Can you be a director if declared bankrupt?

Can you be a director if declared bankrupt?
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Can you be a director if declared bankrupt?

Latest SSM action on qualification of a director

SSM published a media statement on 09 December 2021 to caution all the companies directors on the importance of a person qualification to act as the company director.

The media statement specified about a former company director with bankrupt status was convicted of 2 offences under Section 125(1) of CA, 1965 to act as a company director without obtaining permission from the court.

Background story

Mr Hung Lye Huat, former company director of Global Agriculture Sdn Bhd with bankrupt status was found to have signed Form 48A (Statutory Declaration before appointment as director) dated 24.01.2017 and Form 32A (share transfer form) dated 26.01.2017 whereas he was an undischarged bankrupt and had never obtained court permission to act as a director during that period.

Contravention of Company Act

According to Section 125(1) of CA, 1965, every person who is an undischarged bankrupt act as director of, or directly or indirectly takes part in or is concerned in the management of, any corporation except with the leave of the Court shall be guilty of an offence against this Act. Failure to comply shall impose a penalty of imprisonment for five (5) years or RM100,000 or both.

At the end, the court has imposed a fine of RM8,000.00 or 3 months imprisonment if fails to pay; after the accused pleads guilty through plea bargaining.

Let look at the Section 198(1)(a) of CA, 2016 (with effect from 31.01.2017) on the requirement on the disqualified from being a director. Under this new act, it provides that an undischarged bankruptcy cannot hold office as a director or take part in the management of the company. It is regardless whether his/ her bankruptcy is within or outside Malaysia.

Any Exemption?

Can a person with bankruptcy status be appointed or hold office as a director? The answer is yes; however approval is required either from the Official Receiver (OR) or the Court as according to Section 198(3) of CA, 2016.

If option by way from the Court approval, the person shall serve a notice to the OR and the Registrar of Companies on his/ her intention to apply for such leave. The registrar shall be made as a party to the proceeding; whereas the OR will be heard in court.

Severe Fine and Penalty

Any penalty for contravenes this section? Refer to Section 198(7) of CA, 2016, a heavier penalty to be imposed as compared to Section 125 (1) of CA, 1965 where offender shall be liable to imprisonment for a term not exceeding five (5) years or to a fine not exceeding RM1 million or both.

SSM take seriously the qualification of a person to act as the director. This is proven from the additional requirement and also increase 10 times the amount of fine under Section 198 of CA, 2016 as compared to Section 125 (1) of CA, 1965.

Hence, any appointment to act as director of a company should not take for granted by merely making a declaration under Section 201 of the Companies Act 2016. It should be supplementary along with comprehensive background research of the person such as bankruptcy search with Jabatan Insolvency Malaysia to avoid any heavy penalty imposed on the contradiction of the act.

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