DIRECTORS

CHAPTER 4

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DIRECTORS OF COMPANY: Section 196
PRIVATE PUBLIC
Minimum – 1 Minimum – 2
• natural person
• 18 years old
• Principal place of residence in Malaysia
CANNOT Resign / Vacate, IF

<1 <2

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 EXECUTIVE
/
NON-
EXECUTIVE

ALTERNATE /
INDEPENDENT
SUBSTITUTE

TYPES OF
DIRECTORS

ASSOCIATE /
MANAGING
SPECIAL

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•Full-time employees No executive responsibilities

Salaries Receive fees

Managerial function Employee of a company/institution holding shares

NON-
EXECUTIVE
EXECUTIVE

Specific executive responsibilities To protect and act best interest of his employee

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ALTERNATE / SUBSTITUTE
• Appointed by member to act and speak – during absence / incapacity
• The Act makes no provision, constitution can have provision with board approval
• Full capacity as director
• Consent to act
• Rights to receive:
• Notice of meeting
• Attend meeting
• Vote
• Automatically vacate when substantive director vacate the office

MANAGING DIRECTOR
• Confer greater powers and responsibility
• Appointment is provided by the constitution – the Board gives power to MD
• No provision under the constitution – cannot appoint MD – alter the constitution for appointment
• Sign contract of service
• Not subject to retirement by rotation
• Can terminate even though term of service has not yet expired

ASSOCIATE / SPECIAL
• Not a director by definition – no rights to attend/vote at any board meeting EXCEPT by invitation
• Usually senior executive – for:
• Training for top management (board)
• Improve status to deal with customers or suppliers 5
 INDEPENDENT DIRECTORS

• Paragraph 1.01 Bursa Malaysia Listing Requirement defines:

• Independent of management and free from any business or other
relationship, which could interfere with the exercise of independent
judgement or the ability to act in the best interest of a listed company

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INDEPENDENT DIRECTORS Not an executive D of the listed
company

Not engaged in any transaction with

the listed corp. . OR not Has not been within the last 2 years
partner/director/major shareholder and is not an officer of the listed
of corp. that engage in any company
transaction with the listed corp.

Not engaged as a professional

adviser by the listed corp. OR not Not a major shareholder of the listed
partner/director/major shareholder corp.
of corp. that provides advise

Not acting as a
Not a relative of any executive
nominee/representative of any
D/officer/major shareholder of the
executive D/major shareholder of the
listed corp.
listed corp.

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INDEPENDENT DIRECTOR: ROLES

Identify right Balance up board

Watchdog –
strategy – increase structure –
monitor board
shareholder’s independent view
process
value & judgement

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INDEPENDENT DIRECTOR: ROLES
Required to:
Act as chairman

Evaluate and monitor decision-making

process

Provide objective and positive

contribution

Provide assertive and influence

presence for the company’s interest

Provide independent views and

judgement relating to conflicting issues

Carry out functions required by BMLR

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PERSONS CONNECTED WITH
DIRECTOR: Section 197
Director’s Body corporate
family
• Director’s Under obligation – formal or
spouse informal – to act in accordance
• Parent with the directions, instructions,
or wishes of the that director
• Child – adopted
and step Has controlling interest in the
body corporate
• Brother
Director, or persons connected
• Sister with that director, or that director
• Spouse of and persons connected with him,
director’s child, are entitled to exercise, or control
brother and the exercise of, not less than 20%
sister of the votes attached to voting
shares in the body corporate

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 PERSONS DISQUALIFIED FROM BEING
A DIRECTOR: Section 198
Disqualified
Undischarged by the
bankrupt Offence Offence Offence
Court under
sec. 199
Sec 213

Sec. 217
Promotion, Bribery,
formation, fraud, Sec. 218
management dishonesty
Sec. 228

Sec. 539
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PERSONS DISQUALIFIED FROM BEING
A DIRECTOR: Section 198
Undischarged bankrupt Offence – the rest

Maybe appointed as Director

Maybe appointed with leave
with leave from Official
from the Court
Receiver or the Court

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PERSONS DISQUALIFIED FROM BEING
A DIRECTOR: Section 198
Sec. 198 (7) • Default penalty

• Imprisonment for a term not exceeding 5

On conviction years

Or • Fine not exceeding RM1 million

Or • BOTH

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POWER OF COURT TO DISQUALIFY PERSONS FROM
ACTING AS DIRECTOR OR PROMOTER:
Sec. 199
The court may, Within the last 5 years, the person has been a director of two
on application or more companies which went into liquidation resulting from
by the
the company being insolvent due to his conduct as a director
Registrar, make
an order to
disqualify any Due to his contravention of the duties of a director
person from
acting as a
director of a
company, Due to his habitual contravention of the Act
whether
directly or
indirectly, if:

