PPB 3233 COMPANY LAW
GROUP ASSIGNMENT
DIRECTOR’S DUTIES
GROUP: A
NAME MATRICS NUMBER
1 DASHINI VIGNESWARAN D20181081790
2 MISHALINI A/P ARUNMOLI SELVAN D20181081825
3 MOHANARAJ A/L SUBRAMANIAM D20181084817
4 MUHAMMAD ZULHAIMAN BIN ZULKEFLI D20181081836
5 SAINESHA A/P R SEGAMANI D20181081771
LECTURER NAME: DR. SASLINA BINTI KAMARUDDIN
DUTIES AND RESPONSIBILITIES OF DIRECTORS
Sec 213
(1) A director of a 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; and
(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 to both.
APPOINMENT OF FIRST DIRECTORS
The Act requires that the first directors of a company be named in its memorandum or
articles. A memorandum or articles of a proposed company must not be registered by the
Registrar unless the memorandum or articles contain the names of at least two persons who
are to be the first directors of the proposed company.
Where the articles do not specifically deal with the method of appointment of the first
directors, it is implicit that they could be appointed at a general meeting of members.
The power to appoint subsequent directors is usually contained in the articles of a company
and is normally exercisable by the company in general meeting.
RESOLUTION TO APPOINT DIRECTORS
In the case of a public company, no motion for the appointment of two or more persons as
directors by a single resolution may be made at a general meeting, unless a resolution that it
shall be so made, has first been unanimously agreed to by the meeting. A resolution passed in
contravention of this provision is void.
NUMBER OF DIRECTORS
A company must have at least 2 directors each of whom has his principal or only place of
residence within Malaysia. The Act does not prescribe the maximum number of directors and
the matter is generally left to be decided by the articles of a company. Usually the articles of
a company provide that the number of directors may be increased or reduced by an ordinary
resolution passed at a general meeting from time to time.
QUALIFICATION
A) Natural person
The Act requires that a director of a company must be a natural person. It was impossible for
a corporation to be a director of a company.
B) Share qualification
A person who is a non-member may be a director of a company. Since a director does not
need to be a member, it follows that a director does not have to hold any shares in a company
in order for him to be qualified as such. There is no obligation expressly imposed by the Act
for a director of a company to have any share qualification. Table A, article 71 provides that
the shareholding qualification of directors may be fixed by the company in general meeting.
The main object of having a shareholding qualification stipulation in the articles is to impose
upon a director a personal interest in the affairs of the company and so induce him to attend
to them very differently to the way he would do if he had no interest in them at all. The
question of whether or not a director of a company is required to have any shareholding in it
rests upon the provisions of the articles.
REQUIREMENTS
Must be a natural person and at least 18 years of age
Must be of sound mind
Must ordinarily reside in Malaysia by having a principal place of residence in
Malaysia
Not an uncharged bankrupt under the Insolvency Act 1967
Not disqualified under the Companies Act 2016
Have not been convicted, whether inside or outside of Malaysia, of any offence and
Has not been imprisoned for any offences prescribed under the Companies Act 2016
within 5 years immediately preceding his or her appointment
A director of a company shall at all times exercise his powers for a proper purpose and in
good faith in the best interest of the company.
DIRECTORS' REMUNERATION
Directors' remuneration is the process by which directors of a company are compensated,
either through fees, salary, or the use of the company's property, with approval from the
shareholders and board of directors. The process of directors' remuneration came about
because of shareholder concerns that directors were rewarding themselves large salaries
despite showing poor profits or revenue. Therefore, the process was initiated by which
shareholders were able to agree to or reject fees paid to directors in general. This amount is
the upper limit that can be paid to the board of directors.
The board of directors, in turn, will determine how those fee payments are split up among the
directors, including the general director of the company. On the other hand, director's
remuneration, meaning the salaries and bonuses paid out to directors, is part of the directors'
employment contract signed with the company. The board of directors then has direct control
over that remuneration agreement. Shareholders may sue the directors if they pay excessive
amounts that exceed the agreed payment or if they pay themselves a disproportionately large
amount of profits instead of distributing it to the stockholders as dividends.
[Link] TO ACT HONESTLY
Sec. 132(1) – Directors at all times act honestly and use reasonable diligence. Conflict of
interest and improper use. Deceitful and fraudulent .Directors may act honestly for the benefit
of the company, but they may still be held liable if they have exercised their power for
collateral purpose.
