Case Background & Strategy

Under section 198 of the Companies Act 2016, a person is disqualified from acting as a director if, among other things, they are an undischarged bankrupt, or have been convicted of offences involving fraud, dishonesty, or specified company-law offences. Section 199 additionally empowers the court, on the Registrar’s or a liquidator’s application, to disqualify a person who has been a director of two or more insolvent companies or is otherwise unfit.

Automatic disqualification

Automatic grounds include undischarged bankruptcy, conviction (in or outside Malaysia) of offences involving bribery, fraud or dishonesty, convictions under key CA 2016 provisions, and disqualification orders. Acting as a director while disqualified is itself an offence, and the disqualified person may need leave of the court (and, for bankrupts, approvals under insolvency law) to act.

Court-ordered disqualification

Section 199 targets the phoenix problem: serial directors of failed companies and those whose conduct makes them unfit to be concerned in management. The court examines the person’s conduct as director — trading while insolvent, non-filing, treating company assets as their own — and may disqualify for up to five years.

Disqualification in dispute strategy

In shareholder and creditor disputes, a counterparty’s disqualification status is worth checking at the outset: acts done by a disqualified director may be open to challenge, and the threat of Registrar or liquidator referral changes the settlement dynamic. Directors facing investigation should obtain advice before responding — statements made early often surface later in disqualification and civil proceedings.

Frequently asked questions

Is a bankrupt automatically removed from all boards?

An undischarged bankrupt cannot act as director without the required leave; continuing to act is an offence.

Does a foreign conviction count?

Yes — convictions outside Malaysia for the relevant categories of offence can trigger disqualification.

How Messrs Ng, Zainurul, Seke & Khoo can help: our corporate and commercial litigation team advises boards, directors and shareholders across Malaysia on governance disputes, from advisory and board-level strategy through to trial. Contact us for a consultation.