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THE DIRECTORS

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COMPANY AND MANAGEMENT

• A company is a separate legal entity with no physical existence• It has a legal existence – an independent legal person separate and distinct from its individual members or directors

• The mind and will of a company lies with the management of the company

• Its day-to-day operation and decision is performed by persons who act for and behalf of the company: OFFICERS- directors, secretary, employees, receiver and liquidator

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TYPES OF DIRECTORS

ExecutiveDirector

Non-executive Director

IndependentDirector Alternate

DirectorAssociate Director

Managing Director

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DIRECTORSA group of individuals who have been entrusted with the power and authority to make decisions for the running of the company or the management of the companySection 122 of CA:

a) every company must have at least 2 directors & named in the M&A

b) Each must have principal / residence within Malaysia

c) Natural person of full age (18 years old)d) Sound mind

Appointed by the shareholders“Shadow director” – persons who are not named as directors of the company but who act behind the scenes to exercise a certain degree of control over the company

“de facto” director

Executive & non-executive director

Executive director

1) Full time employee2) Draw salaries from

the company3) Performing

managerial function4) Members of BOD

with specific executive responsibilities

E.g. Financial Director

Non-executive director

1) Not employees of the company

2) Receive fees (determined by the members at general meeting)

3) To protect & act in the best interest of his employer as shareholders in the company.

4) Member of BOD without specific executive responsibilities

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CAHAYA SUCI BERHAD

Public 40%Intan Sdn Bhd

30% Delima Bhd 30%

Board of Directors

Non-executiveDirector

(Full-time employeeof Intan Sdn Bhd)

Executive directors

Non-executiveDirector

(Full-time employeeof Delima Bhd)

Relationship between Executive & non-executive directors

Alternate/Substitute director• appointed by a member of the board• Purpose: to act & speak during periods of absence/

incapacity of the director• A director cannot appoint an alternate to act

UNLESS it is authorised by the Articles• Must give his consent to act in the FORM 48A

before his appointment• Not required to hold qualification shares• Alternate director shall automatically be vacated if

substantive director vacates office• Alternate director entitle to receive:

a) notice of board meetingb) to attend & votec) to exercise all powers of the substantive director in his place

Managing Director (MD)a) Usually the AOA permits the BOD to appoint MD

b) Otherwise, need to alter the AOA for BOD to appoint MD

▫ BOD decides terms and conditions▫ MD to sign a contract of service

c) Not subject to retirement by Rotation while in service

d) Appointment terminated if cease to be director (from any

cause)

e) Co can terminate even if term of service not yet expired

Associate/Special Directors (AD)•Not directors within meaning in Act. •Senior exec – salaried employees:•No right to attend or vote any board

meeting except by invitation & consent of directors

•The purpose:a) Provide training – BOD appointment in futureb) Improve status ; deal with customers or suppliers

Nominee directors (ND)•A person who has been designed to act

for another in his place•Nominee/representative of major

shareholder may apply to Bursa Malaysia to be considered as an independent director in the following condition:a) if the major shareholder’s aggregate

shareholding in the listed corporation, directly @ indirectly, is more than 15% of issued & paid-up capital

b) If the major shareholder is not deemed to be a promoter of the listed corporation

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INDEPENDENT DIRECTORS (ID)

An ID is a director who is independent of management and free from any business or other relationship which could interfere with the exercise of independent judgement

Is deemed independent if he meets the following qualification:1.Not an executive director2.Not an officer 3.Not a relative of any executive director, officer or major shareholder4.Not acting as a nominee or representative of any executive director or major shareholder5.Not engaged as a professional adviser6.Not engaged in any transaction which exceed RM250,000

Bursa Malaysia requirements: at least two directors or one-third of the board of directors, whichever is higher, are IDs

