Topic 5: Officers of

Company
5.1 Director
5.2 Company Secretary
5.3 Auditors
 5.1 Directors

• Definition and Status

• Appointment of Director
• Qualification of Director
• Removal of Directors
• Directors’ Duties
 Definition and Status

• S 2(1) defines “ director” to include: any person occupying

the position of director of a corporation by whatever name
called and include a person in accordance with whose
directions or instructions the directors of a corporation are
accustomed to act and an alternate or substitute director"
• Therefore, whether a person is a director or not depends on
his function and not of name/office given. A person will be
vested with the duties and liabilities of a director even
though he may not be officially appointed to the office of
director.
 Definition and Status

• S 196(1) of the CA 2016 provides that every co.

must have a minimum number of directors as
follow:
a) In the case of private company, 1 director,
while
b) In the case of a public company, 2 directors.
• In practice there is an important distinction between
non-executive director and managing or executive
director.

(i) non-executive director - takes part in the

collective decision of the board of director. He has
no other function except by express delegation.

(ii) managing or executive director - who in

addition to their function of attending board
meeting (as full members), also work, usually full-
time, in the management of the co. as employee.
 Qualification of director
1. Natural Person and age
S 196(2) - A director shall be a natural person who
is at least eighteen years of age.
A corporation being an artificial legal person cannot
be appointed as a director of a company.
However, a holding company may be a shadow
director of a subsidiary company.
(A shadow director = a person in accordance with
whose directions or instructions the directors of a
company are accustomed to act - may be a director,
or the board of directors, or a holding company)
2. Residence in Malaysia
•S. 196(4) - the minimum number of directors(not
including alternate or substitute director) must
ordinarily reside in Malaysia by having a principal
place of residence in Malaysia
•In Fang Poh Yoke v the Central Construction Co.
(M) Sdn. Bhd., the court held that having a principal
place of residence means residence in one place with
some degree of continuity.
3. Solvent

S 198(1)(a)- an undischarged bankrupt may not be a

director of or otherwise concerned in the management
of any company except with the leave of the Official
Receiver or the court. A notice of intention to apply
for leave must be served on the Official Receiver and
the Official Receiver will be heard in the court on the
application. S 198(3).
4. Free from conviction of the offences listed in
section 198
S. 198(1) provides that a person who:
……………………………..
• (b) has been convicted of an offence relating to the
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 sections 213 (breach of
fiduciary duty as a director – failure to exercise reasonable care,
skill and diligence), 217 (breach of fiduciary duty as a nominee
director – acted in the best interest of his nominator instead of the
company) , 218 (improper use of company’s property or information
his position, corporate opportunity or conflict of interest), 228
(involvement in substantial value transaction with the company
without shareholders’ approval in general meeting) and 539
(company’s failure to keep proper account, or wrongful trading); or
• (e) has been disqualified by the court under section 199 ( a director
of 2 companies which were wound up due to insolvency within a
period of 5 years, wholly or partly due to his conduct as a director;
a person who has contravened his duty as a director; a person who
has habitually contravened the CA 2016).
shall not hold office as a director of a company or whether directly
or indirectly be concerned with or takes part in the management of a
company.
Those who are disqualified under 198(1)(b), (c), (d) and
(e) , however, may hold office or be reappointed as a
director by applying for the leave of the court by giving
not less than 14 days' notice to the Registrar and the
Registrar is made a party to the proceeding.

Persons disqualified under the paragraph (1)

(b), (c), (d) or (e) shall not be required to obtain a leave
from Court after the expiry of five years calculated from
the date he is convicted or if he is sentenced to
imprisonment, from the date of his release from prison.

