Topic 4 discussing about the liability of the corporate officer.

Section 2(1) of Companies Act

2016 defines the meaning of Director which includes any person occupying the position of director in a
company by whatever name called and also includes a 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.
The appointment of Director is accordance with Section 196 of Companies Act 2016, where it is
stated that the minimum number of a Director in a private company is one and for the public company
the minimum number of directors is two persons. Section 196(2) of Company Act laid down the
qualification of the director where the director must be a natural person aged eighteen years old and
above. The appointed director must ordinarily reside in Malaysia and have a principle resident place in
Malaysia. Another qualification to be a director of a company is the appointed director must be solvent,
clean person, not auditor of a company and sound mind. The director also requires to hold a minimum
number of shares in the company.
The appointed director is the person who entrusted to manage a company. The directors owe
fiduciary duties to the company. Under Section 213 of Companies Act, there are five fiduciary duties
owed by the director. The first fiduciary duty is the duty to act in bona fide for the interest of the
company. The interest of the company is interpreted as a shareholder’s interest. However, in the event
where the company is almost insolvent or already insolvent, the interest of the company shall belong to
the creditors of the company.
The second fiduciary duty of the director is to exercise power for proper use. The third fiduciary
duty is a duty to retain discretion. The director must not enter into agreement where the discretion of
the director in the company is at stake where it could allow the third party to make decision for that
director in the board meeting.
Next fiduciary duty owed by the director is the duty to avoid conflict of interest. According to
section 218 of the Companies Act 2016, the director must disclose all the interest which could be in
conflict with the interest of the company. The last fiduciary duty of the director is the duty of care, skills
and diligence. The appointed director is expected to have a skills and diligence to hold the
responsibilities as a director.
In the event where the fiduciary duties have been breached by the director, there are several
remedies that could be apply in accordance with Companies Act 2016. There are three person who will
be affected from the breach made by the director which are the creditor, the member and the company
itself.
The members who are affected by the breach of the director may seeks remedy under section
346 of Companies Act where the members can seek relief by getting order from the court or to winding
up the company since the director of the company are acting in their own interest or the member can
seek for injunction.
If the company itself is affected by the breach made by the director, the company may seek for
injunction and compensate the loss suffered by the company. If the director is making profit through
conflict of interest, the court may order the director to return back the profit the company and, in the
event, where the director enter into contract to sell a property to the company, the court may order the
contract to be rescind if the interest of the director is not properly disclosed.
When the company is insolvent or nearly insolvent, the interest will belong to the creditor and
the director is said to breach the duties to the creditor when the director intentionally increases the debt
of the company when the director is fully aware that the company is nearly insolvent or going through a
proceeding to be insolvent.
Section 539(3) of Companies Act 2016 prohibit the director to enter into any transaction when
the company is fully aware that the company is not able to pay the creditors. It is an offence under the
Companies Act and the penalty would be imprisonment not more than 5 years and fine not more than
RM 500,000.
Next, Section 540 of Companies Act 2016 laid down the responsibility of fraudulent trading.
According to section 540 of Companies Act 2016, it is a personal responsibility of the director who is
involved in the fraudulent trading. Based on the case of Coleman v. The Queen, the court held that
there is no need to prove that there is fraud so long as there is an intention to deceive the creditors.
Upon conviction, the director would be liable under Section 540(2) of the Companies Act 2016 to
personally responsible to repay the whole or part payment of the debt.
It is also a breach of duty for the director to misappropriate the use of the company assets.
Under Section 218 of the Companies Act 2016, the director is prohibited to in any improper use of
company assets and property, taking advantage using the assets of the company and competing with
the company. Also, under Section 536(1)(c)(ii) of the Companies Act 2016, it is an offence for the
director to remove the property or any assets of the company with value of RM50 and above within 12
months from the date of proceeding of winding up the company.
There are several defences that can be used by the director of the company to avoid civil and
criminal sanction against the director. One of the defences is that the action done by the director is in
good faith or bona fide. The director must prove to the court that the action done with good faith under
Section 214 of the Companies Act 2016. Another defence that can be raised is the defence of due
diligence and the director taking the action based on the advice and reliance to the professional and
outside consultant.