LAW 485:DIRECTOR

LECTURER:WAN SALBIAH BT DATO' HJ WAN

OTHMAN

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 LEARNING OBJECTIVES
After the completion of this chapter, the students should be
able to :
• Identify a director
• Explain the qualifications and disqualifications of a director
• Describe the appoinments and termination of directors
• Explain the general powers and duties of a director

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 APPOINTMENT OF
DIRECTORS

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 WHO ARE DIRECTORS?
 THE TERM “DIRECTOR” WHEREVER APPEARING IN THE CA 2016 IS
DEFINED IN SECTION 2(1) TO INCLUDE:
ANY PERSON OCCUPYING THE POSITION OF A CORPORATION
INCLUDES AN ALTERNATE OR SUBSTITUTE DIRECTOR, A DE FACTO
DIRECTOR AND A SHADOW DIRECTOR.

 AN ALTERNATE OR SUBSTITUTE DIRECTOR IS A PERSON

NOMINATED BY ANOTHER DIRECTOR TO ATTEND MEETINGS OR
PERFORM DUTIES ON HIS BEHALF.
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 MINIMUM NUMBER OF DIRECTORS
 SECTION 196(10) PROVIDES THAT A PRIVATE COMPANY SHALL HAVE A
MINIMUM OF ONE DIRECTOR AND A PUBLIC COMPANY SHALL HAVE A
MINIMUM OF TWO DIRECTORS.
 MINIMUM DIRECTORS MUST “ORDINARILY RESIDE IN MALAYSIA BY HAVING
A PRINCIPAL PLACE OF RESIDENCE IN MALAYSIA.
 WORD “RESIDENCE” MEANS THE PERSON MUST BE RESIDING IN THE PLACE
WITH SOME DEGREE OF CONTINUITY. (FONG POH YOKE V THE CENTRAL
CONSTRUCTION CO (M) SDN BHD) (1998)

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 WHO MAY BE A DIRECTOR?
Natural person of 18 years and above

Section 196(2) provides that “A director shall be a natural

person who is at least 18 years or age.”
Only human being can be a director.

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 WHO MAY BE A DIRECTOR?
Official Receiver or court’s approval
Section 198(1)(a) provides that an undischarged
bankrupt (i.e. a person who has been adjudicated a
bankrupt and has not been discharged from his bankruptcy)
cannot hold office as a director or take part in the
management of the company.
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 WHO MAY BE A DIRECTOR?
Official Receiver or court’s approval
Section 198(3) provides that bankrupt may be appointed
or hold office with the approval of either the Official
Receiver or the court.

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 WHO MAY BE A DIRECTOR?
Court’s approval needed
Section 198(1) and (6) provide that a person who has been disqualified as a director
on the ground that he has been convicted of one of the offences stated therein may
not hold office as a director or take part in the management of the company.
The prohibition period is five years calculated from the date he is convicted or if he
is sentenced to imprisonment, five years from the date of his release from prison.
(section 198(6)).
He may be re-appointed or hold office as a director with the court’s approval
(section 198(4)).
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 WHO MAY BE A DIRECTOR?
Court’s approval needed
Offences covered in section 198(4):
- offences in connection with the promotion, formation or
management of a company.
- offences involving bribery, fraud or dishonesty.
- offences for breach of fiduciary duty, improper use of company’s
property.
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 WHO MAY BE A DIRECTOR?
Not restrained by the court
Section 199(10) provides that the ROC may apply to the
court to restrain a person from acting or holding office as a
director or promoter or taking part in the management of a
company.

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 WHO MAY BE A DIRECTOR?
Not an auditor of the company
Section 264(1)(c)(iii)(A) provides that an auditor of a
company cannot also be an officer of the company.
His spouse also cannot be an officer of the company.

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 WHO MAY BE A DIRECTOR?
Not unsound mind
Section 208(1)(e) provides that the office of the director
shall be vacated if that director becomes of unsound
mind.

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 WHO MAY BE A DIRECTOR?
Not disqualified by the constitution
Share qualification
• A company may still in its constitution, require its directors to hold a
minimum number of shared.
• However, as the CA 2016 does not provide a grace period, then the
terms in the constitution shall apply without any exception.

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 WHO MAY BE A DIRECTOR?

Other situations
• Absent without permission of the directors from meetings of
the directors for more than six months.

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 WHO MAY BE A DIRECTOR?

No specific academic or professional qualification required

The CA 2016 does not require a director to have any
specific academic or professional qualification.