Any person who contravenes sec. 198 will be guilty of an

offence, and upon conviction will be liable to
imprisonment not exceeding 5 years or fine not exceeding
1 million ringgit or to both - S. 198(7).
• 5. Sound mind
• Under section 2018(1) the office of a director must
be vacated if a director suffers from unsoundness
of mind / any mental disorder. Thus, such a person
is not qualified to be appointed as a director
 6. Share qualification.
There is no rule of law that a director must also be a
member of the company, but the constitution may impose
such a requirement. Where the requirement exist it is only
satisfied by the director being the registered holder of the
required number of shares.
• This required number of shares is called the director's share
qualification. The share qualification serves 2 purposes:
(i) It provides directors with an added incentive to ensure
the financial success of their company.
(ii) It is attractive to shareholders to see that directors are
risking their own money as well as that of the members.
• The requirement, if imposed, must be satisfied within the
period as the constitution may provide from his
appointment take effect.
• Case: Holmes v Keyes (1959).
• The court held that s director shall vacate his office if he
has not within the period of 2 months obtained his
qualification or if after so obtaining it, he ceases at any
time to hold his qualification.
• A person vacating office under this section shall be
incapable of being reappointed until he has obtained his
qualification.
 Appointment of director

S. 201 –A person shall not be appointed as a director of a

company unless he has consented in writing to be a
director and make a declaration that he is not
disqualified from being appointed or holding office as a
director of a company under this Act.
S202(1) - The first director(s) must be named in the
application for incorporation of a company.
S202(2) -All subsequent directors of a company may be
appointed by ordinary resolution.
S202(2) - Subject to the constitution, the Board may,
at any time, appoint a director in addition to existing
director and the director so appointed shall hold
office-
(a) in the case of a public company, until the next
annual general meeting; or
(b) in the case of a private company, in accordance
with the terms of appointment.
• For a public company, the appointment of a
director is by way of a separate resolution.
• S. 203 requires the appointment of directors to be
voted individually. Two or more directors cannot be
appointed in the same resolution, unless the
members have agreed by resolution to the
appointment of the said directors in single
resolution. Otherwise, the appointment is not valid.
 Removal of directors
• In certain events directors may be removed from office
by disqualification arising under statutory provisions or
under the terms of the articles.
• For private companies, the CA 2016 does not prescribe
the procedures for removal of a director, Thus, reference
must be made to the company’s constitution.
• If the company does not have a constitution or if the
constitution does not prescribe procedures for removal of
a director, s. 206 provides that he may be removed by
ordinary resolution. Under s. 206(3) a special notice is
required of a resolution to remove a director under this
section
• S. 206(1)(b) prescribes the procedures for removal of a
director of a public company. The section provides that
the general meeting may, by ordinary resolution, remove
a director before the expiration of his or her period in
office.
• A special notice (28 days notice) is required of a
resolution to remove a director under this section or to
appoint another person instead of the director at the same
meeting
• The office of director then becomes vacant on the
passing of the resolution.
• However, where the director was appointed to represent
the interest of a particular class of shareholder or
debenture holder, the resolution to remove the director
will not take effect until a successor has been appointed.
 S. 207 -
(1) On receipt of special notice for a resolution to remove a
director under subsection 206(3), the company shall forthwith
send to the director a copy of the special notice.
(2) The director shall be given the right to make oral
representation or written representation not exceeding a
reasonable length on the resolution to remove him.
(3) Where the director makes written representation and requests
the written representation be notified to the members, the
company shall, unless the representation is received too late
for the company to do so-
(a) state the fact of the representation having been made in the
notice of the resolution given to members of the company; and
(b) send a copy of the representation to every member of the
company to whom the notice of the meeting is sent.
• S. 207(4) - If a copy of the representations is not
sent as required under subsection (3) due to the
representations received too late by the company or
due to the default of the company, the director may,
without prejudice to his right to be heard orally,
require that the representations shall be read out at
the meeting.
 Soliappan V Lim Yoke Fan [1968] 2 MLJ 21(FC, M'sia)

