INTRODUCTION TO PARTNERSHIP AND COMPANY LAW

LAW346

FIDUCIARY DUTIES OF DIRECTOR

GROUP MEMBERS:
NO NAME STUDENT ID
1 IRESHA HANNA BINTI KHAIRIL AZHAN 2021623962
2 SOFEA NAJIHAH BINTI ISMAIL 2021214356
3 TENGKU ARISSA MAISARAH BINTI TENGKU ROSLAN 2021469716
4 NURIN AINA FARZANA BINTI AHMAD FADZLI 2021819406
5 PUTERI NISHA BINTI MOHD NORHISHAM 2021896846

DATE OF SUBMISSION: 15 DECEMBER 2023

PREPARED FOR: SIR MUHAMAD IKHWAN MOHD ZAIN

Question 2 (Group 3 and Group 4)

:
Ravi is a director of a property development company, Real Land Sdn Bhd. He was

given the task of negotiating the purchase of a piece of land in Bidor, Perak with the land
owner, Maju Bhd. During the negotiation process, Ravi was offered a commission

amounting to 25% of the purchase price. Ravi accepted the commissions and the sale
was completed between RLSB and Maju Bhd at a price which was over the market value

to enable Maju Bhd to absorb the commission paid to Ravi.

In another occasion, Ravi has also received information regarding another land deal in

Ipoh, Perak.Pursuant to the information, Ravi and his fiance, Samantha, incorporated a

company name Rasa San Bhd. The company purchased the said land in Ipoh and
developed it, resulting in a huge profit.

RLSB seeks your advice on the legal position with regard to the above matter and what
are the rights and remedies, if any, that the company has against Ravi.

Answer:

Being an artificial person, a firm is incapable to act on its own. It can only take
action via the agency of human beings. The firm usually assigns a group of people
known as "directors" with the responsibility of managing the business. The issue in this
question is whether Ravi can be held liable for breach of his duties as a director of Real

Land Sdn Bhd?.

Section 2(1) of the Companies Act 2016 define “officer”, in relation to a

corporation includes any director, secretary or employee of the corporation, receiver and

manager of any part of the undertaking of the corporation appointed under a power
contained in any instrument and any liquidator of a company appointed in a voluntary
winding up, but does not include any receiver who is not also a manager, any receiver
and manager appointed by the court or any liquidator appointed by the court or by the

creditors. The company has the right to hold directors liable for not exercising reasonable
LAW346 GROUP 3
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care, skill, diligence, or acting in good faith for the company's best benefit. The
corporation can sue the director for improper acts and claim losses.

Specifically, the roles and obligations of directors are outlined in Section 213 of
the Companies Act 2016. A director of a company is obligated to exercise his authority in

good faith and with the company's best interests in mind, as stipulated in Section 213(1)
of the Companies Act 2016. In order to fulfill their fiduciary duties, directors are obligated
to operate in a manner that is honest and serves the best interests of the firm as a

whole, to utilize their authority for the appropriate reasons, to exercise reasonable care,
skills, and diligence, and to prevent conflicts of interest.

In accordance with Section 218(1)(c) of the Companies Act 2016 to generate a

profit for themselves, a Director is not permitted to take advantage of the company's
position as a Director of the company or to engage in business that is in direct
competition with the firm. If directors misuse their position as directors to make profit for

themselves and at the same time misuse their position as directors to earn profit not only
for themselves but also for the company, which may or may not result in loss or damage
to the company, then they are in violation of their obligation to prevent conflicts of
interest. This occurrence constitutes a violation of the directors' obligation to prevent

conflicts of interest. According to the case law of Mahesan v. Malaysian Government

Officers’ Co-Operative Housing Society 1978, Mahesan was a director. Providing
Edit with the Docs app
accommodation for government
Make tweaks, employees
leave comments, was the purpose of the society. Manickam,
and share
with others to edit at the same time.
an individual, offered Mahesan a bribe during the course of land acquisition for the
society. Land for which Manickam GET
NO THANKS had previously
THE APP paid $456 thousand. Following that, he
sold it for $944,000 to the Society via Mahesan. As a bribe, Manickam presented
Mahesan with $122,000 from the proceeds. Mahesan was deemed to have violated his
Social Responsibility by the Privy Council. Instead of spending $456,000, the society had

paid $944,000 to acquire the land. Therefore, in light of the circumstances, the society
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had the right to seek compensation for the harm caused or damages equivalent to the
bribe amount.

