An Onerous Duty - Malaysia
Call +603 20961478
"With great power comes great responsibility." Glamorous as it may be, the post of a company director entails the accountability and undertaking at the company's behest. The article is a brief on who a "Director" is and the duties that comes with the name.
Over the years we have seen a growing number of companies being established in Malaysia. A very common reason for establishment of a company is “Limited Liability”. What this means is that the shareholders do not have the burden of overseeing the risk and profitability of the company as the same fall within the responsibility of the Board of Directors and with such responsibility comes accountability.
The purpose of this article is not to delve into the details of the duties and responsibilities of directors but generally just to serve as a guide on the substantial exposure placed on the directors in the day to day undertaking this onerous duty.
General Definition of a Director
For ease of reference, I have taken the liberty to state in very general terms the following:‐
1. An individual can be a director as long as he/she:
A) is 18 years old (for public companies the general rule is that a director must be under 70 years old);
B) is not an undischarged bankrupt;
C) has not been convicted of criminal offence involving fraud or dishonesty;
D) has not been imprisoned for an offence under S132, S132A or under S303 of Companies Act; and/or
E) has consented to act as director.
2. Section 4 of the Companies Act 1965 (CA) defines director as:
This is a strict liability issue. What this means is that so long as the company fails to make the required
employment Provident Fund (EPF) contributions, the directors would be personally liable. The courts have even gone further and to hold the directors personally liable even where the company has been wound up stating that at the material time when the contributions failed to be paid the individual was the named Director. On Kim Chuan & Anor V. Lembaga Kumpulan Wang Simpanan Pekerja [2009] 6 CLJ 586 [2009] 1
LNS 576.
4. Failure to comply with the requirements of the Authorities:‐
(a) Stock Market manipulation and submission of false statement to the Securities Commission. A director was fined RM150,000.00 and in default would be liable to 3 months imprisonment;
(b) Directors conspiring to withdraw money from trust account. Two directors were fined RM200,000.00 each and in default would be liable to 1 year imprisonment;
(c) An operating officer engaged in an act which operated as a deceit (Initial Public Offering exercise). The Operating Officer was sentenced to 3 years imprisonment and fined RM1,000,000.00 and in default would be liable to an additional 1 year imprisonment;
(d) Omitting to state a material fact deemed to be misleading. The Director was sentenced to 1 year imprisonment and fined RM3,000,000.00 and in default would be liable to an additional 3 year imprisonment;
The penalties imposed by the relevant authorities have ranged from thousands to millions of Ringgit Malaysia,
all depending on the gravity of the offence. The courts have also imprisoned fraudulent directors.
Conclusion
In conclusion, the power suits, the glamour of corporate dealings and the considerable power synonym with the post of a director come at a price. The price, shouldering the onerous duty of ensuring the interest of the company is safeguarded and upheld at all times, even if it is against the wishes of the stakeholders of the company itself. Taking a look at international corporate structures and precedents, the regulations and enforcement of regulations will most certainly be an area that will continue to develop. As such, due and proper consideration of the roles, duties and exposures of a director must be given and just as any complex decision, due research and advise should be sought before making a decision.
ABOUT THE AUTHOR: Ganesheraj Selvarajah
Ganesheraj Selvarajah is one of the managing partners in Messrs Jayadeep Hari & Jamil, and heads the Firm's Corporate Department alongside founder & managing partner - Jayadeep Bhanudevan. Recent years have seen Ganesheraj venturing into the legal aspects of the mining and quarrying industry, working closely with international corporations and GLCs in high profile projects and joint-ventures.
Copyright Jayadeep Hari & Jamil
More information about Jayadeep Hari & Jamil
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
The purpose of this article is not to delve into the details of the duties and responsibilities of directors but generally just to serve as a guide on the substantial exposure placed on the directors in the day to day undertaking this onerous duty.
General Definition of a Director
For ease of reference, I have taken the liberty to state in very general terms the following:‐
1. An individual can be a director as long as he/she:
A) is 18 years old (for public companies the general rule is that a director must be under 70 years old);
B) is not an undischarged bankrupt;
C) has not been convicted of criminal offence involving fraud or dishonesty;
D) has not been imprisoned for an offence under S132, S132A or under S303 of Companies Act; and/or
E) has consented to act as director.
2. Section 4 of the Companies Act 1965 (CA) defines director as:
This is a strict liability issue. What this means is that so long as the company fails to make the required
employment Provident Fund (EPF) contributions, the directors would be personally liable. The courts have even gone further and to hold the directors personally liable even where the company has been wound up stating that at the material time when the contributions failed to be paid the individual was the named Director. On Kim Chuan & Anor V. Lembaga Kumpulan Wang Simpanan Pekerja [2009] 6 CLJ 586 [2009] 1
LNS 576.
4. Failure to comply with the requirements of the Authorities:‐
(a) Stock Market manipulation and submission of false statement to the Securities Commission. A director was fined RM150,000.00 and in default would be liable to 3 months imprisonment;
(b) Directors conspiring to withdraw money from trust account. Two directors were fined RM200,000.00 each and in default would be liable to 1 year imprisonment;
(c) An operating officer engaged in an act which operated as a deceit (Initial Public Offering exercise). The Operating Officer was sentenced to 3 years imprisonment and fined RM1,000,000.00 and in default would be liable to an additional 1 year imprisonment;
(d) Omitting to state a material fact deemed to be misleading. The Director was sentenced to 1 year imprisonment and fined RM3,000,000.00 and in default would be liable to an additional 3 year imprisonment;
The penalties imposed by the relevant authorities have ranged from thousands to millions of Ringgit Malaysia,
all depending on the gravity of the offence. The courts have also imprisoned fraudulent directors.
Conclusion
In conclusion, the power suits, the glamour of corporate dealings and the considerable power synonym with the post of a director come at a price. The price, shouldering the onerous duty of ensuring the interest of the company is safeguarded and upheld at all times, even if it is against the wishes of the stakeholders of the company itself. Taking a look at international corporate structures and precedents, the regulations and enforcement of regulations will most certainly be an area that will continue to develop. As such, due and proper consideration of the roles, duties and exposures of a director must be given and just as any complex decision, due research and advise should be sought before making a decision.
ABOUT THE AUTHOR: Ganesheraj Selvarajah
Ganesheraj Selvarajah is one of the managing partners in Messrs Jayadeep Hari & Jamil, and heads the Firm's Corporate Department alongside founder & managing partner - Jayadeep Bhanudevan. Recent years have seen Ganesheraj venturing into the legal aspects of the mining and quarrying industry, working closely with international corporations and GLCs in high profile projects and joint-ventures.
Copyright Jayadeep Hari & Jamil
More information about Jayadeep Hari & Jamil
View all articles published by Jayadeep Hari & Jamil
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