• The company's articles of association provided that a director

may be removed. The articles also provide that 7 days' notice
had to be given. The P wanted to remove all the directors of
the company.
• 3 days before the meeting, the first P sent notice to the
company of a resolution to remove the directors. At the
meeting, the Ps were purportedly elected as directors after the
Ds had been removed. The Ds refused to relinquish office,
and the Ps brought an action.
The trial judge held that the Ps were not properly appointed,
as the 28days notice required before the old directors could be
removed under s 128 (of the CA 1965) had not been given.
• In the Federal Court, it was held that s128 of the CA 1965
was not mandatory. The power to remove directors under
that section co-existed with any power contained in the
articles of association.
• Therefore, it was not necessary to give 28 days notice
before removing a director; the removal could be affected
in accordance with the articles, which provide for shorter
notice.
• However, on the facts, the proper notice required under the
articles had not been given either, so the Federal Court
held that the Ds had not been properly removed as
directors and consequently the Ps were not properly
appointed as directors of the company.
• It has to be noted that a shorter period like 7 days
in Soliappan’s case is no longer allowed nowadays
as section 316(1) provides that the minimum period
of notice for a general meeting is 14 days.
 Retirement of Director
• For a private company a director will retire following the
procedure in the company’s constitution or in the terms of
his appointment
• For public company, refer first to the procedure in the
company’s constitution or in the terms of his appointment. If
it is silent, section 205 provides that the first directors will
retire at the conclusion of the first AGM.
• At every subsequent years’ AGM, 1/3 of the directors will
retire by rotation, with the longest in office to retire first.
Upon retirement the shareholders may appoint new directors
or re-elect the directors if they wish.
DIRECTORS’ DUTIES
 DIRECTORS' DUTIES
• S. 312 states that the right, powers, duties and
obligations of a director are as stated in the
Companies Act 2016, unless modified by the
company’s constitution.
• Directors are entrusted to manage a company.
• Since directors are given a broad power in the
management of a company, the law imposes certain
duties upon them, in the interest of the public and for
the protection of those who invest money in the
company.
• Breach of these duties or negligence in performing
them on the part of a director entitles the company to
sue him for any damage which has been suffered by
the company as a result of the breach or negligence.
 A. Fiduciary Duties
• A director occupies a fiduciary position (a position
based on trust and confidence) in relation to the
company, thus, he owes certain duties to the
company.
 A director must act in good faith, in the interest of a
company as a whole, and is not permitted to make
a personal profit by virtue of his position within the
company. The fiduciary duty is owed to the
company as a whole and not to any individual
members of the company.
• 1. Duty to exercise his powers for a proper
purpose
S. 213(1) of the Companies Act 2016 provides that
directors must at all times exercise their powers for
a proper purpose….
• The requirement under s. 213(1) embodies the rule that
directors must act for proper purpose. The powers
given to the directors must not be exercised for any
improper purpose.
• Improper means beyond the scope of the power given,
or not justified by the instrument creating the powers.
• If the power is exercised for improper purpose, the
directors is in breach of his fiduciary duty even if the
director insist that they honestly believed it is in the
interest of the company.
The court will consider two factors when it has to
decide whether the directors’ power has been
exercised for a proper purpose or not:
i. the objective for which the power was
granted
ii. The purpose for which the power was
exercised by the directors
 The directors are in breach of their duty if they
exercise their power for a purpose other than the
purpose for which the power was given to them.
• Case: Re Duomatic Ltd.
The directors made payment to a former director as
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
unlawful. The court held that although the directors had
acted honestly due to their ignorance of the law, the
directors were liable for misapplication of the company’s
fund
• Example: directors have the power to issue shares in order
to enable them to raise money or secure other advantages
for the company. An issue of shares contrary to these
purposes may be set aside.
• In Howard Smith Ltd. V Ampol Petroleum Ltd.
Both the Plaintiff and Defendant companies were involved in
attempt to take over RW Miller (holdings) Ltd. Ampol Petroleum
had enough shares to block Howard Smith’s bid. The board of
directors of RW Miller favoured Howard Smith and issued
shares to them with the intention of reducing Ampol’s share
holding so that they could not block the takeover bid (to reduce
to a minority position, a member who hold a majority of voting
power). Ampol challenged the validity of the shares issue.
Miller’s directors claimed they issued the shares as the company
needed more capital. They had honestly thought it would be in the
best interest of the company if Howard Smith succeeded.
The Court held that the directors had breached their duties by
improperly exercising their powers and the issue of shares to
Howard Smith was invalidated. Although the company could
make use of the additional capital, the issue of the shares was not
because of that, but due to the fact that they wanted Howard Smith
to succeed in their takeover bid.
• A director may not issue shares to others to
change the balance of power within the company
by destroying the existing majority. Even where
there is absence of self interest, the issue of shares
will not be valid. Thus, where the directors issue
shares to themselves to maintain control over a
company, the court will definitely set aside such
issue even though full value had been paid on the
shares: Punt v Symons.
2. Duty to exercise director’s power in good faith
in the best interest of the company

