TOPIC 7: CORPORATE

GOVERNANCE
Siti Aisyah binti Safren
Corporate Law (LAW303)
 DIRECTOR

 S 2 Definition of director
To include any person occupying the position of director
of a corporation by whatever name called and includes
person in accordance with whose directions or
instructions the majority of directors of a corporation are
accustomed to act and an alternate or substitute director.
 Shall include CEO, chief financial officer, chief
operating officer or any other person primarily
responsible for the management of the company.
 EXECUTIVE DIRECTOR AND NON
EXECUTIVE DIRECTOR
 Executive director: Full-time employees of the
company. These directors will have a contract of
service with the company.
• Their main role is to carry out the day-to-day
management of the company’s business. In this
respect they comprise the senior management of
the company.
 Non executive director: Not employees of the
company and do not have a contract of service
with the company.
• Also known as independent directors and they
have an important role to play in bringing an
independent view to the board’s deliberations.
 7.1 DIRECTORS: QUALIFICATION,
APPOINTMENT AND REMUNERATION

QUALIFICATION
 S 196(2) A natural person who is at least 18 years
of age.
 APPOINTMENT

 S 196(1) A private company (co.) shall have a minimum of one

director while a public company shall have a minimum of two
directors.
 S 196(4) Requires the minimum number of directors to satisfy two
criteria by providing that he :
a) Is ordinarily resident in Malaysia by having a principal place of
residence in Malaysia; and
b) Shall not include an alternate or substitute director.
 S 201 A person cannot be appointed as a director of a company
unless he has consented in writing to be a director and has made
a declaration that he is not disqualified under the 2016 Act from
being appointed as a director or to hold office as a director.
 S 202(1) & (2) A director may be appointed to hold office
during the incorporation of a company or appointed
subsequently after the company’s incorporation by way of an
ordinary resolution.
 S 202(3)(a) & (b) BOD may at any times appoint additional
directors but any director so appointed shall hold office until the
next AGM in the case of a public company or in accordance
with the terms of appointment for a private company.
 REMUNERATION

 Directors’ fees and benefits payable must be approved

in a shareholders’ meeting. This is the requirement for
a public company, and a listed company and its
subsidiaries.
 For a private company, the directors can approve their
own fees and benefits. This is subject to a disclosure
requirement and the shareholders can still require the
directors to call a general meeting to seek approval.
 7.2 SERVICE CONTRACTS

 S 231 A director’s “service contract” in relation to a public company means a

contract under which —
a) a director of the company undertakes personally to perform services, as a
director or otherwise for the public company or for a subsidiary of the public
company; or
b) services that a director of the public company undertakes
personally to perform as director or otherwise are made available
by a third party to the public company, or to a subsidiary of the
public company.
 S 232(1) & (2) A copy of every public company
director's service contract shall be kept at
registered office.
 S 232(3) Contracts which must be made available
for inspection at least one year from the date of
termination or expiry of the contract.
 S 233(1) Rights to inspect and request for a copy of
service contracts
• Members of public company may inspect
director’s service contract (5% of members
holding paid up shares or 10% of members in
cases of CLBG.)
 7.3 REMOVAL, RETIREMENT AND
DISQUALIFICATION
REMOVAL

PRIVATE COMPANY
 S 206(1)(a) Subject to the constitution, a director may be removed
by ordinary resolution, special notice is required - S 206(3).
 S 297(2)(a) Must be passed at a physical general meeting and
cannot be passed by way of a written resolution.
 REMOVAL OF DIRECTORS : PUBLIC
COMPANY
 S 206(1)(b) A director may always be removed in accordance
with S 206.
 S 206(2) Notwithstanding anything in the constitution or any
agreement between a public company and a director, the
company may by ordinary resolution (with special notice) at a
meeting remove the director before the expiration of the
director’s tenure of office.
 S 207(3) & (4) A director being removed has the right to have
written representations to be sent to all members together with
the notice of meeting failing which, the director has the right to
require the representations to be read out at the meeting.
 S 207(5) copies of the representations need not be
sent out or read out at the meeting if the company
or any other person claiming to be aggrieved
makes an application to the court on the grounds
that the right to make representations need not be
sent out or read out at the meeting is being
abused.
 Unfair to a director being abused.
 RETIREMENT

