Oxford University Commonwealth Law Journal

ISSN: 1472-9342 (Print) 1757-8469 (Online) Journal homepage: https://www.tandfonline.com/loi/rouc20

Enforcement of directors’ duties in Malaysia and

Australia: the implications of context

Vivien Chen

To cite this article: Vivien Chen (2019) Enforcement of directors’ duties in Malaysia and Australia:
the implications of context, Oxford University Commonwealth Law Journal, 19:1, 91-117, DOI:
10.1080/14729342.2019.1616942

To link to this article: https://doi.org/10.1080/14729342.2019.1616942

Published online: 15 May 2019.

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OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL
2019, VOL. 19, NO. 1, 91–117
https://doi.org/10.1080/14729342.2019.1616942

Enforcement of directors’ duties in Malaysia and

Australia: the implications of context
Vivien Chen
Department of Business Law and Taxation, Monash Business School, Monash University,
Melbourne, Australia

ABSTRACT
In recent years, the misappropriation of corporate assets by 1MDB, a high-profile
Malaysian company, has precipitated international investigations by regulatory
authorities. Although the scandal resulted in the imprisonment of Singaporean
bankers, for many years no enforcement proceedings were taken against the
directors of 1MDB in Malaysia despite the existence of corporate law
modelled substantially on Anglo-Australian law. The article investigates the
enforcement of directors’ duties in Malaysia and seeks to explain the manner
and extent to which regulatory safeguards against the expropriation of
corporate property are enforced. The analysis draws from the Australian
experience to illuminate the differences across jurisdictions. Features of the
Malaysian context are examined to explain differences in the enforcement of
directors’ duties across countries. The findings reveal the significance of the
politics-business nexus, corporate ownership structures and cultural norms for
the enforcement of corporate law. The implications of the Malaysian
experience are considered within a broader regional context.

ARTICLE HISTORY Received 29 October 2018; Accepted 12 March 2019

KEYWORDS Corporate law; enforcement; directors’ duties; political economy

1. Introduction
1Malaysia Development Berhad (1MDB), the Malaysian state-owned
company,1 has been at the centre of money laundering investigations inter-
nationally.2 The debacle has been criticised by the US Attorney-General as
‘kleptocracy at its worst’.3 Billions of dollars are claimed to have been misap-
propriated through questionable transactions, leaving the company strug-
gling to pay its debts.4 Evidence indicates that the impugned transactions

CONTACT Vivien Chen vivien.chen@monash.edu

1
1MDB is a company owned by the Ministry of Finance Inc: see the Treasury’s Frequently Asked Questions
<www.treasury.gov.my/index.php/en/contactus/faqs/gic.html> accessed 11 February 2019. 1MDB was
established for the purpose of promoting the country’s economic development.
2
‘1MDB: Malaysia’s Extraordinary Financial Scandal’ Straits Times (3 July 2018).
3
‘Jeff Sessions Calls Malaysia’s 1MDB Scandal “Kleptocracy at Its Worst”’ Reuters (5 December 2017).
4
‘Malaysia’s Former Prime Minister Faces Trial in the 1MDB Scandal’ The Economist (9 February 2019).
© 2019 Faculty of Law, Oxford University
92 V. CHEN

were entered into by 1MDB’s board of directors in breach of their fiduciary

duties to act in good faith in the best interest of the company. The magnitude
of the scandal raises questions as to how a Malaysian company was able to be
used as a vehicle for fraud despite the existence of regulatory safeguards,
modelled largely on Anglo-Australian regulations, aimed at protecting the
company from misappropriation of corporate property.
Directors’ duties play a critical role in safeguarding shareholders from mis-
appropriation of corporate assets by those in control of companies. Both
Malaysia and Australia have substantially similar provisions in their respective
company legislation which require directors to act in good faith and in the
best interest of the company.5 Previous studies have found formal Malaysian
regulation and its safeguards against misconduct by directors to be compar-
able to those of leading common law countries.6 In a measurement of share-
holder protection law across seven countries from 1970 to 2005 through the
quantitative ‘leximetric’ method, the aggregate strength of Malaysian legal
protections against expropriation of corporate property based on 60 variables
was found to be strong internationally.7
This article builds on previous studies on the strength of formal corporate
law by developing a more nuanced understanding of the enforcement of
directors’ duties in the Malaysian context. In particular, the study investigates
the claim that Malaysian corporate law lacks effectiveness in practice.8 The
article draws on the Australian experience to illuminate the differences in
the manner and extent to which directors’ duties have been enforced in a
comparable common law jurisdiction. Australian corporate law has had a
strong influence on the development of Malaysian corporate law.9
The study is also aimed at complementing previous leximetric studies10 in
line with scholarly critique that asserts that leximetric studies should be

5
See n 18.
6
Aishah Bidin, ‘Corporate Law Reform and Corporate Governance in Malaysia: Responses to Globalization’
in PM Vasudev and Susan Watson (eds), Corporate Governance After the Financial Crisis (Edward Elgar
2012) 244; Janine Pascoe and Shanthy Rachagan, ‘Key Developments in Corporate Law Reform in Malay-
sia’ [2005] Singapore Journal of Legal Studies 93, 93.
7
Vivien JH Chen, ‘The Evolution of Malaysian Shareholder Protection: A Legal Origin Analysis’ [2013] Sin-
gapore Journal of Legal Studies 100; Priya P Lele and Mathias M Siems, ‘Shareholder Protection: A Lexi-
metric Approach’ (2007) 7 Journal of Corporate Law Studies 17; Helen Anderson et al, ‘The Evolution of
Shareholder and Creditor Protection in Australia: An International Comparison’ (2012) 61 International
and Comparative Law Quarterly 171.
8
Pascoe and Rachagan (n 6) 97–98.
9
The Malaysian Companies Act 1965 was modelled on the Australian uniform company legislation. Courts,
scholars and law reformers have also commonly drawn on Australian corporate law: VG Venturini,
Company Law Reform in Malaysia (University of Singapore Law Society 1964) 12–13.
10
The leximetric measurement’s value lies in its ability to facilitate the comparison of large amounts of
information over substantial periods of time: Anderson et al (n 7). This enables an analysis of broader
international trends across countries and the detection of interesting connections: Holger Spamann,
‘Large-Sample, Quantitative Research Designs for Comparative Law?’ (2009) 57 American Journal of
Comparative Law 797, 799. Nonetheless, the quantitative approach is inherently reductionist, and
additional measures are required in order to gain a more accurate understanding of matters such as
differences in regulatory enforcement: John Buchanan, Dominic Heesang Chai and Simon Deakin,
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 93

combined with qualitative analysis and other methods, such as descriptive

statistics, to facilitate a richer description of complex realities.11 The article
analyses by way of descriptive statistics all available Malaysian judicial
decisions involving breaches of directors’ duties from 2008 to 2015.
Qualitative analysis of public enforcement of directors’ duties in Malaysia
and Australia further facilitates a more nuanced understanding of the
manner and extent to which enforcement occurs in practice. Alternative
mechanisms which may serve as substitutes for the enforcement of directors’
duties are examined.
The discussion then turns to an investigation of reasons for the disparities
in the enforcement of directors’ duties between the two countries. Specific
features of the Malaysian context which ostensibly influence the enforcement
of directors’ duties are examined. The analysis demonstrates the superficiality
of formal convergence and the need to consider the implications of corporate
ownership structures, political economy and cultural norms for the effective-
ness of regulations.
Part 2 examines the regulatory framework on directors’ duties. The private
and public enforcement of directors’ duties, as well as substitutes, are con-
sidered in Part 3. Part 4 explores possible reasons for the cross-country differ-
ences. Part 5 concludes.

2. Directors’ duties: the regulatory framework

The directors’ duty to act in the best interest of the company plays a central
role in safeguarding shareholders from the expropriation of corporate assets.
Directors’ duties to act in good faith are substantially the same in Malaysia and
Australia. These laws have their origin in English equitable principles12 and
were adopted in the Malay states during the colonial period.13 Equitable
fiduciary duties continued to apply to company directors14 and were sub-
sequently written into the Companies Act 1965.15 Fiduciary duties require
directors to act bona fide in the interest of the company as a whole and to
avoid conflicts of interest.16 Directors are prohibited from using their position
to obtain a personal profit.17 Both the Malaysian Companies Act 2016 and the

‘Empirical Analysis of Legal Institutions and Institutional Change: Multiple-methods Approaches and
their Application to Corporate Governance Research’ (2014) 10 Journal of Institutional Economics 1, 14.
11
Buchanan et al (n 10); Martyn Denscombe, The Good Research Guide (4th edn, Open University Press
2010) 141.
12
Aberdeen Railway Co v Blaikie Brothers (1854) 2 Eq Rep 1281; Percival v Wright [1902] 2 Ch 421.
13
English law was formally received in Federated Malay States through the enactment of the Civil Law
Enactment 1937.
14
Civil Law Act 1956, s 3.
15
Companies Act 1965, s 132.
16
Furs Ltd v Tomkies (1936) 54 CLR 583; Avel Consultants Sdn Bhd v Mohamed Zain Yusof [1985] 2 MLJ 209.
17
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; PJTV Denson (M) Sdn Bhd v Roxy (Malaysia) Sdn Bhd [1980]
2 MLJ 136.
94 V. CHEN

Australian Corporations Act 2001 (Cth) contain statutory directors’ duties in

line with equitable fiduciary duties.18
As fiduciary duties are owed by directors to the company rather than to
individual shareholders, the company is often unlikely to bring proceedings
against errant directors where the wrongdoers are in control of the company’s
management. Individual shareholders may only bring proceedings against
directors in limited circumstances.19 In both Australia and Malaysia, the statu-
tory derivative action allows shareholders to bring proceedings on behalf of
the company if specific conditions are met.20 These include the courts
being satisfied that the applicants are acting in good faith, the derivative
action is in the best interest of the company and notice requirements have
been met.21 The Australian provisions set out additional criteria, namely
that there is a serious question to be tried and it is probable that the
company will not itself bring the proceedings.22 In practice, the Malaysian
courts have also required these criteria to be met by applicants seeking
leave to bring derivative actions.23 Consequently, the laws relating to direc-
tors’ duties and derivative actions are similar in both countries.
Nonetheless, concerns have been raised over the lack of effective enforce-
ment of directors’ duties in Malaysia.24 In the wake of the Asian financial crisis,
the Finance Committee highlighted the prevalence of ‘blatant and abusive
conflict of interest transactions without proper disclosure by directors’.25
Reforms introduced further regulations which strengthened safeguards for
shareholders against directors’ expropriation of corporate assets. These
included the presence of independent directors on the board and shareholder
approval for related party transactions in listed companies.26 The new
provisions increased scrutiny of directors’ conduct in line with international
recommendations, while building on the fundamental principle that directors
owe a duty of good faith to the company.
Despite sweeping reforms after the Asian financial crisis, questions remain
as to whether they have been effective in curbing directors’ misconduct.