S 213(1) states that:

" A director of a company shall at all times exercise
his powers in accordance with this Act, ….in
good faith in the best interest of the company.”

The directors occupy a fiduciary position and must

therefore exercise their power in good faith in
the best interest of the company as a whole.
Marchesi v Barnes & Keogh
"To 'act honestly' refers to acting bona fide in the interest of
the company in the performance of the functions attaching
to the office of director".
The CA2016 does not define “best interest of the company.”
• However, in Percival v Wright –the court explained that the
interest the company directors have to consider is the
interest of the members of the company as a whole, not the
interest of individual members.
• Re Smith & Fawcett Ltd - the directors must exercise their
discretion in what they consider, and not what the court
considers, is in the interests of the company.
 Re W & M Roith Ltd

• Roith was the controlling spirit of what is commonly

referred to as a 'one-man company'. He owned the
majority of the company's shares and ran the company's
business. He was one of the 3 directors. Roith wanted to
make provision for his wife after his death. He therefore
entered into a contract with the company, under which
his wife would be paid a pension if he died.
• There was no problem in having this agreement adopted
by the company, as Roith controlled it. Roith died. His
executors put in a claim for the widow's pension. The
liquidator of the company rejected the claim.

Held: Liquidator was right to do so. When the directors

of the company agreed to make the contract, they were
not considering the interest of the company i.e. Roth
considered the interest of his wife.
 However, if the company goes into a state of
insolvency, the creditors’ interest will have to
be taken into account as well. The directors
then owe a duty to the creditors to see that the
assets are managed in such a way that the
interest of the creditors are not at risk.
• In Walker v Wimbourne, the count found the
company’s directors in breach of their duties to
the company and its creditors in guaranteeing
loans for another company in the group at a
time when the company was itself in serious
financial difficulties.
• In case of Tengku Dato’ Ibrahim Petra Tengku Indra Petra
v Petra Perdana Bhd (2015) the Federal Court explained
the test for breach of duty of a director to act in the best
interest of the company.
• In the case, the directors were sued for, causing the
company to undertake divestments which were allegedly
against the best interests of the company. The Federal held
that the defendant directors’ actions were bona fide and
just. The divestments were undertaken to address a real and
urgent cash flow problems faced by the company. There
was no conspiracy to injure the company and, the directors
had sought external advice as well from senior
management of the company and professional advisers. As
such, their actions were justified.
• The Federal Court explained the test for breach of duty of
a director to act in the best interest of the company. The
court held that the test is a combination of both a
subjective and objective test.
• The first element: the subjective test is to assess the state
of mind of the director. Whether the director considered
the exercise of his discretion is in the best interest of the
company. The second element: the objective test. The
court will assess whether an intelligent and honest man in
the position of the director could have reasonably
believed that the transactions were for the benefit of the
company.
3. Duty to avoid conflict of interest
•It is a fiduciary duty that a director should not
enter into engagement in which there is a
possibility that the director’s personal interest
could conflict with the company’s interest.
•A director would breach dis fiduciary duty if he
puts his personal interest in priority over the
company’s interest.
S. 218(1) states that - a director or officer of a company
shall not, without the consent or ratification of a general
meeting:
(a) use the property of the company;
(b) use any information acquired by virtue of his position
as a director or officer of the company;
(c) use his position as such director or officer;
(d) use any opportunity of the company which he became
aware of, in the performance of his functions as the
director or officer of the company; or
(e) engage in business which is in competition with the
company, to gain directly or indirectly, a benefit for
himself or any other person, or cause detriment to the
company.
S. 218(1)(a) - Use of property or assets of company to
gain benefit for himself
•A director cannot use money or asset of the company to
make profit for himself. All the money or assets must be