Punt vs. Symons & Co Ltd (1903) 2 Ch. 503
The directors of a company had issued new shares with the object of creating a sufficient
majority to enable them to pass a special resolution depriving other shareholders of special
rights conferred on them by the company's articles.
The court held that the Directors abused their powers. The Directors issued new shares to
give voting rights to additional shareholders in order to secure the passing of a special
resolution.
B. DIRECTORS CONTRACTING WITH THE COMPANY
Subject to section 221, a director of a company who is in any way, whether directly or
indirectly, interested in a contract entered into or proposed to be entered into by the
company, unless the interest is one that need not be disclosed under section 221, shall be
counted only to make the quorum at the meeting of the Board but shall not participate in any
discussion while the contract or proposed contract is being considered during the meeting
and shall not vote on the contract or proposed contract.
(2) Subsection (1) shall not apply to—
(a) A private company unless it is a subsidiary to a public Company
(b) A private company which is a wholly-owned subsidiary of a public company, in respect
of any contract or proposed contract to be entered into by the private company with the
holding company or with another wholly-owned subsidiary of that same holding company;
(c) Any contract or proposed contract of indemnity against any loss which any director may
suffer by reason of becoming or being a surety for a company; and
(d) Any contract or proposed contract entered into or to be entered into by a public company
or a private company which is a subsidiary of a public company, with another company in
which the interest of the director consists solely of—
(I) in him being a director of the company and the Shareholder not more than the
number or value as is required to qualify him for the appointment as a director; or
(II) In him having an interest in not more than five per centum of its paid-up capital.
(3) A contract entered in contravention of subsection (1) shall be voidable at the instance of
the company except if it is in favor of any person dealing with the company for a valuable
consideration and without any actual notice of the contravention.
(4) 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 to both.
Aberdeen Railway Co v Blaikie Bros
Facts of the Case
There was a deal entered into between Aberdeen Railways and Blaikie Bros. Aberdeen
Railways, the plaintiff required a large number of iron chairs (rail sockets) at the cost of 8
Pounds/Ton, decided by Blaikie Bros. The contract was concluded for a term of 18 months.
The deal was partially concluded and Blaikie Bros supplied Aberdeen Railways with as many
as two-thirds of the agreed volume of iron chairs. However, after that, Aberdeen Railways
refused to accept any more of the iron chairs from Blaikie Bros. The Blaikie Bros filed a suit
to enforce this contract which Aberdeen Railways refused to enforce. The argument put forth
by the respondents i.e., Aberdeen Railways, was that the managing director of Aberdeen
Railways at the time when the contract was made, Sir Thomas Blaikie, was also the
Managing Director of the Blaikie Bros, which implied that there was a conflict of interest in
the action.
Issues
The Court was faced with the issues that whether there was any conflict of interest due to the
position of Sir Thomas Blaikie? Whether the suits filed by Blaikie Bros for enforcement of
the contract maintainable and are they entitled for any damages due to the breach of contract?
Held
The Court held that Aberdeen Railways was not bound by any sort of contract which they had
entered into with Blaikie Bros. The rationale presented by the Court behind this decision was
that at the time when the contract had been entered into by Aberdeen Railways and Blaikie
Bros, the Chairman of the Board of Directors of Aberdeen Railways was also the Managing
Director of the Blaikie Bros. The Court opined that the self-interest of Sir Thomas Blaikie,
the director in addition to self-interest in this contract would cause him to settle the terms of
the deal to a level which delivers to him the maximum profit from the deal. The Court held
that the rule in question i.e., the duty of the directors to not indulge in the transactions which
pose a conflict of interest for them was clearly violated in this case, where the person holding
important positions in the Boards of both the parties to the transaction, had clearly a personal
interest in the enforcement of the contract
Analysis
The Court considered several facets through which to consider the merits of the case. The
Directors of a company are the representatives through whom any corporate body can act.
They are also in charge of the management of the affairs of the company. This also puts them
under the duty to act in a manner wherein the interests of the corporation on the behalf of
which they are acting are secured and maximized, rather than indulging in securing their self-
interests. They are under the obligation to discharge a fiduciary duty towards their principal.
Mr. Blaikie was not only a director, but also a Chairman of the Board of Directors of the
company, which imposed upon him a much severe duty to ensure and lookout for the best
interests of the company, and thereby ensure that the company secured the best bargains
when negotiating the transaction with the other parties, a duty at which he utterly failed. The
Court opined that his motives to drive the company into a bargain which would promote his
self-interest to the maximum was unjust of him, and thereby freed Aberdeen Railways from
being bound by any terms of the contract so entered into.