18
Companies Act 2016, ss 213(1), 218; Corporations Act 2001 (Cth), ss 181–83. See Rosemary Teele Lang-
ford, ‘General Law and Statutory Directors’ Duties: “Unmixed Oil and Water” or “Integrated Parts of the
Whole Law”?’ (2015) 131 Law Quarterly Review 635, 644.
19
Foss v Harbottle [1843] 2 Hare 461.
20
Companies Act 2016, s 347; Corporations Act 2001 (Cth), s 236.
21
Companies Act 2016, s 348(2) and (4); Corporations Act 2001 (Cth), s 237(2).
22
Corporations Act 2001 (Cth), s 237(2)(a) and (d).
23
The Malaysian courts have reasoned that it would not be in the best interest of the company to grant
leave to bring derivative proceedings if these two additional criteria are not satisfied: Suhaimi Ibrahim v
Hi-Summit Construction Sdn Bhd [2014] 1 LNS 1770; Abdul Rahim Suleiman v Faridah Md Lazim [2015] 1
LNS 313; Lee Suan Ngee v On Network Sdn Bhd [2013] 1 LNS 506.
24
World Bank, ‘East Asia: The Road to Recovery’ (World Bank 1998); Juzhong Zhuang et al (eds), Corporate
Governance and Finance in East Asia: A Study of Indonesia, Republic of Korea, Malaysia, Philippines, and
Thailand (Asian Development Bank 2000) vol 1.
25
Finance Committee, ‘Report on Corporate Governance’ (February 1999) 42.
26
Malaysian Code on Corporate Governance 2000, pt 2 AA III; Bursa Malaysia, Listing Rules, r 10.08.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 95

A study by Liew found that while Malaysian company regulations reflect inter-
national standards, implementation and enforcement were perceived as
inadequate.27 Her interviews of 19 senior managers involved in the corporate
governance of public listed companies reflected the common perception that
self-dealing by directors and controlling shareholders to the detriment of
other shareholders continues to be widespread.28 The Deputy Chief Executive
of the Securities Commission, Zarinah Anwar, likewise observed that the ‘per-
sistent cases of minority shareholder exploitation demonstrate the failure of
independent directors in giving effect to the role and responsibility intended
to be discharged by them’.29 Such observations suggest the need to investi-
gate the extent to which directors’ duties are effectively enforced in Malaysia.
The discussion in Part 3 focuses on the manner and extent to which direc-
tors’ duties are effectively enforced in Malaysia and compares it with the Aus-
tralian experience. Part 3.1 considers the private enforcement of directors’
duties through litigation. The discussion then turns to an analysis of alterna-
tive mechanisms which may function as substitutes for the private enforce-
ment of directors’ duties in Part 3.2. Public enforcement of directors’ duties
is discussed in Part 3.3. Part 3.4 summarises the findings on the enforcement
of directors’ duties.

3. Enforcement of directors’ duties

3.1. Private enforcement of directors’ duties
Malaysian judicial decisions from 2008 to 2015 were analysed to gain a better
understanding of the extent to which private litigation enabled the company
to obtain redress for breaches of directors’ duties.30 A comprehensive search
for judicial decisions involving allegations of misconduct by directors was con-
ducted through the Lexis and CLJ Law databases for Malaysian cases using the
search terms ‘directors duties’. A search was also conducted using the term
‘derivative’ to ensure that any applications for leave to bring derivative
proceedings against directors were identified. The searches identified
102 relevant reported and unreported judicial decisions.
The article analyses the dataset of 102 judicial decisions in two parts. Part
3.1.1 examines 70 of the 102 cases which focussed on substantive questions of
whether directors’ duties were breached. The remaining 32 of the 102 cases
were applications for leave to bring derivative proceedings for breaches of
27
Pik Kun Liew, ‘Corporate Governance Reforms in Malaysia: The Key Leading Players’ Perspectives’ (2007)
15 Corporate Governance 724, 734.
28
ibid.
29
Zarinah Anwar, ‘Board of Directors: Performance Beyond Compliance’ (Conference on Corporate Govern-
ance: Adding Vision to Oversight, Kuala Lumpur, August 2003).
30
The year 2008 was chosen as a starting point as reforms introducing the statutory derivative action were
introduced in 2007.
96 V. CHEN

directors’ duties. In the 32 decisions, the courts focussed on the preliminary

issue of whether the applicant should be given leave to bring an action on
behalf of the company, leaving substantive questions as to whether directors’
duties were breached to subsequent proceedings.
A detailed analysis of the 32 cases involving applications for leave to bring
derivative actions has been published in an earlier article by the author.31 The
statutory derivative action was introduced to the Malaysian regulatory frame-
work in 2007. The reforms which introduced the statutory derivative action
did not abolish the common law derivative action.32 Hence, the statutory
derivative action co-existed with the common law derivative action in Malay-
sia from 2007 to 2016. Further reforms in 2016 abolished the common law
derivative action.33 The analysis of the 32 cases in the previous article indi-
cates that applicants who relied on the statutory derivative action had
higher rates of success in obtaining leave than litigants who relied on the
common law derivative action.34 Nonetheless, the analysis suggests that liti-
gants continue to encounter significant obstacles in seeking redress for
breaches of directors’ duties.35
The discussion in Part 3.1.2 of this article focuses on the full dataset com-
prising 102 decisions involving claims that directors’ duties were breached.
These comprise the 70 cases where the substantive claims were heard and
the 32 cases in which applicants sought leave to bring derivative proceedings
for breaches of directors’ duties. The analysis of the 102 cases facilitates an
overarching view of the challenges faced by private litigants in seeking
redress for breaches of directors’ duties.

3.1.1. Proceedings against directors for breaches of duties

There were 70 cases which focussed on substantive questions of whether
directors’ duties were breached. The analysis indicated that 59 per cent of
the cases were unsuccessful, while 34 per cent of the cases were successful.36
The most common ground cited for the unsuccessful cases involving breaches
of directors’ duties was that the claims were not proved with 49 per cent of
cases failing on this ground. There are several possible reasons why claims
are not proven. One possibility is that the allegations were unfounded.
Failure on this ground may also have reflected the difficulty of proving
breaches of fiduciary duties. This is consistent with the views of the Corporate
31
Vivien Chen, ‘The Statutory Derivative Action in Malaysia: Comparison with an Australian Judicial
Approach’ (2017) 12 Asian Journal of Comparative Law 281.
32
ibid 284.
33
Companies Act 2016, s 347(3).
34
Chen, ‘Statutory Derivative Action’ (n 31) 309.
35
For further details on the manner and extent to which the Malaysian statutory derivative action has alle-
viated challenges associated with the common law derivative action, see Chen, ‘Statutory Derivative
Action’ (n 31).
36
In 7 per cent of the cases, the outcome was unknown.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 97

Law Reform Committee that shareholders who are not involved in the com-
pany’s management often have very limited access to information.37 The
inability to obtain evidence and the lack of a paper trail commonly poses chal-
lenges to proof.38
Significantly, the analysis indicates that the plaintiffs were involved in the
company’s management in all the cases in which directors were found to have
breached their duties.39 This would arguably have facilitated their access to
information and evidence in support of their claims against the defendant
directors. In all of the successful cases, the defendants were directors of
private companies. The majority of successful suits involved closely held com-
panies, including family companies, quasi partnerships and in one case a joint
venture company. There were no successful suits against directors of public
companies. Notably, unsuccessful claims against directors of public compa-
nies include two suits brought by minority shareholders.40 Claims for breaches
of directors’ duties instituted by liquidators had a high rate of success, with all
three claims brought by liquidators being successful.41 One possible expla-
nation for the success of liquidators’ claims is that liquidation would have
brought wrongdoer control to an end. Liquidators would have access to the
company’s records which arguably facilitate proof of the claims.
The importance of access to evidence is also reflected in the reasons for the
judicial decisions. The analysis of successful cases indicates the strength of evi-
dence in support of findings that directors’ duties were breached.42 The
reasons for the decisions included descriptions such as ‘overwhelming’ or
‘incontrovertible’ evidence pointing to the defendants’ breach of duties.43
Likewise, adverse findings in relation to the defendants’ demeanour such as
evasiveness or inconsistent testimony were common.44 For instance, in CTI
Leather Sdn Bhd v Hoe Joo Leong,45 Pathmanathan J found ‘glaring inconsis-
tency’ in the first defendant’s evidence,46 while his testimony in court was
‘completely at odds with his witness statement’.47 Her Honour also found
the third defendant to be ‘astoundingly glib and flippant in his evidence,