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 PROCEDURE

Before application – the

Court may require:
The court will consider the
1. Any person to furnish The Registrar will remove
additional information The Court will apply to the
information of the the name from the
and documents received Registrar to disqualify the
company’s affair register kept by the
to disqualify the person as director
2. To produce and permit Registrar
director
inspection of books or
documents

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 CONSENT TO ACT AS DIRECTOR:
Section 201

Public – appointment must The acts shall be valid

Consent in writing 1st director will hold the be voted individually after his appointment and
Declare – office from the date of Director shall hold office – Appointment of two or more qualification
DECLARATION BY incorporation till cease to public – until next AGM, shall not be in single
PERSON BEFORE hold private – in accordance to resolution – unless agreed in
Subsequent appointment appointment the meeting without any vote
APPOINTMENT AS against it
DIRECTOR – ordinary resolution
Automatic reappointment is
not applicable for public
companies – must be voted
individually

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RETIREMENT OF DIRECTORS: Section
205
PRIVATE PUBLIC
• Pass written resolution in accordance with • All directors shall retire in 1st AGM
sec. 297 • Subsequent AGM – 1/3 OR nearest to 1/3 –
shall retire from the office

• Provision under Sec. 205 shall apply – UNLESS – there is specific provision in the Constitution.
IN GENERAL

• The directors to retire every year shall be the directors who have been the longest in the office
• If appointed on the same day, the retirement shall be by lot or agreed between them
• A retiring director eligible for re-election
• Upon retirement:
• may appoint any person qualified to fill in the vacancy at the AGM
• If no appointment – the retiring director shall offer him/herself for re-election and deemed
to have re-elected UNLESS:
• The company expressly resolved not to fill the vacated office
• A resolution for the re-election of the director is put to the meeting and lost
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 REMOVAL OF Ordinary
DIRECTORS: Section 206 resolution

New director
is assumed to
Special notice
be appointed
on the day
PUBLIC – – to remove
the former sec. 206 and appoint –
same meeting
director was
appointed
• A director may be removed before the
expiration of the director’s period of office
as follows:
• PRIVATE - Subject to Constitution – by If represent interest of
Ordinary resolution any stakeholders (Eg:
• PUBLIC – by Sec. 206 shareholder) – take
effect until new
appointment
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RIGHT TO BE HEARD FOR DIRECTORS OF PUBLIC
COMPANY AGAIST REMOVAL: Section 207

Written representation –
Company receive Copy of the special To defend – the company shall:
special notice for notice is sent to the director may make – • State the representation has
resolution to remove director to be oral/written been made in the notice
• Send copy of the
the director removed representation representation to members

• If the copy of representation is not sent to the members due to the company’s default, the director has the
right to be heard orally – read out at the meeting
• Copies of representation need not to be sent/read out if either company or any person claims to be
aggrieved by applying to the court
• If the court satisfied – the rights will be conferred 19
VACATION OF OFFICE OF DIRECTOR:
Section 208
Retired by the
Removed by the Disqualified
Resign – written act/Constitution
act/Constitution
notice (S205) – not re- – S198/S199
(S206)
elected

Vacate by
Unsound mind Dies
Constitution

The director appointed upon vacancy shall hold office:

• Public company – until next AGM
• Private company – terms of appointment

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RESIGNATION, VACATION OR DEATH OF SOLE
DIRECTOR / LAST REMAINING DIRECTOR (S209)
• Sole/last director shall not resign until new director is appointed – call
for members’ meeting
• For the purpose of appointing a new director:
1. Call meeting of next of kin/personal representative/members
2. Next of kin/personal representative/members must decide within 6 months
of the death of the last director
3. If failed – the registrar may direct the company to be struck off
• Where a sole director is also the sole shareholder – mental incapacity
– the committee appointed under the Mental Health Act 2001 will
manage – may appoint new director

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 DIRECTORS’ DUTIES AND
RESPONSIBILITIES: Section 2
• “director” includes CEO, CFO, COO or any other person primarily responsible for the management
of the company
1. Business judgment rule – SEC. 213 (2)
2. Reliance on information provided by others – SEC. 215
3. Responsibility for actions of delegate
4. Responsibility of a nominee director – SEC. 217
5. Prohibition against improper use of property, position, etc – SEC. 218
6. General duty to make disclosure – SEC. 219
7. Disclosure of interest in contracts, proposed contracts, property, offices – SEC. 221
8. Interested director not to participate or vote – SEC. 222
9. Approval company required for disposal by directors of company’s undertaking or property – SEC. 223
10. Loans to director – SEC. 224
11. Prohibition of loans to persons connected with directors – SEC. 225
12. Prohibition of tax free payments to director – SEC. 226
13. Payment to directors for loss of office – SEC. 227
14. Transactions with directors, substantial shareholders or connected persons – SEC. 228
15. Approval for fees of directors – SEC. 230
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16. Directors’ service contracts – SEC. 231
 DIRECTORS DUTIES
RESPONSBILITIES
Prohibition Against
General Duty To
Business Judgment Improper Use Of
Make Disclosure
Rule S213 Property, Position
S219
Etc. S218

