MEMBER FIRM OF BAKER & MCKENZIE INTERNATIONAL
Directors' Duties and Liabilities
under Malaysian Law
December 2010
This memorandum has been prepared for clients and professional associates of Wong & Partners. It is intended to
provide only a brief summary of the directors' duties in Malaysia. For this reason, the information contained in this
memorandum should not form the basis of any decision as to a particular course of action; nor should it be relied on as
legal advice or regarded as a substitute for detailed advice in individual cases. The services of a competent professional
adviser should be obtained in each instance, so that the applicability of the relevant legislation or other legal
development to the particular facts can be verified.
This memorandum is protected by copyright. No part may be reproduced or transmitted by any process or means
without prior written permission of Wong & Partners.
The law is stated as at December 2010.
Table of Contents
1.
Introduction .............................................................................................................................. 1
2.
Directors’ General Duties owed to the Company ................................................................. 1
3.
Common Law Duties of Directors .......................................................................................... 2
4.
Statutory Restrictions and Liabilities .................................................................................... 2
5.
Ratifying Breaches ................................................................................................................... 3
6.
Disqualification of Directors ................................................................................................... 4
7.
Statutory Liabilities of Directors on Winding-Up ................................................................ 4
8.
Civil and Criminal Liabilities of Directors ............................................................................ 4
1.
Introduction
Generally, the Malaysian Companies Act 1965 (“MCA”) provides for the statutory
duties and liabilities of company directors. Further, the common law principles on
directors’ duties supplement the provisions of the MCA. Directors are considered as
“officers” or “agents” of a company and have the capacity to enter into contracts on
behalf of the company, subject to limitations on their authority to do so as imposed
either by law, the company’s articles of association or other legal instruments.
At present, the MCA does not make a distinction between an executive and nonexecutive director. Accordingly, the duties and liabilities of a director apply to both an
executive and non-executive director.
As with most jurisdictions, the business and affairs of a company are managed by a
Board of Directors. The MCA prescribes a minimum of 2 directors, being natural
persons of full age and both directors must reside primarily in Malaysia.
2.
Directors’ General Duties owed to the Company
Statutory Duties under the MCA
The MCA essentially codifies the common law duties of directors and provides for
technical details in respect of the discharge of such duties. The statutory duties of a
director under the MCA include the following:

Duty to Act in Good Faith and for Proper Purpose: Directors owe a duty to
the company to act in its best interests in good faith, and to do so with
reasonable skill and care. The degree of skill and care imposed is that which
a reasonable person would exercise had he been in a similar position as the
director, taking into account any special skill, knowledge or expertise that the
director may possess.

Discharge of the Duty to Exercise Reasonable Care and Skill: The MCA
deems this duty discharged when a director is informed about the subject
matter of a business judgment and considers it appropriate, he makes a
business judgment in good faith, believing that such judgment is in the
company’s best interest and has no material personal interest in the subject
matter of the business judgment.

Reliance on Information and Advice: Directors may rely on information,
professional or expert advice, opinions, etc. presented by individuals retained
by the company to provide such advice. A director’s reliance is made on
reasonable grounds where it 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.

Duty to ensure dividends declared from profit: Directors are to ensure that
dividends are paid from profits and not capital.
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Directors' duties in Malaysia
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3.

Duty to seek shareholders’ approval: Directors are to seek shareholders’
approval at the general meeting of the company prior to carrying into effect
any arrangement or transaction of substantial value relating to the company.
This includes the acquisition and/or disposition of property whose value, profit
or shares value exceeds 25% of the total assets of the company, net profit or
issued share capital of the company. Further, directors must also obtain
shareholders’ approval prior to issuing new shares. Any transaction between
the company and a director or a substantial shareholder, where the
transaction is of substantial worth requires prior approval to be obtained from
the shareholders at the company’s general meeting. For the purposes of
discharging this duty, “substantial worth” is defined as a value exceeding 25%
of the total assets of the company, or the net profits, or the issued share
capital of the company, whichever is the highest.

Duty to keep proper accounts and registers Directors have a duty to
maintain proper accounts and registers (i.e. of members or transfers of
shares, etc.) and to make the same available for inspection when required.
Common Law Duties of Directors
As with most common law jurisdictions, Malaysia share similar common law duties
imposed on directors, including but not limited to the following:
4.