37
Corporate Law Reform Committee, ‘A Consultative Document: Members’ Rights and Remedies’ (Compa-
nies Commission of Malaysia 2007) 32.
38
OECD, Corporate Governance in Asia (White Paper, 2003) 18.
39
The plaintiffs in these cases were the corporation, directors or former directors, liquidators, statutory
bodies or substantial shareholders in quasi-partnerships or small family companies.
40
Soh Choo v Unico-Desa Plantations Bhd [2011] 1 LNS 1101; BSNC Corporation Bhd v Ganesh Kumar Bangah
[2010] 7 MLJ 85.
41
Dato’ Gan Ah Tee v Kuan Leo Choon [2012] 10 MLJ 706; CTI Leather Sdn Bhd v Hoe Joo Leong [2012] 10 CLJ
287.
42
Chan Fong Cheng v Aunfu Fibre Board (M) Sdn Bhd [2013] 1 LNS 1147.
43
Soon Seng Palm Oil Mill (Gemas) Sdn Bhd v Jang Kim Luang [2011] 9 MLJ 496; Plastech Industrial Systems
Sdn Bhd v N&C Resources Sdn Bhd [2012] 5 MLJ 258.
44
Zung Zang Wood Products Sdn Bhd v Kwan Chee Hang Sdn Bhd [2012] 5 MLJ 319; Cheah Ngun Ying v Low
Cheong & Sons Sdn Bhd [2010] 9 MLJ 385.
45
[2012] 10 CLJ 287.
46
ibid 302.
47
ibid 304.
98 V. CHEN

brushing off clear conflicts of interest … as the way in which “Chinamen” do

their business’.48 Judges also observed the lack of evidential support for the
defendants’ claims.49 Some judgments contained positive observations of
the plaintiffs’ evidence including consistency or truthful demeanour.50

3.1.2. Analysis of all the cases involving claims that directors’ duties
were breached
The discussion now turns to an analysis of the full dataset of 102 cases. The
dataset comprises the 70 decisions examined in Part 3.1.1 and the 32 cases
which focussed on the preliminary issue of whether the applicant should be
given leave to bring a derivative action for breaches of directors’ duties.
The analysis of the 102 cases facilitates an overarching perspective on the
extent to which plaintiffs were able to obtain a remedy, and the challenges
faced by litigants in seeking redress for breaches of directors’ duties.
The analysis revealed that the most common ground for failure of the cases
was the inability to obtain leave to bring derivative actions. Twenty-four of the
unsuccessful cases were applications for leave to bring derivative actions
which failed in the initial stages. In these cases, leave was refused or the
cases were struck out on grounds that there was no reasonable cause of
action.51 Hence, litigants who sought redress through derivative proceedings
had significantly high failure rates with 24 out of 32 cases (75 per cent) of liti-
gants unable to proceed to substantive litigation for breaches of directors’
duties.
The second most common ground for failure of the proceedings was the
plaintiffs’ inability to prove their claims in the substantive litigation for
breaches of directors’ duties, with 20 unsuccessful cases falling within this
description.52 While satisfying the burden of proof is a challenge common
to many litigation cases, several trends in the cases suggest the importance
of access to information in facilitating proof that directors’ duties were brea-
ched, where such proof exists. First, most of the successful claims for breaches
of directors’ duties were brought by plaintiffs who were involved in the com-
panies’ management. Secondly, the reasons for decisions in successful cases
often emphasised the strength of the evidence in support of the plaintiffs’
claims. Plaintiffs involved in the company’s management would ostensibly
have better access to information and records relating to internal manage-
ment and the impugned transactions, which in turn provide support for
their claims against directors.
48
ibid 306.
49
Citec International Sdn Bhd v Yeam Sai Meng [2008] 8 MLJ 640; Soon Seng Palm Oil Mill (Gemas) Sdn Bhd v
Jang Kim Luang [2011] 9 MLJ 496.
50
Zung Zang Wood Products Sdn Bhd v Kwan Chee Hang Sdn Bhd [2012] 5 MLJ 319; Cheah Ngun Ying v Low
Cheong & Sons Sdn Bhd [2010] 9 MLJ 385.
51
Rules of the High Court, O 18 r 19(1).
52
The plaintiffs were found to have no locus standi to bring proceedings in five cases.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 99

When viewed as a whole, the analysis of the dataset of 102 cases suggests
that minority shareholders face particularly difficult challenges in seeking
redress for breaches of directors’ duties. The derivative action is important
to minority shareholders, as it potentially allows them to seek redress
against directors when those in control of the company are unwilling to insti-
tute proceedings. The failure to obtain leave to bring derivative proceedings
in 75 per cent of cases indicates that minority shareholders face significant
challenges in overcoming the preliminary hurdle necessary for litigation in
relation to breaches of directors’ duties. Minority shareholders who obtain
leave then face additional challenges of proving their claims at the substan-
tive litigation stage. The analysis of the 70 cases which examined substantive
claims for breaches of directors’ duties indicates that only one of the 24 suc-
cessful claims was brought by way of a derivative action.53 The only claim for
breach of directors’ duties brought by way of a derivative action which suc-
ceeded was the case of Wong Mee Ling v Chong Piang Fong54 in which the
plaintiff was a shareholder and former director of the company of a small
family business. As such, the plaintiff would have had access to evidence of
the defendant director’s wrongdoing.
Shareholders who do not own controlling stakes have a greater need for
the statutory derivative action. There is also less likelihood of involvement
in management decisions and access to internal management records.
Public companies, in particular, have a larger proportion of shareholders
who are not involved in the company’s management. Minority shareholders
of public companies arguably face greater challenges in accessing infor-
mation due to their lack of involvement in management and, as such, lack
the ability to substantiate their claims with the necessary evidence. The
high cost of litigation and the added disincentive of having to pay the defen-
dants’ costs in failed claims present further challenges to minority share-
holders’ private enforcement of their rights.
In summary, the analysis of Malaysian judicial decisions from 2008 to 2015
indicates that minority shareholders face considerable challenges in obtaining
redress for breaches of directors’ duties through the courts. The overwhelm-
ing majority of applications for leave to bring derivative actions failed in the
initial stages. An analysis of Australian judicial decisions over the same
period involving applications for leave to bring derivative actions for breaches
of directors’ duties indicates that minority shareholders in Australia have had
higher rates of success.55 58 per cent were successful compared with 25 per
cent of the Malaysian applications for leave decided under the statutory
derivative action.56

53
Wong Mee Ling v Chong Piang Fong [2010] 1 LNS 1321.
54
ibid.
55
Chen, ‘Statutory Derivative Action’ (n 31).
56
ibid.
100 V. CHEN

The higher rate of success in Australian cases would appear to reflect the
Australian courts’ more liberal and pragmatic approach towards applications
for leave to bring derivative actions. In contrast, the Malaysian decisions often
reiterated the need for a strict interpretation of the statutory derivative
action.57 A comparison of judicial decisions reveals clear differences
between the jurisdictions in a number of situations, such as where there
was a history of animosity between the parties.58 For instance, in Daljit
Singh v Forefront Online Sdn Bhd,59 the Malaysian courts held that the appli-
cant lacked good faith, referring to the acrimonious relationship between
parties. However, the Australian courts have made positive findings of good
faith in similar situations,60 asserting that the criteria of good faith is relatively
easy to satisfy.61 Likewise, the Australian courts reflected a pragmatic
approach towards proof of the requirement that the company would not
bring proceedings.62 By contrast, Malaysian applicants at times faced the
difficult task of having to produce resolutions confirming the company’s
unwillingness to bring proceedings even when the company’s decision-
making processes was clearly deadlocked.63 Differences also emerged in
relation to procedural requirements, with the Malaysian courts taking a stricter
approach.64 The Australian courts also used the power to grant shareholders’
access to the company’s books more extensively, facilitating applicants’ gath-
ering of supporting evidence which would otherwise not be available to
them.65 These factors appear to have contributed to better outcomes for min-
ority shareholders who sought redress from the Australian courts for breaches
of directors’ duties.66

3.2. Substitutes
In assessing the extent to which directors’ duties have been enforced, it is
important to consider other mechanisms which may function as substitutes
for the enforcement of directors’ duties by the company through litigation.
Armour et al examine several mechanisms aimed at deterring misconduct
by directors such as shareholders’ rights to bring proceedings against direc-
tors of public companies for breaches of securities regulation.67 Class
actions against directors for misleading disclosures may function as
57
Celcom (Malaysia) Berhad v Mohd Shuaib Ishak [2010] 7 CLJ 808 (Malaysia Court of Appeal).
58
Chen, ‘Statutory Derivative Action’ (n 31).
59
[2010] 1 LNS 1631.
60
Suh v Cho [2013] VSC 491; Ragless v IPA Holding Pty Ltd (in liq) [2008] SASC 90.
61
Re Imperium Projects Pty Ltd [2015] NSWSC 16 [11].
62
Re Gandagara Services Ltd [2014] NSWSC 546.
63
Suhaimi Ibrahim v Hi-Summit Construction Sdn Bhd [2015] 2 MLJ 669.
64
Koh Jui Hiong v Ki Tak Sang [2014] 2 CLJ 401 (Malaysia Federal Court).
65
Smartec Capital Pty Ltd v Centro Properties Ltd [2011] NSWSC 495.
66
The level of risk taken by litigants and lawyers in bringing proceedings is another possible consideration
which may influence the success of cases.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 101

substitutes for the enforcement of directors’ duties under company law.68 Pro-
cedural rules, such as the ease with which class actions may be brought and
the way in which costs are allocated, may also have the effect of encouraging
or deterring litigation.69
Proceedings brought by liquidators to recover assets dissipated by direc-
tors prior to insolvency likewise potentially serve as substitutes for the enfor-
cement of directors’ duties. In addition to the mechanisms outlined above
which focus primarily on litigation following directors’ misconduct, share-
holders’ rights to vote on specific transactions may contribute towards the
deterrence of misconduct largely without the need to file lawsuits.70