Prohibition Tax
Loan To Director
Free Payment
S224
S266

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 DIRECTORS DUTIES RESPONSBILITIES
Business Judgment Rule S213
• Any decision on taking action on matters
relevant to the business of co.
• Must meet the duty under s213(2)
• in good faith,
• no personal interest,
• informed about subject matter,
• in the best interest of the company.
Prohibition Against Improper Use Of
Property, Position Etc. S218
• Prohibits directors against improper use of
• property
• position for personal interest
UNLESS it is with consent/ratification of
Meeting.
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 DIRECTORS DUTIES RESPONSBILITIES

General Duty To Make Disclosure S219

Director shall give notice in writing to the company of particulars relating
• Shares
• Debentures
• participatory interests
• Rights
• Options
• Contractors
within 14 days from the date on which the director acquired an interest in the S/D/PI/R/O/C.
• If interest on quoted stock exchange – notice period shall be 5 days.

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 DIRECTORS DUTIES RESPONSBILITIES
Loan To Director S224
A Company shall NOT make a loan to a director of the
company or any related company OR enter into any
guarantee or provide any security in connection with a
loan made to such a director by any other person.
This section shall NOT APPLY if:
• the company is an exempt private company
• the loan is a fund to meet the expenditure incurred
or to be incurred by the director for the purpose of
the company
• the loan is provided to a full time director in
purchasing or acquiring a home
• a passed resolution to approve a scheme for the
making of loan to employees of the company and
the loan is in accordance with that scheme
A Company shall not authorise the making of
any loan , enter into any guarantee or provide
any security EXCEPT:
Prior to approval of the company on the
RESOLUTION in which purpose of the
expenditure & the amount of the loan or
extent the guarantee or security are disclosed.
If there is NO AUTHORISATION given by the
company, the LOAN shall be REPAID or the
LIABILITY under the guarantee or security shall
be DISCHARGED:
• Public company: after 6 months from the
conclusion of the AGM
• Private company: after 12 months from the
making loan, the entering into any guarantee
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or provision of any security.
MIND MAP LOAN TO DIRECTOR S224
Extended to
persons
connected
with
directors
(s.225)

A company
shall not make
NO GUARANTEE NO
SECURITY
a
loan to a
director

EXCEPTION
S

Does not Funds given to Full time

Full time
apply to an director to meet employment -
expenditure to
employment -
exempt for housing
perform his ESOS
private loan
duties
company
Prior approval from the shareholders 27
 DIRECTORS DUTIES RESPONSBILITIES

Loan To Director S244

NO APPROVAL – the directors authorizing the
making of the loan / entering into guarantee /
provision of the security shall be JOINTLY &
SEVERALLY LIABLE to indemnify the company
against any loss incurred.
S244(10) – Default penalty
• On conviction – imprisonment for a a term
not exceeding 5 years
• Or fine not exceeding RM3 million
• Or Both

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 DIRECTORS DUTIES RESPONSBILITIES
Prohibition Tax Free Payment S266
• Prohibit the payment of tax-free remuneration to directors.
• Any provision contained in the
• Constitution or
• any resolution of the Board members of the company
For payment to a director of remuneration free of income tax calculated by
• reference to or varying with the amount of his income tax or the rate of income tax shall have effect as
if the provision or resolution, provide for payment as a gross sum subject to income tax, of the net
sum for which it actually provides.
• S266(3) Default penalty
On conviction – imprisonment for a term not exceeding five years
Or Fine not exceeding RM3 Million
Or Both

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MIND MAP PROHIBITION TAX FREE PAYMENT S266

Payment as
Provision in a gross
the Board Members sum
Constitution resolutio subject to
n resolutio income tax
n

