TUTORIAL

DIRECTORS

1. Who may be selected as a director? What are the matters which disqualify a person
from being selected as a director?
Refer to notes page 3-5
2. Explain what is meant by the term “shadow director”.
Refer to notes page 2
 Cepatwawasan Group Bhd v Tengku Dato Kamal Ibni Sultan Sir Abu Bakar & 17
Ors [2008] MLJ 915 – Shadow director can be a natural person/corporation
 Re Hydrodam [1994] 2 BCLC 180, 182

3. Petir Bhd will be holding its annual general meeting next week. Some members of
Petir Bhd intend to propose William’s name for appointment as a director of the
company.

Ten years ago, William was convicted of criminal breach of trust and was
imprisoned for 9 months. William seeks your advice as to whether he is qualified to
accept the post of director.

Advice William.

4. Adam is a director of Quincey Bhd. Quincey Bhd is a prosperous company and its
business premises occupies two floors of a building in Kuala Lumpur. Zach who is a
shareholder of Quincey Bhd has come to know that Quincey Bhd recently entered into a
contract with CleanAir Sdn Bhd for the purchase of 30 units of air purifiers. The 30 units
of air purifiers are to be installed in various places on the two floors occupied by Quincey
Bhd. CleanAir Sdn Bhd is a company in which Adam’s daughter, Evelyn, is the
managing director. Adam did not disclose this fact about Evelyn to the board of directors
of Quincey Bhd.

Zach seeks your advice on whether Adam has breached any duties under the Companies
Act 2016.

5. Bill, Bob and Ben are the directors of BBB Sdn Bhd. Recently, BBB Sdn Bhd
entered into a contract with Tanah Bhd to sell its land in Semenyih to Tanah Bhd at
a discounted price of RM3 million. The land was in fact worth RM5 million. It has
now been discovered that Bill is the major shareholder of Tanah Bhd.
(a) Explain whether Bill has breached any disclosure requirement under the
Companies Act 2016 in respect of the sale of the land to Tanah Bhd; and
Issue: Whether Bill as one of the directors of BBB Sdn Bhd and also the major
shareholder of Tanah Bhd at the same time has breached any disclosure requirement
under the Companies Act 2016 by entering the contract with BBB Sdn Bhd?
Law: Section 221(1) imposes a duty on every director, who is in any way, whether
directly or indirectly, interested in a contract or a proposed contract with the company, to
declare the nature of his interest, as soon as practicable, at a meeting of the board of
directors. Section 221(4) provides for the procedures that a general notice must be given
to BOD, specifying the director's position of membership in another company and stating
the exact nature and extent of the director's interest. Section 221(5) also states that the
notice must be given at a BOD meeting. If not, the directors must take reasonable steps to
ensure the notice is brought up or read at a next BOD meeting.
Application: Bill did not give the general notice to the BOD or take any steps to bring the
notice up to BOD meeting before the contract of sale was entered. They only discovered
that Bill is the major shareholder of Tanah Bhd after the land was sold. Hence, Bill
breached his duty to declare the nature of his interest in Tanah Bhd to the BOD of BBB
Sdn Bhd. -As the director of BBB, Bill has the fiduciary duty to BBB. As the shareholder
of Tanah Bhd, you have to focus on profit. Bill needs to give notice to BBB and in his
notice he must state that he is the majority shareholder of Tanah Bhd and how many
shares he owes.
**Section 218(1)(c)(d)- cannot use this section because the contract is entered by BBB
but not the director himself, it’s the separate entity. Unless the facts mentioned that BBB
approach the directors.
(b) Explain the consequences of a breach of a disclosure requirement under the
Companies Act 1965.
Issue: What are the consequences of a breach of a disclosure requirement under
Companies Act 2016
Law: Section 221(10) provides that a contract entered into in breach of section 221 is
voidable at the instance of the company except that if the contract is entered by a person
for valuable consideration, without actual notice of the contravention, he may enforce it.
“Any person dealing with the company for any valuable consideration and without any
actual notice of the contravention” refers to a third party that if that person pays money
and was not aware to the contravention. An example is like a joint venture contract
entered by other person or company. Section 221(12) states that 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.
Application: Since they discovered that Bill breached, the contract entered between BBB
Sdn Bhd and Tanah Bhd is voidable at the option of BBB Sdn Bhd unless Tanah Bhd has
made payment for RM3 million and does not know Bill has contravened Section 221(1).
(Any person deals with the company in S221(10), the company here is BBB)
Aside, Bill by breaching his duty to declare the nature of interest to the BOD is
committing an offence and shall be liable to the imprisonment for a term not exceeding
five years or to a fine not exceeding three million ringgit or to both.