DIRECTOR Flashcards
Directors
is an agents of company. Since a comp is artificial legal persons so it can only act/make decisions through natural persons who are “agents”
DIRECTOR ?
are the ones who;
1. manage the comp
2. make decisions on behalf of comp through BOD
S 2 CA 2016, defines Director as?
inc an person occupying the position of director of corporation by whatever name called & includes a person accordance w those directions/ instructions the majo of directors of a corporation are accustomed to act & an alternate/ substitute director
*so director boleh jd makna yg luas= CEO, CFO, COO/ any persons whatever named who is responsible for mgmt of comp
APPOINTMENT OF DIRECTOR
S 196(1), 196(2),
S 201, 202
S 196(1) min num of directors:
PRIVATE= 1 director
PUBLIC= 2 directors
S196(2): qualifications of directors:
- He must be be a natural person who is & at least 18 y/old who shall ordinarily resides in M’sia by having a
principal place of residence & shall not inc an alternate of substitute director - He must be indv, X a comp
S 201: A person appointed as a director must consent in writing to be a director & declare that he is not disqualified
S 202: A director may be appointed to hold office
during the incorporation/ appointed subsequently after the incorporation by
way of ordinary resolution
- BOD can also at any time appoint additional director & he shall be hold office untill next AGM (public)
/ accordance to terms of appointment (private)
DISQUALIFICATIONS
S 198
A person shall not hold office as a director if he:
- is an undischarged bankrupt
- has been convicted of an offence relating to the promotion, formation/
management of a corporation - has been convicted of an offence involving bribery, fraud/ dishonesty
- has been convicted of an offence under S213, 217, 218, 228 & 539, even if it
occurred outside M’sia - has been disqualified by the Court under
S.199 – Court’s power to remove a director
DISQUALIFICATIONS
S 199
Court has power to remove a director if:
- that person was a director pf 2 companies which were wound up due to insolvency within period of 5 years & his conduct as director contributed wholly/ partly to the winding up
- that person has contravened his duties as director
- that person has habitually contravened this CA 2016
VACATION OF OFFICE
S208
office director may become vacant under S208 in one of the following events:
- resigns by giving written notice
- he retires in accordance w this act/ comp. constitution
- he is removed from his office accordance w this act/ comp. constitution
- has become disqualified from being director under S 198, 199
- he becomes unsound mind
- he dies
- he vacates his office accordance w constitution of comp
S209(1): where in the cases of only 1 director/ the last remaining director, that director shall not resign his office until that director has called a meeting of members to receive the notice of the resignation to appoint & 1/ more new directors
REMOVAL DIRECTORS
PRIVATE:
- subject to constituion of comp S 206(1)
- the passing of such resolution must be done at physical GM & cannot be passed by written resolution
- a special notice is required of resolution to remove a director under this section
PUBLIC:
- by an ordinary resolution passed by the members with special notice at a GM to remove the
director before the expiration of his tenure
- after the special notice has been served to the members, the director who is being removed has the right to have written/ oral representation to be sent to all members together w the notice of the meeting failing which, the director has the right to require the representation to be read out at the meeting – S.207(3)
DUTIES & POWER DIRECTOR
S 211: Functions of the Board of Directors (BOD)
-The BOD manages the company’s business and affairs.
-The BOD’s powers are defined by the 3rd Schedule to balance their freedom to manage the company with preventing abuse of power.
FIDUCIARY DUTIES:
1. TO ACT IN GOOD FAITH IN THE BEST INTEREST OF THE COMPANY
Fiduciary Relationship:
A fiduciary relationship is built on trust and confidence, where one party is obligated to protect the interests of the other.
In this relationship, directors owe the following duties:
Loyalty
Good faith
Avoidance of conflicts of interest
FIDUCIARY?
the duty is owed for the interest of the comp, not to any indv member of comp
CASE: PERCIVAL v WRIGHT
Context:
The plaintiff, a shareholder, wanted to sell his shares.
His shares were sold to the chairman and two other directors at a mutually agreed price.
Discovery:
The plaintiff later found out that the company was negotiating to sell its shares at a higher price during the time he sold his shares.
However, this potential sale did not happen.
Plaintiff’s Claim:
the plaintiff argued that the directors should have informed him about these negotiations.
Summary:
The shareholder believed that the directors had a responsibility to tell him about ongoing negotiations that could have led to a higher share price
S 213
Directors must:
-at all times exercise their powers
for a proper purpose &
-in good faith in the best interest of the company &
-exercise reasonable care, skill & diligence
UNDER COMMON LAW, DIRECTOR’S FIDUCIARY DUTIES ARE ?
- To act bona fide in the company’s interest and not some other person’s interest
- To exercise his powers for a proper purpose;
- To avoid any conflict of interest between the company and his personal interests.
- FIDUCIARY DUTIES to act bona fide in
the interest of the comp
powers exercised by directors
are on behalf of the co. Therefore, must act in good faith in the interest of the co
- a director must act honestly at all times for interest of comp
- meaning he must give 1st priority to comp interest’s over all other conflicting interest
-director must only consider the comp interest which comp gains the most - either by enhancing profits, reducing costs / even positive publicity of the co.
CASE: Re Smith & Fawcett Ltd
Where a director is required to act bona fide in the interest of a company, the director must act according to what he considers, not what a court may consider, is in the interest of the company and
not for any collateral purpose
CASE: Re W & M Roith Ltd
Context:
Roith owned and controlled a “one-man company” and was one of the three directors.
He wanted to provide for his wife after his death.
Action Taken:
Roith made a contract with his company to pay his wife a pension if he died.
Since he controlled the company, it easily agreed to this contract.
Issue:
After Roith died, his executors claimed the widow’s pension.
The company’s liquidator rejected the claim.
Court’s Decision:
The court decided that when the directors agreed to the contract, they were not thinking about the company’s best interests.
Summary:
Roith set up a deal to give his wife a pension after he died, but the court found that the directors didn’t consider the company’s interests when they agreed to this deal.
Interest of the Members (Shareholders):
Directors should consider the collective interest of all shareholders, not just one individual. They must treat all shareholders equally.
Example: In Percival v Wright, directors were not required to inform an individual shareholder about negotiations that could have affected his decision to sell shares.
Interest of the Employees:
Directors should also consider the interests of the company’s employees.
Example: In Parke v Daily News Ltd
both the members’ and employees’ interests are considered important while the company is solvent and operational.
Interest of the Creditors:
If the company is facing insolvency or is insolvent, the directors should prioritize the interests of the creditors, as they become the primary concern of the company.
