Company's Director PDF

Company’s Director Subtopics Definition of directors Qualifications of being directors Duties and powers of directors Removal of directors  What is meant by director? - A director is a person who is appointed as a director of a company - Sec 2(1) CA includes a de facto director, a...

Company’s Director Subtopics Definition of directors Qualifications of being directors Duties and powers of directors Removal of directors  What is meant by director? - A director is a person who is appointed as a director of a company - Sec 2(1) CA includes a de facto director, a shadow director and alternate director. - Directors include Chief Financial Officer (CFO), Chief Executive Officer (CEO), Chief Operational Officer (COO) or any other person s primarily responsible for the management of company (sec 210 CA) - Company’s director is considered as one of the officers of the company (sec 2(1) CA) - The minimum number of directors in a company is one for a private company and two for a public company (sec 196(1) CA)  Sec 2(1) CA 2016 - director includes 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 directors of a corporation are accustomed to act and an alternate or substitute director. Two important concepts used: - any person occupying the position of director of a corporation by whatever name called - a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act  “any person occupying the position of director of a corporation by whatever name called” is the concept of de facto director. He is a person who is not formally appointed as a director but occupies the office of a director. He cannot therefore escape the liabilities and liabilities as a director merely because he has not been formally appointed as such  Case of Re Hydrodam (Corby) Ltd A de facto director is a person who assumes to act as a director. He is held out as a director by the company and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company, it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged by a director. He is the one who claims to act and purports to act as a director, although not validly appointed as such.  “a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act” refers to a shadow director. Re Hydrodam (Corby) Ltd a shadow director, by contrast does not claim or purports to act as a director. On the contrary, he claims not to be a director. He lurks in the shadows, sheltering behind others who, he claims, are the only directors of the company to the exclusion of himself. He is not held out as a director by the company.  Who can be a director? (1) A natural person who is at least 18 years of age (s 196(2) CA) (2) Not a bankrupt person (s 198(1)(a) CA) (3) Not convicted for the specified offences (s 198 (1) (b) CA) - Prohibition period is five years calculated from the date the accused is convicted or if he is sentenced to imprisonment, five years from the date of his release from prison (s 198(6) CA) - He can be reappointed with leave of court (s 198(4) CA) (4) He is not an auditor of a company (s 264(1)(c)(iii)(A) CA) (5) He is sound mind (sec 208(1)(e) CA) (6) No specific academic or professional qualification required but director shall exercise reasonable care, skill and diligence (s 213(2) CA) - with the knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities - with any additional knowledge, skill and experience which the director in fact has (7) Not restrained by court - Registrar of Companies may apply to court to restrain a person from acting or holding office as a director or promoter or taking part in the management of a company (s 199(1) CA) Restrained because of what? a) He was a director of 2 companies which were wound up due to insolvency within a period of 5 years. He contributed wholly or partly to the winding up (s 191(1)(a) CA) b) He was restrained a person who has contravened his duties as a director from holding office as a director (s 191(1)(b) CA) c) He habitually contravenes Companies Act 2016 (s 191(1)(c) CA) Duties of director 1) Duty to act for proper purpose and in good faith for the best interest of the company (s 213(1) CA) Good faith - When exercising his duties, the director must consider the interest of the company and no one else’s, not even his personal interest. Proper purpose - The director must exercise his power for a proper purpose and not to feather his own nest S 218(1) CA A director or officer of a company shall not: (a) use the property of the company (b) use any info 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 directors or officer of the company (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 without the consent or ratification of a general meeting  Case of Re W & M Roith Ltd - The director owned a substantial portion of shares in the company. He was terminally ill and wanted to provide for his wife, thus he entered into a contract with the company to pay a pension to his widow. - The court held that the contract was void as the board of director did not act for the best interest of the company but for the widow of the director. It was not made in good faith.  Case of IDC v Cooley - Cooley was the director of IDC. IDC tendered but did not get the project from the Gas Board. The Gas Board subsequently offered the contract to Cooley. Cooley resigned from IDC and accepted the offer. - The court held that Cooley had put himself in a position where his duty to the company conflicted with his own interest. As he had breached his duty, he was accountable to IDC. 2) Duty of skill, care and reasonable diligence Sec 213(2) CA – A director of a company shall exercise reasonable care, skill and diligence with (a) the knowledge, skill and experience which may be expected of a director having the same responsibilities and (b) any additional knowledge, skill and experience which the director in fact has.  In case of Re City Equitable Fire Insurance Co (1925), the court held that a non executive director : - did not have to exhibit in the performance of his duties a greater skill than might be reasonably be expected from a person of his knowledge and experience - did not have to give continuous attention to the affairs of the company - did not have to attend all meetings but he must attend in the circumstances he was reasonably able to do so.  Case of Norman v Theodore Goddard (1991) - The court held that when performing his functions as an executive director, an executive director was to exercise the knowledge, skill and experience which he actually had and which a person carrying his function should be expected to have. 3) Duty to make decisions for the company - The decision made by the director is known as the business judgment (sec 214(2) CA). - Sec 214(1) CA - In order for a director to make a business judgment, he should: (a) makes business judgment for a proper purpose and in good faith (b) does not have a material personal interest in the subject matter of business judgment (c) the subject matter of the business judgment is appropriate (d) for the best interest of the company  In making the decisions for the company, the director may rely on the information given by the another party (sec 215(1) CA) - any officer of the company who is reliable and competent - any professional and experts for a particular skills or matters - another director in relation to matter within the director’s authority - any committee of the BOD  When the directors relied on the information provided by others, the directors must still act in good faith and make independent assessment of the information based on the director’s knowledge (sec 215(2) CA). 4) Duty to avoid conflict of interest - As discussed, sec 213(1) CA provides that a director shall at all times exercise his power for a proper purpose and in good faith in the best interest of the company. - Sec 218 CA prohibits a director from improperly using the company’s assets to further his own interest or that of another person. - Thus, can a director or a person connected to the director enter into a contract with the company?  What must be done by the director is that he must declare the nature of his interest in the BOD’s meeting (sec 221(1) CA). Every director shall declare the fact and the nature, character and extent of the conflict of interest at the meeting (sec 221(6) CA). An interest in the shares or debenture of a company shall be treated as an interest in the contract and proposed contract if it involves interest of the spouse of the director and of a child, who is not the director of the company (sec 221(9) CA).  If there is any non compliance of the provision, the director will subject for offence and will be punished for an imprisonment for a term not exceeding 5 years or fine not exceeding RM3m or both (sec 221(12) CA). 5) Duty to delegate power to committee - The directors may delegate any powers of Board to any committee of Board, director, officer, employee, expert or any other person (sec 216(1) CA). - Sec 216(2) CA states that the directors are responsible for the exercise of power by the delegate as if the power exercised by the directors themselves.