3.2.1. Class actions for breaches of securities regulation

Although Malaysian law allows class actions to be instituted,71 the provisions
have been criticised as inadequate. Existing provisions do not require class
members to share the costs of litigation.72 Consequently, the representative
plaintiff faces the challenge of recovering costs from class members. The
absence of provision for equal sharing of costs acts as a disincentive to
class actions. In addition, anomalies such as the necessity for each member
of the class action to bring a separate action to establish the damage
suffered individually further limit the utility of the class action.73 In the circum-
stances, shareholders’ class actions remain rare in Malaysia.
By contrast, Australia has a high incidence of shareholders’ class actions.74
A study by Morabito found that 54 shareholders class actions were instituted
in Australia from 1992 to 2016.75 The study also found that shareholders’ class
actions had increased substantially since 2004. Shareholders’ class actions
often involved continuous disclosure requirements or misleading and decep-
tive conduct in relation to financial products or services.76 Judicial decisions
indicate an overlap between breaches of securities law and breaches of direc-
tors’ duties in a number of cases.77 Shareholders’ class actions are perceived to
67
John Armour et al, ‘Private Enforcement of Corporate Law: An Empirical Comparison of the United
Kingdom and the United States’ (2009) 6 Journal of Empirical Legal Studies 687, 691.
68
ibid 711.
69
The loser-pay system in UK is thought to deter litigants more than in the US where contingency fees
alleviate the cost of proceedings for litigants: ibid 692.
70
ibid 718.
71
Rules of the High Court 1980, O 15 r 12.
72
CLRC, ‘Members’ Rights and Remedies’ (n 37) 70.
73
Choong Yeow Choy and Sujata Balan, ‘Charting the Course for Shareholders’ Recourse: Observations on
the Malaysian Response’ (2011) 6 National Taiwan University Law Review 1, 20.
74
Miller remarks that ‘corporations face a higher risk of a shareholder class action in Australia than in any
other jurisdiction apart from the United States’: Paul Miller, ‘Shareholder Class Actions: Are They Good for
Shareholders?’ (2012) 86 Australian Law Journal 633, 633.
75
Vince Morabito, ‘An Empirical Study of Australia’s Class Action Regimes, Fourth Report: Facts and Figures
on 24 Years of Class Actions in Australia’ (Australian Research Council 2016) 11.
76
Michelle Welsh and Vince Morabito, ‘Public and Private Enforcement of Securities Laws: An Australian
Empirical Study’ (2014) 14 Journal of Corporate Law Studies 39, 45.
77
ibid 55.
102 V. CHEN

have a deterrent effect.78 They are observed to have resulted in CEOs losing
their jobs in a number of high profile cases79 and, in addition, facilitate share-
holders’ recovery of loss.

3.2.2. Liquidators’ proceedings for the recovery of assets

Liquidators’ proceedings under corporate insolvency law to recover assets dis-
sipated by directors prior to liquidation have the effect of mitigating the loss
to the company caused by directors’ breaches of duty. At the same time, liqui-
dators do not need to prove that directors’ duties were breached.80 The Aus-
tralian provisions also facilitate recovery of the assets from third parties.81
Hence, there are grounds for considering liquidators’ proceedings under
these provisions as a substitute for the private enforcement of directors’
duties.
When the two countries’ provisions are compared, the Australian pro-
visions clearly capture a much wider range of transactions. The Malaysian
regulations allow the liquidator to recover the loss suffered by the company
where a company has sold assets to a director at undervalue or bought
assets from a director at overvalue.82 The rule extends to transactions with
parties related to directors, and is subject to the transactions having occurred
within 2 years prior to the winding up petition or resolution. The Australian
provisions are not limited to transactions with directors or related parties
but facilitate the recovery of assets dissipated through transactions with
third parties.83 The Australian provisions also cover a longer period of
time.84 Consequently, liquidators’ recovery of assets dissipated by directors
is more robust in Australia where the provisions capture a substantially
broader range of pre-liquidation transactions, and this is reflected in the con-
siderably larger body of Australian judicial decisions citing the provisions.85

3.2.3. Shareholders’ exercise of voting rights

Shareholders have rights to vote at general meetings on important matters
such as directors’ remuneration,86 removal,87 and related party transactions.88
Proposed resolutions put before shareholders at a general meeting are often
78
Miller (n 74) 634.
79
ibid 646; Welsh and Morabito (n 76) 67.
80
Weaver v Harburn [2014] WASCA 227.
81
See n 83.
82
Companies Act 2016, s 530.
83
Australian law allows uncommercial transactions to be set on application by the liquidator: see the Cor-
porations Act 2001 (Cth), ss 588FB, 588FF.
84
Uncommercial transactions with related parties may be set aside within four years prior to the relation-
back day.
85
See eg Kijurina (as liquidator of ET Family Pty Ltd) v Taouk [2015] FCA 424.
86
Public companies, listed companies and their subsidiaries are required to approve directors’ remunera-
tion at a general meeting: Companies Act 2016, s 230(1).
87
Companies Act 2016, s 206.
88
Bursa Malaysia, Listing Requirements, r 10.08.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 103

accompanied by disclosure of information. These processes enable share-

holders to scrutinise and approve, or disapprove, of directors’ conduct or pro-
posals. Nonetheless, minority shareholders’ votes are thought to be
insignificant at Malaysian general meetings.89 This is attributed largely to con-
centrated shareholding which allows controlling shareholders to dominate
the general meeting.90 In its report, the World Bank observes that Malaysian
minority shareholders’ are limited in their ability to influence the agenda at
general meetings, elect directors or overturn executive remuneration.91
The influence of Australian minority shareholders at general meetings is
more evident, particularly in relation to directors’ remuneration.92 The two
strikes rule makes provision for shareholders’ non-binding votes on executive
remuneration.93 If 25 per cent of shareholders vote against the directors’
remuneration report at two consecutive general meetings, shareholders
may require the board to stand for re-election. These provisions have contrib-
uted to shareholder empowerment and resulted in companies lowering
executive remuneration in response to shareholders’ say on pay.94

3.3. Public enforcement

Enforcement initiatives by the regulator play an important role in strengthen-
ing the deterrent effect of regulations aimed at safeguarding shareholders
from directors’ misconduct.95 The regulators have better access to evidence
than private litigants, while the cost of enforcement action is borne by the
public purse. The corporate regulators in both countries have wide powers
of investigation.96 Differences in the laws relating to enforcement in the
two jurisdictions centre on the range of enforcement options available to
the regulators. Australian laws provide regulators a wider range of enforce-
ment options including criminal proceedings, civil penalties,97 enforceable

89
Khoo Boo Yeang, Review of Corporate Governance in Asia: Corporate Governance in Malaysia (Asian Devel-
opment Bank Institute 2003); Aiman Nariman bt Mohd Sulaiman, ‘Encouraging Shareholders’ Partici-
pation in Company Decision-Making: A Reflection on Existing Law and Reform Issues’ [2003] 1
Malayan Law Journal cxlviii, clii.
90
Pascoe and Rachagan (n 6) 94.
91
World Bank, Malaysia: Report on the Observance of Standards and Codes: Corporate Governance Country
Assessment (2012) 24.
92
Grosse, Kean and Scott observe that ‘firms that receive a strike are likely to have on average a 57.10 per
cent larger decrease in the CEO’s bonus’. Firms also improved their disclosure of remuneration following
a strike. See Matthew Grosse, Stephen Kean and Tom Scott, ‘Shareholder Say on Pay and CEO Compen-
sation: Three Strikes and the Board is Out’ (2017) 57 Accounting and Finance 701, 723.
93
Corporations Act 2001, ss 250U–250V.
94
Grosse, Kean and Scott (n 92) 723.
95
Michelle Welsh, ‘New Sanctions and Increased Enforcement Activity in Australian Corporate Law: Impact
and Implications’ (2012) 41 Common Law World Review 134, 136.
96
Australian Securities and Investments Commission Act 2001(Cth) pt 3; Companies Commission of Malay-
sia Act 2001 Part IV A.
97
Corporations Act 2001 (Cth), ss 1317E, 1317G.
104 V. CHEN

undertakings98 and disqualification of directors.99 Malaysian law limits regula-

tors to criminal proceedings and, more recently, regulators have been given
the right to apply to the courts to disqualify directors.
The regulator responsible for the public enforcement of directors’ duties
in Malaysia is the Companies Commission of Malaysia (‘CCM’). Analysis of
reports and media releases from CCM indicates that the enforcement of
directors’ duties is limited. The CCM’s enforcement activities have focussed
largely on procedural safeguards in the form of disclosure requirements,
such as the lodgement of annual returns and financial statements. In 2015,
the CCM registered 10,473 cases in the courts for breaches of company
law, most of which were in relation to procedural safeguards.100 The
Annual Report mentioned only one prosecution involving a breach of direc-
tors’ duties.101 Likewise, CCM’s 2016 and 2017 Annual Reports reflect similar
trends, with only one case filed in the courts for a breach of directors’ duties
in 2016 and none in 2017.102 Statistics from previous years similarly indicate
that most of CCM’s enforcement proceedings concerned procedural
matters.103 Media reports indicated that the few enforcement proceedings
for breaches of directors’ duties involved private companies which were rela-
tively obscure.104
More importantly, despite the public outcry surrounding various high-
profile listed companies alleged to have engaged in controversial transactions
detrimental to minority shareholders, the CCM’s annual reports suggest that it
did not investigate nor bring enforcement proceedings in relation to these
companies or their directors. Chief among these are the scandals surrounding
1MDB, the state-owned company at the centre of criminal investigations in
other countries.105 While Singaporean bankers have been imprisoned for
their role in money laundering of billions of dollars misappropriated from
1MDB, political intervention has resulted in investigations into the 1MDB
debacle covering up the scandal.106