C. DUTY NOT TO MAKE SECRET PROFIT
The directors cannot take to their own use. The rule is very strict; it is irrelevant that the
company itself would not be able to obtain the profit. Corporate opportunity is regarded as
corporate asset which the directors cannot take to their own use.
Cook v Deeks
The directors of Toronto Construction Company had a disagreement with another director,
who is Cook. The majority of the directors were able to carry out a project using the name of
the company. After which, they then diverted the project to another company in order to
exclude Cook from the project, and the new company itself. The shareholdings of the
directors were then put to use by carrying out a resolution that Toronto Construction
Company does not have anything to do with the new project, which then automatically
excluded Cook out from the project The court ruled that indeed the majority directors and the
shareholders breached their fiduciary duty making the resolution they have made to
invalidated
3 out of 4 directors have diverted a contract which the company was interested to another
company formed by them. It was held that the contract is in equity belonged to the company
and the directors were not entitled to make a present of it to them.
D. DIRECTORS COMPETING WITH THE COMPANY
Subject to section 221(1) a director or officer of a company shall not, without the consent or
ratification of a general meeting—
(a) Use the property of the company;
(b) Use any information acquired by virtue of his position as a director or officer of the
company;
(c) Use his position as such director or officer;
(d) Use any opportunity of the company which he became aware of, in the performance of
his functions as the director or officer of the company; or
(e) Engage in business which is in competition with the company, to gain directly or
indirectly, a benefit for himself or any other person, or cause detriment to the company.
(2) 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 a fine not exceeding three
million ringgit or to both.
Kea Holdings Pte Ltd v Gan Boon Hock
Facts of the Case
Kea Holdings are a holding company. The second appellants, Kea Resources, are a wholly-
owned subsidiary of Kea Holdings, and are in the business of shipbuilding and the sale and
purchase of vessels. Gan joined Kea Resources on 15 July 1993 as a general manager and
subsequently became the managing director, holding this position up till 21 November 1998.
While in this post, he became a shareholder and director of Sinindo Pacific Pte Ltd together
with an Indonesian businessman, Teddy Salim Liem.
On 12 February 1999, the appellants commenced proceedings against Gan comprising 16
claims relating to alleged breaches of fiduciary duties, breach of confidence and fraudulent
misrepresentation. The trial judge decided in their favor on five claims. The appellants
initially brought this appeal on seven of the claims that had been decided against them.
However, the appellants subsequently proceeded on only four of the seven claims during the
course of the appeal.
Issues
These claims are:
(a) Claim arising from purchases by Sinindo Pacific Pte Ltd (Sinindo);
(b) claim in respect of three barges `Pacific 4`, `Pacific 5` and `Pacific 7`;
(c) Claim arising from the sale of the `Regal 8` to Kea Maritime; and
(d) Claim arising from the sale of the `Orient VI`. As was pointed out by the trial judge, each
claim was founded on its own facts and circumstances. As such, it would be convenient to
deal with each claim on its own.
Held
These circumstances show that Gan`s fraudulent misrepresentation must therefore also have
been made to Kea Resources. He intended that they would act upon it by entering into the
transaction, which they did, and they suffered damage as a result, via the difference in the
selling price that Ersihan paid and the amount of sale proceeds that they actually received. In
our view, the trial judge erred in holding that the appellants had to prove something beyond
ownership in order to be entitled to claim the proceeds. The facts showed that the elements of
the tort that Kea Resources claimed had been perpetuated on them by Gan had been made
out. Thus, they were entitled to bring the claim for the $35,000. Court thus allows the appeal
on this issue.
Analysis
Out of the four issues on appeal, court allows the appeal on the second and fourth claims and
dismisses the appeals relating to the first and third claims. Gan is thus ordered to pay over the
sums of US$77,610 and $35,000 to the appellants. As the appellants are only partially
successful, and in particular, lost the first issue which was by far the most hotly-contested
claim, court awards them one-third the costs in the appeal. Court makes the usual
consequential order for the security deposit to be returned to the appellants or their solicitors.
