INTERPRETATION ABOUT COMPANY DIRECTORS
“Directors” 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 majority of directors of a corporation are accustomed to act and an alternate or substitute director.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.
“service address”, in relation to a director, means an address, electronic or otherwise, provided to the company to which any communication may sent.
COMPANIES ACTS 2016 – DIRECTORS
- SECTION 196: DIRECTORS OF COMPANYS196
(1) A company shall have minimum number of directors as follows:
(a) In the case of a private company, one director or
(b) In the case of a public company, two directors.
(2) A director shall be a natural person who is at least eighteen years of age.
(3) A director of a company shall not resign or vacate his office if by his resignation or vacation from office, the number of directors of the company is reduced below the minimum number required under subsection (1) and any purported resignation or vacation of office in contravention of this section shall be deemed to be ineffective unless a person is appointed in his place.
(4) For the purpose of this section, the minimum number of directors-
(a) Shall ordinarily reside in Malaysia by having a principal place of residence in Malaysia, and
(b) Shall not include an alternate or substitute director.DEFINITION OF DIRECTOR
in addition to the definition of “director” in section 2, “director” includes chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the company.
- SECTION 197: PERSONS CONNECTED WITH DIRECTORS.
(1) A person shall be deemed to be connected with a director if the person is-
(a) A member of the director’s family
(b) A body corporate which is associated with that director
(c) A trustee of a trust, other than a trustee for an employee share scheme, under which that director or a member of the director’s family is a beneficiary or
(d) A partner of that director or a partner of a person connected with that director.
(2) For the purpose of this section-
(a) “a member of the director’s family” means the director’s spouse, parent, child, including adopted child and stepchild, brother, sister and the spouse of the director’s child, brother or sister.
(b) A body corporate is associated with a director if-
(i) 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 the director.
(ii) That director has a controlling interest in the body corporate
(iii) 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.
- SECTION 198: PERSONS DISQUALIFIED FROM BEING A DIRECTOR.
(1) A person shall not hold office as a director of a company or whether directly or Indirectly be concerned with or takes part in the management of a company , if the person-
(a) Is an undischarged bankrupt
(b) Has been convicted of an offence relating to the promotion, formation or management of a corporation.
(c) Has been convicted of an offence involving bribery fraud or dishonesty
(d) Has been convicted of an offence under sections 213,217,218,228 and 539
(e) Has been disqualified by the Court under section 199
(2) The circumstances referred to in paragraph (1)(a), (b), (c) and (d) shall be applicable to circumstances in or outside Malaysia.
(3) Notwithstanding subsection (1), a person who has been disqualified under paragraph (1)(a) may be appointed or hold office as a director with the leave of-
(a) The official Receiver or
(b) The Court provided that a notice of intention to apply for leave has been served on the Official Receiver and the Official Receiver is heard on the application.
(4) Notwithstanding subsection (1), a person who has been disqualified under paragraph
(1)(b),(c),(d) or (e) may be re-appointed or hold office as a director with the leave of the Court.
(5) A person intending to apply for a leave of the Court under paragraph (3)(b) or subsection(4) shall-
(a) Give the Registrar a notice of not less than fourteen days of the person’s intention to do so and
(b) Make the Registrar a party to the proceedings under subsection (3)
(6) For the purposes of subsection (5), any person referred to in paragraph (1)(b), (c), (d) or (e) shall not be required to obtain a leave from Court after the expiry of five years calculated from the date he is convicted or if he is sentenced to imprisonment from the date of his release from prison.
(7) Any person who contravenes this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or to a fine not exceeding one million ringgit or to both.
- SECTION 199: POWER OF COURT TO DISQUALIFY PERSONS FROM ACTING AS DIRECTOR OR PROMOTER.
(1) The court may, on an application by the Registrar, make an order to disqualify any person from acting or holding office as a director or promoter of a company, or be concerned with or taking part in the management of a company whether directly or indirectly, if-
(a) Within the last five years, the person has been a director of two or more companies which went into liquidation resulting from the company being insolvent due to his conduct as a director which contributed wholly or partly to the liquidation.
(b) Due to his contravention of the duties of a director or
(c) Due to his habitual contravention of this Act.
