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Question 1

According to the Section 2 of CA 2016 state that director includes any person
occupying the position of director of a corporation by whatever name called and
includes a person in accordance with whose directors or instructions the majority of
directors of a corporation are accustomed to act and an alternate or substitute
director. In Table A Article 73, there is a provision which empowers director to act
as agent of the company. Agent has power to give effect to the company.

However, under common law, the constitution of a company usually empowers the
directors to manage the company’s affairs. Despite such common law power is found
in Section 211, subsection 211(2) also allows for modification or limitation of such
by power under the constitution. Based on the case of Automatic Self-Cleansing
Filter Syndicate Co Ltd v Cunninghame [1906] 2 Ch 34, the company’s AOA
conferred the directors a general power of management, subject to any qualification
of that power passed by a special resolution of the members or shareholders.

There are two types of directors which is first is non-executive director that only
takes part in the collective decision of the board of directors, and has no other
function, except by express delegation. Secondly, the executive director which is
actively participates in the management of the company and attending board
meetings.

In order for a company to be competent enough to achieve its goals, it must have a
qualification and proficient board of directors. A person must be a natural person
who is at least attain 18 years old as stated in Section 122(2) of CA 2016.
According to the Section 122(1), he shall ordinarily reside in Malaysia by having a
principal place of residence in Malaysia and he is not a person convicted of any
offence within or outside Malaysia as stated in Section 130(1) of CA 2016. A
company’s AOA may also impose a requirement that a director must also be a
member of that company. However, the requirement will then only be satisfied if the
director is a registered holder of a required number of shares which is known as the
share qualification in Section 124 of CA 2016. In the case of Dawson v African
Consolidated Land & Trading Company [1898] 1 Ch 6, the company’s AOA
requires the director to own certain number of shares before his appointment. A
director acquired the shares but later sold it to third party. Incidentally, he entered

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into a contract with a third party who did not know about the share qualification. The
court held that the contract was enforceable despite that the fact the director lost his
share qualification. The company must honour the contract.

Apart from that, the directors can be classified as the anchor of a company and who
are entrusted to manage the company in order to meet its object and purpose as well
as to generate the highest profit for the company and its members. The law imposes
certain duties upon them in the interest of the public good and for the protection to
those who invest in the company. There are three types of duties that give rise to an
action against the directors for any loss suffered by the company. First are fiduciary
duties. According to the case of The Board of Trustess of Sabah Foundation v
Datuk Syed Kechik Syed Mohamed, the meaning of ‘fiduciary’ can be described as
someone who has undertaken to act for on behalf of another in a particular matter or
in circumstances which give rise to a relationship of trust and confidence.

Under these fiduciary duties, there are three types of duties that the directors must
follow which is firstly, duty of care, skill and diligence. In Section 132(1A) of CA
2016 state that a director shall exercise reasonable care, skill and diligence with the
knowledge, skill and experience which may reasonably be expected as a director
having the same responsibilities. In regards of this duty, a director is not required to
possess a specific set of skills or special qualifications and if his lacks of skills do not
constitute him from breach his duty. Based on the case of Re City Equitable Fire
Insurance Co Ltd, a director need not exhibit in the performance of his duties a
greater degree of skills than may reasonably be expected from a person of his
knowledge and experience. In the duty of care, director acts with such care as is
reasonable to be expected from him, having regard to his knowledge and
experience, and if he acts honestly for the benefit of the company, he would have
discharged his duty. In the case of Re Brazilian Rubber Plantations & Estates Ltd,
such reasonable care must be measured by the standard of care an ordinary man
might be expected to exercise under the same circumstances on his own behalf. In
the Duty to be diligent, the directors will be held liable to pay damages to the
company if they breached their standard of care and diligence. In the case of Re
Forest of Dean Coal Mining Co, although directors, having regard to their position,
cannot be expected to devote as much time and attention to the business, they are

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bound to use fair and reasonable diligence in the management of the company’s
affairs, and to act honestly.

