Directors’ Duties in Malaysia

>> Powers and Duties in Malaysia

A director must act within the powers imposed upon by the relevant legislation/governing body, the company’s constitution and any specific power of attorney, if any. A director is also required to implement the decisions approved by the shareholders and act in accordance with any specific powers that may have been delegated by the shareholders or by the Board of Directors itself, if any.

Duties – General

As a director, you must act in a way which you think is most likely to promote the success of the company. You need to consider a number of statutory factors relating to corporate requirements, including the long term consequences of your decisions, the company’s reputation and the interests of other stakeholders such as employees, customers and the community.

Directors occupy a fiduciary position towards  the company whose board they form. Directors  as fiduciaries are therefore subject to the following duties:

  • to act bona fide in the interest of the company and must not exercise their powers for any collateral purpose
  • not to place themselves in a position where there is a conflict between their duties to the company and their personal interests. This is the ‘no-conflict rule’
  • not to make any secret profit out of the position as director. This is the ‘no-profit rule’

Statutory duties

The provision of the Act regarding directors’ duties confirms the common law duties of care, skill and diligence; which provides that a director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office for a proper purpose and in good faith in the best interest of the company.

The significance of the Act is that it imposes criminal liability where general law duties are breached. It states that a director must at all times act honestly and use reasonable diligence in the discharge of duties of his office.

However, by S.214(1) of the Act a director is relieved from any liability from making a business judgement if he:

  1. makes the business judgement for a proper purpose and in good faith;
  2. does not have a material personal interest in the subject matter of the business judgement;
  3. is informed about the subject matter of the business judgement to the extent the director reasonably believes to be appropriate under the circumstances; and
  4. reasonably believes that the business judgement is in the best interest of the company.

In addition, below are some of the key duties from the Act and other legislations for consideration by a director:

  • not to make improper use of any information obtained by virtue of his office to gain advantage for himself (either directly or

indirectly) or to cause detriment to  the company

  • not to make improper use of or disseminate any unpublished price-sensitive information to gain personal benefit
  • to seek approval of the company in a general meeting before dispose of or execute any transaction for the disposal of a substantial portion of the company’s undertaking or property
  • to disclose/give notice to the company of any shareholdings
  • to disclose his interest in any contract or proposed contract made by the company
  • to ensure that all registers or statutory books are kept and updated
  • not to engage, directly or indirectly, in a transaction that involves proceeds of any unlawful activity
  • acquire, receive, possess, disguise, transfer, convert, exchange, carry, dispose, use, remove from or bring into Malaysia proceeds of any unlawful activity
  • conceal, disguise or impede the establishment of the true nature, origin, location, movement, disposition, title of, rights with respect to, or ownership of, proceeds of any unlawful activity

Malaysian Anti-Corruption Commission  Act 2009

The wrongdoer under Anti-corruption Act 1997 is not confined to an individual. A corporation can be prosecuted and punished.

Directors need to ensure that there are sufficient internal controls coupled with pro-active and regular education efforts concerning gifts, entertainment and corruption.

Health and Safety/Environment

Any serious accidental injury and investigations and environmental breaches, if applicable, must be reported in accordance with the company’s policy. For example, directors are required to ensure compliance with the Occupational Safety and Health Act 1994, which requires employers to;

  • ensure plants and systems are, so far as practical, safe and without risks to health
  • making arrangements to ensure the safety of, and absence of risk in connection with the use, operation, handling, storage or transport of substances
  • ensuring that employees have received adequate information, instruction, training and supervision as is necessary to ensure their health and safety

Competition Law

You must comply with all competition law and regulations as failure to do so will lead to severe penalties which could include fines and imprisonment. Examples of behaviour to be particularly cautious of include refraining from price fixing and bid rigging; if in doubt, always seek advice.

Tax Law

You must comply will all areas of tax law and regulations. Failure to do so could leave you  liable for penalties or imprisonment, particularly for the failure to file tax returns, or for filing false tax returns.

Generally our tax advisors will attend to the computation of tax and submission of tax returns. However, it is prudent for a director to make occasional enquiries to ensure compliance of  the law.

Like all of the company’s employees, you must comply with Anti-Bribery and Corruption legislation, including the UK Bribery Act and the US Foreign Corrupt Practices Act, and must understand, follow and promote the company’s internal policies and procedures.

Malaysia Code on Corporate Governance

Although the Code applies to public listed companies, it is useful to acquaint oneself with its main provisions as many of them expound good corporate practice.

Latest version updated 4th April 2018

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