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DUTY AND LIABILITY OF THE DIRECTOR BEFORE AND AFTER AMENDMENDT OF MALAYSIAN COMPANY ACT 1965: PART 2.

Monday, September 13, 2010

Amendment also generates the new Section 132 (1E) of Company Act 1965 also clarifying the position of the nominee director. Section 132(1E) provides that :-
‘A director, who was appointed by virtue of his position as an employee of a company, or who was appointed by or as a representative of a shareholder, employer or debenture holder, shall act in the best interest of the company and in the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, he shall not subordinate his duty to act in the best interest of the company to his duty to his nominator’
Besides that, the amendment also existed the Section 132 (2) of the Company Act 1965 which provides the prohibition against improper use of company’s property, position, corporate opportunity or competing with the company. The new section 132 (2) provides that:

‘A director or officer of a company shall not, without the consent or ratification of a general meeting-
(a) use the property of the company;
(b) use any information acquired by virtue of his position as a director or officer of the company;
(c) use his position as such director or officer;
(d) use any opportunity of the company which he became aware of, in the performance of his functions as the director or officer of the company; or
(e) engage in business which is in competition with the company to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company.

So, from this new section we can see that this new provision amounts to a restatement of the common law conflict of interest situation. It assists directors in appreciating situations of conflict which may cause them to act in breach of their duty to the company.
Last but not least, the new section of 132C of the Company Act 1965 provides the Approval of company required for disposal by directors of company’s undertaking or property. Before the amendment, the old section provides :-
‘notwithstanding anything in a company’s memorandum or articles, the directors shall not carry into effect any proposal or execute any transaction for-
(a) the acquisition of an undertaking or property of a substantial value; or
(b) the disposal of a substantial portion of the company’s undertaking or property
which would materially and adversely affect the performance or financial position of the company, unless the proposal or transaction has been approved by the company in general meeting’. As we can see, the old S132C permitted ‘adverse’ transaction as long as the transaction has been approved by the company in a general meeting. The new section 132C(1) has removed the requirement that the transaction must adversely affect the performance or financial position of the company. Section 132C (1A) of the Company Act 1965 provides that :
‘For the purpose of subsection (1), in the case of a company where all or any of its shares are listed for quotation on the official list of the Stock Exchange as defined in the Securities Industry Act 1983, the term ‘substantial value or substantial portion’ shall mean the same value prescribed by the provision in the listing requirements of the Exchange-
(a) which relates to acquisition or disposals by a company or its subsidiaries to which such provisions applies; and
(b) which would require the approval of shareholders at a general meeting in accordance with the provisions of such listing requirements.

In conclusion, from my view the amendment of the Company Act 1965 in 2007 has incorporated especially for director duties as seen in section 132 and the amendment also laid down the function and powers of the board of directors further give the big effects for a good corporate governance in Malaysia.

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This blog is useful mainly as a reference for law students in Malaysia and other countries which have similar legal system. It also helps those who are interested in law. I'm willing to share your ideas concerning law in your country. If you have any comments or suggestion you can either write in this blog or address your email to: ikrearex@gmail.com -REX:>

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