used to make profit only for the company.
•In Paul A Davies (Aust) Pty Ltd v Davies, the
directors of a company purchased a boarding home and a
restaurant business in their own name but was financed
partly from the company’s fund in form of interest free
loan to the directors. The court held: the directors were
liable for breach of fiduciary duties for using companies
fund for private purpose.
S. 218(1) (b) - Use of information acquired by virtue of his
position to gain benefit for himself
A director is not allowed make a secret profit by reason of
opportunities acquired as a result of his position. Where a
director makes profits by the use of confidential
information as a result of his position, he is not entitled to
retain it unless these profits are disclosed to and approved
by the company.
In Grove v Flavel – the court held that a director who
knows that his company is facing the risk of insolvent
liquidation is acting improperly when he uses that
information to protect himself and other companies of
which he is director from the consequences of that
liquidation to the detriment of the creditors.
• Any misuse of trade secrets and other confidential
information amounts to conflict of interest,
therefore, a breach of duty.
• In Thomas Marshall (Exporters) Ltd. v Guinle –
G, the managing director of a company, had
without the company’s knowledge began to trade
on his own in competition with the company. The
company sought an injunction to stop him from
disclosing the or using the company’s confidential
information or trade secrets.
The court held that the director had breached his
fiduciary duties when he used information
belonging to the company that is regarded as
confidential.
S. 218(1)(c) - use of position to obtain profit for
himself
•A director may not make use of his position to
obtain a profit for himself.
•If a director uses the fact that he is a director to
acquire a profit, he will be accountable to the
company for it. Thus, if a director accepts
something in consideration for acting in a certain
way in relation to the company's affairs, he will
clearly be in breach of his fiduciary duty.
Cook v Deeks
• The directors of a company carrying on the
business of railway construction contractor obtained
a contract in their own name. The directors also
procured a resolution of the company ratifying their
conduct. On an action brought by shareholders to
the Privy Council it was held that it was a breach of
trust on the part of the director and that the benefit
of the contract belonged to the company and they
were bound to account to the company for it.
• Furs Ltd v Tomkies
• Tomkies was a director of Furs Ltd.(Furs). He was
authorised by the board to negotiate for the sale of
part of the company's business to a New Zealand
company (buyer). As this was the part of the business
that he was in charge of, it was envisaged that he
would go over to the buyer on completion of the sale.
• During the negotiations Tomkies got the buyer to pay
him a sum of money in consideration of him
transferring to them his service.
• Since they had to pay the amount to Tomkies, the
buyer offered a lower sum of the business to Furs.
Furs accepted this lower sum as they were very keen
to sell, without any knowledge of the money paid to
Tomkies.
• The High Court of Australia held that his
fiduciary character was the occasion and the
means of securing the profit for himself. By so
doing he greatly diminished the price obtainable
by the company.
• However, this was not the determining factor. He
had a plain duty with which he brought his private
interest in conflict. That was enough.
• Accordingly, he was held liable to account.
• Mahesan v Govt of Malaysia
• Mahesan was a director and employee of the society. Its object
was to provide housing for government employees. In
connection with a transaction involving the purchase of land,
Mahesan received a bribe from one Manickam. Manickam had
purchased the land for M$456,000. He sold it to the society for
M$944,000. One quarter of the profit (i.e. $122,000) was paid
to Mahesan as a bribe.
• The court held that Mahesan had breached his duty to the
society. The society could have acquired the land for $456,000;
instead they had paid $944,000. The society was accordingly
entitled to recover the amount of the bribe or alternatively
damages for Mahesan's breach of duty, but not both. Since the
loss to the society was greater than the amount of the bribe,
Mahesan was ordered to pay damages to the society.
S. 218(1) (d) use any opportunity of the company which he
became aware of, in the performance of his functions as the
director or officer of the company.
•The Board of Trustees of the Sabah Foundation& Ors v
Datuk Syed Kechik Syed Mohamed.
•The managing director od Sabah Foundation was aware thet
