Company Law : Tutorial Topic 6

Company’s Management

1)What is the meaning of “director”? Why is it important to determine whether a

person is a “director” under the company law?
A director manages the business of the company. Section 196(1) of the Companies Act 2016
provides that every private company must have at least one director while public companies
are required to have a minimum of two directors.
Section 2(1) of the CA 2016 defines the term director which reads 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 the directors of a corporation
are accustomed to act and an alternate or a substitute director.
The power to manage the company’s business is vested in the board of directors. This has
been codified under Section 211 of the CA 2016.
In the case of Great Eastern Ry V Turner, it was stated that Directors are the mere trustees
or agents of the company, trustee of the company’s money and property, agents in the
transaction which they enter into on behalf of the company.
The director at common law owes a fiduciary duty to the company and he is to act honestly in
good faith for the benefit of the company and is to not abuse his powers or position. He is
also to avoid conflict of interest.
Section 213(1) of the CA 2016 provides for the duties of the directors. He is to exercise his
powers in good faith and for the best interest of the company. It is important to determine
who the director is under company law to ensure that all of this duties maybe executed to the
best of its abilities.

2) Advise the parties in the following scenario as to their eligibility to be appointed as a

director under the Companies Act 2016:
The qualifications of who maybe a director has been listed under Section 196(2) of the CA
2016 while who may not be directors are listed in Sections 198 & Section 199.
i) Jimmy was declared a bankrupt 5 years ago. Smelly Good Sdn Bhd now wishes to
appoint him as an additional director.
Section 198(1)(a) of the CA 2016 provides that an undischarged bankrupt cannot hold the
office or take part in the management of the office.
Section 198(3), provides that a bankrupt maybe appointed or hold office with the approval of
either the Official Receiver or the Court.
If he opts to get approval of the court, Section 198 (3) & (5), would require him to first serve
on the Official Receiver and the Registrar of Companies a notice of intention to apply for
leave.
ROC shall be made a party to the proceeding while Section 198(3)(b) provides that the
Official Receiver will be heard in court.
Issues might arise as to whether the official receiver must also be a party to the proceeding or
just served with court papers to attend court.
Based on the provisions above Jimmy maybe appointed as a director with the approval of
either Official Receiver or the Court.
ii) The number of directors in Stinky Bhd fall below two and Stinky Bhd now wishes to
appoint Jackie from South Africa as a director.
As per Section 196(4) of the CA 2016, the minimum director must ordinarily reside in
Malaysia having a principal residence in Malaysia. Section 196(4) does not require all
directors of a company to have their principal residence in Malaysia. In this present situation
there are two directors for Stinky Bhd if Jackie is appointed as director and the requirement is
that at least one director must fulfil the residency requirement if there is more than one
director. The requirement of Section 196(1) must be fulfilled by every company.
iii) Smell Good Bhd is a company specialising in natural, organic and aluminium free
deodorant / antiperspirant. Smell Good Bhd wishes to appoint Jeremy, who an engineer by
profession as director.
The CA 2016 provides that it does not require a director to have a specific academic or
professional qualification. Section 213(2) provides that a director shall exercise reasonable
care, skill and diligence.
In the case of Re Brazilian Rubber Plantation and Estates Ltd, it was held that a director
can no longer escape liability because he lacked the knowledge, skill and experience. He is to
have the knowledge, skill and experience expected of the director having the same
responsibilities.
Jeremy is not required to specialize in the organic antiperspirant field but he is to have
knowledge, skill and experience expected of the director having the same responsibilities.
iv) Selvi, aged 79 residing in India wishing to be the director of Bahagia Bhd. He was once
convicted for fraud.
Section 198(1) provides that a person who has been convicted disqualified as a director on
the ground that he was convicted of one of the offence stated may not hold office as a director
or take part in the management of the company. Section 198(4) includes the offence of fraud.
Section 198(6) provides for the prohibition period that is for a period of five years from the
date he was convicted.
He may be reappointed to hold the office as a director with the court’s approval as per in
Section 198(4).
In the present situation, Selvi was convicted for fraud once and the time frame is not
stipulated. If it had been over the prohibition period then he can be elected as a director with
the approval of court.
3) Jaime and Cersei, husband and wife are the directors of their company, Lannister Bhd.
They had a fight and are getting a divorce and Cersei is planning to remove Jaime as the
director of Lannister Bhd before the expiration of his tenure in Nov 2019.
(a) Advise Cersei on her plan.
A director maybe removed in accordance with provision in Section 206.
Section 206(2), provides that the company may by ordinary resolution remove a director from
office before the expiry of his term.