98
Enforceable undertakings are provided to ASIC to carry out specific actions or to refrain from doing par-
ticular activities and are enforceable in court.
99
Corporations Act 2001 (Cth), s 206F.
100
Companies Commission of Malaysia, Annual Report (2015) 242.
101
ibid.
102
Companies Commission of Malaysia, Annual Report (2016) 85; Annual Report (2017) 139.
103
Companies Commission of Malaysia, Annual Report (2013) 213; Companies Commission of Malaysia,
Annual Report (2014), 218; Mohd-Haswadi Hassan et al, ‘The Enforcement Role of the Companies’ Com-
mission of Malaysia’ (2010) 9 International Business and Economics Research Journal 135.
104
See eg Companies Commission of Malaysia, ‘Suruhanjaya Syarikat Malaysia (SSM) Charges Director of
Sin Lee Marketing Sdn Bhd under the Companies Act 1965’ (Press release, 24 January 2014).
105
Shamim Adam and Laurence Arnold, ‘A Guide to the Worldwide Probes of Malaysia’s 1MDB Fund’
Bloomberg (8 March 2018).
106
Tom Wright and Bradley Hope, ‘How Malaysia’s 1MDB Probe was Flawed’ The Australian (27 May 2016).
The investigations were conducted by a parliamentary committee, rather than the CCM, and associates
of alleged wrongdoers were claimed to have prevented the full and fair examination of critical evidence:
‘PAC Never had the Chance to Question Najib over 1MDB, Says Pua’ Malaysian Insight (24 March 2018).
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 105

Likewise, political interference has been observed in previous corporate

scandals involving well-connected companies, with the regulators at times
granting waivers from compliance with regulations aimed at safeguarding
minority shareholders’ interests. These include, the acquisition by public
listed company United Engineers (Malaysia) Berhad of 32.6 per cent of the
shares of Renong Berhad during the Asian financial crisis. Notably, Renong
and its major shareholder were widely known to be well-connected to influ-
ential politicians.107 The unusual manner in which the mandatory general
offer was waived by authorities linked to the Prime Minister’s Department
caused members of the public to perceive that the regulators were subject
to the overriding control of the government.108
These and other high-profile scandals109 which were not investigated by
the CCM raise questions as to why the regulator did not act. In situations
such as 1MDB, where there was sufficiently strong evidence resulting in crim-
inal convictions overseas, decisions not to prosecute those responsible for cor-
porate scandals were ostensibly politically motivated rather than driven by
limitations in enforcement options or the lack of evidence.110
By contrast, proceedings relating to high profile scandals and corporate
collapses feature prominently in Australian public enforcement.111 Although
at times the Australian Securities and Investments Committee (‘ASIC’) has
been criticised for its lack of enforcement action,112 ASIC has had a substan-
tially more active role in enforcing directors’ duties than CCM in Malaysia.113
At 1 January 2016, there were 13 criminal actions and 25 civil actions against
directors before the courts involving corporate governance misconduct.114
From 1 July 2008 to 30 June 2014, ASIC disqualified 394 directors.115 Professor
Welsh’s study of ASIC’s enforcement action indicates that 78 criminal prosecu-
tions and civil penalty proceedings alleging breaches of statutory directors’

107
Raphael Pura, ‘Renong’s Asset, Its History, Reveals It’s Also a Liability’ Wall Street Journal (19 January
1998).
108
‘UEM’s Waiver from Making General Offer Reinstated’ Utusan (11 January 1998). Similarly, allegations of
the regulators’ apparent lack of independence arose in relation to the Securities Commission’s waiver of
a mandatory general offer for Sime Darby Berhad’s acquisition of a 30 per cent stake in Eastern & Orien-
tal Berhad.
109
Teh Yik Koon, ‘From BMF to 1MDB: A Criminological and Sociological Discussion’ (Strategic Information
and Research Development Centre 2018).
110
ibid 380.
111
These include ASIC v Rich (2004) 220 CLR 129; ASIC v Vizard (2005) 145 FCR 57; ASIC v Adler [2002]
NSWSC 171; Vicky Comino, ‘The Challenge of Corporate Law Enforcement in Australia’ (2009) 23 Austra-
lian Journal of Corporate Law 233.
112
Senate Economics References Committee, ‘Performance of the Australian Securities and Investments
Commission’ (Commonwealth of Australia 2014) 262–66.
113
Jasper Hedges et al, ‘An Empirical Analysis of Public Enforcement of Directors’ Duties in Australia: Preliminary
Findings’ (Centre for International Finance and Regulation, Melbourne Law School Working Paper 105/2016).
114
Australian Securities and Investments Commission, ‘ASIC Enforcement Outcomes: July to December
2015’ (Report 476, March 2016) 12.
115
Helen Anderson, Ian Ramsay and Michelle Welsh, ‘Criminal, Civil and Administrative Penalties for White
Collar Crime’ (Submission to the Senate Economic References Committee: Penalties for White Collar
Crime, 24 March 2016) 8.
106 V. CHEN

duties were issued from 2001 to 2006.116 She finds that ASIC was highly suc-
cessful, obtaining declarations of contravention and civil penalty orders for
breaches of directors’ duties in 29 of 33 finalised cases from 1993 to
2003.117 In contrast with its Malaysian counterpart, ASIC’s enforcement initiat-
ives have been significant particularly in relation to public listed companies.118

3.4. Summary of enforcement outcomes

The discussion above reveals a consistent pattern of more robust enforcement
of directors’ duties in Australia than in Malaysia. The analysis of judicial
decisions reveals that Malaysian minority shareholders had little success in
the private enforcement of directors’ duties. Minority shareholders in Australia
also have better access to redress through the courts seemingly as a result of
the more liberal judicial approach towards granting leave to bring derivative
actions and greater use of the power to order access to the company’s books.
When the substitutes for enforcement of directors’ duties are examined, the
analysis likewise indicates that Australian regulations have facilitated better
access to redress. Class actions for breaches of securities law and liquidators’
proceedings for the recovery of assets dissipated by directors were substan-
tially more common in Australia. Likewise, minority shareholders in Australia
have had more success in influencing significant matters such as directors’
remuneration at general meetings.
In a similar vein, the public enforcement of directors’ duties is substantially
more robust in Australia. Australian regulators’ active role in bringing proceed-
ings against high profile directors stands in stark contrast to Malaysian regula-
tors’ relative inaction. In addition to criminal sanctions, Australian regulators
have obtained civil penalties against errant directors and disqualified many
directors. While the fewer sanctions obtained by CCM may in part be attributed
to less enforcement options, the evidence suggests that the regulators’ limited
role in enforcement was driven by political considerations, particularly where
companies with strong political connections such as 1MDB were involved.

4. Explaining the cross-country differences

The differences which emerge from the analysis of private and public enforce-
ment of directors’ duties in the two countries raises questions as to the
reasons for the phenomenon. Notably, both countries have very similar

116
Michelle Welsh, ‘The Regulatory Dilemma: The Choice between Overlapping Criminal Sanctions and
Civil Penalties for Contraventions of the Directors’ Duty Provisions’ (2009) 27 Company and Securities
Law Journal 370, 384.
117
Michelle Welsh, ‘Realising the Public Potential of Corporate Law: Twenty Years of Civil Penalty Enforce-
ment in Australia’ (2014) 42 Federal Law Review 217, 234.
118
Jenifer Varzaly, ‘The Enforcement of Directors’ Duties in Australia: An Empirical Analysis’ (2015) 16 Euro-
pean Business Organization Law Review 281.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 107

substantive laws which impose duties of good faith on directors in both

countries and allow the company or its shareholders to bring proceedings
for breaches of those duties. Nonetheless, there are significant differences
in the corporate ownership structures and political economy of the two
countries.

4.1. Corporate ownership structures

The prevalence of self-dealing by directors in Malaysia has been attributed to
concentrated ownership structures and the dominance of controlling share-
holders over corporate management.119 Studies have consistently found
that the ownership and control of Malaysian companies is highly concen-
trated,120 primarily in the hands of families121 and the state.122 The author’s
analysis of 25 of the largest Malaysian listed companies in 2016 indicates
that controlling shareholders held more than 45 per cent of the voting
rights in 96 per cent of the companies examined.
Fifty-two per cent of the companies were controlled by the state. All the
companies controlled by the state had more than 50 per cent of the voting
rights held either directly by the state or institutional investors controlled by
the state, or multiple state-controlled entities. In 4 of 13 state-controlled com-
panies, the state held more than 60 per cent of the voting rights directly. Indi-
viduals or families were controlling shareholders in 44 per cent of the
companies analysed.123 In most of the companies controlled by families or indi-
viduals, the largest shareholder held more than 45 per cent of the voting rights.
The analysis further suggests that in most of the companies, the largest
shareholder or the two largest shareholders were able to control more than
50 per cent of the votes. In many family companies, the second largest share-
holder was a state-controlled entity such as the Employees Provident Fund, a
state-controlled institutional investor. This means that in many of the largest
listed companies, controlling shareholders on their own or together with the
state-entity holding the second largest block of shares would be able to attain
the 50 per cent threshold needed to pass ordinary resolutions at a general
meeting. Many significant corporate decisions such as the appointment of
directors, approval of their remuneration and approval of recurrent related
party transactions are determined by way of ordinary resolutions at the
119
Finance Committee (n 25) 42.
120
Lim Mah Hui, Ownership and Control of the One Hundred Largest Corporations in Malaysia (Oxford Uni-
versity Press 1981); Sieh Lee Mei Ling, Ownership and Control of Malaysian Manufacturing Corporations
(University of Malaya Cooperative Bookshop 1982) 24; Zhuang et al (n 24) 22; Samuel Jebaraj Benjamin
et al, ‘Family Ownership and Dividend Payout in Malaysia’ (2016) 12 International Journal of Managerial
Finance 314, 321.
121
Zhuang et al (n 24) 25; Benjamin et al (n 120) 321.
122
Sieh Lee (n 120) 78; Zhuang et al (n 24) 24.
123
The level of family ownership and control in this study is measured by reference to the collective share-
holding held by members of the same family based on annual reports of companies.
108 V. CHEN

