Company Directorship Responsibilities Quiz

Company's Director

• A director is a person appointed to a company's board. Section 2(1) of the Companies Act (CA) includes de facto directors, shadow directors, and alternate directors.
• Directors can include CFOs, CEOs, COOs, or others primarily responsible for company management. Company directors are considered officers under Section 2(1) CA.
• The minimum number of directors for a private company is one, and two for a public company (Section 196(1) CA).
• A director is defined in Section 2(1) of the CA 2016 as someone who holds the position of director, regardless of the title. It also encompasses an individual whose instructions or directions are consistently followed by the corporation's directors, as well as a substitute or alternate director.

Subtopics

• Definition of directors
• Qualifications of being a director
• Duties and powers of directors
• Removal of directors

Who Can Be a Director?

• A natural person, at least 18 years old (Section 196(2) CA).
• Not a bankrupt person (Section 198(1)(a) CA).
• Not convicted of specific offenses (Section 198(1)(b) CA).
  • A five-year prohibition period starts from conviction, or release from prison if incarcerated (Section 198(6) CA).
• Can be reappointed with court leave (Section 198(4) CA).
• Not an auditor of the company (Section 264(1)(c)(iii)(A) CA)
• Of sound mind (Section 208(1)(e) CA)

Qualifications of Directors

• No specific academic or professional qualifications are required.
• Directors must exercise reasonable care, skill, and diligence. Their knowledge, skill, and experience are evaluated against what is "reasonably expected" of a director in similar responsibilities, or any additional knowledge, skill, and experience the director actually possesses (Section 213(2) CA).

Removal of Directors

• The Registrar of Companies can apply to court to restrain a director from acting or holding office in company management (Section 199(1) CA).
• Reasons for restraint can include: being a director of two companies that were wound up due to insolvency within five years (significantly contributing to the insolvency, Section 191(1)(a) CA).
• Violating director duties (Section 191(1)(b) CA).
• Repeatedly violating the Companies Act (Section 191(1)(c) CA)

Duties of Director

• Act in the company's best interest, in good faith for a proper purpose (Section 213(1) CA).
• Consider only the company's interest, not personal gain (Good Faith).
• Exercise powers for a proper purpose.

Director's Conflicts of Interest (S 218 CA)

• A director must not use the company's property, information, or opportunities for personal gain or use their position to compete with the company to gain personal benefit, without express consent (Section 218(1) CA).

Duty to Make Decision for Company

• Business decisions made by a director are known as a business judgment (Section 214(2) CA). A director must make business judgments for a proper purpose, in good faith, without material personal interest in the matter, and in the company's best interest (Section 214(1) CA).

Relying on Information

• Directors can rely on credible information from sources that are considered reliable (Section 215(1) CA), such as another company official, a professional, another director, or a BOD committee. However, directors must still evaluate information independently based on their knowledge to ensure it aligns with good faith and corporate interest (Section 215(2) CA).

Duty to Delegate

• Directors can delegate board powers to committees, officers, employees, experts, or other individuals (Section 216(1) CA).
• Directors are ultimately responsible for the delegated activities (Section 216(2) CA).

Case Law Examples

• Re Hydrodam (Corby) Ltd [1994]: Defined a de facto director as someone who assumes the role of director without formal appointment.
• Re W & M Roith Ltd: Demonstrates the director's duty to act in the best interest of the company, including avoiding conflicts of interest.
• IDC v Cooley: Highlights the conflict of interest situation a director faces when their personal interests clash with the company's.
• Re City Equitable Fire Insurance Co (1925): Non-executive directors are not expected to dedicate continuous attention to company affairs but still exercise reasonable skill, care and diligence commensurate with their experience & knowledge level.
• Norman v Theodore Goddard (1991): Executive directors must exercise skills and knowledge commensurate with what a person in their position is expected to have and possess.

Penalties for Non-compliance

• Non-compliance with director duties may result in imprisonment for a term of up to five years, a fine not exceeding RM3 million, or both (Section 221(12) CA).

Test your knowledge on the requirements and responsibilities of company directors. This quiz covers important topics such as definitions, characteristics, and prohibitions related to directorship. Perfect for students of corporate law and business management.