Next, the directors as fiduciaries must exercise their discretion in good faith, in what
they consider to be in the best interests of the company as a whole. In the case of
Re Smith and Fawcett, the court held that the directors must exercise their best
discretion bona fide in what they consider and not rely on what court may consider.
Another case is in Hogg v Cramphorn Ltd, the directors decided to issue new
shares to a trust created to benefit the company’s employees but which was
controlled by the directors and their supporters and the shares were given weighted
voting rights. The court held that, despite acting in good faith, the power to issue
shares were improperly done. The directors occupy a fiduciary position in the
company and they must exercise their power in good faith (bona fide) and in the best
interest of the company. In the case of Re W & M Roith Ltd: Roith, the fact of the
case was one of the three directors to the company which he controlled. He entered
into a contract with the company to ensure that his wife would be paid a pension if he
died. However, upon his death, the liquidators rejected the executor’s claim for the
pension. Held: When the directors of the company agreed to make the contract, they
were not considering the interests of the company, but merely had the interests of
Roith’s wife in mind.Thirdly, a duty to avoid a conflict of interests. A director shall at
all times exercise his powers for a proper purpose and in good faith in the best
interests of the company as stated in Section 132(1) of CA 2016. The directors
should not engage in any transaction which would give rise to any possibility for their
personal interests to be in conflict with the interests of the company, which they are
meant to protect. As stated in Section 131(1) of CA 2016, every director of a
company, who is in any way, whether directly or indirectly, interested in a contract
must disclose the nature of his interest at a meeting with the directors of the
company. Based on the case of Aberdeen Railway Co v Blaikie Bros, the fact of
the case is a railway company entered into a contract with a partnership for the
supply of a large quantity of iron seats. The company sought to avoid the contract on
several grounds, including that at the time the contract was entered into, one of the
partners was a director of the company.

However, the directors are making secret profits using a corporate property,
information or opportunities through the use of their position as a director. By refer to

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Section 132(2) of CA 2016, there are four prohibiton which is a director must not
engage in without the consent of a general meeting which is a director must not take
a corporate property.

In the case of Voo Nyuk Fah @ Peter Tawau City Motors Sdn Bhd v Lam Yat
Kheong & Anor, the fact of this case is when Voo and the other 2 defendants
including LYK were equal shareholders in Peter Tawau Sdn Bhd that involved in sale
of used and new motor vehicle and timber hauling business. Voo was in charge of
motor business while Lam was in the timber business. Lam also owned another
motor vehicle company, City Motors Lahad Datu. Due to financial problem, Peter
Tawau agreed to use the company’s tractors to secure financing. However, Voo
discovered that the tractors were sold to City Motors Ltd by Lam without his
knowledge. The court held that the defendant (LYK) was in breach of fiduciary duty
for selling the company’s tractors to City Motors to carry out timber hauling business
and gained some profits from it. He must account for the profit he had made to Peter
Tawau. Secondly, the information that a person receives in his capacity as a director
is considered private and confidential. In the case of Electro Cad Australia Pty Ltd
v Metaji RCS Sdn Bhd, where the defendant, without the company’s knowledge,
obtained technical and marketing data to manufacture an identical product in direct
competition with the company’s product, the court ordered an injunction to restrain
any further breach of duties and the use of confidential information. Thirdly, a
director must only take or use corporate opportunity for the benefit of the company,
and not for his own personal benefit. In the of case Avel Consultants Sdn Bhd v
Mohd Zain Yusof & Ors, the fact of the case is the Appellant, Avel Consultants was
engaged by STMB for a project. The agreement between Avel and STMB required
that Avel to inform STMB of any resignation of Avel’s key personnel or dissolution of
the partnership. The Respondents were the directors of Avel. Later, Zain and few
others formed another firm called Perunding AJZ which has similar business with
Avel. They began to approach Avel’s client to obtain business. STMB later cancelled
contract with Avel and granted the project to Perunding AJZ. As a result, the
Appellant sued Zain for breach of fiduciary duty and secret profit. The Supreme
Court held that Zain had breached his fiduciary duties when he formed a new
company to compete with Avel. The court was of the view that Zain had instigated
the resignation of the key personnel who were involved in STMB project. Lastly, a

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director is prohibited from using his position as a director to obtain any benefit. By
refer to the case of Mahesan v Government of Malaysia where the transaction
involving the purchase of land, the director had breached his duty by accepting a
bribe, which was ¼ of the profit gained from the sale. Where the loss that the
company suffered from the transaction was greater than the bribe received, the
director was ordered to pay damages.

The last is statutory duties which is stated in Section 133(1) of CA 2016, a company
shall not grant a loan to a director of the company or enter into any guarantee or
provide security in connection with the loan to such director. This is to prevent
directors from improperly using the company’s funds especially when the directors
are also the shareholders. In Section 133A, a company is prohibited from giving a
loan or providing security or guarantee to any person connected with a director.