What Should/ Shouldn’t A Director Do?

With great power comes great responsibility. Being a company director comes with all the glamour and perks, but so do responsibilities. Let us help you navigate through the waters of directorship with a brief list of dos and don’ts for company directors in Malaysia.

Director is not just about name and fame- it comes with a lot of responsibilities to ensure that the company is being steered according to the vision of the shareholders and the benefit/ betterment of the company. In order to achieve that, that are things that a director should and shouldn’t do whilst managing a company. In this article, we will briefly share just that.

What SHOULD A Director Do?

1) Exercise his powers with reasonable care, skill & diligence

There is no textbook answer/ guide on how should a director exercise his power. The only guide a director has, can be found in section 213(2) of the Companies Act 2016 (“the Act”), which shed some light on  how a director will be judged when they exercise their power:

a. Was the action (what did the director do) reasonable?

How do we determine whether what the director did was reasonable? According to the section, this is an objective test i.e. would another director have done the same thing in the same circumstances/ situation? 

b. Did the director perform his duties to the best of his ability?

How do we determine if a director has performed his duties to the best of his ability? According to the section, this is a subjective test. Essentially,  any additional knowledge, skills, and experience that the director may profess to have- is it being utilized whilst performing his duties? 

2) Disclose any information that might affect the wellbeing of the company

What kind of information does a director need to disclose? Essentially:

1. Any changes that might affect the internal management of the company (in writing). This includes particulars relating to shares, debentures, participatory interests, rights, options, contracts, and any such relevant events and matters, for the purposes of compliance with the Act; and
2. Any personal interest that may be in conflict of interest with the company, whether directly or indirectly, in contracts, proposed contracts, property, offices and etc as soon as practicable after the relevant facts have come to the director’s knowledge.

3) Comply with statutory requirements

As the title suggests, a company director should comply with the statutory requirements under the Act. Failure to do so will court trouble.

What A Director SHOULDN’T Do

1) Improper use of his responsibilities

This includes but is not limited to improper use of the company’s property, information, and the director’s position within the company for his personal benefit. 

2) Acquiring/ selling properties without the company’s approval

This specifically applies to property that is deemed to be of substantial value (when the value exceeds twenty-five per centum (25%) of the company’s total assets, net profits, or issued share capital).

3) Handing out money (illegally) like it’s Christmas 

This includes but is not limited to:

1. Providing (without approval i.e. resolution) a loan, guarantee, or security to another director of the company or of a related company;
2. Providing loans to individuals that are connected to the directors of the company. The exception for this is:
   1. When the loan is made to a subsidiary or holding company or subsidiary of the holding company;
   2. When such loans are usually given in the company’s ordinary course of business; or
   3. When such the loan is given to a person who is under the company’s or its related corporation’s full-time employment (i) for the purchase of a home, or (ii) according to the company’s allowable employee loan scheme.
3. Providing tax-free payment to a company director as remuneration.

What happens if a director still insists on banging their heads on the wall?

If a director insists, he can be made liable and if convicted, be imprisoned not more than 5 years/ fined not more than RM3 million/ both.

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.

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