In the vibrant business landscape of Malaysia, company director play a pivotal role in steering the ship of corporate success. Picture this: A boardroom discussion, where decisions are made, strategies are formulated, and visions are turned into reality. A pivotal moment:
Director A: “Our company’s performance is impressive, but are we aligned with Malaysia’s regulatory framework?”
Director B: “A crucial question. Let’s explore our duties as directors.”
In this article, we dive into the realm of company directors in Malaysia, dissecting their responsibilities, legal obligations, and the ever-evolving corporate landscape they navigate. Whether you aspire to become a director, are an experienced executive, or simply wish to grasp the intricacies of corporate governance in Malaysia, join us on this journey to unveil the pivotal roles and complexities that define a company director’s tenure.
Who is a director?
Section 2 of the Companies Act 2016 (CA 2016) states that a “director”: ”includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the majority of directors of a corporation are accustomed to act and an alternate or substitute director”.
It’s important to note that some corporations may designate their officers with titles like “Chief Executive Officer” or “Managing Director,” while others, such as companies limited by guarantee, may use terms like “Governor” or “Trustee.” Regardless of the title, if an individual holds such a position or carries out directorial responsibilities, they are legally considered directors under this definition.
Moreover, even in cases where there is no formal appointment as a director, a person can still be classified as a director if they meet the criteria outlined in Section 2 of the CA 2016.
Appointment of director in Malaysia
Every company is obligated to maintain a minimum director count, which varies based on its type:
(a) one (1) director in the case of private company; or
(b) two (2) directors in the case of public company [Subsection 196(1) of the CA 2016].
This minimum number pertains to directors who must have their principal place of residence in Malaysia and does not include alternate or substitute directors.
Should a company’s director count drop below the prescribed minimum as per the CA 2016, the existing director cannot resign or vacate the position without appointing a replacement. Otherwise, any such resignation or vacation of office will be considered ineffective, as stipulated in Subsection 196(3) of the CA 2016.”
Company Director Requirements
To qualify as a director, an individual must meet specific criteria, as outlined below:
(a) The individual must be a natural person and at least eighteen years old, in accordance with Subsection 196(2) of the CA 2016.
(b) They should not have a disqualification record under Section 198 or 199 of the CA 2016.
Before a person can assume the role of a director, they must complete the following steps:
(a) Submit a declaration, as stipulated in Section 201 of the CA 2016, confirming their compliance with Sections 198 and 199 of the CA 2016.
(b) Provide their consent to the appointment.
A person officially becomes a director upon appointment by either the company’s Board or its members.
Additionally, every company is mandated to maintain a register of directors at its registered office. This register must include the necessary particulars outlined in Subsection 57(1) of the CA 2016.
Who can appoint directors?
a. Appointment of first directors in a newly incorporated company
When you’re starting a private company, you need to have at least one person as a director. If it’s a public company, you must have at least two directors. These names are given by the person applying to create the company under section 14 of the CA 2016.
The first director, or directors, named will be in charge from the day the company is formed until they stop being directors according to the CA 2016.
b. Appointment of subsequent directors by shareholders
In most cases, directors are chosen by the company through a regular decision-making process.
For public companies, directors must be voted on individually. They can’t all be appointed in a single vote. However, if all the shareholders agree beforehand, they can vote for all directors at once.
The law doesn’t stop companies from appointing directors to represent specific groups, like shareholders or debenture holders.
Companies can also change the number of directors or decide how directors leave their positions through a regular decision made during a general meeting.
c. Appointment of subsequent directors by board of directors
The board of directors can also choose someone to temporarily fill a vacant director’s seat when certain situations occur as outlined in section 208(1) of the CA 2016.
Any person who is appointed as a director to fill such casual vacancy shall hold office:
(a) in the case of public company, until the next AGM; or
(b) in the case of private company, in accordance with the terms of the appointment [subsection 208(4)].
If someone is appointed as an alternate or substitute director, they have the same responsibilities and rights as any other director.
Can a director be removed?
A director’s tenure can be terminated before their appointed term concludes, as stipulated by the Companies Act 2016.
In the context of a private company, provided it aligns with the company’s constitution, the removal of a director can be achieved through an ordinary resolution, as per Subsection 206(1) of the CA 2016. This resolution must be passed during a members’ meeting and cannot be executed as a written resolution, as outlined in Subsection 297(2) of the CA 2016.
