Duties and Responsibilities of Company Directors

Speaker: Lee Swee Seng LLB, LLM, MBA
sweeseng@tm.net.my
© copyright Lee Swee Seng

Who can be a Director?

• Must be at least 18 years old
• Must not be an undischarged bankrupt
• Must not have been convicted of a criminal offence involving fraud or dishonesty
• Must not have been imprisoned for an offence under S132, 132A or under 303 of the CO Act
• Must consent to act as Director
• No requirement on academic qualification

Directors who are equal shareholders of the Co

• Problem of impasse
• No quorum for meeting if only 2 shareholders and the other refuses to attend
• Cases of matrimonial & family dispute spilling over to Co.

Directors who are minority shareholders in a Co

• Director B will fear being oppressed or removed or not being reelected
• Difficulty of pleasing all factions

Directors who are not shareholders

• Fear of being removed or not reelected
• Holds office at the behest of the major shareholders
• Heavy responsibilities if Co is insolvent

Local Directors of Foreign Investors' Company in Msia

• The requirement of 2 local directors
• The ineffectiveness of resignation
• The danger of being summoned to Court to be examined in the event of company's insolvency

Types of Duties

• Fiduciary Duties - Civil in Nature
• Statutory Duties - Criminal in Nature

Fiduciary Duties

• Duties expected of a person in a position of trust.
• Eg between trustee and beneficiary
• Eg between agent and principal Eg between directors and company
• Elements of loyalty, good faith, avoidance of conflict of interest

Comparing Directors with Trustees

• Object of Trust is clear whereas that of Directors involve business risk
• Properties are registered in Trustee's name whereas Directors are not owners of properties of company
• The need for both to be accountable and responsible though stricter duty of care is imposed on a
  trustee than on a director

Fiduciary Duties

• To act in Good Faith (Bona Fide) in the interests of the CO
• To Exercise Powers For Proper Purposes
• To Retain Discretion
• To Avoid Conflict of Interests
• To use Care, Skill and Diligence in Discharge of Duties

To Act Bona Fide in the Interests of the Company

• Section 132(1) Co Act
• Act honestly and
• Use Reasonable Diligence in the discharge of his duties
• Business judgment of directors

Interests of the Company

• Interests of Company coinciding with Interests of Shareholders
• Interests owing to individual shareholders
• New Zealand's case of Coleman v Myers where the MD of a family co arranged for the takeover of the co at an undervalue by a co controlled by the MD
• Position of Nominee Directors
• Whether they should act in the interests of particular shareholders that appointed them or of the creditors that appointed them?
• Interests of employees ahead of interests of co?

Duty to Exercise Powers For Proper Purposes

• Diluting rival shareholders' voting power
• Oblique Motive in Raising Share Capital
• Refusal to Register Transfer of Shares

Conflict of Interests

• To avoid Conflict of Interests
  - Personal Profits
  - Bribes and other undisclosed benefits
  - Misuse of Company Funds Conflict of Interests
  - Taking up Corporate Opportunities
  - Using Confidential Information
  - Competing with the Company

Statutory Duties

• S 132 Act honestly, Use reasonable diligence
• S 132A Misuse of confidential information
• S 365 Ensuring that dividends are paid from profits
• S 135 General Duty to make Disclosure Statutory Duties

• S 132C To obtain approval of shareholders for acquisition or disposal of property of substantial value
• S167 To ensure proper accounting records are kept To lay accounts and report before CO Statutory Duties/Responsibilities

• S 303(3) Duty to prevent insolvent trading
• S 304(1) Responsibility for fraudulent trading
• S 368 Personal responsibility for fraud

Offences under CO Act

• About 135 offences that a Director can fall foul of
• Default Penalty if offence continues after conviction
• S 371A Compounding of offences