general meeting.124 In the circumstances, minority shareholders’ votes would

make little difference to ordinary resolutions. This is consistent with obser-
vations in the literature that minority shareholders’ holdings are often too
insignificant to influence resolutions at a general meeting,125 and in practice,
controlling shareholders appoint the board of directors.126 The World Bank’s
report likewise asserts that the Chief Executive Officer or board chairman is
usually a nominee of the controlling shareholder.127
The relative dispersion of shareholding in Australia leaves considerably less
control over the general meeting in the hands of controlling shareholders.
Australia’s patterns of share ownership have been described as occupying
an intermediate position between countries of dispersed shareholding and
concentrated shareholding structures.128 La Porta and his colleagues’ cross-
country comparison, based on data from 1995 to 1997, indicated that 35
per cent of large Australian listed companies had a controlling shareholder
holding 20 per cent or more of the company’s voting rights.129 The data indi-
cated that 45 per cent of Australian companies had controlling shareholders
who controlled at least 10 per cent of voting rights.130
Scholars argue that countries with concentrated corporate ownership
often have less effective implementation of laws which protect minority
shareholders, despite convergence in formal regulations across countries.131
Several reasons have been proposed for this phenomenon. One line of
reasoning focuses on the agency problem. Regulations aimed at addressing
agency problems in situations of dispersed shareholding may not effectively
deal with pertinent issues that arise where concentrated shareholding is
common.132 In situations of dispersed shareholding, self-dealing by managers
is of greater concern, while conflicts between controlling shareholders and
minority shareholders arise where shareholding is concentrated. Another
argument is that shareholding structures are relevant to the political

124
Public companies, listed companies and their subsidiaries are required to approve directors’ remunera-
tion at a general meeting; Companies Act 2016, s 230(1).
125
World Bank, ‘Report on Observance’ (n 91).
126
Aiman Nariman Mohd Sulaiman, ‘Responding to Concentrated Ownership—The Related-Party Trans-
action Provisions of Some Asian Countries’ (2007) 3 Corporate Governance Law Review 70, 79; Khoo
(n 89).
127
World Bank, ‘Report on Observance’ (n 91) 10.
128
Richard Mitchell et al, ‘Shareholder Protection in Australia: Institutional Configurations and Regulatory
Evolution’ (2014) 38 Melbourne University Law Review 68, 93–104; Vivien Chen, Ian Ramsay and
Michelle Welsh, ‘Corporate Law Reform in Australia: An Analysis of the Influence of Ownership Structures
and Corporate Failure’ (2016) 44 Australian Business Law Review 18, 21.
129
Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer, ‘Corporate Ownership Around the
World’ (1999) 54 Journal of Finance 471, 492.
130
ibid 493.
131
Reinier Kraakman et al, The Anatomy of Corporate Law: A Comparative and Functional Approach (3rd edn,
Oxford University Press 2017) 169; Dan W Puchniak, ‘Multiple Faces of Shareholder Power in Asia: Com-
plexity Revealed’ in Jennifer G Hill and Randall S Thomas (eds), Research Handbook on Shareholder Power
(Edward Elgar 2015) 511, 512.
132
Lucian A Bebchuk and Assaf Hamdani, ‘The Elusive Quest for Global Governance Standards’ (2009) 157
University of Pennsylvania Law Review 1263, 1281.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 109

influence which controlling shareholders wield.133 Political power over legal

processes, in turn, provides controlling shareholders the opportunity to
reinforce their control over resources.134 The assertion of links between cor-
porate ownership and political influence resonates with the Malaysian
context, in which such associations take several forms.

4.2. The politics-business nexus

The strongest explanation for the manner in which mechanisms for the enfor-
cement of corporate law operate in Malaysia lies in the nexus between politics
and business. For decades, Malaysia was a ‘soft authoritarian’135 state in which
the political elite were able to exercise substantial control over the judiciary and
regulatory authorities.136 Scholars assert that privatisation and redistribution
policies have brought about the synthesis between politics and business in
Malaysia and, as a consequence, the Malaysian corporate environment is domi-
nated by political connections.137 The CCM’s lack of enforcement action in
relation to politically well-connected companies and individuals resonates
with the use of political influence over the regulator to serve the agenda of
the dominant ruling elite. The pervasiveness of connections between the pol-
itical elite and businesses is explored in Part 4.2.1 below. Part 4.2.2 details
limits in the independence of the judiciary and regulatory authorities.

4.2.1. The inextricable link between politics and business

The influence of politics on the governance of Malaysian companies occurs
through multiple channels. The first and most direct method of influence is
through its ownership of controlling blocks of shares, the second is through
state-linked institutional investors, while the third, and the least direct
channel of influence, is fostered through relationships between controlling
shareholders and political patrons. The benefits offered in the form of con-
tracts and licences provide incentives for controlling shareholders to
comply with state policy and the preferences of political patrons. In addition,
evidence suggests that controlling shareholders of large corporate conglom-
erates at times carry on business as unofficial nominees of the political elite
and are subject to their directives.138
133
John C Coffee, ‘The Political Economy of Dodd-Frank: Why Financial Reform Tends to be Frustrated and
Systemic Risk Perpetuated’ (2012) 97 Cornell Law Review 1019.
134
Lucian Arye Bebchuk and Mark J Roe, ‘A Theory of Path Dependence in Corporate Ownership and Gov-
ernance’ (1999) 52 Stanford Law Review 127.
135
Despite Malaysia having inherited democratic institutions, civil liberties have been significantly limited
through use of repressive laws such as the Sedition Act 1948; Gordon P Means, ‘Soft Authoritarianism in
Malaysia and Singapore’ (1996) 7 Journal of Democracy 103, 103.
136
Khoo Boo Teik, ‘Between Law and Politics: The Malaysian Judiciary Since Independence’ in Kanishka
Jayasuriya (ed), Law, Capitalism and Power in Asia: The Rule of Law and Legal Institutions (Routledge
1999) 174.
137
See n 144 to 145.
138
ibid.
110 V. CHEN

The state has maintained a significant role in the ownership and

control of Malaysian companies. The Ministry of Finance Incorporated
owns controlling stakes in a significant number of Malaysia’s largest
corporate conglomerates through its investment arms such as Khazanah
Nasional Berhad.139 The state holds special rights in some of
these companies including veto powers in their decision-making pro-
cesses.140 Notably, there is a lack of transparency surrounding the gov-
ernance of state-owned corporations (GLCs), particularly those that are
unlisted.141
In addition, the state has substantial influence over Malaysian compa-
nies through some of the country’s largest institutional investors.142
Known as government-linked investment companies (GLICs), these insti-
tutional investors are subject to state control in matters such as the
appointment of directors and senior management who report directly to
the state.143 Gomez highlights the ‘enormous influence’ over GLICs
wielded by the Minister of Finance, an office held by the Prime Minister
during the Najib administration.144 He estimates the market capital value
of GLCs and GLICs at about RM720 million (AUD240 million) or 42 per
cent of the total market capitalisation of companies listed on Bursa
Malaysia.145
A more nebulous form of links between politics and business is the patron-
age of controlling shareholders by influential politicians.146 State policies on
privatisation and redistribution of wealth among ethnic groups147 have fos-
tered the emergence of well-connected controlling shareholders whose cor-
porate fortunes have been linked with the success of their political
patrons.148 Gomez and Jomo posit that controlling shareholders depend on
political patrons for privileges for their companies such as contracts, mon-
opolies, exclusive rights and licences, and reciprocate with support for their

139
Khazanah Nasional, ‘Corporate Profile’ <www.khazanah.com.my/About-Khazanah/Corporate-Profile>
accessed 23 March 2019.
140
Philip Koh Tong Ngee, ‘Reforms in the Light of Post-1998 Crisis’ in Ho Khai Leong (ed), Reforming Cor-
porate Governance in Southeast Asia: Economics, Politics, and Regulation (ISEAS Publications 2005).
141
Edmund Terence Gomez et al, Minister of Finance Incorporated: Ownership and Control of Corporate
Malaysia (Palgrave Macmillan 2017) 225.
142
Effiezal A Abdul Wahab, Janice CY How and Peter Verhoeven, ‘The Impact of the Malaysian Code on
Corporate Governance: Compliance, Institutional Investors and Stock Performance’ (2007) 3 Journal of
Contemporary Accounting and Economics 106.
143
Gomez et al (n 141) 209.
144
ibid 150.
145
ibid 176.
146
Peter Searle, The Riddle of Malaysian Capitalism: Rent-Seekers or Real Capitalists? (Allen and Unwin 1999).
147
Rajeswary Ampalavanar Brown, The Rise of the Corporate Economy in Southeast Asia (Routledge 2006).
148
Simon Johnson and Todd Mitton, ‘Cronyism and Capital Controls: Evidence from Malaysia’ (2003) 67
Journal of Financial Economics 351; Edmund Terence Gomez, Johan Saravanamuttu and Maznah
Mohamad, ‘Malaysia’s New Economic Policy: Resolving Horizontal Inequalities, Creating Inequities?’ in
Edmund Terence Gomez and Johan Saravanamuttu (eds), The New Economic Policy in Malaysia (NUS
Press 2013) 9.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 111

