Directors’ Duties in Malaysia

>> Liabilities and Penalties in Malaysia

A director has liabilities in the following actions:

  • restriction from Taking Loans – companies are generally prohibited from giving loans to its directors, subject to certain exceptions.
  • misuse of insider information or opportunities – Directors dealing with sensitive information regarding the transactions of the company must not use such information for their own profit. Directors wishing to act on such information should firstly communicate this intention to the company and obtain the consent of the other directors.
  • false and misleading statements or reports

it is an offence for directors to knowingly authorize, direct or consent to the advertising, circulation or publication of misleading or false statements or reports

The directors may face a variety of penalties or potentially imprisonment for breaching their duties as set out under the Act.

For the late lodgement of documents required under the Act the directors and officers of the company can face fines depending upon the delay in filing. However, late filing of documents should not be of concern as the task is invariably undertaken by a qualified company secretary.

If the company fails to keep accounts in accordance with the Act, it is guilty of an offence and is liable to maximum imprisonment for three years or fine of RM500,000.

If a company fails to file the Annual Return, the Company and every officer of the Company who is in default shall be guilty of an offence and be subjected to a penalty of RM50,000 as well as default penalty of RM1,000 per day.

Additionally, in the case of making false or misleading statements, under the Act, the individual can be sentenced to up to 10 years imprisonment or be liable to a fine of RM3,000,000 or both.

Generally, if an individual contravenes the requirements and regulations under the Act, and is found guilty, the person may be liable for penalty of up to RM50,000 and imprisonment up to three years.

Directors generally cannot limit their liability, however directors are entitled to rely on information, professional or expert advice, opinions, etc. presented by individuals retained by the company to provide such advice. Where a director’s reliance is made on reasonable grounds and is made in good faith and was made after an independent assessment by him, having regard to his knowledge of the company and the complexity of the corporate structure or operation then their liability may be restricted  or absolved.

Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/ or limitations upon you being able to continue in your role.

Civil action can be brought against directors by third parties in cases of fraudulent trading, and by shareholders when a director breaches their fiduciary duties.

Indemnity

It may be possible for the company to indemnify a director against certain losses, however this will never be possible in relation to criminal sanctions. The most common procedure here would be to obtain directors and officers insurance.

Delegation of Authorities

As a director, you are empowered to delegate aspects of your authority to persons whom you believe to be reliable and competent in the functions performed, subject to any provisions in the Constitution.

Directors and Officers Insurance

D&O insurance is available against certain civil (but not criminal) liabilities, and is the responsibility of the officer or company to obtain.


Latest version updated 4th April 2018

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