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COMPANY

Taylor's Law School

LAW IN
MALAYSIA
LECTURE:
APPOINTMENT OF DIRECTORS
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LEARNING
OUTCOMES
 •Identify a director.
 •Explain the qualifications and
disqualifications of a director.
 •Describe the appointment of a director,
and how the appointment may be
terminated.
 •Discuss the law pertaining to the
director’s remuneration.
 •Explain the requirement imposed on a
public company to disclose its directors’
service contracts.
WHO ARE DIRECTORS? 3

 A director manages the business of the company.

 section 2(1) to include:
 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 directors of a
corporation are accustomed to act and an alternate or substitute
director.
 An alternate or substitute director is a person nominated by another
director to attend meetings or perform duties on his behalf. In this
connection, the CA 2016 does not provide the procedure on the
nomination of an alternate or substitute director. Thus, a director may
nominate an alternate or substitute director only if permitted in the
company’s constitution.
  Section 2(1) states that a director includes a
person who occupies the position of director. In
other words, it includes a de facto director, even
a person who acts in that position with or
without lawful authority. An example is where a
WHO ARE person acts as a director even though his
appointment is defective.
DIRECTOR  includes a shadow director, that is, a person “in
accordance with whose directions or instructions
S? the majority of directors of a corporation are
accustomed to act”. Here, the person has not
been appointed as a director, yet he controls the
actions of the board of directors. The majority of
the directors act on his direction or instruction as
a matter of practice.

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  Section 196(1) provides that a private company
shall have a minimum of one director and a
public company shall have a minimum of two
directors
Minimum  Directors must reside in Malaysia

Number
 Alternate or substitute director shall not be
included in the calculation of this statutory
minimum number of directors (section 196(4)

of 
(b)).
Fong Poh Yoke v The Central Construction Co

Directors (M) Sdn Bhd (1998), the word “residence”

means the person must be residing in the place
with some degree of continuity. Thus, he may
have two places of residence so long as his main
place of residence is in Malaysia.
 Citizenship is not important.

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  Section 196(2)
 Natural person of 18 years and above.
WHO MAY  A corporation, being an artificial person,
BE A cannot be appointed as a director of a
company. This is despite the corporation
DIRECTO holding a substantial percent of shares or
all the shares in the company.
R?  No age limit

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  Official Receiver or court’s approval – s 198(1)(1)
 Section 198(1)(a) provides that an undischarged bankrupt
cannot hold office as a director or take part in the
management of the company unless with the approval of
either the Official Receiver or the court.
WHO MAY  Court’s approval needed

BE A
 Section 198(1) and (6) provide that a person who has been
disqualified as a director on the ground that he has been
convicted of one of the offences stated therein may not

DIRECTO hold office as a director or take part in the management of

the company.

R?
 The prohibition period is five years calculated from the
date he is convicted or if he is sentenced to imprisonment,
five years from the date of his release from prison (section
198(6)).
 Nevertheless, he may be re-appointed or hold office as a
director with the court's approval (section 198(4)).

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  Not restrained by the court
 Section 199(1) provides that the ROC
(registrar of company) may apply to the
court to restrain a person from acting or
WHO MAY holding office as a director or promoter
or taking part in the management of a
BE A company.
1. Firstly, that person was a director of two
DIRECTO companies which were wound up due to
insolvency within a period of five years.
R? His conduct as a director contributed
wholly or partly to the winding up
(section 199(1)(a)). The court, may grant
the restraining order for a period not
exceeding five years starting from the
date of the court order.

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  Not restrained by the court
2. Secondly, the court may also restrain a
WHO MAY person who has contravened his duties as a
director from holding office as a director
BE A (section 191(1)(b)).
DIRECTO 3.The third situation is where the person has
habitually contravened the CA 2016. The
R? ROC may also apply to court for an order to
restrain him from acting as a director
(section 191(1)(c)).

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 Not an auditor of the company

WHO MAY  Section 264(1)(c)(iii)(A) provides that an
auditor of a company cannot also be an officer
BE A of the company. His spouse also cannot be an
officer of the company.
DIRECTOR  Not unsound mind Section 208(1)(e)

? 