patrons.149 Their study documents multiple instances of such relations

between influential politicians and controlling shareholders, suggesting that
political patronage of Malaysian businesses is extensive, particularly among
large listed companies.150 While there are few formal records of the nexus
between political patrons and controlling shareholders, factions within the
ruling political party have at times resulted in the public disclosure of these
relations.151 Further, public scrutiny of controversial transactions has also at
times led to exposure of the links between controlling shareholders and
their political patrons.152
Scholars who have examined the politics-business nexus in Malaysia
assert that it is far more pervasive than official records suggest. Gomez,
for instance, details widespread political patronage involving many of
Malaysia’s largest and most successful corporate conglomerates.153 Brown
likewise describes multiple instances of mutually beneficial relations
between political patrons and controlling shareholders of large corporate
groups.154 Aggrieved insiders such as Tajudin, the former controlling share-
holder of Malaysia Airlines Berhad, describe the symbiotic relationship
between the state and corporate magnates as a key feature of the
state’s privatisation initiatives.155 Tajudin asserted that many entrepreneurs
were required to carry on business on behalf of the government as a
‘matter of National Service or Duty’.156 He alleged that he held shares
and carried on business as an agent or nominee of the Malaysian govern-
ment. According to him, the purchase of shares in Malaysia Airlines Berhad
which led him to become its controlling shareholder was ‘disguised as an
arm’s length commercial deal’ at the request of the government.157
Similarly, Halim Saad, the controlling shareholder of embattled Renong
Berhad was alleged to have been a nominee of the dominant ruling
political party, the United Malays National Organisation (UMNO),158
although none of this was reflected in official records held by the CCM,
the stock exchange or information released by the company such as
annual reports.

149
Edmund Terence Gomez and Kwame Sundaram Jomo, Malaysia’s Political Economy: Politics, Patronage
and Profits (Cambridge University Press 1997); Stijn Claessens, Simeon Djankov and Larry HP Lang, ‘The
Separation of Ownership and Control in East Asian Corporations’ (2000) 58 Journal of Financial Econ-
omics 81, 109.
150
ibid.
151
Edmund Terence Gomez, Politics in Business: UMNO’s Corporate Investments (Forum 1990).
152
Gomez and Jomo (n 149); Claessens, Djankov and Lang (n 149); Johnson and Mitton (n 148) 376.
153
Gomez et al (n 141).
154
Brown (n 147).
155
‘Tajudin Alleges Secret Deal with Dr M and Daim’ The Sun Daily (6 July 2006).
156
ibid.
157
ibid.
158
Pura (n 107).
112 V. CHEN

4.2.2. Limits in the independence of the judiciary and regulatory

authorities
In addition to the pervasive connections between politics and business,
another point of difference from Australia lies in the disparate ways in
which the separation of powers has been construed.159 The removal of the
Lord President from office in 1988 was a watershed which had the conse-
quence of limiting judicial independence in Malaysia.160 Harding posits that
the ‘judiciary was tamed and trained to serve the needs of the developmental
state, as if it were a department of the Federal Government answerable to the
Prime Minister rather than the law’.161 Since then, judicial decisions suppres-
sing dissent by political opponents and civil rights activists have reinforced
the perception that the judiciary continues to lack independence from the
executive.162 Although such perceptions are strongest in relation to cases
involving political dissidents,163 the outcomes of some civil suits involving
politically well-connected companies or businessmen have also fuelled the
notion that litigants are likely to encounter considerable challenges in
seeking redress against the political elite and their associates.
Critics assert that defamation suits have been used as a means of silencing
allegations of impropriety against politically well-connected businessmen.164
The courts have awarded excessively high sums as damages, amounting to
several hundred million ringgit, which arguably serve as a punitive measure
and a deterrent to potential critics. Harding and Whiting observe:
In a string of commercial and defamation cases throughout the 1990s, most
famously the Ayer Molek litigation, a case ‘which gives the impression to right-
thinking people that litigants can choose the judge before whom they wish
to appear’; the MBf Holdings litigation, and the many cases involving the
business dealings and reputation of politically well-connected businessman
Vincent Tan, it seemed that some judges were not deciding cases according
to law, but in order to please powerful business interests.165

159
The centrality of judicial independence in the Australian legal system is highlighted in HP Lee and Enid
Campbell, The Australia Judiciary (2nd edn, Cambridge University Press 2013) 75.
160
Andrew J Harding, ‘The 1988 Constitutional Crisis in Malaysia’ (1990) 39 International and Comparative
Law Quarterly 57.
161
Andrew Harding, The Constitution of Malaysia: A Contextual Analysis (Hart Publishing 2012) 223.
162
‘Anwar Ibrahim: Malaysian Opposition Leader Loses Final Appeal to Sodomy Conviction, Sentenced to
Five Years’ Jail’ ABC News (10 February 2015); Dato’ Seri Ir Hj Mohammad Nizar Jamaluddin v YAB Dato’ Dr
Zamry Abd Kadir; Attorney-General of Malaysia (Intervener) [2010] 2 CLJ 925.
163
International Commission of Jurists, ‘Federal Court Judgment on Anwar Ibrahim’s “Sodomy II” Appeal a
Blow to Human Rights in Malaysia’ (Press release, 10 February 2015).
164
International Bar Association, ICJ Center for the Independence of Judges and Lawyers, Commonwealth
Lawyers’ Association and Union Internationale des Avocats, ‘Justice in Jeopardy: Malaysia 2000’ (Report).
Examples of cases include MBf Capital Berhad v Tommy Thomas [1999] 1 MLJ 139; MBf Capital v Param
Cumaraswamy [1997] 3 MLJ 824.
165
Andrew Harding and Amanda Whiting, ‘“Custodian of Civil Liberties and Justice in Malaysia”: The Malay-
sian Bar and the Moderate State’ in Terence C Halliday, Lucien Karpik and Malcolm M Feeley (eds), Fates
of Political Liberalism in the British Post-Colony (Cambridge University Press 2012) 275.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 113

The Bakun Dam case166 illustrates the limitations of seeking redress through
the courts against politically well-connected companies that are carrying
out developmental projects in line with high-level government officials.167
Critics argue that the decision by the appellate courts favoured powerful
business interests and was dismissive of native land rights, displacing indigen-
ous people from their traditional lands contrary to principles of the United
National Declaration on the Rights of Indigenous People and common law.168
The case further demonstrates the reticence of regulatory authorities in inter-
vening in the affairs of politically well-connected companies. According to
deposed former Deputy Prime Minister Anwar Ibrahim, the lack of
transparency surrounding many of Ekran’s decisions raised issues of non-com-
pliance with regulations. Nonetheless, corporate regulators were reluctant to
intervene due to the ‘protection’ given to the company by the Prime
Minister.169
In a milieu of pervasive links between political patrons and major share-
holders, it is not surprising that a judiciary subordinate to the ruling elite
would be hesitant to give full effect to minority shareholders’ rights to chal-
lenge major shareholders and the boards they appoint. Notably, the influen-
tial case of Celcom (Malaysia) Berhad v Mohd Shuaib Ishak,170 which is often
cited by the Malaysian courts as an authority for a restrictive approach
towards the granting of leave to bring derivative actions,171 involved a
company in which the state has a controlling stake.172 Likewise, in China
which has substantial state ownership of listed corporations, Clark and
Howson reason that political sensitivities are likely to engender judicial
restraint in allowing derivative suits against state-controlled corporations.173
Concerns have also been raised in relation to the independence of regula-
tors responsible for the public enforcement of directors’ duties. The World
Bank’s report raises questions about the impartiality of regulatory authorities,
particularly when politically well-connected companies are involved.174 The
Finance Committee observes that ‘[t]here have been questions as to the
will and ability of regulators to ensure transparency and protect investors’.

166
Ketua Pengarah Jabatan Alam Sekitar v Kajing Tubek [1997] 3 MLJ 23.
167
Assif Shameen, ‘Edifice Complex: Worries Over the Mega-Projects’ Asiaweek (30 November 2000).
168
Gurdial Singh Nijar, ‘The Bakun Dam Case: A Critique’ [1997] 3 Malayan Law Journal ccxxix; S Robert
Aiken and Colin H Leigh, ‘Seeking Redress in the Courts: Indigenous Land Rights and Judicial Decisions
in Malaysia’ (2011) 45 Modern Asian Studies 825.
169
Anwar Ibrahim, ‘Police Report No. Tun HS Lee 30375/99’ (12 November 1999).
170
[2010] 7 CLJ 808 (Malaysia Court of Appeal).
171
Abdul Rahim Suleiman v Faridah Md Lazim [2015] 1 LNS 313; Lim Aik Chin v Hong Leong Bank Bhd [2015]
8 CLJ 755.
172
‘Celcom Now Known as Celcom Axiata’ The Star (29 December 2009).
173
Donald C Clark and Nicholas H Howson, ‘Pathway to Minority Shareholder Protection: Derivative Actions
in the People’s Republic of China’ in Dan W Puchniak, Harald Baum and Michael Ewing-Chow (eds), The
Derivative Action in Asia: A Comparative and Functional Approach (Cambridge University Press 2012) 243,
247.
174
World Bank, ‘Report on Observance’ (n 91) 15–16.
114 V. CHEN