 S 208(1) the office of a director shall be vacated if the person

holding that office:
a) Resigns by giving written notice to the company at its registered
office;
b) Has retired in accordance with the 2016 Act or the company’s
constitution but is not re-elected;
c) Is removed from office in accordance with the 2016 Act or the
company’s constitution;
d) Becomes disqualified from being a
director under the 2016 Act;
e) Becomes of unsound mind;
f) Dies; or
g) Otherwise vacate his office in
accordance with the company’s
constitution.
 Tien Ik Sdn Bhd v Kuok Khoon Wong
Peter [1992]
 Facts : The company’s articles stated that the
office of the director shall become vacant if the
notice in writing signed by the required majority
shareholders was lodged with the company.
 Held : The Supreme Court held that the office of
the director in question had been vacated in
accordance with the company’s article.
 DISQUALIFICATION

 S 198(1) A person shall not hold office as a

director or whether directly or indirectly takes part
in the management of a company if the person:
a) Is an undischarged bankrupt;
b) Has been convicted of an offence relating to
promotion, formation or management of a
corporation;
c) Has been convicted of an offence
involving bribery, fraud or dishonesty;
d) Has been convicted of an offence under
s 213, s 217, s 218, s 228 and s 539; or
e) Has been disqualified by the court.
 S 199 (1) ROC can apply to the court for an order to disqualify a person
from acting or holding office as a director or promoter or be concerned
with or take part in the management of a company whether directly or
indirectly if:
a) Within the last 5 years, the person has been a director of 2 or more
companies which went into liquidation resulting from the company being
insolvent due to his conduct as a director which contributed wholly or
party to the liquidation;
b) Due to his contravention of the duties of a director; or
c) Due to his habitual contravention of the 2016 Act.
 S 204 The acts of a director or manager or
secretary shall be valid not withstanding any
defect that may afterwards be discovered, in
his appointment or qualification.
 TO WHOM DIRECTOR OWES DUTY?

 Generally, director owe a duty to the company – Percival v

Wright 1902. Should the instruction arise from the
shareholders, the director must act for the best interest of
the company.
 Directors may not owe a duty to the creditors but must
take into consideration the creditors. This is usually when
the company is either insolvent or going to be insolvent.
7.4 ROLE AND DUTIES OF DIRECTORS IN RELATION TO
GOOD CORPORATE GOVERNANCE: POWERS AND
FIDUCIARY DUTIES

 Fiduciary duties: The common law

recognises that a company director occupies
a position of trust and confidence in respect
to the company and there are fiduciary
relationship between the company and the
company director.
 The company director being a fiduciary must:
• Act bona fide (good faith) in the interest of the
company;
• Exercise powers for their proper purpose;
• Retain their discretionary powers; and
• Avoid conflict of interests.
 STATUTORY DUTIES

 S 213 For a proper purpose and in good faith in the best

interest of the company. (reasonable care, skill and
diligence).
 S 214 Business judgment rule
Any decision on whether or not to take action in
respect of a matter relevant to the business of
the company.
 RE W & M ROITH LTD

 Facts : Roith, the director and controller of the company,

entered into an agreement with the company to provide
for the payment of pension to his wife after his death.
After he died, his executors claimed the pension for his
widow and it was rejected.
 Held : They could not claim on the basis when the
director agreed to the contract they had not considered
the interest of the company. The company did not derive
any benefit from the agreement.
 LOANS BY COMPANY TO
DIRECTORS