(2) An application arising from the circumstances referred to in paragraph (1)(a) may be made by the Official Receiver and the Registrar shall be made a party to the proceedings.
(3) Before making an order under subsection (1), the Court may require any person-
(a) To furnish the Court with such information with respect to the company’s affair and
(b) To produce and permit inspection of such books or documents relevant to the company.
(4) After considering the application and the additional information and documents received under subsection (3), if any, the Court may make an order to disqualify the Person from acting or holding office as a director or promoter of a company, or be concerned with or taking part in the management of a company whether directly or indirectly for such period not exceeding five years commencing from the date of the order.
(5) The Registrar or the Official Receiver shall give notice of not less than fourteen days to the person referred to in subsection (1) notifying his intention to apply for an order under this section.
- SECTION 200: POWER OF REGISTRAR TO REMOVE NAME OF DISQUALIFIED DIRECTOR.
Notwithstanding any provision in this Act or the constitution of a company the Registrar shall have the power to remove the name of a director who has been Disqualified under section 198 or 199 from the register kept by the Registrar for that purpose
- SECTION 201: DIRECTOR’S CONSENT REQUIRED
A person shall not be appointed as a director of a company unless he has consented in writing to be a director and make a declaration that he is not disqualified from being appointed or holding office as a director of a company under this Act.
- SECTION 202: NAMED DIRECTORS AND SUBSEQUENT DIRECTORS.
(1) 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 this Act.
(2) All subsequent directors of a company may be appointed by ordinary resolution.
(3) Subject to the constitution, the Board may, at any time, appoint a director in addition to existing director and the director so appointed shall hold office-
(a) In the case of a public company, until the next annual general meeting.
(b) In the case of a private company in accordance with the terms of appointment.
- SECTION 203: APPOINTMENT OF DIRECTORS OF PUBLIC COMPANY TO BE VOTED ON INDIVIDUALLY.
(1) At a general meeting of a public company, a motion for the appointment of two or more
person as directors by a single resolution shall not be made unless a resolution that the motion shall be so made has first been agreed to by the meeting without any vote being given against it.
(2) A resolution passed in accordance with a motion made in contravention of this section shall be void, whether or not the resolution being moved was objected to at time.
(3) The provision for the automatic reappointment of retiring directors referred to in subsection 205 (6) shall not apply where a resolution passed in accordance with a
motion was made in contravention of this section.
(4) A motion for approving a person’s appointment or for nominating a person for appointment shall be treated as a motion for his appointment.
(5) A resolution passed under this section shall not be construed as amending the
- SECTION 204: VALIDITY OF ACTS OF DIRECTORS AND OFFICERS
The act of a director or manager or secretary shall be valid notwithstanding any defect that is discovered after his appointment or in his qualification.
- SECTION 205: RETIREMENT OF DIRECTORS
(1) The provision under this section shall apply with regards to the retirement of directors unless there is specific provision in the company’s constitution or the term of appointment regarding retirement of directors.
(2) Notwithstanding subsection (1), a private company may pass a written resolution in accordance with section 297 to determine the retirement of a director.
(3) The directors shall retire as follows:
(a) At the first annual general meeting of a public company, all directors shall retire from office at the conclusion of the meeting
(b) At the annual general meeting in every subsequent year, one-third of the directors for the time being, or if their number is not three or a multiple of three, then the number nearest to one-third, shall retire from office at the conclusion of the meeting.
(4) The directors to retire in every year shall be the directors who have been longest in office since the directors’ last election, but as between persons who became directors on the same day, the directors the retire shall be determined by lot, unless they otherwise agreed among themselves.
(5) A retiring director shall be eligible for re-election as if he is not disqualified under this Act.
(6) Unless otherwise provided in the constitution, the company may appoint any person who is not disqualified under this Act to fill in the vacancy at the annual general meeting at which a director so retires, and if no appointment was made to fill the vacancy, the retiring director shall, if he offers himself for re-election, be deemed to have been re-elected, unless-
(a) At that meeting the company expressly resolved not to fill the vacated office
(b) A resolution for the re-election of the director is put to the meeting and lost.
