Director’s Obligations under Companies Act 2016

Director’s Obligations – Disposal/ acquisition by the director’s company undertaking or property of a substantial value


On 22 January 2018, a company director at Darvel Bay Hybrid Acquaculture Sdn Bhd was charged in the Sessions Court, Tawau, Sabah for failing to comply with Section 132C(1)(b) Companies Act 1965 (the Section was repealed by Section 223(1) Companies Act 2016) to obtain approval from members via holding a general meeting for disposal of the company’s properties, valued RM800,000, on 6 April 2015.

The punishment provided under the old Companies Act 1965 was imprisonment for a maximum of five years and a maximum fine of RM30,000. However, the punishment under the new Companies Act 2016 is much heavier with Imprisonment for a term not exceeding five years or a fine not exceeding RM3,000,000.00, or both upon conviction

The Section 132C (1) CA 1965 was repealed by Section 223(1) CA 2016 which provides that approval must be granted by members in a general meeting for disposal/ acquisition by the director’s company undertaking or property of a substantial value by way of resolution.

The term “Undertaking or property” refers to the whole or substantially the whole of the rights, including developmental rights, benefits or control in the undertaking or property.

Definition of substantial value are as follows:-

  1. The value exceeds 25% of total assets of the company; or
  2. The value exceeds 25% of the net profit after deducting all charges except taxation and excluding extraordinary items; or
  3. The value exceeds 25% of the issued share capital of the company; whichever is the highest

The consequences of transactions that do not obtain the approval as required under the Section, shall be void unless it’s in favour of any person dealing with the company for valuable consideration and without actual notice of the contravention

In typical SME companies, shareholders and management (board of directors) usually remain the same or mainly consist the same family members. They often have the misunderstanding that the company belongs to them and sometimes they tend to overlook procedures that are required under the Companies Act 2016 which results in non-compliances and fines.

Under the Companies Act 2016, The business and affairs of a company shall be managed by, or be under the direction of the Board of Directors [Section 211(1)]. The Board has all the powers necessary to manage, direct and supervise the management of the business and affairs of the company subject to any modification, exception or limitation contained in this Act or in the constitution of the company [section 211(2)].

There are a few Sections that address the protection of the interests of the company e.g. proper approval for transactions with party related to the director, requirement of the director does not act in good faith or best interest of the company etc.


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