This document discusses the duties and responsibilities of directors in corporate law in Malaysia. It begins by defining who can be considered a director, including de jure and de facto directors. It then distinguishes between different types of directors like executive, non-executive, and independent directors. It also discusses the appointment and qualifications of directors, as well as their powers, duties to act in good faith and avoid conflicts of interest. Directors have fiduciary duties and business decisions will not be interfered with if made reasonably and in good faith. The duties of directors in making solvency statements are also summarized.

1. You can cite this information as follows :
 In-text citation : Ng and Chang (2021)
 Reference list : Ng, M.Y. and Chang, C.F. (2021) “Corporate Law of Malaysia : The legal implication of holding leadership in a Malaysian
business entity” Social Science Research Network, at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3806994
Note : These slides may provide extra information or illustration that are not found in the full article. This is to facilitate students’ learning.
Undang-undang syarikat  公司法
Corporate Law of Malaysia :
7. Directors and Officers
• Quick reference for Undergraduate Students
• With translation of key terms in “Bahasa” and “中文”

2. Topics in this Series (search SlideShare using this title) URL to the full Article
1 Boleh Law Introduction to Malaysian Company Law & Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3779693
2 Boleh Law Incorporation of Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797479
3 Boleh Law Corporate Constitution https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797482
4 Boleh Law Share Capital & Capital Maintenance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797487
5 Boleh Law Rights of Shareholders & Members https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797485
6 Boleh Law Loan Capital https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797494
7 Boleh Law Directors & Officers https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3806994
8 Boleh Law Accounting and Auditing of Corporate Accounts https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830195
9 Boleh Law Anti-money laundering and anti-terrorist funding https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830185
10 Boleh Law Taxation https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830197
11 Boleh Law Meetings https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830189
12 Boleh Law Rescuing a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830190
13 Boleh Law Winding-up a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830192

3. Who is a Director ?
Sec.2, CA 2016 – “director” to include :
“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 majority of directors
of a corporation are accustomed to act and an alternate or substitute director”
Sec.210, CA 2016 :
the person occupying the position as CEO, CFO, COO and “any other person primarily
responsible for the management of the company”.
In short, “directors” are :
• anyone who are officially appointed to the position as director without bearing the title of
“director” – de jure directors
• anyone who has no official appointment but claims to assume the authority to direct the
Board – de facto directors.

4. Executive
director (ED)
• full-time senior managerial individuals
• directly involved in the daily administration of the company.
• sometime be regarded as an employee of the company.
• they may hold shares in the company.
• Example of EDs : CEO, CFO, COO and MD
Non-Executive
Director (Non–
ED)
• not a member of the management team (part-timer)
• not involved in daily administration
• only attend meetings to decide on policy matters.
Independent
director (ID)
• only receive directors fee.
• no other monetary interest in the company (not employees or shareholder)
• watchdog of the management team.
• at least half of the Board should be IDs
• vice versa (sebaliknya ; 相反的 of the above will be Non-independent director (Non–ID)
Alternate
director
• a temporary substitute to an existing director when the latter is not available.
• in the same position as the principal director
• he is not counted toward the statutory minimum number of director.
• can only be appointed if there is such provision in the constitution.

5. Directors’ appointment
Appointing 1st director
• 1st director means the first person being appointed to hold the position as director in the
company when it was first formed.
• his name will be entered into the documents filed with the Registrar and in the
company’s constitution (if any)
• They are normally the Promoters and/or person employed to the position

6. Appointing subsequent directors
• Selection done by Nomination Committee
• Appointed by the Board
• Then approved by at least 50% of the members (simple
majority)
• Members consent obtained in general meeting
• Each director must be approved separately
• Example : Mr.A, Mr.B and Ms.C will be appointed as director.
Then 3 resolutions must be passed at the general meeting.
• For public company – appointing 2 or more director in a single
resolution can only be done if all 100% members agreed to this
method.
Choosing the right
candidate
(by Nomination
Committee)
Appointing the chosen
candidate
(by the Board)
Final approval
(by Members)

7. Women power
• CG Code recommended that the Board of large companies (ie : top 100 listed companies
or those with a market capitalization of more than RM2 billion) should consist of 30%
women.
• CG Code carries limited (or no) legal weight (tiada kekangan undang-undang ; 没有法
律约束)
• But this recommendation is absorbed in the Bursa Malaysia Listing Requirement. Hence,
it is a requirement for publicly listed companies. Therefore, non-compliance of the CG
Code violates the Listing Requirement, not the Companies Act
• Punishment : delisting from the exchange, suspension of trading, reprimand, or fine by
the Bursa Exchange

8. Directors office
• Directors hold office until the next AGM
• Members appraise their performance and decide if their appointment should be renewed or
discontinued
Defective appointment
• If it is later discovered that the appointment is flawed (ie : violated the procedure stated in
CA, the person is disqualified etc) – his acts or decision made during that defective period
remain valid (Sec.204, CA 2016)
• he is not entitled to receive any fee or remuneration during the period that he has served the
company.
• Genuine administrative error will not invalidate the appointment. His appointment can be
resumed once the members ratify (iktiraf ; 批准) it in the general meeting.

