What Would Happen If Directors Breach Their Duty?
“I think there has been a breach of responsibility by one of the directors in my company. What should I do?”
Well, the first step is to seek professional advice and conduct further investigation 📄 Fortunately, the Malaysian law places a safeguard to protect the shareholders against any negligent or errant directors.
In Malaysia, a company director must be present in all type of companies be it a public listed company or a private limited company.
For private companies limited by shares, there are usually more than one director, as a minimum of 2 directors are required. A company of this kind is owned by its shareholders, but the responsibility for the management of the company’s business lies on the board of directors.
General Responsibilities of a Company Director
Directors must exercise their powers for a proper purpose and in good faith, in the best of the company at all times.
Directors should also exercise reasonable care, diligence and skill.
Other responsibilities include:
Must not have a material personal interest in the subject matter of the business judgement
To always act within powers
To constantly promote the success of the company for the benefit of its members as a whole
To exercise independent judgement
Avoid conflicts of interests
Not to accept benefits or bribes from third parties
Declare interests in transactions or arrangement with the company
Consequences of Breach of Directors’ Duties
While there are many matters a director must focus upon, one of the most important concern is the financial statements of the company. The Companies Act has myriad of compliance requirements for accounts, record keeping, disclosures, and filing of annual returns for which a director is responsible, with criminal sanctions in any event of breach of duty.
The new law also implements a stricter standard and more responsibilities for directors, this includes heavy fines and longer terms of imprisonment for violations.
Sanctions for Any Breach of Their Duties
Personal liability The limited liability afforded by a limited liability company only applies to its shareholders rather than its directors. The directors may be personally liable if they fail to meet their responsibilities.
Criminal offences and fines Breaching of the company law may be regarded as a criminal offence and subject to fines. Statutory provisions in legislations are present for criminal offences as well the sanctions that may apply to companies upon conviction.
Cease and desist orders During the investigative phase of any criminal proceedings, courts may choose to make orders requiring companies to disclose their records or make a freezing order over the company’s assets such as bank accounts.
Disqualifications or undertakings in lieu The court may disqualify an individual from being a director of a company. Undertakings not to act as a director may be accepted in lieu. A persistent breach of company law such as not making requisite filings, fraudulent trading, and where the company has become insolvent where the director is unfit to be handling the management of a company are considered possible grounds for disqualification.
If you would like to seek our corporate secretarial services, you can contact us via WhatsApp https://wa.me/60143248237 📲