Case Background & Strategy

Many people sit on company boards in Malaysia without a clear picture of what the law actually makes them. Some hold the title but do nothing. Some hold no title but run the company. Some are appointed to represent an investor. Under the Companies Act 2016, all of them can be directors in the eyes of the law, and all of them can be held personally liable when things go wrong. This article explains the different types of directors recognised in Malaysia and why the distinction between them is far less protective than most people assume.

The statutory definition of a director

Section 2 of the Companies Act 2016 defines a director as any person occupying the position of director of a corporation by whatever name called. The definition goes further. It includes a person in accordance with whose directions or instructions the majority of directors are accustomed to act, and it includes an alternate or substitute director. The words “by whatever name called” are deliberate. A person cannot escape the duties of a director by calling themselves an adviser, a consultant, a chairman emeritus or a founder.

Every private company must have at least one director and every public company must have at least two, with at least one director who ordinarily resides in Malaysia. A director must be at least 18 years old and must not be disqualified under the Act.

Executive and non-executive directors

The Companies Act 2016 draws no distinction between an executive director and a non-executive director. The difference lies only in the role each performs. An executive director is usually a full-time employee involved in day-to-day operations who draws a salary. A non-executive director attends board meetings, reviews management performance and receives director’s fees, but is not involved in daily management.

The practical mistake is to assume that a non-executive director carries less legal exposure. The courts have consistently rejected that view. In Ravichanthiran a/l Ganesan v Percetakan Wawasan Maju Sdn Bhd & Ors [2008] 8 MLJ 450, a director who claimed to be non-executive argued that he was not responsible for the company’s failure to pay EPF contributions. The High Court held that even a non-executive director remains a director in the eyes of the law, is entrusted to look after the affairs of the company and to keep a close watch on management, and had breached his duties by having no knowledge of the company’s affairs at all. The duty to act in good faith and in the best interest of the company under section 213 applies to every director regardless of title.

Independent directors of listed companies

For companies listed on Bursa Malaysia, the Main Market Listing Requirements and the Malaysian Code on Corporate Governance add a further layer. A listed company must have a minimum number of independent directors, and the Code recommends that at least half the board be independent, rising to a majority for large companies. An independent director must satisfy a detailed test of independence, including not having been an officer of the group within the last three years, not being a major shareholder or a family member of one, and not acting as a nominee of a major shareholder. Tenure is capped, and a board wishing to retain an independent director beyond nine years must justify it to shareholders. Directors of listed companies must also complete the mandatory training programmes prescribed by Bursa Malaysia.

De facto directors

A de facto director is a person who acts as a director without ever having been formally appointed, or whose appointment was defective. The question is one of substance. If a person attends board meetings, signs company documents, gives instructions to staff and is held out to third parties as a director, the law will treat that person as a director and impose the full range of statutory duties, even though their name never appears on the SSM register. Founders who step back from the board but continue to run the business from behind the scenes are a common example.

Shadow directors

A shadow director is the person described in the second limb of the section 2 definition: a person in accordance with whose directions or instructions the majority of the directors are accustomed to act. The shadow director does not act as a director. Instead the appointed directors act on the shadow director’s instructions. This commonly arises where a major shareholder, a parent company, a financier or a family patriarch controls the board from outside it.

The consequence is significant. A shadow director owes the same fiduciary duties as an appointed director, faces the same personal liability for breach, and can be disqualified in the same way. Controlling a company from behind a nominee board is not a shield. It is simply directorship without the paperwork.

Nominee directors

A nominee director is appointed to the board to represent the interests of a particular shareholder, investor or lender. Section 217 of the Companies Act 2016 addresses the obvious conflict directly. A nominee director may take the nominator’s interests into account, but must still act in the best interest of the company, and where the two conflict, the company comes first. A nominee director who simply votes as instructed by the nominator, without independent judgment, breaches his duty to the company and may also, as the court noted in Ravichanthiran, be treated as a trustee for the nominator and liable to the nominator as well.

Alternate directors

An alternate or substitute director stands in for an appointed director who is unable to attend. The constitution must permit the appointment. While acting, the alternate is a director in every sense, is personally responsible for the decisions taken, and cannot hide behind the absent principal.

Why the classification matters

The label attached to a person tells you who they are on paper. It does not tell you what they owe. Whether executive, non-executive, de facto, shadow, nominee or alternate, every director in Malaysia owes the statutory duties in sections 213 to 218 of the Companies Act 2016, can be personally liable for breach, and can face criminal penalties of up to five years’ imprisonment or a fine of up to RM3 million for the most serious breaches. Anyone who influences how a company is run should understand which category they fall into, and what that means before a dispute or an insolvency arrives.

Frequently asked questions

Can I be a director without being registered with SSM?

Yes. If you act as a director or the board acts on your instructions, the Companies Act 2016 treats you as a de facto or shadow director with the same duties and liabilities as a registered director.

Is a non-executive director liable for the company’s debts and defaults?

A non-executive director is not automatically liable for company debts, but is fully liable for breach of directors’ duties. Malaysian courts have held non-executive directors responsible for failing to supervise management, including unpaid EPF contributions.

What is the difference between a shadow director and a de facto director?

A de facto director acts openly as a director without a valid appointment. A shadow director does not act as a director but controls the appointed directors, who are accustomed to follow his or her instructions.

Can a nominee director always follow the shareholder who appointed him?

No. Section 217 of the Companies Act 2016 allows a nominee director to consider the nominator’s interests, but the director must act in the best interest of the company where those interests conflict.

How NZSK Legal can help

NZSK Legal advises directors, shareholders and investors on board appointments, director liability and boardroom disputes across private companies, family businesses and listed groups. If you are unsure whether the role you play makes you a director in law, or you are facing a claim on that basis, our Corporate Litigation team can assess your position and act for you.

This article is general information on Malaysian law as at September 2026 and is not legal advice. Every matter turns on its own facts and documents. Contact Messrs Ng, Zainurul, Seke & Khoo (NZSK Legal) for advice on your specific situation.