9. Director’s qualification
• a natural person of at least 18 years old (Sec.196(2), CA 2016).
• “Natural person” means a real human being. A company cannot be a director in another
company
• No legal requirement that director must possess certain academic qualification
• But Sec. 213(2) require a director to “exercise reasonable care, skill and diligence” in
discharging his role and responsibility – this means the person must possess such knowledge that
is relevant to the nature of the business.
• Practice Note.8.4 of CG Code provides – members in the Audit Committee should consist only
IDs who :
‒ must be able to read financial reports
‒ have knowledge in all aspect of accounting, auditing, standards, rules, process and practices.
‒ must keep themselves abreast with latest development in the field by taking continuous
“professional development”

10. Number of Directors
• number of directors to be employed depends on the complexity of the business
• Private company – can operate with 1 director (Sec.196, CA 2016).
• Public company – must have at least 2 directors (Sec. 196, CA 2016).
• New directors can be appointed to :
‒ Fill casual vacancy (the existing director resigned before the due date, creating a
temporary vacancy)
‒ Temporarily substitute a principal director (a director that goes on leave and a temporary
replacement is appointed to take his role)
‒ Increase the Board size so that another director can resign/be removed (this is to ensure
the company meet the minimum number required)

11. Directors’ fees
• Director is not an employee – so they receive fee, not salary
• Fees and allowances must be provided in the constitution. Otherwise, the Board cannot
pay themselves.
• Public company – actual amount to be paid must be approved by at least 50% of members
at general meeting (Sec.230, CA 2016). The Board cannot approve the amount on their
own.
• Private company – actual amount to be paid can be approved by the Board, then inform
members within 14 days. Members holding minimum of 10% of voting rights can ask that
the amount to be approved by members instead of by the Board.

12. Directors’ indemnity and insurance
• “Directors and Officers liability” (D&O) insurance to indemnify the company’s directors,
officers and their spouses, following a claim from a 3rd party.
• Previously, the insurance premium was paid by the company
• Now, Sec.288 forbid company from indemnify or purchase any insurance to reimburse a
director for civil or criminal liability (liabiliti jenayah ; 刑事责任) , if he is found guilty.
• The director can get reimbursement from the company if :
1) He has been acquitted (dibebaskan ; 无罪释放) of the alleged offence (kesalahan yang
didakwa ; 涉嫌犯罪) or
2) The offence has been relief by the Act; or
3) The proceeding against him has been withdrawn
• The reimbursement must be approved by members. Otherwise, the director cannot make such
claim.

13. Directors’ power
• Who gave the director his power ?
(1) CA 2016; and
(2) company’s constitution
• Power given by CA (also called “statutory power”) is superior of constitution power. Directors
are entitle to exercise his statutory power, unless the CA specifically allow variation of the
power.
• Variation to the statutory power can only be made if the company has a constitution.
• Directors must act within the authority given to them. Otherwise, they will be personally
liable for their act.

14. Business Judgement Rule
• Directors are entirely responsible for all decision made by himself and the Board collectively.
• If the Board make a decision that disadvantaged some members, the affected members has right
to petition to the court to have the decision reviewed.
• The Court will not interfere in corporate decision if the decision was made :
1) in bona fide or good faith, (niat baik ; 善意)
2) for a proper purpose,
3) not tainted by personal interest of the decision maker,
4) the directors reasonably belief that it is appropriate ; and
5) it is in the best interest of the company as a whole.
• This is “Business Judgement rule” provided in Sec.214 to protect honest directors.

15. Directors’ duties
• Director has fiduciary relationship with the company.
• “Fiduciary” means utmost honesty, trust and confidence.
• Fiduciary duties in CA 2016 :
(a) Duty to act in good faith
(b) Duty to exercise reasonable care, skill and diligence
(c) Duty to avoid conflict of interest
(a) Duty to act in good faith
• Sec.213(1), CA 2016
• “A director … shall at all times exercise his powers in accordance with this Act, for a proper
purpose and in good faith in the best interest of the company.”

16. (b) Duty to exercise reasonable care, skill and diligence
• Sec. 213(2,) CA 2016 provides that :
A director …. 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.”
(c) Duty to avoid conflict of interest
• Sec.221(1) – directors must declare their interests in any contract with the company, including
contracts that the company is about to enter into.
• The declaration must be made to the Board once he realized that there is such conflict.

17. Example : Director A sold one of the company’s asset at RM500,000.

18. Directors’ duty in making Solvency Statement
• Solvency Statement (“SS”) is made after a solvency test. (for explanation of solvency test,
please see Chapter 4 : Share Capital & Capital Maintenance)
• SS is a statement signed by the directors declaring that they are satisfied with the solvency test.
• SS is needed for :
1) share capital reduction
2) preference shares redemption
3) buyback own shares
4) provide financial assistance
• A director who signed a SS “without having reasonable grounds for the opinion expressed”
(which means he either did not check the details diligently or he did not find the solvency test
to be accurate), commits an offence that is punishable with 5 years imprisonment or a
maximum fine of RM500,00 or both; if found guilty. (Sec.114, CA 2016)

19. The End
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