Not disqualified by the constitution 208(1)(c)
Share qualification
 a company may still in its constitution, require
its directors to hold a minimum number of
shares. As the CA 2016 does not provide a
grace period, the terms in the constitution shall
apply without any exception. (Comp’s Consti
can specify that a director must hold certain
amount of shares)
  No specific academic or professional
qualification required
 section 213(2) provides that:
 A director of a company shall exercise
reasonable care, skill and diligence with –
WHO MAY  (a)the knowledge, skill and experience which
may reasonably be expected of a director having
BE A the same responsibilities; and (objective test)
 (b)any additional knowledge, skill and
DIRECTO experience which the director in fact has.
(subjective test)
R?  A director, whether he is an executive(available
9-5pm) or a non-executive director (consultant in
the company/ mostly retired senior), is now
deemed to have the knowledge, skill and
experience which may reasonably be expected of
a director having the same responsibilities.

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  Other situations
 Some companies might have adopted the
Fourth Schedule to the CA 1965 (“Table
A”) as its constitution and have not
WHO MAY passed any resolution to modify it. In
these cases, reference must be made to
BE A Table A.
DIRECTO  Number of directorships
 Bursa Malaysia has limited the number of
R? directorships held by a director of a
public listed company to not more than
five in listed companies (Paragraph 15.06
of the Bursa Malaysia Listing
Requirements).

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  13
First directors (first D the company appoints)
 Section 202(1) : first director(s) shall be the
person(s) named in the application for the
incorporation of the company. Consent given &
APPOINTMEN has confirmed that he is not disqualified under the
Act. [make sure he’s met requirements to become
T OF A a D (bankrupt, criminal, D of 2 companies)]
DIRECTOR  Appointment is made by the promoters of the
company. The promoters may appoint one or two
of themselves to be the first director(s). They may
appoint other people.
 The first director(s) are deemed to have been
appointed when the company is incorporated.
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
APPOINTMEN Section 203: the appointment of the
director of a public company is by way
T OF A of separate resolution. Two or more
DIRECTOR directors cannot be appointed in the
SUBSEQUENT same resolution, unless the members
DIRECTORS have first agreed by resolution to the
appointment of the said directors in a
single resolution.
 If any member at that meeting voted
against the appointment of more than
one director in a single resolution, the
appointment is not valid.
RETIREMENT OR TERMINATION 15
OF A DIRECTOR
 The office of a director may
become vacant in one of the
following events:
1. •He retires from office;
2. •He is disqualified pursuant
to the CA 2016 or the
company’s constitution;
3. •He resigns from the position;
4. •He is removed from the
board of directors; or
5. •He retires by rotation.
  Section 205 CA: provision applies only if there is
no provision on retirement of directors in the
company’s constitution and in the terms of
appointment of the director. (only if the comp’s
consti does not specify on appointment of a D)
 There is no provision pertaining to the retirement of
the first director(s) of a private company. Reference
has to be made to the company’s constitution. If the
Removal of constitution is silent, it appears that he will remain
in office until:
Directors via 1. •he is disqualified;
CA 2016 2. •he resigns;
3. •he is removed; or
4. •the members pass a written resolution to
determine his retirement (section 205(2)).

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  S 206(1)CA 2016- A Director may be removed
before the expiration of the Director’s period as
follows:
 a) Subject to the constitution as in a private
company, by ordinary resolution Or
 b)in the case of a public company in accordance
Removal of with this section ( ordinary resolution) 51%
Directors via  S 206 (2) CA 2016- Notwithstanding anything
in this constitution or any agreement between
CA 2016 public company and director, the company may
(Private by ordinary resolution at a meeting remove the
director before the expiration of the term.
Company)  The removal of a Director cannot be passed via
a written resolution – S 297 CA 2016. (sign off
a doc to remove a director CANNOT),
(CANNOT be done via documentation/email),
(must have a physical vote)

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 First Directors: Public Company