E. DUTY TO ACT BONA FIDE AND FOR A PROPER PURPOSE
The directors are under a duty to act bona fide in the interest of the company as a whole and
not for any collateral (security) purpose. Bona fide in what director’s consider-not what a
court may consider-is in the interest of the company. A director must act in what he considers
in the interest of the company as a whole, “the company as a whole” the company’s interest
Re Smith & Fawcett Ltd. [1942]
Fawcett died and the newly appointed director refused to register Fawcett’s shares in the
name of executer unless he was willing to sell half of them to Smith, but the company article
stated that “the directors may at any time and in their absolute and uncontrolled discretion
refuse to register any transfer of shares.” The applicant claimed to be registered as the holder
of the shares. The court said that the discretion was only subject to restriction that it should
only be exercised bona fide in the success of the company. Another fiduciary duty of the
director is duty to exercise independent judgment. A director of the company must exercise
independent judgment (within the limits of his authority as conferred by the company’s
constitution)
Conclusion:
The judge expressed the view that directors must act “bona fide in what they consider-not
what a court may consider-is in the interest of the company”. Whatever action taken by the
director, it must be done to promote the prosperity of the company.
DUTIES OF SKILLS, CARE AND DILIGENCE
Skills, care, and diligence are defined as the duties of a director to apply the appropriate care,
skill, and diligence that can reasonably be expected of a director with equal responsibilities
with knowledge, skill, and experience. The director must make sure that the decisions he
makes are for the benefit of the company and that they are the best. Such a function extends
to senior management for example the CEO, CFO, and COO also function whether the
director is the managing director or the non-executive director.
The nature of this law is that the company director is responsible for the law to act with due
care, competence, and diligence. The Business Judgment Act provides that a director will be
regarded as having the right to perform this function and it is a legal recognition in Malaysia
that 'directors are given the right and duty to determine where the company's interests lie and
how they will be served. They may be concerned about a variety of practical considerations,
and their judgment, if used honestly and not improperly, is not a welcome visit to the courts.
Under Section 132 (1B) and Section 214 of the Companies Act, 2016 is where this Act is
provided.
Section 214 (1) states that the director who makes a business decision is deemed to satisfy the
requirements of the employee under section 213 (2) and therefore the same functions under
common law and equity when the director decides on a business purpose of the business to
the extent that the director reasonably believes that it is appropriate under the circumstances,
and, reasonably, believes that the judgment of the business is within the interest of the
company. Section 214 (2) states that ‘business judgment’ means any decision as to whether
action should be taken in relation to a matter relating to a corporate business.
Section 213 (2) referred to in Section 214 states that a director of a company shall exercise
due diligence, competence, and diligence with knowledge, ability, and experience which may
reasonably be expected of a director with similar responsibilities, and, any additional
information, ability, and experience.
Re City Equitable Fire Insurance Co [1925] Ch. 407
Re City Equitable is a leading case relating to the duties of a director. This case occurred
during the liquidation of the debt-bearing debt restitution company therefore it became an
important case.
Through the deception of its chairman who was later convicted and sentenced to prison terms
the once prospered company, died tragically in just a short time. It was a bad investment
decision. Its fall has caused subsequent suffering to many people involved in its demise.
The chairman of the company claimed to have bought Treasury Bonds shortly before the end
of the accounting period and sold them shortly after the audit report consequently committed
fraud. Therefore, the debt due to the company from the firm where the chairman was
interested was put into balance by raising assets. Other executives was tried to hold
accountable for failing to obtain fraud by the company's salesman. They had left the
management of the company entirely in the hands of the chairman which caused the issue to
arise. Directors and auditors where taken action against by the felony minister accusing them
of negligence and breach of duty. In other words, the standard of care for directors and
officers was involved in the issue raised.
The held of this case was the liquidator fizzled and the judge set out the duties of care and
skill of a normal director which are:
1) A director need not show in the presentation of his duties a more prominent level of
skill than may sensibly be normal from somebody of his insight and experience.
2) A director will undoubtedly concentrate on the issues of the organization.
3) Where duties may appropriately be left to some other official, a director is supported,
without ground for doubt, in believing that official to play out his duties sincerely.
BUSINESS JUDGEMENT RULE
Section 214 (1) CA 2016 – a director who makes a business judgment is deemed to meet the
requirements of the duty under subsection 213(2) and the equivalent duties under the
common law and in equity if the director -
A. makes the business judgment for a proper purpose and in good faith
B. does not have a material personal interest in the subject matter of the business
judgment
C. informed about the subject matter to extent the director reasonably believes to be
appropriate under the circumstances
D. reasonably believes business judgment is in the best interest of the company
Section 214 (2) Company Act 2016 – defines “business judgment” - “any decision on
whether or not to take action in respect of a matter relevant to the business of the company”.
This rule is protecting honest directors and officers from the risks inherent in hindsight
review of their unsuccessful decisions. So long as the directors act honestly and within their
power, they are not liable for any error of business judgment.