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 APPOINTMENT OF A DIRECTOR
First directors
Section 202(1) provides that the first director(s) of the
company shall be the person(s) named in the application
for the incorporation of the company.
He must have consented to be a director of the company.

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 APPOINTMENT OF A DIRECTOR
Subsequent directors
All subsequent directors may be appointed as follows:
By ordinary resolutions [section 202(2)].
By the board of directors. [section 202(3)].

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 RETIREMENT OR TERMINATION OF A
DIRECTOR
The office of a director may become vacant in one of the following
events:
 He retires from the office;
 He is disqualified;
 He resigns from the position;
 He is removed from the board of directors; or
 He retires by rotation.
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 DISQUALIFICATION OF DIRECTORS

• FOR PUBLIC CO. : HE SHALL HOLD OFFICE UNTIL THE COMPANY’S

NEXT ANNUAL GENERAL MEETING.
• FOR PRIVATE CO. : HE SHALL HOLD OFFICE IN ACCORDANCE WITH
THE TERMS OF HIS APPOINTMENT.

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 DISQUALIFICATION OF DIRECTORS

• WHERE SOLE DIRECTOR DIES,

1) NEXT OF KIN
2) PERSONAL REPRESENTATIVES OR
3) MEMBERS
SHALL WITHIN 6 MONTHS AFTER THE DEATH, APPOINT NEW
DIRECTOR.

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 DIRECTORS’ RESIGNATION
• SECTION 208 (2)
• BY WRITTEN NOTICE TO THE COMPANY AT ITS
REGISTERED OFFICE
• IT WILL TAKE EFFECT ON THE DATE THE BOARD
RECEIVES THE LETTER OF RESIGNATION OR THE DATE
STATED IN THE LETTER

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PRIVATE CO.
DIRECTORS’ REMOVAL
• CA 2016 DOES NOT PRESCRIBE THE PROCEDURE FOR THE REMOVAL
OF A DIRECTOR, OTHER THAN IT CANNOT BE DONE THROUGH
WRITTEN RESOLUTION
• THUS, REFERENCE IS TO BE MADE TO THE COMPANY’S
CONSTITUTION
• HOWEVER, IF CO. DOES NOT HAVE A CONSTITUTION, HE MAY BE
REMOVED BY ORDINARY RESOLUTION [SECTION 206 (1)]

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 DIRECTORS’ REMUNERATION
• WITH EFFECT FROM 31 JAN 2016, THE REGULATIONS ON THE
PAYMENT OF DIRECTORS’ REMUNERATION ARE FOUND IN CA 2016
AND NOT IN COMPANY’S CONSTITUTION.
• NO INDEMNITY
• IF DIRECTOR HAS COMMITED A WRONG AGAINST THE CO., CO. HAS
THE RIGHT TO TAKE ACTION AGAINST HIM
• HOWEVER, A DIRECTOR WHO ACTED HONESTLY AND REASONABLY
MAY APPLY TO COURT FOR RELIEF UNDER SECTION 581(1)
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DIRECTORS:
POWERS AND
DUTIES
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INTRODUCTION
 A company consists of 2 organs, namely:
The board of directors
The members

 A director is an agent of the company and thus owes a

fiduciary duty towards the company

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INTRODUCTION
 Sec 2(1) - the term “director” also includes the following:
De facto director – a person who occupies the position of director
even though he was not appointed or his appointment was defective
Shadow director – a person “in accordance with whose directions
or instructions the directors of a corporation are accustomed to act”
Alternate (substitute) director – a person nominated by another
director to attend meetings or perform duties on his behalf

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DIRECTOR’S POWERS
Functions of Board of Directors
Sec 211 provides:
(1) The business and affairs of a company shall be managed by, or under the
direction of the Board.
(2) The Board has all the powers necessary for managing and for directing and
supervising 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

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DIRECTOR’S POWERS

 Sec 31(2) – the rights, powers, duties and obligations of

the directors are prescribed in the CA 2016 unless
modified by the company’s constitution.

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DIRECTOR’S DUTIES
 Every director owes a fiduciary duties to the company:
 Act honestly
 In a good faith
 For the benefit of the company
 Avoid any conflict of interest

.
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DIRECTOR’S DUTIES
Sec 213(1) & (2):
1) A director of a comp shall at all times exercise his powers in accordance
with this Act, for a proper purpose and in a good faith in the best interest of
the comp - must read togeher with s218(1)
2) A director of a co shall exercise reasonable care, skill and diligence with-
a) The knowledge, skill & experience which may reasonably be expected of a
director having the same responsibilities, and
b) Any additional knowledge, skill and experience which the director in fact
has.