Non-fettering of director’s discretion

Prohibition from profiting secretly

Duty of fidelity
Statutory Restrictions and Liabilities
In addition to the statutory directors’ duties, there are various restrictions and
liabilities imposed by the MCA on directors and these are as follows:

Conflicts of Interests Directors must not place themselves in a position
where their personal interests and duties to the company are likely to directly
or indirectly conflict. Given that it is not uncommon for individuals to hold
directorships in more than one company at any time, directors should be
cautious when contracting with another company in which they hold
directorships or are substantial shareholders. Such individuals are generally
duty-bound to either declare their interests in a particular transaction to the
other directors or show that there could be no possibility of conflict.

Duty to declare interests A director, or persons related to him such as a
spouse or child, having direct or indirect interests in a contract involving the
company must declare such interests as soon as is reasonable to the board
of directors.
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5.

Restriction on Participation by Interested Director A director who is in any
way interested, whether directly or indirectly, in a contract involving the
company, shall not participate in any discussion pertaining to that contract.
He shall only be counted to make up the quorum of the meeting.

Misuse of Insider Information or Opportunities Directors dealing with
sensitive information regarding transactions must not use such information for
their own profit, even if the information is not ultimately utilized by the
Company because such information is deemed to be Company property.
Directors wishing to act on such information should firstly communicate the
same to the Company and obtain the consent of the other directors.

Restriction from Taking Loans Companies are generally prohibited from
giving loans to its directors, subject to certain exceptions.

Further Duties of Directors of Public Companies Directors of public
companies are subject to further duties that are imposed by other legislation
such as the Securities Commission Act 1993 or the Bursa Malaysia listing
requirements.

Statements in Company Prospectus A director is deemed guilty of an
offence for any untrue statements or willful non-disclosure in prospectuses.

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.

Fraud and Obtaining Payment of Money by False Promise Directors
obtaining payment from a company through fraudulent, deceitful or dishonest
means, or by making false promises are guilty of an offence.
Ratifying Breaches
The company may elect to ratify breaches of duties by its directors at the general
meeting, where shareholders may vote to condone the breach or allow the director to
act in a manner which would otherwise result in a breach of his directorial duties.
Further, the Court may grant relief to a director in breach of his duties if the court
considers that the director acted honestly and reasonably and thus, ought to fairly be
excused. Directors need not wait until proceedings have been commenced against
him because they may apply for such relief as a pre-emptive measure.
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6.
Disqualification of Directors
The Companies Commission of Malaysia (“CCM”) may institute “disqualification of
directors” proceedings on receipt of a complaint; this remedy may not be instituted by
the companies themselves. Directors may be disqualified from their position or taking
part in the management of the company for up to 5 years on the grounds of unfit
conduct, bankruptcy, conviction of fraud, dishonesty or offences relating to the
promotion, formation or management of the company.
7.
Statutory Liabilities of Directors on Winding-Up
The MCA imposes criminal liability on directors in connection with the winding-up of a
company if the following should occur:
8.

Incomplete disclosure of information to liquidators, refusal to deliver property
or documents, or concealment of debts due to or from the company by past or
present officers of the company;

Destruction, mutilation, alteration or falsification of documents by directors;

Contracting on behalf of the company although the director had no
reasonable ground of expectation that the company would be able to pay the
debt;

Fraudulent trading; and/or

Misfeasance by past or present officers of the company, including liquidators,
or any person who has taken part in the formation or promotion of the
company.
Civil and Criminal Liabilities of Directors
Breaches of statutory duties under the MCA may attract criminal liability where
provided, which includes substantial fines or terms of imprisonment. In more serious
cases, a director could face both fines of up to RM 250,000 and up to 10 years
imprisonment upon conviction. The MCA also provides, in certain cases, for the
director to be personally liable for the loss or damage suffered by the company.
Companies and third parties affected by the directors’ breach of duties may also
commence civil proceedings against them. The usual remedy sought is for the
directors to account for any profit made unlawfully and/or for them to make good any
loss or damage suffered as a result of the directors’ actions.
****************
Please note that the above is merely a brief outline of the duties and liabilities of directors
from a Malaysian legal perspective. It is not an exhaustive exposition of the law in
Malaysia nor is it intended to be relied on as legal advice and should not be so
construed.
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Directors' duties in Malaysia
4
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