Directors’ roles and duties in Malaysia.

It is important that directors and shareholders of Malaysian companies act according to the responsibilities of their duties in order to avoid breaching the company law and committing criminal offences. This article provides an overview of the roles and responsibilities of:

• Directors
• Shareholders

1. Directors

Who can be a director in Malaysia?

• Aged 18 years and above
• Natural person
• Be of sound mind
• Ordinarily reside in Malaysia
• Not an undischarged bankrupt
• Not disqualified
• Have not been convicted inside or outside of Malaysia of any of the following offences:
  • Offences related to the promotion, formation or management of a corporation
  • Crime involving bribery, fraud or dishonesty
  • Offences under section 213, 217, 218, 228 or 539
• Have not been imprisoned for the above offences within five years

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Role of a director

• Call meetings including board meetings, annual general meetings and extraordinary general meetings
• Make decisions for the company
• Manage the company’s business and affairs
• Prepare and file required statutory documents

Duties of a director

Directors must fulfil both fiduciary and statutory duties to make sure that the director is acting in the best interest for the company.

Fiduciary duties of a director

• Act in good interest for the company
• Avoid conflict of interest between personal and company matters
• Refrain from any secret profit out of the director position

Statutory duties of a director

• Act in good faith and use power for proper purposes
• Disclose interest in any contract or proposed contract made by the company
• Get company approval in general meetings before executing any transactions
• Give notice to the company disclosing his shareholdings and any changes made
• Make sure registers and statutory books are updated

Liabilities of a director

A director may be held personally liable if they fail to fulfil their responsibilities, such as:

• Being under insolvency law
• False or misleading reports causing the company to suffer a loss
• Making illegal distributions
• Unable to pay debts

If the director breaches the company law, this may be regarded as a criminal offence and will need to pay fines. Penalties for company law breaches may include:

• Compounding
• Delisting
• Dissolution
• Minimum or maximum fines based on the applicable legislation
• Reprimands
• Suspension of trading

Appointment of a director

To appoint a new director, you must notify the company secretary and the company secretary will prepare forms pursuant to section 58, section 201 and the board resolution.

The board of directors must approve the appointment of a new director by signing the board resolution.

Once the documents and board resolution are completed, the company secretary will submit them together with the following information to the Companies Commission of Malaysia (SSM):

• Date of the appointment
• Date of birth
• Email address
• Full name
• Nationality
• Occupation (if applicable)
• Residential address
• Service address

Change of a director

Change by resignation

A director may resign from the director position by handing in a written notice to the board of directors. Once the board has received the notice, the board must inform the company secretary in order to prepare a board resolution.

If the board approves of the resignation, the company secretary will submit the following documents to the SSM:

• Date of ending director term
• Full name
• Identification card number

Sometimes, the board of directors may reject the resignation of a director and may also refuse to submit the resignation document to the SSM.

The reasons why the board may reject the resignation is because the resigning director is:

1. A contract employee
2. A party to the shareholder’s agreement
3. Involved in a likely serious breach of trust case

Change by removal of a director

The following lists the regulations for the removal of a director under section 206 of the Companies Act, 2016:

1. A director may be removed before the expiration of the director’s period of office as follows:
   1. Subject to the constitution, in the case of a private company, by ordinary resolution
   2. 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 interests 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 a director in the place 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 to retire, as if he had become a director on the day which the person in whose place he is appointed was last appointed a director

Under section 207, directors have the right to be heard when they are to be removed. The director has the right to make an oral or written representation about the resolution to remove him/her.

Resident director

Resident directors are appointed by a shareholder or creditor to act as a representative of the director and use his/her voting power at meetings.

Some terms and conditions of being a resident director for a Malaysian company are:

• A resident director will not hold any shares of the company
• The resident director only represents the interests of the director
• The resident director shall not be working in your office like regular staffs
• The resident director will not interfere with the business of the company or act as the signatory of a bank account

2. Shareholders

What is a shareholder?

A shareholder is a person who owns one or more shares in a company and are the owners of the company. A shareholder and director may be the same person, but they have different roles and responsibilities. Shareholders are the owner, while directors manage the day-to-day operations.

Role of a shareholder

• Appoint or remove company directors by an ordinary resolution
• Appoint or remove auditor (public companies)
• Approval of the director’s salary (public companies)
• Changing the company’s constitution
• Issuance of additional shares

Rights of a shareholder

• Rights to sell their shares
• Right to vote on the appointment of directors
• Right to nominate directors and propose shareholder resolutions
• Right to receive dividends
• Right to access information about the company affairs
• Right to sue the company for fiduciary duty violations
• Right to purchase new shares issued by the company
• Right to obtain assets after liquidation

Conclusion

It is essential that directors and shareholders in Malaysia act according to their duties and roles for the company to function properly and have a good management,

Therefore, it is recommended to engage in services like Acclime to ensure that you have good understanding of the roles and responsibilities of directors and shareholders in Malaysia.