 S 224(1) The restriction against directors borrowing

from the company.
 S 224(2) except an exempt private company. The
exceptions:
a) to anything done to provide such a director with funds
to meet expenditure incurred or to be incurred by him
for the purposes of the company or for the purpose of
enabling him properly to perform his duties as an
officer of the company;
b) to anything done to provide such a director who is
engaged in the full-time employment of the company
or its holding company, as the case may be, with funds
to meet expenditure incurred or to be incurred by him in
purchasing or otherwise acquiring a home; or
c) to any loan made to such a director who is engaged in the
full-time employment of the company or its holding
company, as the case may be, where the company has at a
general meeting approved of a scheme for the making of
loans to employees of the company and the loan is in
accordance with that scheme.
 7.6 CONTRACTS IN WHICH
DIRECTORS ARE INTERESTED
 S 218 The prohibition against a director’s improper use of
the company’s property or his position without consent or
ratification of GM.
 S 219 The general duty of a director to make disclosure on
particulars relating to shares, debentures, participatory
interests, rights, options and contracts.
 S 221 The duty of a director to disclose his interest in a
contract or proposed contract, whether directly or
indirectly.
 S 221 The duty of a director to disclose his interest in a contract or proposed
contract, whether directly or indirectly.
 S 221(10) A contract entered into in contravention of this section shall be
voidable at the instance of the company except if it is in favour of any person
dealing with the company for any valuable consideration and without any actual
notice of the contravention.
 S 221(12) Every officer and any other person or individual who contravene this
section commit 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.
 TRANSVAAL LANDS CO V NEW
BELGIUM (TRANSVAAL) LAND &
DEVELOPMENT CO
Facts : Two directors of the P company (TLC) were also
shareholders of the D company (NB). One of them, Samuel
was also a director of NB. On Samuel’s recommendations,
TLC’s BOD agreed to purchase certain shares of NB. After
the purchase TLC discovered the two directors’ interest in
NB and sought to have the contract rescinded.
Held : There was conflict of interest in Samuel’s case as both
director and shareholder of NB, with the duty to act in TLC’s
best interest.
 S 222 The restriction against a director
from voting or participating in a contract in
which a director is directly or indirectly
interested.
 S 223 The responsibility of directors to
obtain the approval of a company for
acquisition or disposal of an undertaking or
property of substantial value.
 S 225 The restriction against persons connected
with a director borrowing from the company.
 S 227(1)(a) It is unlawful for a company to pay an
officer (including directors) any compensation for
loss of office.
 S 227(1)(b) Unless has been approved by the
members.
 RE DUOMATIC LTD

 Facts : The directors made payment to a former director as

a compensation for loss of office, they were not aware that
the UK Companies Act required them to notify the
shareholders before doing so. The payment was thus
invalid.
 Held : Although the directors had acted honestly due to
their ignorance of law, the directors were liable for
misapplication of the company’s fund.
 S 228 Prior approval of the shareholders is required where a
company enters or carry in effect any arrangement or
transaction for shares or non-cash assets with a director or a
substantial shareholder of the company or its holding company,
or a person connected with the director or substantial
shareholder of the requisite value.
 S 228(8)(c) Substantial value transaction depends on whether
its value exceeds two hundred and fifty thousand ringgit or if
its value does not exceed two hundred and fifty thousand
ringgit but the value of the transaction exceeds 10% of the
company’s net asset value provided it is not less than fifty
thousand ringgit.
 FINANCIAL ASSISTANCE

 S 123(1) A company is prohibited from giving financial

assistance to any person to enable the person to purchase
the company’s shares, unless it falls under certain
exceptions. Financial assistance includes the giving of a
loan. Financial assistance also includes the giving of
security by a company for the purpose of enabling a
person to obtain funds for the purchase of its shares.
 S 125 Exceptions:
a) The lending of money by the company in the ordinary course of its business if
the lending of money is part of the ordinary business of a company;
b) The provision by a company, in accordance with any scheme for the time being
in force, of money for the purchase of or subscription for fully-paid shares in the
company or its holding company, being a purchase or subscription by trustees of
or for shares to be held by or for benefit of employees of the company or a
subsidiary of the company, including any director holding a salaried employment
or office in the company or a subsidiary of the company;
c) it may provide financial assistance to persons other than directors, who are bona
fide in the employment of the company, to enable them to purchase the company
shares.
 7.7 PROCEEDINGS OF THE BOARD
OF DIRECTORS

 Directors hold board of directors' meeting as and

when required.
 MEMBERS: MEMBERS’ RIGHTS

 Members’ rights for management review.

 7.8 MAJORITY CONTROL RULE

 Majority rule is a decision rule that selects

alternatives which have a majority, that is, more
than half the votes. It is the binary decision rule
used most often in influential decision-making
bodies.
 7.9 PROTECTION ON MINORITY

PROPER PLAINTIFF RULE

 In any action in which a wrong is alleged to have been
done to a company, the proper claimant is the company
itself.
 Generally, the members of the companies cannot bring an
action on behalf of the company.
FOSS v HARBOTTLE (1843)
 Facts : Two minority shareholders in the Victoria Park
Company alleged that property of the company had been
misapplied by the five company directors.
 Held : Dismissed the claim and held that when a company
is wronged by its directors it is only the company that has
standing to sue.
EXCEPTION - OPPRESSION REMEDY
 S 346 A remedy to any member of a company where there
is oppression or prejudice to the member.
 The court will have a wide discretion in granting any
remedy in order to bring the oppressive conduct to an end.