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 Director’s Duties and Responsibilities (s2)
Duties and Responsibilities
Reliance on Information Provided by Others
Responsibility for Action of Delegate
Responsibility of a Nominee Director
Disclosure of interest in contracts, proposed
contracts, property, offices
Interested director not to participate or vote
Approval of company required for disposal by
directors of company’s undertaking or property
Section in Explanation
CA 2016
s215 Rely on information/professional/expert
advice/opinions/reports/statements
S215(1) deemed to be made on reasonable ground/good faith
- Allow director to delegate power of BoD to any
committees/director/officer/employee/expert/others.
s217 - Appointed by virtue of his position as employee of the
company/representative of member/employer/debenture holder shall act
in the best interest of the company
s221 Regulates the manner in which a director is required to disclose his
interest in contracts/proposed contracts/properties/office.
If interested in contract/PC/P/O directly/indirectly – declare at a meeting.
S222 Interest directors directly/indirectly -not to participate in a vote
S223 Directors to obtain approval of the members for disposal of company’s
undertaking/property.
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 COMPANY
DIRECTOR’S
CODE OF ETHICS

RELATIONSHIP
WITH SOCIAL
CORPORATE SHAREHOLDERS, RESPONSIBILITIES
GOVERNANCE EMPLOYEES, AND THE
CREDITORS AND ENVIRONMENT
CUSTOMERS

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Company Director’s Code of Ethics
1. The business environment and laws – becoming more complex – imposed a greater demand for
reasonable competence among company directors. Therefore – shld exists s and acceptable
corporate behavior NOT DEVOID of professionalism and credibility, to uphold good corporate
integrity.

2. The principles on which Company Director’s Code of Ethics (“Code”) rely are those that
concern transparency, integrity, accountability and corporate social responsibilities.
- the code formulated to enhance the standard of CG and corporate behavior with a view to
achieve the following objective:
a. Establish standards of ethical conduct for directors based on acceptable belief and
values one upholds
b. To uphold the spirit of social responsibility and accountability in line with the
legislations, regulations and guidelines governing a company.

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 COMPANY DIRECTOR’S CODE OF
ETHICS
RSHIP WITH
Clear SHOLDERS,
CORPORATE Should be conscious with SOCIAL Take necessary steps to wind up
GOVERNANCE understanding of EMPLOYEES,
interest of the RESPONSIBILITIES
the company if the company has
the aims and CREDITORS AND THE
AND stakeholders not commenced business
objectives CUSTOMERS
ENVIRONMENT
Adopt objective and positive
Devote time and effort Promote professionalism attitude and cooperate with
and competency government authorities and
Company is properly
managed and effectively regulation bodies
Ensure safety measures
controlled and protection to Ensure effective use of natural
Stay abreast of the affairs of employees resources
the company
Insist on being kept Proactive to the needs of the
Have access to the advice and services community assist the society
informed on all matters of
importance to the company At all times exercise his powers for the
purposes they were conferred for the benefit Ensure activities and operations do
not harm the interest and well
Limit directorship of companies to a number being of the society and fight
in which he can best devote his time inflation 34
 Directors’ Code of Ethics
Corporate Governance
I. Clear understanding of the aims and i. Be conscious of the interest of
objectives, capabilities and capacity
of the company
ii. Devote time and effort to attend
meetings and to know what is
required of the board and each of its
directors and to discharge those
functions.
iii. Ensure at all times, that the
company is properly managed and
effectively controlled.
iv. Stay abreast of the affairs of the
company and be kept informed of
the company’s compliance with
relevant legislations and contractual
requirement.
Relationship with shareholders,
employees, creditors and
customers
SH/employees/creditors/custo
mers of the company
ii. At all times promote
professionalism and raise
competency of management
and employees.
iii. Ensure adequate safety
measures and provide proper
protection to workers and
employees at work places.
Social responsibilities and the
environment
i. Ensure necessary steps are
taken according to law to
properly wind up/strike
off/ceased to carry on business
and is not likely to commence
business in future.
ii. Adopt an objective and
positive attitude and give the
utmost cooperation for the
common good when dealing
with government authorities or
regulatory bodies.
iii. Ensure effective use of natural
resources, and to improve
quality of life by promoting CSR
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Corporate Governance Relationship with shareholders, Social responsibilities and the
employees, creditors and customers environment
v. Insist on being kept informed iv. Be more proactive to the needs
on all matters of importance to of community and to assist in
the company in order to society related program.
effective in corporate v. Ensure that the activities and
management the operations of the company
vi. Limit directorship of do not harm the interest and
companies to a number in wellbeing of the society at large
which he can best devote his and to assist in the fight against
time and effectiveness each inflation.
director is in own judgement of
his abilities in holding
directorship
vii. Have access to the advice and
services of the CS, who is
responsible to the board to
ensure proper procedures/rules/
regulations are complied with
viii. At all times exercise his
powers for the purposes they
were conferred for the benefit
and prosperity of the company

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THANK YOU..

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