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• he is not a bankrupt• he has not been convicted• he has not been imprisonment of any offence

within the period of 5 years immediately preceding the date

of the declaration• he consent to act as a director of the company

Natural person of full age (18 years old) Lodge Statutory Declaration (Form 48A) within 1 month from the date of appointment together with Form 491st director named in M&A1st director will hold office until the 1st AGM where they will retireSubsequent appointment: by the director themselves

QUALIFICATION OF DIRECTORS

Vacation of officeA director office shall become vacant in the

following circumstances:1. death - If only 1 director, any shareholder can

request to appoint new director2. provisions in the AOA - Disqualified to act as

director in the following circumstances ( resignation, lunatic & absent from the board meeting)

3. statutory provision contained in the Act - Share qualification, undischarged bankrupt, age limit, disqualification by Court Order(e.g fraud)

4. Restriction by Listing Requirements of the Bursa Malaysia - Max 25 directorship

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Maximum 25

Max 10 in

listed companies

Max 15 in

non-listedcompanies

With effect from 1 April 1999, Bursa Malaysia restricts the number of directorship held by a person who is a director of a company listed with KLSE

DIRECTORSHIP OF PUBLIC LISTED COMPANIES

A person above the age of 70 is not qualified to be appointed as a director of a public listed company

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DISQUALIFICATION OF DIRECTORSIf a director is convicted of the following offences, both within or outside Malaysia, he shall be disqualified from acting as a director within 5 years from the date of his conviction, or from the date of his release from prison:1. Offences in connection with the promotion,

formation or management of a company;2. Offences involving fraud and dishonesty

punishable with imprisonment for 3 months or more;

3. Failure to act honestly and to exercise reasonable diligence in the discharge of statutory duties as a director

4. Making improper dealings in securities to gain directly or indirectly an advantage for himself, or for any other person of specific confidential information of the company

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• RETIREMENT BY ROTATION

DISQUALIFICATION OF DIRECTORS

• REMOVAL OF DIRECTORS

A public company may remove a director by ordinary resolution before the expiry of his term of office

i. Article 63 of Table A provides that for the first AGM all directors shall retire from office except the MD

ii. Article 66 of Table A provides that if the retiring director is eligible for re-election and offers himself for re-election, he will be deemed re-elected

iii. A director appointed to fill casual vacancy or as additional director shall hold office until the next following AGM

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REMOVAL OF DIRECTOR(Section 128)

Shareholder(s) Special Notice

( not less 28 days)COMPANY

Director CCM

Shareholders Make representation

Board meeting

General Meeting

Section 128(6) states a person appointed director in place of a person removed shall be treated, for the purpose of determining the time at which he or any other director is to retire, as if he had become a director on the day on which the person in whose place he is appointed was last appointed

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MANAGEMENT POWERS• The general power of management and control vested in the Board

• Specific powers vested in general meetingsPowers of the directors on certain matters can only be exercised upon approval by the shareholdersat a general meeting

Where the director exceeds their authority as given to them by the Articles, it is open to the general meeting to ratify the unauthorized transaction.

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Powers vested in the Board of DirectorsPowers conferred on directors are conferred to them as a board with such powers being exercised through collective decisions and not in their respective individual capacity, with the exception of the Managing Director. For example decisions relating to,-Transfer of shares

-Convene EGM-Appointment of directors to fill casual vacancy-Borrowing of money and creating securities for any debt or liability-Use of common seal of the company-Appointment of attorneys-Appointment of alternate directors-Fixing of quorum-Formation of committees-Appointment of Managing Director-Recommendation on quantum of dividends-Recommendation for capitalization of profits

20SPECIFIC POWERS IN GENERAL MEETINGS• election of directors in place of those retiring• removal of directors• determination of directors’ remuneration• fixing of shareholding qualification for directors• declaration of dividend• capitalization of profit

Apparent authority• A company will be bound by a director who has acted

ultra vires in his powers as conferred by the articles based on the doctrine of apparent authority.