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DIRECTOR’S DUTIES
SEC 213(1)
'Duty of good faith in the best interest of the comp'
CASE: Re W & M Roith Ltd (1967)
The director owned a substantial portion of shares in the company. He was
terminally ill and wanted to provide for his wife, thus he entered into a contract
with the comp to pay a pension to his widow.
Court held: the contract was void as the BOD did not act in the best interest of
the co but for the widow of the director. It was not made in a good faith.

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DIRECTOR’S DUTIES
SEC 213(1)
'Duty to exercise power for the proper purpose
CASE:Howard Smith v Ampol
Director of RW Miller (Holdings) Ltd issues shares to H in order to dilute the
majority voting power of A and B and to facilitate a take over bid.
The Privy Council held that the directors had misused their powers.

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DIRECTOR’S DUTIES
SEC 213(1)
'Duty to exercise power for the proper purpose
CASE:Re Duomatic
Director made a payment to an ex director as compensation for loss office.This
payment was not disclosed to the shareholders as required by a section which is
equivalent to sec 227 of the CA 2016.
Held: The director was liable for the misapplication of the company's funds.

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 DIRECTOR’S DUTIES

PROPER PURPOSE
 Sec 218 (1) – a director or officer of a company shall not, without the consent or
ratification of a general meeting –
a) Use the property of the co
b) Use any info acquired by virtue of his position as a director or officer of the co
c) Use any opportunity of the co which he became aware of, in the performance of
his functions as the director or officer of the co; or
d) Engage in business which is in competition with the company

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Case: Regal (Hastings) Ltd v. Gulliver & Ors (1967)
The co had a subsidiary co which intended to purchase two cinemas. The seller
required the buyer to increase its issued and paid-up capital which unfortunately,
the holding co could not afford to raise. The directors of the holding came to
rescue and subscribed to the new shares issued by the subsidiary co. The
shares were then sold at a profit. The holding co also had new s/holders and it
took action to recover the profits made by its former directors.
Court held: a director is accountable for the profit if the info came to him in his
capacity as a directors, and he used the info and made profit.

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 Case: IDC v. Cooley (1972)
Cooley was the director of IDC. IDC tendered but did not get the
project from the Gas Board. The GB then offered the contract to
Cooley. Cooley resigned from IDC and accepted the offer.
Court held: the main issue was whether Cooley had breached his
duty. Cooley had to put himself in a position where his duty to the
company conflicted with his own interest. He was accountable to
IDC for the profit as he had breached his duty.

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GOOD FAITH
1) Sec 213 (1) – A director of a co shall at all times exercise his
powers in accordance with this Act, for a proper purpose and in a
good faith in the best interest of the co.
Case: Re W & M Roith Ltd (1967)
The director owned a substantial portion of shares in the company.
He was terminally ill and wanted to provide for his wife, thus he
entered into a contract with the co to pay a pension to his widow.
Court held: the contract was void as the BOD did not act in the best
interest of the co but for the widow of the director. It was not made
in a good faith.
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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE
 Sec 213(2) provides that:
A director of a co shall exercise reasonable care, skill and diligence
with-
a) The knowledge, skill & experience which may reasonably be
expected of a director having the same responsibilities, and
b) Any additional knowledge, skill and experience which the
director in fact has.

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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE
 The principles in sec 213(2) can be summed up as follows:
 A director is deemed to have the knowledge, skill and experience:
Which he actually has, and
Which a person carrying his functions should be expected to have

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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE
Sec 213(3) :
A director who contravenes this section commits an offence and
shall, on conviction, be liable to imprisonment for a term not
exceeding five years or to a fine not exceeding three million ringgit
or to both.

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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE
Under common law as established in the case of Re City Equitable
there is no minimum objective standard required of a director.
The standard is subjective to be assessed in relation to the director
's knowledge & experience.
This come under the phrase “ with the knowledge , skill &
experience which may reasonably be expected of a director having
the same responsibilities.

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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE
CASE:Re Brazillian Rubber Plantations And Estates Ltd
Director not bound to bring any special qualification to his office.
Undertake management of a rubber comp in complete ignorance
without incurring responsibilities for the mistakes which result from
such ignorance.

