Who can be a Director of a Company? - Malaysia

Steven Spielberg, Michael Bay and the Russo Brothers are some of the greatest directors of our time. Everyone wants to be just like them. You too can be a director…of a company.

What Is 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 and includes a person in accordance with whose directions or instructions the majority of directors of a corporation are accustomed to act and an alternate or substitute director;

In other words, “director” includes chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the company.

In the context of Code of Ethics for Company Directors issued by the Companies Commission of Malaysia, a company director means any person who holds the position of director in a corporation irrespective of any designation used, including anyone who follows the directives and advice of a corporate director and who usually takes action, as well as an in-turn or substitute director.

A director also includes both executive and non- executive directors as well as executive and non-executive chairpersons.

Where Must A Director Be Registered?

For a newly incorporated company, the shareholders of the company have before or upon incorporation of the company decided who they want to be the directors of the company to manage the affairs of the company.

The first directors are named in the Memorandum of Association or Articles of Association (the incorporation documents) and they will hold office until the first annual general meeting. The first director must lodge with the Companies Commissioner of Malaysia a Form 48A, which is a statutory declaration the director is not an undischarged bankrupt and has not been convicted of an offence.

Rules governing the subsequent appointment of directors are stated in the Articles of Association of a company. The Table A of the Companies Act provides that directors may appoint directors to fill casual vacancies as well as to appoint additional directors, as long as the number of directors does not exceed the number fixed by members and as stated in the Articles of Association of the company.

For any changes in directors, the company must submit a Form 49 to the Companies Commission of Malaysia.

Qualifications Of A Director

Section 196 and Section 198 of the Companies Act 2016 lays down the qualifications of a Director whereby a director:

• Must be a natural person and at least 18 years of age

• Must be of sound mind

• Must ordinarily reside in Malaysia by having a principal place of residence in Malaysia

• Not an undischarged bankrupt under the Insolvency Act 1967

• Not disqualified under the Companies Act 2016

• Have not been convicted, whether inside or outside of Malaysia, of any offence and

• Has not been imprisoned for any offences prescribed under the Companies Act 2016 within 5 years immediately preceding his or her appointment

Section 57 of the Act further elaborates on the Registration of directors, managers and secretaries whereby:

Every company shall keep at its registered office a register of its directors, managers and secretaries containing, but not limited to, the following particulars:

(a) in respect of a director—

(i) his name, residential address, service address, date of birth, business occupation and identification; and

(ii) particulars of any other directorships of public companies or companies which are subsidiaries of public companies held by the director, but it shall not be necessary for the register to contain particulars of directorships held by a director in a company that by virtue of section 7 is deemed to be related to that company;

What Is A Shadow Director?

In Cepatwawasan Group Bhd v Tengku Dato Kamal Ibni Sultan Sir Abu Bakar & 17 Ors [2008] MLJ 915, the court held that to construe a person as a shadow or de facto director, there must be shown the existence of a ‘pattern’ or ‘custom’ in which the shadow or de facto directors plays a controlling role over the de jure directors in respect of the management of the company.

A shadow director owes a fiduciary duty towards the company. In Sazean Engineering & Construction Sdn Bhd v. Bumi Bersatu Resources Sdn Bhd [2018] 1 LNS 898, Abang Iskandar Abang Hashim JCA (as his Lordship was then) held that:

‘ …this shadow director are treated as a director under the CA [Companies Act] 1965 for the purpose of attaching liability on them as by their conduct, the law attaches on them a fiduciary duty which they owe to the company which they seek to control or ‘orchestrate’.