Case Background & Strategy

Directors’ Duties Under the Companies Act 2016: A Practical Guide

Every director of a Malaysian company owes duties under the Companies Act 2016 (‘CA 2016’) and at common law. Section 213 requires a director to exercise powers for a proper purpose and in good faith in the best interest of the company, and to exercise reasonable care, skill and diligence. Breach exposes a director to civil liability, disqualification and, in some cases, criminal penalties of imprisonment and fine.

What are the core duties of a director in Malaysia?

Directors’ duties in Malaysia fall into two broad categories. The first is the fiduciary duty: to act honestly, in good faith and in the best interest of the company, to avoid conflicts of interest, and not to misuse corporate information or opportunity (sections 213(1), 218 CA 2016). The second is the duty of care, skill and diligence under section 213(2), measured against what a reasonably prudent director with the same responsibilities would do, together with any additional knowledge, skill and experience the director actually has.

These duties are owed to the company itself, not to individual shareholders. This matters in disputes: a wronged shareholder generally cannot sue a director directly for a wrong done to the company, and must instead consider a statutory derivative action or an oppression claim.

Who is subject to these duties?

The duties bind every person occupying the position of director ‘by whatever name called’ — including de facto directors who act as directors without formal appointment, and shadow directors on whose instructions the board is accustomed to act. Chief executives and chief financial officers of listed corporations may also fall within the extended definition. A person cannot escape liability simply because their appointment was never lodged with the Companies Commission of Malaysia (SSM).

What happens when a director breaches their duties?

Consequences include liability to account for profits, damages or compensation to the company, rescission of tainted transactions, injunctive relief, and disqualification from acting as a director. Certain breaches — such as improper use of position or information under section 218 — also attract criminal liability. Boards and aggrieved shareholders should act quickly: delay can affect both evidence and available remedies.

Frequently asked questions

Can a director be personally liable for company losses?

Yes. Where loss flows from a breach of duty, the court may order the director personally to compensate the company, in addition to any criminal penalty under the CA 2016.

Do nominee directors owe duties to their appointor?

A nominee director must still act in the best interest of the company. Section 217 CA 2016 permits a nominee to act in the interest of the appointor only where it does not conflict with the interest of the company.

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.