
company’s permission where:
- The resignation was influenced by the director’s desire to acquire the
opportunity
- It was the person’s position as a director to the company, and not any
new initiative, that led him to the opportunity.

- If the company had rejected the corporate opportunity, a director will not be
prohibited from taking the corporate opportunity for his own personal benefit.
- Peso Silver Mines Ltd v Cropper: The company, after careful consideration of
an offer in purchasing mines, decided to reject it. The company’s geologist then
formed a company that took over the mines, which the defendant (a director
of the plaintiff company) bought shares from and sold them at a profit.
Held: The director did not have to account for the profit made to the plaintiff
company, as once the company had rejected the corporate opportunity, the
director is free to exercise his interest in it.
Duty to exercise powers for proper purposes
- When the director misapplies the company’s assets or uses the power delegated to
him for a wrong purpose, even if he acted in bona fide, or in what he considered to be
the best interests of the company.
- Sec. 132(1): A director of a company shall at all times exercise his power for a proper
purpose and in good faith in the best interest of the company.
 - Mills v Mills: Powers conferred upon directors cannot be exercised in order to obtain
some private advantage, or for any purpose not connected to the powers.

- Re Duomatic Ltd: A payment made to the ex-director as compensation for the loss of
office which was not disclosed to the shareholders as required under a provision
equivalent to Sec. 137 (prohibition for compensation for loss of office) was a payment
that was unlawfully made by the company. Held: The directors are liable for
misapplication of the company’s funds even if they had acted honestly, out of
ignorance of the law.
- Advance Bank Australia Ltd v FAI Insurance Ltd: The directors breached their duty to
act for proper purposes when they used the company’s funds for the re-election of its
directors.
- Howard Smith Ltd v Ampol Petroleum Ltd: The directors of the company had the power
to issue shares if the company needed money. Instead, they issued extra shares in
order to assist Howard Smith to take control of the company, where they honestly
thought that it would be in the best interest of the company for it to be taken over by
Howard. Held: The court nullified the issuance of the shares as the directors had
misused their power. The exercise of such a power, though formally valid, was not
exercised for the purpose for which it was granted, namely to issue shares in order to
raise money for the company. Despite not having acted in furtherance of any personal
interest, the issuance of shares was still regarded as an abuse of power.
Duty to retain discretion
- A director is prohibited from limiting the exercise of his future discretions as a director.
Remedies for breach of fiduciary duties:
- The company may sue for damages, or for the return of any specific property
- The company may claim any secret profit that the director made
- The company may have the exercise of any power in breach of the directors’ duties to
be declared invalid

2) Duties of skill, care and negligence

- Sec. 132(1A): A director shall exercise reasonable care, skill and diligence with
- The knowledge, skill and experience which may reasonably be expected of a
director having the same responsibilities, and
- Any additional knowledge, skill and experience which the director has.

- Duty to be skilful:
- A director is not required to possess a specific set of skills or special
qualifications, and his lack of skills does not constitute a breach of his duty to
the company.
- This duty requires a director to exercise his powers by making use of the level
of skills that he has. If he uses a level of skills that is lesser than what he
possesses, he is said to be in breach of the duty.
 - Re City Equitable Fire Insurance Co Ltd: A director need not exhibit in the
performance of his duties a greater degree of skills than may reasonably be
expected from a person of his knowledge and experience.
- E.g A director of a life insurance company does not need to have the
skill of an actuary or a physician, but if he does in fact possess such
skills, he is required to exercise his powers by making use of them.

- Duty of care
- If a director acts with such care as is reasonable to be expected from him,
having regard to his knowledge and experience, and if he acts honestly for the
benefit of the company, he would have discharged his duty.
- Re Brazilian Rubber Plantations & Estates Ltd: Such reasonable care must be
measured by the standard of care an ordinary man might be expected to
exercise under the same circumstances on his own behalf.

- Huckerby v Elliot: Where the director knew little of the business, she left the
running of the business to her co-director and the manager. The director was
considered as having exercised reasonable care as there is no general principle
requiring each director to exercise a certain degree of control. Thus, it was
proper for her to have left such matters to another director, or an official of
the company.
- As long as there was no reason to distrust the delegatees, a director
was entitled to have confidence in their decision-making. However,
once there is reason for suspicion, a director who trusts a delegatee
does so at her own risk.
- Sec. 132(1F): Directors are responsible for the exercise of powers by
delegatees, as though such power had been exercised by the directors
themselves.
- Sec. 132(1G): Directors will not be responsible for any act of a delegatee, if he
had reasonable grounds to believe that the delegatee would exercise his
powers in conformity with the duties, and that the delegatee was reliable and
competent.

- Duty to be diligent
- Re Forest of Dean Coal Mining Co: Although directors, having regard to their
position, cannot be expected to devote as much time and attention to the
business, they are bound to use fair and reasonable diligence in the
management of the company’s affairs, and to act honestly.
- Sec. 132(1C) & (1D): A director may rely on information made by any of the
persons listed, if such reliance was made in good faith, and after an
independent assessment of such information.

- Directors will be liable to pay damages to the company if it is proven that:

- They breached their standard of care and diligence
 - Their carelessness caused the company’s loss or damage
- The type of loss suffered by the company was reasonably foreseeable

- However, directors may avoid liability arising from the breach of their duties of skill,
care and diligence if they are able to satisfy the business judgment rule as a defence.
- Sec. 132(1B): A director who makes a business judgment is deemed to have done so:
- In good faith for a proper purpose
- Without a personal material interest in the subject matter
- After being informed about the subject matter to the extent that he reasonably
believed it to be appropriate
- Out of the reasonable belief that the business judgment is in the best interest
of the company

- Satisfying the rule will prevent the court from questioning the merits of a business
judgment made by directors after reasonable investigation, in good faith without
person interest, and in reasonable belief that they are acting for the benefit of the
company.

3) Statutory duties
- Sec. 133(1): A company shall not grant a loan to a director of the company or enter
into any guarantee or provide security in connection with the loan to such director.
- This is to prevent directors from improperly using the company’s funds
especially when the directors are also the shareholders.
- Sec. 133A: A company is prohibited from giving a loan or providing security or
guarantee to any person connected with a director.
- Sec. 122A(1): A person is deemed to be connected with a director if he or she
is a family member of that director, a body corporate which is associated with
the director, or a trustee of a trust where the director or his family member is
a beneficiary.
- Sec. 122A(2), ‘family member’: A spouse, parent, child (adopted or stepchild),
brother, sister, and the spouse of his child, brother or sister.

- Sec. 132C(1): Directors shall not acquire or dispose company’s undertaking or

property of a substantial value unless approved by the company in a general meeting
- Sec. 132C(1B), ‘substantial value’: Where the value exceeds 25% of the company’s
total assets, total net profit, or issued share capital (whichever is higher)

- Sec. 132D(1): Directors shall not issue shares without the prior approval of the
company in a general meeting.