Disclosure of Directors Interest in Malaysian Companies
Unless otherwise indicated, the company stated in this article refers to the private company incorporated in Malaysia in accordance with the Malaysian Companies Act 2016 (CA 2016).
Company directors play an important role in overseeing and operating a company. They hold the responsibility of making important decisions that affect the company and its shareholders. Hence, it is vital for directors to adhere to legal and ethical standards while prioritising the company’s best interests. Understanding their duties and obligations helps directors to execute their roles effectively and minimising legal liabilities. With the presence of the legal framework, it empowers shareholders to hold directors responsible and ensures the company operates in a responsible and sustainable manner.
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Conflict of Interest
A conflict of interest pertains to situations where an individual stands to gain personally from actions or decisions made in their official capacity. It occurs when someone with a vested interest in a company can influence its business or decisions in ways that might lead to personal gain.
Conflict of interest scenarios can occur in various ways. Examples of such conflicts include, but are not limited to:
(1)
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A Director showing interest in a contract or proposed contract involving a group company.
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(2)
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A Director occupying another position or owning property that could create conflicting duties or interests with their role as a director.
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(3)
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A Director leveraging the Group’s assets, information, or position for personal benefit.
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(4)
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A Director exploiting opportunities presented to the Group for their own gain.
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Disclosure of Director’s Interest
Essentially, only significant interests and transactions relevant to the Company must be disclosed.
Section 221(1) of the CA 2016 requires that any company director with a direct or indirect interest in a contract or proposed contract with the Company must immediately disclose the nature of this interest at a board meeting once the relevant facts are known to them. Failure to disclose such material interests is a breach of the director’s fiduciary duty.
However, it is important to note that despite this requirement, not all interest must be disclosed.
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Exceptions to the General Rule on Disclosure of Director’s Interest
Sections 221(2) and 221(3) of the CA 2016 outlines situations where the disclosure requirement in Section 221(1) does not apply:
(1)
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A Director’s interest as a member or creditor of a corporation involved in a contract or proposed contract with the company may be deemed immaterial.
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(2)
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The interests related to any loan to the Company that the Director has personally guaranteed or co-guaranteed the repayment, in full or in part.
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(3)
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If the contract benefits the company due to:
(a) both contracting parties being interconnected; and
(b) the director also holds a directorship in the other Company.
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What happens after the Disclosure of Director’s Interest
The director(s) can still attend the Board of Directors meeting but:
(1)
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They are not allowed from participating in any discussion about the contract or proposed contract during the meeting; and
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(2)
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They are not allowed to vote on the contract and proposed contract.
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Even though the concerned director(s) have disclosed their interests, the director(s) must continue to uphold their fiduciary duty to prioritise the best interest of the Company.
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Conclusion
In summary, any direct or indirect interest in a contract or proposed contract with the Company must be disclosed by the Director(s) concerned during a Board Meeting as soon as they become aware of the relevant facts as failing to do so breaches their fiduciary duty.
Kaizen, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professionals in Kaizen for further clarification.
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