Section 206 gives an opportunity to members of a public company to remove a director if
they are dissatisfied with his performance. In this case, there is no indication that Jamie’s
removal was due to his performance but instead attributed to the impending divorce.
The provision allows for members of the public company to remove director by passing an
ordinary resolution. The resolution is passed when it garners more than half of the votes cast.
Steps that is to be taken before the meeting is that following Section 206(3), members who
want to remove a director are required to serve a special notice or notice of intention on the
company at least 28 days before the scheduled member’s meeting.
The company will then send the notice to the director who may respond to it orally or written.
During the meeting the director is entitled to speak to the members and may also request
written response to be read out at the meeting if it was not sent to the members.
The resolution to remove directors will be then put to vote, It will be passed if more than half
the votes are obtained.
As per the provisions above, members are given the chance to remove directors when they
are dissatisfied with the director’s performance and removal is to be done when more than
half of the votes can be obtained when resolution is passed. Cersei intends to remove Jamie
due to their impending divorce and it had nothing to do with his performance as the director. I
would advise her to not go ahead with her decision and instead wait for Jamie’s term to be
over.
(b) Jaime found out about Cersei’s plan and seek for RM3.5million as a compensation.
Advise Lannister Bhd.
Section 227 of the CA provides that it is not lawful for a company to pay a director for
compensation for loss of office. It is not lawful for the company to make any payment to its
director in connection with the transfer of the company’s property.
These prohibitions are subject to certain exceptions. First of all, the particulars of the
payment including the amount have to be disclosed to the members and members have passed
a resolution to approve the payment.
If the director had received the payment without the member’s approval the director shall be
deemned to have received it in trust and company can demand for its repayment at any time.
In this particular situation, in the event that Jamie seeks for his compensation it is not lawful
for the Lancister Bhd to pay his compensation for the loss of office. However with the
exception that the particulars of the payment has to be disclosed and the resolution passed is
approved, Lancister Bhd may pay to compensate Jamie
**not sure**
(c) Soon after his removal, it was found out that Jaime had authorised for Lannister
Bhd to give a loan to his secretary Ms. Ros for RM500,000. Advise Lannister Bhd. **not
sure**
4)Sheikh Oberyn, an investor from Dubai has invited Dorne Berhad to invest in a real estate
housing project in Dubai which worth RM5 million. Upon discussions and persuasions from
Sheikh Oberyn, the board of directors finally decided that it is in that best interest of the
company to invest in the Dubai Project though they knew that Dubai is in the state of
financial crisis. It has recently been discovered that the Dubai Project that the company
invested on has been affected by the Dubai financial crisis and that the company incurred
huge losses from the investment.
(a) Discuss whether the board of directors has breached their duty as directors to
the company.
Section 211 provides for the general powers to manage the company that is given to the
board of directors. Section 31(2) of the CA 2016 provides for the rights, powers, duties and
obligations of the directors unless it is modified by company’s constitution. Section 213(1)
provides that a director is to exercise his powers in accordance with this Act for proper
purpose and in good faith for the interest of the company. The director of a company shall
exercise shall exercise knowledge, skill and reasonable care.
In the present situation, the BOD of Dorne Berhad were expected to exercise reasonable care
and exert diligence while exercising their skills and knowledge. It is evident that although
they had wanted to invest in the Dubai Project based on the fact that it was for the best
interest of the company it is evident that they did not exercise the skills and knowledge
expected of a director having the same responsibilities.
They were aware of the financial crisis that Dubai was experiencing and an investment in a
situation like this is definitely something that would incur a loss of the company. If they had
exercised that reasonable care prior to investing they could have prevented the loss that the
company incurred.
Therefore it is evident that the BOD had breached their duties to the company.
(b) The BOD now claim that they relied on the evaluation report prepared by their
lawyer and accountant and should not be held accountable for the losses. Advise Dorne
Berhad.
Section 211 provides that it is the power to manage company’s business is usually vested in
the board of directors. The Board has all the powers necessary for managing, directing and
supervising the management of the company.
Based on the purview of the provision above the BOD has all the necessary powers to
manage and supervise the management of the company. They cannot rely on the fact that the
evaluation report prepared by the lawyers and accountants were the reason behind the loses.
They were vested with the power and it was for them to exercise it with diligence.
Therefore, the BOD may not rely on this reasoning to account them for being not responsible
for the loses incurred by the company.