RETIREMEN
 Section 205(3) provides that the first
T OR directors of a public company will hold
TERMINATIO office until the company’s first AGM.
N OF FIRST However, the company’s constitution
may provide otherwise.
DIRECTORS:
RETIRES  In simple terms, Besides the name
suggests, first directors are the
individuals who has formed the
company in the position of directors.
  Subsequent Directors: Public Company
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 section 205(1): shall apply with regards to the
retirement of directors unless there is specific
provision in the company’s constitution or the term
RETIREMEN of appointment regarding retirement of directors.
T OR  Section 205(3)(a): at the first annual general
meeting of a public company, all directors shall
TERMINATIO retire from office at the conclusion of the meeting.
N OF A (only if no special agreement) (if got agreement
stating that Ds can still continue after AGM, then
SUBSEQUEN they can remain)
 Section 205(3)(b): one third of the directors must
T retire every year. They shall be the directors who
DIRECTORS: have been longest in office since their last election.
Directors who were appointed at the same time,
RETIRES they may agree among themselves on their
“seniority” for the purpose of retirement;
alternatively, it may be determined by lot (section
205(4)). (most senior Ds will retire first)
  Subsequent Directors: Public Company
 the retiring director may offer himself for
re-election unless he is disqualified
RETIREMEN (section 205(5)).
T OR  Section 205(6) provides that the retiring
TERMINATIO director will be re-elected unless:
N OF A 1. he is disqualified; (fraud/wrongful acts)
SUBSEQUEN 2. another person is appointed to fill the
vacancy;
T
there is a resolution not to fill the
DIRECTORS: 3.
vacancy; or
RETIRES 4. the resolution to re-elect him is
defeated by the members.

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RETIREMENT OR  Where a company director is disqualified

TERMINATION OF pursuant to either the CA 2016 or the
A DIRECTOR: company’s constitution, a casual vacancy
DISQUALIFICATIO is created.
N  Section 208(4): the BOD shall have power
to appoint any person to fill the casual
vacancy.
 public company : this newly appointed
director shall hold office until the
company’s next annual general meeting.
 private company : he shall hold office in
accordance with the terms of his
appointment.
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What happens then if there is only one director in the
company, and he is disqualified, becomes of unsound mind
or dies?

RETIREMENT OR
TERMINATION OF Section 209(3) provides that the secretary shall as soon as
practicable, call a meeting of the next of kin, other personal
A DIRECTOR: representatives or a meeting of the members, as the case
may be, to appoint a director.
DISQUALIFICATIO
N
Where the sole director dies, the next of kin, personal
representatives or the members shall within six months
after the death, appoint a new director. Section 209(5)
provides that the failure to do so may cause the company to
be struck off the register by the ROC. (no longer a
registered company)
RETIREMENT OR TERMINATION 23
OF A DIRECTOR:
DISQUALIFICATION

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Section 209(5) does not provide for the consequence for the failure to
appoint a new director to replace the sole director who was disqualified or
became of unsound mind.

where the sole director who is also the sole member (SH) becomes of
unsound mind or suffers from mental disability is clearer. Section 209(6)
provides that the committee appointed to manage his estate may appoint the
new director.
RETIREMENT OR TERMINATION 24
OF A DIRECTOR: RESIGNATION

A director may tender his resignation by giving a written notice to the

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company at its registered office (section 208(2)).The resignation will take
effect on the date the Board receives the letter of resignation, or the date
stated in the letter.

section 209(1) if only 1 director, shall not resign until he has called for a
meeting of members to receive the notice of resignation & to appoint 1 or
more directors.

S196(3) Director shall not resign if the number of directors are reduced
below the minimum number unless a person is appointed in his name.
(Cannot resign if number of D reached the minimum number of Ds)
  Private Company
 No procedure for removal except cannot
RETIREMEN be by written resolution.
T OR  Refer to company’s constitution, if silent
TERMINATIO then S206(1) by an ordinary resolution.
 Removal in private company can be done
N OF A
via OR
DIRECTOR:
REMOVAL

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  Public Company
 section 206(2) provides that the company
may by ordinary resolution remove a
RETIREMEN director from office before the expiry of
his term and appoint another in his stead.
T OR  A public company’s constitution cannot
TERMINATIO put a higher threshold on the removal of
N OF A its directors, and any attempt to entrench
the position of a director by requiring a
DIRECTOR: higher percentage of votes to vote out a
REMOVAL director is of no effect (Tuan Haji Ishak
bin Ismail v Leong Hup Holdings
Bhd (1996)).

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  Public Company
 to serve a special notice or notice of
intention on the company at least 28 days
before the scheduled members’ meeting
RETIREMEN (section 322).
T OR  The company shall send a copy of the
notice to the director concerned (section
TERMINATIO 207(1)), who may respond orally or in
N OF A writing (subsection (2)). Where he has
given a written response, he may require
DIRECTOR: his written response to be given to all
REMOVAL members (subsection (3)). )if want to
remove a D, must send him a written
notice. That D has a right tot reply to be
heared/justify himself before removal via
written notice)

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  Public Company
 At the members’ meeting, the director
shall be entitled to speak to the members
RETIREMEN (section 207(4)). The director may also
T OR request his written response to be read
out at the meeting if the written response
TERMINATIO was not sent out to the members.
N OF A  Subsequently, the resolution to remove
DIRECTOR: the director will be put to vote. It is
passed if it obtains more than half of the
REMOVAL votes cast (section 291).