In the case of a public company, the removal of a director can be carried out via an ordinary resolution in accordance with Section 206 of the CA 2016. This right of shareholders in a public company to remove a director exists independently of any provisions in the company’s constitution or agreements, in accordance with Subsection 206(2). However, it’s important to note that such removal does not affect the director’s entitlement to compensation for breach of contract if a contract of employment exists between the director and the company.
In situations where a director, who was appointed to represent a specific class of shareholders or debenture holders, is removed, the removal is not effective until a successor has been appointed, as per Subsection 206(4).
Any resolution to remove a director of a public company or to appoint another person instead of the director at the same meeting requires a special notice, as outlined in Subsection 206(3) of the CA 2016. Upon receiving notice of an intended resolution to remove a director, the company must provide a copy to the concerned director, who is entitled to be heard and has the right to make oral or written representations on the removal resolution during the meeting, as per Subsection 207(1) and Subsection 207(2) of the CA 2016.
If a director to be removed submits a written representation to the company and requests that it be communicated to the members, the notice regarding the resolution sent to the company’s members must indicate this fact, and a copy of the representation must be sent to every member of the company, in accordance with Subsection 207(3) of the CA 2016. Should the representation be received too late or due to the company’s default, the director retains the option to request that the representation be read out at the meeting, as per Subsection 207(4) of the CA 2016.
Can a director retire or resign from office?
(a) Retirement of directors
A director of a public company may retire as follows:
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the first directors appointed at the incorporation will hold office until the first AGM where they automatically retire; and
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at the subsequent AGMs, one third of the directors or nearest to one third shall retire.
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Each year, the directors who have served the longest since their last election must retire. If multiple directors started on the same day, the selection is done by chance unless they make a different arrangement among themselves. Directors who retire can be reappointed as long as they are not disqualified under section 198 of the CA 2016, as per subsection 205(5).
For private companies, the retirement of directors can be decided through a written resolution, provided it adheres to the company’s constitution or the terms of appointment regarding director retirement, as outlined in subsection 205(2) of the CA 2016.
(b) Resignation of a director
A director can resign by submitting a written resignation to the company’s registered office. Since directors must give their consent before being appointed, they can’t be forced to continue serving if they wish to resign. However, a director cannot resign if their departure would leave the company with less than the required minimum number of directors, and such a resignation is only effective once a replacement is appointed. In cases where a company has just one director or if that director is the last remaining one, a members’ meeting must be convened to receive the resignation notice and appoint one or more new directors, in accordance with subsection 209(1). This rule also applies to companies where the sole director is also the sole shareholder.
Disqualification from Being a Director
Certain individuals are barred from overseeing companies under statutory regulations outlined in the relevant act. These individuals face disqualification from participating or having any role in a company’s management.
(a) Disqualification under section 198 of the CA 2016
The law, as defined in the relevant act, restricts certain individuals from becoming or continuing as directors. These disqualifications apply both within and outside Malaysia. A person can face disqualification if they fall under any of the following categories:
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They are an undischarged bankrupt, unless they obtain permission from the Official Receiver or the Court, provided they give notice of their intention to apply for permission to the Official Receiver, and the Official Receiver is allowed to express their views on the matter.
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They have been convicted of a crime related to the establishment, formation, or management of a corporation.
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They have been convicted of an offense involving bribery, fraud, or dishonesty.
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They have been convicted of an offense related to specific sections of the act, including
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Section 213 – Duties and responsibilities of directors;
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Section 217 – Responsibility of a nominee director;
- Section 218 – Prohibition against improper use of property, position, etc.;
- Section 228 – Transactions with directors, substantial shareholders or connected persons; and
- Section 539 – Liability where proper accounts not kept; and
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They have been disqualified by the Court under section 199.
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In such cases, the disqualification typically lasts for five years after the conviction or, in cases involving imprisonment, after the person’s release from prison, as stated in subsection 198(6) of the act.
To become or continue as a director after being disqualified, the individual must seek permission from the court. Failing to do so is considered an offense under the relevant act.
If someone intends to request the Court’s permission, they must notify the Registrar at least fourteen days in advance.
In the case of an undischarged bankrupt, the Registrar must also be made a party to the proceedings, as per subsection 198(3) of the CA 2016.
(b) Disqualification by the Court
Under the provisions of the relevant act, the Registrar has the authority to request the court to issue an order disqualifying an individual from acting as a director or participating, directly or indirectly, in a company’s management if:
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- The person has served as a director for two or more companies that went into liquidation due to insolvency, caused either wholly or in part by their actions as a director.
- The person has violated their directorial responsibilities.
- The person has repeatedly breached the provisions of the CA 2016.
In such cases, the disqualification period does not exceed five years from the date of the court’s order.