The Committee further notes the ‘overwhelming public opinion

that regulators are not effectively discharging their duties in enforcing the
law’.175
Scandals such as the Bumiputra Malaysia Finance Ltd (BMF) case in the
1980s illustrate the political interference in law enforcement processes.176
BMF was a subsidiary of Bank Bumiputra Malaysia Berhad (BBMB), established
as part of the state’s redistribution policies, whose board allegedly reported
directly to the Prime Minister.177 Prosecution of BMF directors by regulatory
authorities in Hong Kong led to the imprisonment of several directors for cor-
porate fraud.178 In contrast, Malaysian authorities ostensibly covered up the
wrongdoing and used repressive laws such as the Official Secrets Act 1972
to deter further scrutiny of the matter.179
Investigations into the 1MBD scandal were also alleged to have been
obstructed at multiple levels. The Attorney-General was removed from
office as he was about to file criminal proceedings against Prime Minister
Najib Razak for misappropriation of billions of dollars from 1MDB. Witnesses
were threatened and civil servants with the Ministry of Finance were
instructed to withhold evidence.180 There were claims of police interference
with investigations by the Malaysian Anti-Corruption Commission, including
arrests of staff,181 and the intimidation and dismissal of high-level investi-
gators.182 Nevertheless, following the general elections in May 2018 which
brought the Najib administration to an end and ushered in a new govern-
ment, investigations into the 1MDB saga have begun with a renewed
vigour.183

4.3. Cultural norms

The effectiveness of boards in monitoring conflicts of interest is thought to be
affected by group think even in Western countries.184 This problem would
appear to be more acute in Malaysia where controlling shareholders often
dominate the board of directors.185 Hierarchical social structures and
175
Finance Committee (n 25) 224.
176
Teh (n 109) 21.
177
Lim Kit Siang, The BMF Scandal (Democratic Action Party 1983) 9.
178
Teh (n 109) 51–52.
179
ibid 44.
180
Rozanna Latiff and A Ananthalakshmi, ‘Malaysian Officials Details How Najib Razak Tried to Obstruct the
1MDB Probe’ Financial Review (4 July 2018).
181
Patrick Lee, ‘Let MACC Do Its Job, Says Bar Council’ The Star (7 August 2015).
182
‘Malaysian Police to Investigate Death Threat Claim by Anti-Graft Chief During 1MDB Probe’ Straits
Times (23 May 2018).
183
Anuradha Raghu and Anisah Shukry, ‘Scrutiny on “Insolvent” 1MDB Grows as Malaysian Team Meets FBI’
Bloomberg (23 May 2018).
184
Sally Wheeler, ‘Independent Directors and Corporate Governance’ (2012) 27 Australian Journal of Cor-
porate Law 168, 184.
185
World Bank, ‘Report on Observance’ (n 91) 10; Finance Committee (n 25) 42.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 115

collectivist cultural norms arguably further inhibit effective monitoring of

conflicts of interest.186 Controlling shareholders commonly hold the position
of Chairman or Chief Executive Officer.187 Che Rose et al noted the tendency
for subordinates in a Malaysian workplace to defer to their superiors unques-
tioningly.188 Similarly, Khoo highlights the ‘social and cultural sensitivities’
encountered by the board and its committees in assessing directors’
performance and recommending their remuneration, particularly as
performance evaluation is usually the prerogative of superiors.189 In a
context where the preservation of ‘face’ is highly valued,190 directors who
raise questions in relation to the propriety of transactions, would be perceived
as challenging the integrity of the individuals involved, contrary to acceptable
social norms.

4.4. Similarities with other countries in Asia

The analysis above highlights the significance of concentrated corporate own-
ership, the politics-business nexus and cultural norms in explaining the enfor-
cement of directors’ duties in Malaysia. Many of these characteristics are
commonly found in various parts of Asia and some were borrowed from
other Asian countries. The state-business nexus and corporate ownership
structures emerged during the Mahathir administration. Prime Minister
Mahathir Mohamad’s ‘Look East Policy’ in the early 1980s sought to
emulate elements of business culture which were perceived as instrumental
to the economic success of countries such as Japan, South Korea and
Taiwan.191
Among the key features which Malaysia adopted was the concept of ‘Japan
Incorporated’. Dr Mahathir observed that ‘the whole of Japan seems to be
incorporated into one company, working for the benefit of the nation’ and
‘Japanese companies seem to be so closely linked to the Japanese govern-
ment that the two are almost indistinguishable’.192 The ensuing ‘Malaysia
Inc’, in which the government adopted an active role in economic develop-
ment and corporate ownership, was a product of the economic and redistri-
bution policies of that era.

186
Hofstede’s power distance index places Malaysia at the apex, indicating the social acceptance of a high
level of inequality in distribution of power: Geert Hofstede and Gert Jan Hofstede, Cultures and Organ-
izations: Software of the Mind (2nd edn, McGraw-Hill 2005).
187
World Bank, ‘Report on Observance’ (n 91) 10.
188
Raduan Che Rose et al, ‘A Face Approach to Conflict Management—A Malaysian Perspective’ (2007) 2
Journal of Social Sciences 121, 1160.
189
Khoo (n 89) 22.
190
Asma Abdullah, Going Glocal: Cultural Dimensions in Malaysian Management (Malaysian Institute of
Management 1996).
191
Mahathir Mohamad, A New Deal for Asia (Pelanduk Publications 1999) 87.
192
ibid 88.
116 V. CHEN

The inter-relation of state and business exemplified in Malaysia resonates

with the concept of the Asian developmental state193 which is thought to
be prevalent in various parts of North East and South East Asia.194 Common
features include collaboration between the political and economic elite195
and ‘dominant party rule where democratic principles may in practice be
limited in scope’.196 Scholars have also observed the tendency for limited judi-
cial and legislative roles, while the executive arm of government and its devel-
opmental policies predominate.197 Dr Mahathir advocated a relativist
approach to the rule of law consistent with ‘Asian values’, arguing that the
interests of the community should take precedence over individual
rights.198 This view was also held by Singapore’s Prime Minister Lee Kuan
Yew, and similar relativist interpretations have since been reiterated by
leaders of various East Asian countries.199
State ownership of corporations is prevalent in China, Hong Kong, Singa-
pore, Indonesia and Thailand.200 In various parts of South East Asia, it is
common for corporate ownership to be concentrated in the hands of
families,201 some of whom are politically well-connected.202 Hence, the obser-
vations on the interaction of law with features of the Malaysian context dis-
cussed above would, to varying degrees, ostensibly have some relevance
for other countries which share similar characteristics.

5. Conclusion
The comparative analysis of private and public enforcement of directors’
duties, and of mechanisms which may function as substitutes for the enforce-
ment of directors’ duties, indicates that enforcement is consistently more
robust in Australia. Features of the Malaysian context which contribute to
the differences in enforcement despite similarities in formal law include
193
Chalmers Johnson, ‘The Developmental State: Odyssey of a Concept’ in Meredith Woo-Cummings (ed)
The Developmental State (Cornell University Press 1999) 32.
194
Richard W Carney and Michael A Witt, ‘The Role of the State in Asian Business Systems’ Michael A Witt
and Gordon Redding (eds), The Oxford Handbook of Asian Business Systems (Oxford University Press
2015).
195
Yin-wah Chu, ‘The Asian Developmental State: Ideas and Debates’ in Yin-wah Chu (ed), The Asian Devel-
opmental State (Palgrave Macmillan 2016) 11.
196
Harding, The Constitution of Malaysia (n 161) 66.
197
ibid; Johnson (n 193) 38.
198
Mohamad (n 191) 69.
199
Alice Ehr-Soon Tay, ‘“Asian Values” and the Rule of Law’ in P Costa and D Zolo (eds), The Rule of Law:
History, Theory and Criticism (Springer 2007) 575.
200
Richard W Carney and Travers Barclay Child, ‘Changes to the Ownership and Control of East Asian Cor-
porations between 1996 and 2008: The Primacy of Politics’ (2013) 107 Journal of Financial Economics
494, 501.
201
ibid.
202
Masami Imai, ‘Mixing Family Business with Politics in Thailand’ (2006) 20 Asian Economic Journal 241;
Rupert Hodder, ‘Business, Politics, and Social Relationships in the Philippines: A Gentle Revolution?’
(2000) 8 South East Asia Research 93; Yuki Fukuoka, ‘Business and the State in Post-Soeharto Indonesia’
(2012) 34 Contemporary Southeast Asia 80.
 OXFORD UNIVERSITY COMMONWEALTH LAW JOURNAL 117

corporate ownership patterns and the politics-business nexus. Corporate

ownership in Malaysia is substantially more concentrated, allowing controlling
shareholders to dominate the board and the general meeting. The inextric-
able relation between politics and business is reflected in extensive state
control of corporate conglomerates and close ties between corporate mag-
nates and political patrons. These structures together with limitations in the
independence of the judiciary and regulators have engendered political
influence over the private and public enforcement of directors’ duties.
The analysis demonstrates the need to consider the significance of
corporate ownership structures and political economy for the effectiveness
of corporate law borrowed from Western liberal democracies. These consider-
ations are relevant particularly for developmental states in various parts of
Southeast Asia and Northeast Asia which share similarities in shareholding
patterns and state involvement in business. The limitations in the enforce-
ment of corporate law highlighted in the article have broader implications
for the trend towards international convergence in corporate law which
have centred primarily on formal law. The findings demonstrate the superfi-
ciality of formal convergence, illustrating the deeper differences in the effec-
tiveness of reforms in practice revealed by analysis of the interaction of law
and the context in which it operates.

Acknowledgments
The author would like to thank Professor Michelle Welsh and Professor Richard Mitchell
for their input into the writing of the material which forms the basis of this article. This
research is funded by the Australian Government Research Training Program Scholar-
ship. The author would also like to thank the Centre for Asian Legal Studies and EW
Barker Centre for Law and Business, National University of Singapore, the Centre for
Cross-border Commercial Law, Singapore Management University, and the Berkeley
Centre for Law, Business and the Economy for their sponsorship of the author’s pres-
entation of this research at the US–Asia Comparative Corporate Law and Governance
Conference and helpful feedback on this paper.

Notes on contributor
Vivien Chen is a lecturer at Monash University.