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DIRECTORS’ REMUNERATION 29
 The CA 1965 did not provide the approving
authority for the directors’ remuneration.
 Thus, reference had to be made to the
company’s articles of association.
 Most companies prescribe that the directors’
remuneration would be determined by the
members at the company’s general meeting.
 CA 2016 prescribes the approving authority
for the payment of directors’ remuneration.
 1. Who may approve D’s remuneration?
 Public company 30
 Section 230(1) reads:
 The fees of the directors, and any benefits payable to
DIRECTORS’ the directors including any compensation for loss of
employment of a director or former director –
REMUNERATION  (a)of a public company; or
 (b)of a listed company and its subsidiaries,
 shall be approved at a general meeting.
 this provision applies to a public company as well as
a private company which is a subsidiary of a public
listed company.
 unclear whether the remuneration must be approved
by the members of the said subsidiary or the listed
company or both.
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 Private Company
 section 230(2) allows the company’s
DIRECTORS’ constitution to provide the procedure for the
approval of directors’ remuneration.
REMUNERATION  S230(2): the Board may, subject to the
constitution approve the fees of the directors
and any benefits payable to the directors
including any compensation for loss of
employment of a director or former director.
 the Board must notify the shareholders of the
approved fees and benefits within 14 days from
the date of approval.
  Private Company

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Section 230(4) and (5) provides some check
and balance.
 Section 230(4) provides that members holding
DIRECTORS’ at least 10% of the total voting rights may
require the company to obtain members’
REMUNERATION approval for the payment of the remuneration
either by way of a written resolution or at a
general meeting.
 Until the members’ approval is obtained, the
payment shall constitute a debt due by the
director to the company (section 230(5)). Thus,
the director has to refund the payment received.
 2. Not tax free
 33
the director’s remuneration shall not be tax
free. He, and not the company, shall pay his
taxes on the remuneration received from the
company. Section 226(2) ensures that.
DIRECTORS’ 3.Compensation for loss of office
REMUNERATION  section 227(1), it is not lawful for a company to
pay a director compensation for loss of office as
an officer of the company or its subsidiary.
Similarly, it is not lawful for the company to
make any payment to its director in connection
with the transfer of the company’s property.
(not lawful to pay director for loss of office)
 3.Compensation for loss of office 34
 S227 (1) is subject to certain exceptions.
 Firstly, particulars of the payment including the
amount have been disclosed to the members and the
DIRECTORS’ members have passed a resolution to approve the
REMUNERATION payment. Where the company is a public company,
the director and person connected with him shall
abstain from voting on the resolution (section
227(1) and (2)).
 If the director receives the payment without the
members’ approval, the director shall be deemed to
have received it in trust for the company (section
227(1)). The company can at any time demand for
its repayment.
 4.No indemnity 35
 section 288 provides that any agreement or clause in
the constitution which exempts an officer from
liability is void.
DIRECTORS’  However, a director who acted honestly and
REMUNERATION reasonably may apply to the court for relief under
section 581(1) to excuse himself from any
proceedings for negligence either wholly or partly
from his liability on such terms as the court thinks
fit.
 Section 289 now permits a company to indemnify a
director for his costs in defending any proceedings
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SERVICE CONTRACT
 Service contract is a contract
containing the terms of appointment
as a director. (offer letter)
 CA 2016 has provided for public
companies to make available for
inspection a copy of every director’s
service contract with the company or
its subsidiary. Eligible members may
also request for a copy of the
document. (all SH can see the D’s
service contract) [remuneration, duty,
jobscope]
 Section 232(2) and (6) require a copy
of the contract and any variation to the
contract to be made available at the
company’s registered office.
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SERVICE CONTRACT
 Though the contract is available for
inspection, not every member is
entitled to do so. Section 233(1)
provides that for a public company
with share capital, only members
holding at least 5% of the total paid
up capital are entitled to inspect the
documents.
 company limited by guarantee:
directors’ service contracts shall be
available for inspection by at least
10% of the members. It thus appears
that 10% or more members can jointly
make the request.