license to extract timbre for certain land was available. He
secured to licensed for another company that he was also a
director without drawing the matter the attention of the Board
of trustee of Sabah Foundation. The court held there was a
breach of fiduciary duty.
S. 218(1) (e) - engage in business which is in
competition with the company, to gain directly or
indirectly, a benefit for himself or any other person,
or cause detriment to the company.
•Personal Automation Mart Pte Ltd v Tan Swee
Sang
•A director of a company resigned and secretly took
over the company’s premises, staff and telephone line
with the intention of founding a new business on a
valuable business of the company was in breach of
her fiduciary duty to the company.
• At common law, where there is a possibility of a conflict of
interest, directors may avoid breach of duty by making full
disclosure to the company. In Furs Ltd. v Tomkies, it was noted
that:
“No director shall obtain for himself a profit by means of a
transaction of which he is concerned on behalf of the company
unless all the material facts are disclosed to the shareholders and
by resolution a general meeting approves of his doing so, or all
the shareholders acquiesce.”
• Therefore , a director may be able to enjoy the profits he
obtained out of his position as a director by disclosing his
intention and all material facts to the shareholders and getting
their consent. If the share holders refused to consent, the director
can resign and take the opportunity. He will no longer be liable
as he had disclosed his intention.
• Only when the director has not disclosed or failed to
get the company’s consent that the profits he
obtained are regarded as secret profit, and as such
he has to account for them.
• A director’s duty continues to bind him even after he
no longer holds the office. This will be so where the
director has during his term of office committed
acts amounting to breach of duty and (i) resigns or
secure his release in order to reap the benefit of his
breach of duty, or (ii) after his resignation or release,
commits similar acts which, if he was still a director,
would amount to breach of duty on his part.
• This common law position is reiterated by S. 221:
• (6) Every director of a company who holds any office
or possesses any property where duties or interests
may be created in conflict with his duties or interests
as director shall declare the fact and the nature,
character and extent of the conflict at a meeting of the
directors of the company.
• (7) The declaration shall be made at the first meeting
of the directors held-
• (a) after he becomes a director; or
• (b) if already a director, after he commenced to
hold the office or to possess the property, as the
case requires.
 Remedies for breach of fiduciary
duties
1. The company may sue for damages or for the
return of specific property. Refer to Mahesan’s
case
2. The company may claim any secret profit that the
director made. Refer to Fur’s case
3. The exercise of the power which in breach of
directors’ duties may be declared to be
invalid. Refer to Howard Smith’s case.
 B. Duty of Care, Skill & Diligence
• In Re City Equitable Fire Insurance Co Ltd., the court
explained that:
•  A director need not exhibit in the performance of his
duties a greater degree of skill than may reasonably be
expected from a person of his knowledge and
experience. If directors act within their powers, if they
act with such care as is reasonably to be expected from
them, having regard to their knowledge and experience,
and if they act honestly for the benefit of the company
they represent, they discharge both their equitable as
well as their legal duty to the company.
• A director must perform his role with the degree of
care and diligence that a ‘reasonable’ person would
exercise. A reasonable person is a hypothetical
person who:
• is a director of the company in the same
circumstances;
• occupies the same office held by the director; and
• has the same responsibilities as the director.
• 213(2) the CA requires that a director of a company
must exercise reasonable care, skill and diligence.
• The standard required to be discharged by a director,
thus, is assessed based on:
i. The knowledge skill and experience which may
be reasonably expected of a director having the
same responsibilities
ii. Any additional knowledge, skill and experience
which the director in fact has
• Prior to 2007, the duties imposed on executive and non-
executive directors were different. Non-executive
director was not required to have any skill or
qualification suitable for his office. With the
amendment to the CA1965 in 2007, section 132(1A)
codified the principle in the case of Norman v
Theodore Goddard and made it applicable to all
directors. The court in the case held that when