- SECTION 206: REMOVAL OF DIRECTORS.
(1) A director may be removed before the expiration of the director’s period of office as follows:
(a) Subject to the constitution in the case of a private company by ordinary resolution
(b) In the case of a public company in accordance with this section.
(2) Notwithstanding anything in the constitution or any agreement between a public company and a director, the company may by ordinary resolution at a meeting remove the director before the expiration of the director’s tenure of office.
(3) Special notice is required of a resolution to remove a director under this section or to appoint another person instead of the director at the same meeting.
(4) Notwithstanding paragraph (1)(b), if a director of a public company was appointed to represent the interest of any particular class of shareholders or debenture holders, the resolution to remove the director shall not take effect until the director’s successor has been appointed.
(5) A person appointed as director in palace of a person removed under this section shall be treated, for the purpose of determining the time at which he or any other director is the retire, as if he had become a director on the day on which the person in whose place he is appointed a director.
- SECTION 207: RIGHT TO BE HEARD FOR DIRECTORS OF PUBLIC COMPANY AGAINST REMOVAL.
(1) On receipt of special notice for a resolution to remove a director under subsection 206(3), the company shall forthwith send to the director a copy of the special notice.
(2) The director shall be given the right to make oral representation not exceeding a reasonable length on the resolution to remove him.
(3) Where the director makes written representation and request the written representation be notified to the members, the company shall unless the representation is received too late for the company to do so-
(a) State the fact of the representation having been made in the notice of the resolution given to members of the company
(b) Send a copy of the representation to every member of the company to whom the notice of the meeting is sent.
(4) If a copy of the representation is not sent ass required under subsection (3) due to the representations received too late by the company or due to the default of the company, the director may, without prejudice to his right to be heard orally, require that the representations shall be read out at the meeting.
(5) Copies of the representations need not be sent out and the representations need not be read out at the meeting if on the application either of the company or of any other person who claims to be aggrieved, the Court is satisfied that the rights conferred by this section are being abused.
(6) The Court may order the company’s costs on an application under subsection (5) to be paid in whole or in part by the director, notwithstanding that he is not a party to the application.
(7) The constitution of a private company may provide the rights accorded under this section to its directors.
- SECTION 208: VACATION OF OFFICE OF DIRECTOR.
(1) The office of a director of a company shall be vacated if the person holding that office-
(a) Resigns in accordance with subsection (2)
(b) Has retired in accordance with this Act or the constitution of the company but is not re- elected.
(c) Is removed from office in accordance with this Act or the constitution of the company.
(d) Becomes disqualified from being a director under section 198 or 199.
(e) 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,
(g) Otherwise vacates his office in accordance with the constitution of the company.
(2) Subject to subsection 196(3) and section 209, a director my resign his office by giving a written notice to the company at its registered office.
(3) A notice under subsection (2) shall be effective when it is delivered at the address of the registered office or at a later date specified in the notice.
(4) If a vacancy is created resulting from circumstances referred to in subsection (1), the Board shall have the power, at any time, to appoint any person to be a director to fill such casual vacancy and the director so appointed shall hold office-
(a) In the case of a public company, until the next annual general meeting
(b) In the case of a private company, in accordance with the terms of appointment.
- SECTION 209: RESIGNATION, VACATION OR DEATH OF SOLE DIRECTOR OR LAST REMAINING DIRECTOR.
(1) Subject to subsection 196(3), where a company has only one director or the last remaining director, that director shall not resign office until that director has called a meeting of members to receive the notice of the resignation and to appoint one or more new directors.
(2) Subsection (1) is also applicable to a company whose sole director is also the sore shareholder.
(3) For the purpose of appointing a new director, in the event of the office of a sole director or the last remaining director of the company being vacated due to the circumstances referred to in paragraph 208(1)(d),(e),(f) or (g), the secretary shall, as soon as practicable, call a meeting of the next of kin, other personal representatives or a meeting of members, as the case may be.
(4) The secretary shall be entitled to be indemnified by the company in relation to any reasonable costs and expenses of the meeting convened under subsection (3).
