June 15 (Question 2)

a) The issue is whether Lok Lok Sdn Bhd can make Buntal liable in breach his
fiduciary duties as director in relation to purchase of land.

Under Section 213(1), a director of a company must exercise his powers for a
proper purpose and in good faith in the best interest of the company. Based on the case of
Re W & M Roith, director which is the majority shareholder of the company has made a
contract on behalf of the company that the company would pay annuity to his wife.
However, the court held that it was void because the arrangement was not for the interest
or benefit of the company.

A director duty is to avoid conflict of interest where directors should not enter
into engagement that the possibility of their personal interest could conflict with the
company which they bound to protect. This is where a director under Section 218(1) shall
not use the property of the company, misuse of information, misuse his position as
director or officer, misuse of company opportunity and competition with the company.
Director should in related to conflict of interest disclose the fact and nature in the meeting
of director. In this situation, director, Buntal, has misuse his position to make profit for
himself and at the same time can cause loss to the company, Lok Lok Sdn Bhd. Buntal
also does not disclose his fact. In relation to case Mahesan V Malaysian Governmnet
Officers, Mahesan as a director has receive secret profit from owner of the
land,Manickam for purchase of the land RM 122,000. Thus the court held that Mahesan
had breach his duty to the company and company had suffered loss.

Under common law, there are remedies available for breach of duties where the
company may claim any secret profit that the director made. Based on case Furs Ltd. V
Tomkies, a director, Tomkies was in charge for the sale of company’s product and he had
receive sum of money without the company consent. However, the court held that
Tomkies had breach his duty and liable to account to the company the money he had
received.

Based on the question, Lok Lok Sdn Bhd can argue that the decision made by
Buntal only benefit himself as he conspire with the land owner to sell the land to the
company for a higher price while Buntal will receive 40% secret profit from the price
paid for the land. Therefore, Buntal will received RM100, 000 and the company have to
pay RM250, 000. If Buntal does not take the secret profit, Lok Lok Sdn Bhd will only
pay RM 150,000 for the land and this cause the company losses. Lok Lok Sdn Bhd may
claim secret profit that the director made.

Conclusion, Buntal is liable in breach his duty in relation purchase of land and
Lok Lok Sdn Bhd can claim the secret profit.
b) The issue is whether Rashid is liable for the losses incurred as a director of
Mummy

Sdn Bhd.

Under Section 213(2), a director of a company shall exercise reasonable care, skill
and diligence with the knowledge, skill and experience which may reasonably be
expected of a director having the same responsibilities and any additional knowledge,
skill and experience which the director in fact has.

Under Common Law, a director owes a duty of care to the company of which he
is a director. The common law standard is that of reasonable care. Director must exercise
his power with a reasonable care. He must take care in the affairs of the company as he
would reasonably take in his own affairs.

Cases related to breach of duty of care are Re City Equitable Fire Insurance Co.
Ltd and Re Railway and General Light Improvement Co… Marzetti’s case. In case of Re
City Equitable Fire Insurance Co. Ltd, a director should take as much care in affairs of
his company as he would reasonably take in his own affairs. If he acts in relation to his
company in a manner that no reasonable man would employ in relation to his personal
affairs, and as a result the company suffers loss, the director is liable for breach of duty of
care. A director must make inquiries when called upon to pay away the company’s
money, this related to Re Railway and General Light Improvement Co case. In this case,
the director noted for a certain payment and signed cheques without knowing exactly
what the money was for and without making those inquiries which a person of ordinary
care in his position would have made.
 In relation to this question, Rashid as a director of Mummy Sdn Bhd. approved
certain payments and signed cheques on behalf of the company without knowing exactly
what the money was for and due to that ignorance, the company had suffer loss whereby
the payments were never rendered and the cheques had been used by the secretary to pay
his personal debts.

Since the company had suffer loss, Rashid is liable for the losses incurred because
as a director of the company as he has breach his duty of care toward the company.