performing his functions as an executive director, an
executive director was to exercise the knowledge, skill
and experience which he actually had and which a
person carrying his function should be expected to have.
• The new CA 2016 had also adopted the same principle
in section 213(2).
• A director is deemed to have the knowledge, skill and
experience:
• Which he actually has; and
• Which anyone carrying his function should be
expected to have
• Under section 213(3) a director who contravenes
section 213 commits an offence and upon conviction
will be liable to an imprisonment not exceeding 5
years or to a fine not exceeding RM 3 million or to
both.
• To safeguard directors, s. 214 provides that a director who make
business judgement is deemed to have met the requirement of
duty under s. 213(2) and equivalent duties under the common
law if he –
• a) makes the business judgment for a proper purpose
and in good faith;
• (b) does not have a material personal interest in the
subject matter of the business judgment;
• (c) is informed about the subject matter of the business
judgment to the extent the director reasonably believes
to be appropriate under the circumstances; and
• (d) reasonably believes that the business judgment is in
the best interest of the company.
• All the four conditions must be fulfilled to prove that he did
discharge his duty with reasonable care and diligence.
There are certain general principles that may be
applied to the directors in relation to duty of
care:
1. S. 215(1) and (2) - A director may rely on
information provided by others such as reliable
and competent officers; professional/expert
retained by the company, another director or
committee to the board of directors (on which
the director is not a member) provided that the
reliance is made on reasonable grounds i.e. (a) in
good faith; and (b) after making an independent
assessment of the information having regard to
the directors’ knowledge of the company and the
complexity of the structure and operation of the
company.
2. A director is entitled to delegate his duties. Section
216 states that:
(1) If there is no reasonable ground for suspicion,
the director is justified in trusting the delegate to
perform such duties honestly.
(2) 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.
 (3) The directors are not responsible under subsection
(2) if-
• (a) the directors believed on reasonable grounds at
all times that the delegatee would exercise the power
in conformity with the duties imposed on the
directors under this Act and the constitution of the
company, if any; and
• (b) the directors believed on reasonable grounds, in
good faith and after making a proper inquiry, if the
circumstances indicated the need for the inquiry, that
the delegatee was reliable and competent in relation
to the power delegated
In Huckerby v Elliot – the appellant was a director of
a gaming club that had operated without the necessary
licence. She was charged for negligent in allowing the
club to contravene the law. Her defense was that the
running of the club was done by her co director,
whom she thought must have obtained the necessary
licence. The court held that she was not guilty , as it
was proper for a director to leave matters to the
relevant officials, so long as there was no reason for
her to distrust the officer.
3. A director is generally not responsible for the act or
omission of his co-directors even if he did not attend board
meeting. Where he attends board meeting he must be liable
for any decision made in his presence. Where decisions are
made in his absence, he will not be liable unless he
authorized the act or has agreed to accept liability for it.
4. A director must make enquiries when called upon to pay
away the company’s money.
Re railway & General Light Improvement Co.
A director noted for a certain payment and signed cheques
without knowing exactly what the money was for and
without making enquiries which a person of ordinary care
in his position would have made was held to be negligent.
 E. Other Statutory Duties
• Duty to disclose interest in contract
• Director cannot have interest in contract or proposed
contract with the company.
• S221(1) requires the director to declare the nature of his
interest at a meeting of the directors as soon as practicable
after the relevant fact have come to his knowledge.
• S221(2) The interest must be material interest.
(that would reasonably be expected to impair the
objectivity of the director's judgment when
participating in the action to be taken)
• S221(9) – ‘interest in contract” include interest of
spouse, child of the director
• Effect of breach – the contract shall be voidable at
the instance of the company. –S221(10)
• S221(12) – imprisonment of 5 years or RM3
Million fine or both