(5) Where the next of kin, personal representatives or members fail to appoint a director within six months of the death of the last director, the Registrar may direct the company to be struck off in accordance with Subdivision 1 of Division 4 of Part IV
(6) Where a sole director who is also the sole shareholder of a company is unable to manage the affairs of the company by reason of his mental incapacity, the committee appointed under the Mental Health Act 2001 to manage his estate may appoint a person as a director.
- SECTION 210: INTERPRETATION.
For the purposes of this Subdivision, in sections 213, 214, 215, 216, 217, 218, 223, and 228 in
addition to the definition of “director” in section 2, “director” includes chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the company.
- SECTION 211: FUNCTIONS OF BOARD
(1) The business and affairs of a company shall be managed by, or under the direction of the Board.
(2) The Board has all the powers necessary for managing and for directing and supervising the management of the business and affairs of the company subject to any modification, exception or limitation contained in this Act or in the constitution of the company.
- SECTION 212: PROCEEDINGS OF BOARD
(1) Subject to the constitution, the provisions set out in the Third Schedule shall govern the proceedings of the Board.
- SECTION 213: DUTIES AND RESPONSIBILITIES OF DIRECTORS.
(1) A director of company 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.
(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
(b) Any additional knowledge, skill and experience which the director in fact has.
(3) A director who contravenes this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or to a fine not exceeding three million ringgit or both.
Should have a clear understanding of the aims and purpose, capabilities and capacity of the company;
Should devote time and effort to attend meetings and to know what is required of the board and each of its directors, and to discharge those functions;
Should ensure at all times that the company is properly managed and effectively controlled;
Should stay abreast of the affairs of the company and be kept informed of the company’s compliance with the relevant legislation and contractual requirements;
Should insist on being kept informed on all matters of importance to the company in order to be effective in corporate management;
Should limit his directorship of companies to a number in which he can best devote his time and effectiveness; each director is his own judge of his abilities and how best to manage his time effectively in the company in which he holds directorship;
Should have access to the advice and services of the company secretary, who is responsible to the board to ensure proper procedures, rules and regulations are complied with;
Should at all times exercise his powers for the purposes they were conferred, for the benefit and prosperity of the company;
Should disclose immediately all contractual interests whether directly or indirectly with the company;
Should neither divert to his own advantage any business opportunity that the company is pursuing, nor may he use confidential information obtained by reason of his office for his own advantage or that of others;
Should at all times act with utmost good faith towards the company in any transaction and to act honestly and responsibly in the exercise of his powers in discharging his duties; and
Should be willing to exercise independent judgment and, if necessary, openly oppose if the vital interest of the company is at stake.
Relationship with Shareholders, Employees, Creditors and Customers
Should be conscious of the interest of shareholders, employees, creditors and customers of the company;
Should at all times promote professionalism and improve the competency of management and employees; and
Should ensure adequate safety measures and provide proper protection to workers and employees at the workplace.
Social Responsibilities and the Environment
Should ensure that necessary steps are taken in accordance with the law to properly wind-up or strike off the company register if the company has not commenced business or has ceased to carry on business and is not likely to commence business in the future or resume business as the case may be;
Should adopt an objective and positive attitude and give the utmost cooperation for the common good when dealing with government authorities or regulatory bodies;
Should ensure the effective use of natural resources, and improve quality of life by promoting corporate social responsibilities;
Should be more proactive to the needs of the community and to assist in society-related programmed in line with the aspirations of the concept of ‘Caring Society’ in Vision 2020; and
Should ensure that the activities and the operations of the company do not harm the interest and well-being of society at large and assist in the fight against inflation.
Offence By Directors
- Not convening of annual general meeting
- Never lodged and submit company‟s annual return on yearly basis
- Didn’t kept company accounting records
- Not tabling of company accounts.
- False or misleading statements
- Transactions involving directors and shareholders
- Interests other than shares
- Statutory obligations of substantial shareholders
- Never appoint company auditors
- Conflict of interests
Directors is having heavy responsibilities. They are required to follow the guidelines as mentioned in The Companies Acts 2016 and to perform their duties effectively. Common law and statutory duties impose upon the directors‟ burdens so heavy and responsibilities so great.