director duties company law

director duties company law
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Can a director be sued in Malaysia?

Corporate Veil

When a company is incorporated, it is deemed to be a separate legal entity that is distinct and separate from its members such that a 'corporate veil' is said to be drawn to separate the company and its members or directors.

In other words, the company’s rights and liabilities are their own and not that of the individual business owner. This principle has long been established in the English case of Salomon v Salomon & Co Ltd and has been adopted within the Malaysian jurisdiction as well.

Duties of Director under Common Law

The directors are effectively the agents of the company, appointed by the shareholders to manage its day-to-day affairs.

As a director of the company, you own

  • Duty to act bona fide in the interest of the company.

  • Duty to use power for a proper purpose.

  • Duty not to fetter discretions.

  • Duty to avoid actual and potential conflict of interest.

  • Duty to ensure the integrity of financial information.

Remedy Action under Company Act 2016

Section 346 of the Companies Act 2016 provides the courts with wide powers to grant remedies as they deem necessary to bring an end to the matters complained of in an oppression action.

Any member of a company may apply to the Court for an order :

(a) The affairs of the company are being conducted or the power of the director are being exercise in oppressive manner.

(b) Some act of the company has been passed which unfairly discriminate.

RDS Bina Sdn Bhd v Ong Chin Hoe & Anor

The Plaintiff filed a claim against the directors of a company in order to enforce payment due under a settlement agreement entered with the company that subsequently ceased operations and dissolved. The Plaintiff presented evidence of fraudulent acts by the directors to deregister their company to evade paying the monies owed to the Plaintiff. The Court allowed the Plaintiff to lift the corporate veil and found the directors to be personally liable for the debts owing to the Plaintiff.

Keller (M) Sdn Bhd v Ong Leong Chiou & Ors

The Plaintiff roped in several parties including a director of a company for the amount due to them as the appointed sub-contractor for work done in the construction of a shopping mall project. Upon close examination of the relationship between the parties, it was discovered that the 1st Defendant (Director) had orchestrated a complex plan to hide under the corporate veil in order to escape liability.

The 1st Defendant used a company (2nd Defendant) under his control and command to shield another company (3rd Defendant) from liability for fraud engineered by him.

Shortly after the project was completed, the 1st Defendant and other directors from the 2nd Defendant resigned and transferred their shares to other parties. In furtherance of the fraud, the 1st Defendant had also actively concealed vital information from the Plaintiff. These actions allowed the Court to pierce the corporate veil and have the Defendants jointly liable to pay the Plaintiff.

Final Word

In conclusion, the law generally provides a safe haven for directors through the separation of entity principle.

However, directors should not abuse their position by taking advantage of it as the new Company Act 2016 provide remedy actions for shareholders.

Source :

Ask Legal https://bit.ly/3OUzpBR

Donovan & Ho https://bit.ly/3nPSSHX

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