Personnel engaged in the administration of a corporation are bound by fiduciary

obligations. A situation must never arise in which the director's personal interests and

their obligations to the individual whose benefit they represent are in conflict with, or may
be in conflict with one another. It is against the law for a director to use information
obtained through his position as a director of a business to create personal benefit or
profit for other individuals, or to do harm to the company, as stated in Section 218(1)(b)
of the Companies Act 2016. Confidential information, customer lists, and trade secrets
could be among the items that incorporate this information. The prohibition remains in
effect long after the directors have resigned from their positions. In the case of Avel

Consultant Sdn. Bhd. v. Mohd Zain Yusof & Ors [1995] 4 MLJ 146, ACSB (Avel), a
subsidiary of Elmex Consultants Sdn Bhd, was appointed as a consultant for the
Channel 3 TV3 engineering project by Sistem Televisyen Malaysia Bhd (STMB). The
directors of both Avel and Elmex, including a director from Elmex only, were involved.
Avel, as the appellant, had an agreement with Fleet Group, STMB's parent company,
requiring them to inform Fleet Group in case of key personnel resignations.
Subsequently, the directors formed a new firm, Perunding AJZ, to pursue similar

consulting work, approaching Avel and Elmex's clients. The first respondent, managing
director of Avel, informed STMB about resignations before they occurred. STMB
terminated Avel's contract and appointed Perunding AJZ. Avel and Elmex sued for
breach of fiduciary duties, and the Federal Court ruled that the respondents prioritized
personal interests over the companies' interests, constituting a breach of fiduciary duties.

In applying the law to the situation given, It is clear that Ravi obtained a piece of

property with the intention of gaining financial advantage in a discreet manner. He paid
an additional amount above the market value of the land in order to receive the
commission that Maju Bhd had offered him. Maju Bhd has increased the price of the land
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in order to recoup the commission owed to Ravi. Ravi's decision to accept the Maju Bhd
commission without informing or seeking approval from RLSB could potentially be seen
as a violation of his fiduciary responsibility. Based on the circumstances, Ravi has
violated their obligation to prevent any conflicts of interest as outlined in Section 218(1)
(c) of the Companies Act 2016. In regards to the case law of Mahesan and Ravi, it is
evident that the individual in question exploits their directorial role to personally benefit,

thereby affecting the firm's financial stability. When taking this into account, he must
acknowledge the legal accountability for breaching his role as director of Real Land Sdn
Bhd.

Furthermore, in situation 2, Ravi also abused his role as a director of the company
by acquiring information about a separate land deal and forming his own company Rasa
Sdn Bhd in collaboration with his fiance. His action resulted in making a substantial profit
by entering into an agreement to purchase and develop the land on behalf of Real Land
Sdn Bhd. This shows that Ravi failed to abide by Section 213 of the Companies Act

2016 which provides the duties and responsibilities of directors. The director of a
company must consistently exercise their power for a legitimate purpose and in good
faith in the best interest of the company by virtue of Section 213(1) of the Companies Act
2016. According to Section 218(1)(b) of the Companies Act 2016, directors are

prohibited from taking advantage of their position or exploiting information obtained in

their role for personal gain. The information may include confidential information,
customer list or trade secret. Additionally, directors are under an obligation to prioritize
the interests of the company when it comes to the use of the company's assets,
including its funds. These assets and funds should only be employed to make profits or
provide benefits to the company. Thus, Ravi was liable for breach of fiduciary duty as
Ravi had gained other information and used the company funds for his own benefit and

not for the company as stated in Section 218(1)(b) of Companies Act 2016.
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 In conclusion, based on the information provided, Ravi will be deemed
responsible for both the financial loss incurred by the company and the violation of
directorial duties since RLSB has legal rights and remedies against Ravi. This is due to
his breach of obligations to fiduciary duties, conflict of interest, and fraudulent conduct

wherein he misused his directorial position for personal gain, potentially causing harm or
loss to the company based on Companies Act 2016. In the second instance, Ravi
exploited his position to gain information for personal profit, posing a potential detriment
to the company. As per Section 218(2) of the Companies Act 2016, any individual
contravening this section commits an offense and, upon conviction, may face
imprisonment for up to 5 years, or fine not exceeding RM3 Million, or both.

References
1. PERCETAKAN NASIONAL MALAYSIA BERHAD. (2016, September 15).

COMPANIES ACT 2016. LAWS OF MALAYSIA. Retrieved December 10 2023,

from https://www.ssm.com.my/Pages/Legal_Framework/Companies%20-Act%20-
1965-(Repealed)/aktabi_20160915_companiesact2016act777_0.pdf

2. Manual: Semester March 2023 - August 2023: INTRODUCTION TO

PARTNERSHIP AND COMPANY LAW

: