Lecture 8- DIRECTORS’

DUTIES
by
Darmar Pathmanathan
LLB(hons) London, LLM(London)(with
merit), Grad ICSA, Dip Arb., CLP

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 Statutory Duties of Directors
➢ Section 213(1) states a director shall exercise his powers in accordance with the
CA, for a proper purpose and in good faith in the best interest of the company. A
director who contravenes this section commits an offence.

➢ Duty of Care and Skill

Section 213(2) states a director shall exercise reasonable care, skill and diligence
with
• the knowledge, skill and experience which may reasonably be expected of a
director having the same responsibilities; and
• any additional knowledge, skill and experience which the director in fact has.
(he must exercise the knowledge and skills expected from a director with similar
responsibilities generally)

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 Business judgment rule
Under section 214, a director who makes a business judgment is deemed to
meet the requirements of the duty under subsection 213(2) and the
equivalent duties under common law and equity if the director

a) makes the business judgment for a proper purpose and in good faith;
b) does not have a material personal interest in the matter;
c) is informed about the matter to the extent the director reasonably
believes to be appropriate; and
d) reasonably believes the business judgment is in the best interest of the
company.

“Business judgment” means any decision on whether or not to take action in

respect of a matter relevant to the business of the company.

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 Statutory duties of Directors
Section 215(1) states a director exercising his duties may rely on information, professional/expert advice,
opinions, reports or statements made by-

✓ any officer whom the director believes on reasonable grounds to be reliable and competent on the
matters concerned;

✓ as to matters involving skills/expertise, any other person retained by the company in relation to
matters that the director believes on reasonable grounds to be within the person’s
professional/expert competence;

✓ another director in relation to matters within the director’s authority; or

✓ any committee to the board of directors on which the director did not serve in relation to matters
within the committee’s authority.

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 S215(2)
The director’s reliance as stated above is deemed to
be made on reasonable grounds if it was made-

• in good faith; and

• after making an independent assessment of the

information, advice, opinions, reports or
statements, having regard to the director’s
knowledge of the company and the complexity of
the structure and operation of the company.

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Responsibility for actions of delegatee
S216
• the directors may delegate any power of the
Board to any committee of the Board, director,
officer, employee, expert or any other person.
• Where the directors have delegated any
power, the directors are responsible for the
exercise of the power by the delegatee as if
the power had been exercised by the directors
themselves

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 S 218
Section 218 states a director or officer of a company shall not, without
the consent/ratification of a general meeting-

• use the property of the company

• use any information acquired by virtue of his position as a
director/officer;
• use his position as such director/officer;
• use any opportunity of the company which he became aware of, in
the performance of his functions as director/officer; or
• engage in business which is in competition with the company,
to gain directly/indirectly, a benefit for himself/any other person, or
cause detriment to the company.

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 S223
Approval of company required for disposal by directors of company’s
undertaking or property

(1) Notwithstanding anything in the constitution, the directors shall not enter or carry into effect any arrangement or transaction
for:

(a) the acquisition of an undertaking or property of asubstantial value; or

(a) the disposal of asubstantial portion of the company’s undertaking or property unless—

(i) the entering into the arrangement or transaction is made subject to the approval of the company by way of a resolution ;

OR

(ii) the carrying into effect of the arrangement or transaction has been approved by the company by way of a resolution
 S228
Transactions with directors, substantial shareholders or connected persons

(1) Subject to subsection (2) and section 229, a company shall not enter or carry into effect any arrangement or transaction
where a director or a substantial shareholder of the company or its holding company, or its subsidiary, or a person
connected with a director or substantial shareholder—

(a) acquires or is to acquire shares or non-cash assets of the requisite value, from the company; or

(b) disposes of or is to dispose of shares or non-cash assets of the requisite value, to the company,

unless—

(A) the entering into the arrangement or transaction is made subject to the approval of shareholders at a general meeting;
or

(B) the carrying into effect of the arrangement or transaction has been approved by shareholders at a general meeting
 S223 v S228
➢ In s223 before buying or selling property of substantial value, co must
get approval of GM. The contract is for selling & buying property
only.

➢ In s228 before a company enter into a transaction that is of requisite

value it must get approval of GM. The contract is for selling/buying
shares & non cash assets.

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➢ In s223 property is of substantial value if it exceeds 25% of the
total assets of the company/ of the total net profit of the company/of
the issued capital (whichever is the highest)

➢ In s228 non cash asset is of requisite value if the value of the

property at the time of transaction exceed RM250,000 or of its value
does not exceed RM250,000, it exceeds 10% of the company’s
assets value and is not less than RM 50 000.

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S 228 involves transactions with

• directors,

• substantial shareholders
( of the company or its holding company, or its
subsidiary) or

• connected persons( connected with a director or

substantial shareholder
• Section 222 - A director cannot participate
voting/discussion if he has interest in the
contract.

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Exercise of power of directors to allot
shares or grant rights
S 75. (1) Unless the prior approval by way of resolution by
the company has been obtained, the directors of a
company shall not exercise any power—

– to allot shares in the company;

– to grant rights to subscribe for shares in the company;

– to convert any security into shares in the company; or

– to allot shares under an agreement or option or offer.

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 Fiduciary duties of director
Most of the common law fiduciary duties have been incorporated in the CA 2016
1. A director has 4 fiduciary duties:-
a) Duty to act bona fide in the best interest of the company;
b) Duty to exercise power for a proper purpose;
c) Duty to retain their discretionary powers;
d) Duty to avoid a conflict of interest.

2. Directors must act bona fide in what they consider is in the best interest on the
company

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Re Smith & Fawcett Ltd.
“Directors must exercise their discretion bona
fide in what they consider – not what a court
may consider – is in the interests of the
company, and not for any collateral purpose”

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 Fiduciary duties of director
3. The duty to act bona fide is for the benefit of the company as a
whole.
4. There is no breach if the directors act was what they honestly
believed to be in the interest of the company.
5. Directors must exercise their powers for a proper purpose.
Howard Smith Ltd v Ampol Petroleum
Eg: power to issue shares only to raise capital and not for any
other reasons

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 Howard Smith Ltd v Ampol Petroleum
Ltd 1974
• The facts: shareholders who held 55% of the issued shares intended
to reject a take-over bid for the company. The directors honestly
believe that it was in the company’s interest that the bid should
succeed since the bidder was expected to provide additional capital
for the company if it obtained control. The directors therefore
allotted new shares to the prospective bidder so that the
shareholders opposed to the bid would then have less than 50%of
the enlarged capital and the bid would succeed.
• Decision: the allotment was void. “It must be unconstitutional for
directors to use their fiduciary powers over the shares in the
company purely for the purpose of destroying an existing majority
or creating a new majority which did not previously ‘exist’.

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6. A director has a duty to avoid a conflict of interest. He must not put himself in a position
where his personal interest may conflict with
his professional duty.

• Aberdeen Railway Co v Blaikie

The railway company agreed to buy chairs from a partnership. Blaikie a member of the
partnership was also the director of the company. When the partners tried to enforce the
contract, the company claimed that the contract was voidable owing to the directors
conflict of interest.

Held: No one, having [fiduciary] duties to discharge, shall be allowed to enter into
engagements in which he has, or can have, a personal interest conflicting, or which possibly
may conflict, with the interests of those whom he is bound to protect.

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• Cook v Deeks
Three directors, when negotiating a construction contract for the company,
took the contract in their own names. When this was queried by some
minority shareholders, a special resolution was passed to confirm that the
company had no interest in the contract.

The court held that the resolution, being purported ratification to justify the
acts of the directors, was a fraud on the minority and ineffective. The
directors had to account to the company for their profits made in the
transaction

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 Company Secretary
1. A company secretary is important person in the company and is involve
in the administration & management of the company.
2. He must ensure that the company has done everything in accordance
with the law.

3. Therefore, a company secretary is responsible for the efficient

administration of a company, particularly with regard to ensuring
compliance with statutory and regulatory requirements and for
ensuring that decisions of the board of directors are implemented

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 Requirement for a secretary
S235 (1) A company shall have at least one secretary who shall be —
(a) a natural person;
(b) eighteen years of age and above; and
(c) a citizen or permanent resident of Malaysia,
who shall ordinarily reside in Malaysia by having a principal place of residence in
Malaysia.

S235(2) A secretary shall be —

(a) a member of a body as set out in the Fourth Schedule; or
(b) a person licensed by the Commission under section 20G of the Companies
Commission of Malaysia Act 2001.

S235(3) For the purposes of paragraph (2)(a), the Minister may prescribe any
professional body or any other body by notification in the Gazette and may
impose any terms and conditions as he thinks fit.
S235(4) The company and every director who contravene this section commit an
offence.

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 Qualification of Company
Secretary
Under S235(2) (a): A company secretary must be -
• A member of a professional body or any other body
prescribed by the Minister, or
• Licensed under S20G of the Companies Commission Act 2001.

The professional bodies as per the Fourth Schedule:

• Malaysian Institute of Accountants - MIA.
• Malaysian Institute of Certified Public Accountants - MICPA.
• Malaysian Institute of Chartered Secretaries and
Administrators - MAICSA.
• Member of the Malaysian Bar, Sabah Law Association or
Advocates Association of Sarawak - (meaning he must be a
lawyer)

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 Appointment of Co Sec
S236 (1) The Board shall appoint a secretary and determine the terms and conditions
of such appointment.

S236(2) Notwithstanding subsection (1), the appointment of the first

secretary shall be made within thirty days from the date of
incorporation of a company.

S236(3) No person shall be appointed as a secretary unless —

(a) he has consented in writing to be appointed as a secretary;
(b) he is qualified under subsection 235(2); and
(c) he is not disqualified under section 238.

S236(4) The company and every person who contravene this section commit an
offence.

• Note: The Company secretary is regarded to be an officer of the company under

section 2 (see ‘Officer’).

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 Resignation
S237 (1)
Subject to the constitution or the terms of appointment, a secretary may resign from his office by giving
a notice to the Board.

S237(2)
If none of the directors of the company can be communicated with at the last known residential
address, the secretary may, notwithstanding subsection 235(1), notify the Registrar of that fact and of
his intention to resign from the office.

S237(3)
The secretary shall cease to be the secretary of the company —
(a) on the expiry of thirty days from the date of the notice lodged under subsection (1) or the
period specified in the constitution or the terms of appointment, as the case may be; or
(b) on the expiry of thirty days from the date of the notice to the Registrar under
subsection (2).

S237(4)
Nothing in subsections (1) and (2) shall relieve the secretary from liability for any act or
omission done before the secretary vacated that office.

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 Disqualification to act as a secretary

S238 (1)
A person shall be disqualified to act as a secretary
if-
• he is an undischarged bankrupt;
• he is convicted whether in or outside Malaysia of
any offence referred to in section 198; or
• he ceases to be a holder of a practicing certificate
issued by the Registrar under section 241.

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S238(2)
if the Registrar is of the opinion that a person has failed to act honestly
or use reasonable diligence in the discharge of his duties as a secretary,
the Registrar may require the person to show cause why his practicing
certificate should not be revoked or why he should not be disqualified
from acting as a secretary of a company.

238(3)
If a person continues to act as a secretary for a company after the
person is disqualified under this section without leave of the Court, the
secretary and every director who knowingly permits the person to act
in that capacity commit an offence.

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Note - Offences under S198:
• If the person is convicted of an offence whether in
or outside of Malaysia –
• involving the promotion, formation or
management of a corporation;
• involving bribery, fraud or dishonesty;
• offences under sections 213, 217, 218, 228 and
539; or
• has been disqualified by the Court under section
199.

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Removal of a secretary
S239
The Board may remove a secretary from his office in accordance with the terms of appointment or the
constitution.

Office of secretary shall not be left vacant

S240
The office of the secretary of a company shall not be left vacant for more than thirty days at any one
time.

Requirement to register with Registrar

S241(1)
Any person who is qualified to act as a secretary and who desires to act as a secretary shall be
registered under this section before he can act as a secretary.

Prohibition to act in dual capacity

S242
A person is prohibited to act in a dual capacity as both a director and a secretary in a situation that
requires or authorizes anything to be done by a director and a secretary.

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