• Apparent authority arises where the director does not have actual authority to bind the company in some particular transaction but has been represented as having authority to enter into the transaction

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DISCLOSURE OF INTERESTS IN CONTRACTS, PROPERTIES, OFFICES

Section 131 of the CA provides:• that a director who is in any way interested in a contract or proposed contract with the company (whether directly or indirectly), is required to declare the nature of his interest at the meeting of directors as soon as practicable, after the relevant facts have come to his knowledge

• A director must also declare his interests in any property or office held where there might be a conflict of interest

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DISCLOSURE OF A DIRECTOR’S SUBSTANTIAL SHAREHOLDING

A director who has an interest(s) in:i) One of more voting shares in the

company; andii) The nominal amount of that shares is

more than 5% of the nominal amount of all the voting shares in the company“Interest in shares” includes:

i) As holder of the sharesii) As beneficiary under a trustiii) As a joint holderiv) Interest arising from execution of a contract

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TRANSACTIONS INVOLVING DIRECTORStax-free payments to directorsCompensation for loss of office loan to directors loans to persons deemed connected with directors disposal by directors of company’s undertaking of property substantial property transactions common directors with substantial shareholdings issue of shares by directors Securities Commission guidelines on dealings by directors related party transactions in a listed company

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LOAN TO DIRECTORSSection 133 of CA prohibits a company from making a loan to a director of the company, or from entering into any guarantee, or providing any security, in connection with a loan made to such director by other personException to the Rule

i) Loan to a director to meet expenses incurred by him in the performance of his duties as a director of the company

ii) Loans to a full-time director of the company, or its holding company, to enable him to acquire a homeiii) Loans to full-time director under an approved loan scheme

for employees

The above exceptions to the restriction are effective only if the company has given prior approval in general meeting

25LOAN TO PERSONS CONNECTED WITH DIRECTORS

Restrictions of loans to directors are extended to persons deemed connected to the directors

SpouseParent Child (+adopted & step)BrotherSister Son/daughter-in-lawBrother/sister-in-law

A trusteeof a trustunder which a director ormemberof his family is a beneficiary

A partnerof a directoror a partner of a personconnected with that director

A bodycorporatewhich is associated with a director-Controlling interest-voting rights- chairman

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DUTIES OF DIRECTORS• Common Law duties:

1. Duty to act bona fide in the interests of the company as a whole

2. Duty to exercise powers for proper purposes

3. Avoid conflict of interest

4. Exercise care, diligence and skill

• Statutory duties:

1. General duty to make disclosure

2. Duty to act honestly using reasonable diligence

3. Duty to keep accounts4. Directors Report5. Conflict of interest6. Fraudulent trading by

directors7. Penalty for falsification of

books by directors8. Insider trading by directors9. Director’s Code of Ethics

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RELATED PARTY TRANSACTIONSA ‘related party’ is:

• a substantial shareholder• a director• an associate of the substantial shareholder• an associate of the director

An associate of a substantial shareholder/ director:• family (spouse and children)• trustees of any trust – beneficiary• controlling interest of 30% or more

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RELATED PARTY TRANSACTIONSSecurities Commission’s requirements:• a circular must be sent to all shareholders• an independent adviser must be appointed• must abstain from board deliberation and voting

on the relevant resolution • an independent valuation• a statement by the directors – transaction is fair

and reasonable• in a meeting to obtain shareholders’ approval - abstain from voting on the resolution

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RELATED PARTY TRANSACTIONSTransactions NOT regarded as RPT:• payment of dividend; bonus issue• Transaction between PLC or any of its

subsidiaries and an investee company• Transaction between PLC or any of its

subsidiaries and another person• an acquisition or disposal by PLC or any of its

subsidiaries from or to a third party• the provision of financial assistance – in the ordinary course of business• director’s fees and remuneration

To discuss in the tutorial•Code of ethics for company directors Pg

197

•Corporate directors training programme (CDTP) Pg. 200