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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE
CASE:Re City Equitable Fire Insurance Co Ltd
A director need not exhibit in the performance of his duties a greater
degree of skill than may reasonably be expected from a person of his
knowledge and experience ( act does not prescribe any minimum
qualification before a person can become a director)

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 DUTY OF SKILL, CARE AND
REASONABLE DILIGENCE

CASE:Re City Equitable Fire Insurance Co Ltd

3 propositions:
A director need not show a greater degree of skill than may be
reasonably expected of a person of his knowledge & experience.
A director need not give continuous attention to the affairs of the comp.
A director may delegate duties to some other officers in the company
and trust him to perform then properly so long as the dir has no reason to
mistrust or doubt the officers.
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 THE BUSINESS JUDGEMENT RULE(BJR)

The term “business judgement” is defined in sec 214(2):

'any decision on whether or not to take action in respect of a matter
relevant to the business of the company.'
The purpose of the BJR is to protect honest director from being
liable for their unsuccessful decisions.As long as directors act
honestly and within their powers, they are not liable for any error of
business judgement.

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 THE BUSINESS JUDGEMENT RULE(BJR)

Sec 214. (1) A director who makes a business judgment is deemed to meet the
requirements of the duty under subsection 213(2) and the equivalent duties
under the common law and in equity if the director :
(a) makes the business judgment for a proper purpose and in good faith;
(b) does not have a material personal interest in the subject matter of the
business judgment;
(c) is informed about the subject matter of the business judgment to the extent
the director reasonably believes to be appropriate under the circumstances; and
(d) reasonably believes that the business judgment is in the best interest of the
company
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 BUSINESS JUDGEMENT RULE (NORMAN V THEODARE
GODDARD)

 In this case, Hoffman J (as he then was) was asked to consider the standard by
which Mr Quirk, a company director, should be judged in respect of his
decision to place company money in the hands of Mr Bingham, a fraudster.
Bingham was a partner in the defendant solicitors’ firm who specialised in tax
law, and he had persuaded Quirk to invest the company’s money in a company
based on the Isle of Man. Bingham led him to believe that this company was
controlled by Theodore Goddard; however, it was in reality controlled by
Bingham, who stole the money. The company subsequently sued Theodore
Goddard, who argued that Quirk was in breach of the duty to his company as a
director, and that he should therefore be required to contribute under the Civil
Liability (Contributions) Act 1978 to any damages payable by Theodore
Goddard.
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 BUSINESS JUDGEMENT RULE (NORMAN V THEODARE
GODDARD)

 Hoffman J held that the standard by which a company director should be

judged was that set out in s214(4) of the Insolvency Act 1986, this being the
degree of care and skill both as in fact possessed by the particular director, and
that expected of a reasonable person in that position. It was held that this
standard should be applied to company directors generally, and not just in
cases involving wrongful trading in insolvent companies. On the facts,
however, it was found that Quirk had not fallen below this standard, as
(applying Re City Equitable [1924]) he had been entitled to trust Bingham in
the absence of grounds for suspicion – particularly given that all the other
partners in Theodore Goddard had placed in him the same degree of trust.

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 RELIANCE OF INFORMATION
Directors when exercising their duties may have to rely on
information provided by a 3rd party which according to
Section 215(1) are as follows :
• An officer whom the director believes to be reliable &
competent.
• A professional / expert retained by the company.
• Another director, or
• A committee to the BOD, on which the director is not a
member.
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 RELIANCE OF INFORMATION

However, section 215(2) states that, a director when relying

on the information provided by the others, must still:
• Act in good faith, and
• Make independent assessment of the information based
on the director’s knowledge.

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 DELEGATION
 Reading Section 210 together with Section 216, a director, CEO,
CFO, COO & any person responsible for the management of the
company, may delegate any power of the board unless such
delegation is prohibited by :
the company’s the Board the members’
the CA 2016
constitution resolution resolution

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 DELEGATION
Sec 216(1) provides that:
Except as is otherwise provided by this Act, the constitution or any
resolution of the Board or members of the company, the directors
may delegate any power of the Board to any committee of the Board,
director, officer, employee, expert or any other person.

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 DELEGATION
Sec 216(2):
Where the directors have delegated any power, the directors are
responsible for the exercise of the power by the delegatee as if the
power had been exercised by the directors themselves.

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 DELEGATION
Sec 216(3)
The directors are not responsible under subsection (2) if :
(a) the directors believed on reasonable grounds at all times that the
delegatee would exercise the power in conformity with the duties imposed
on the directors under this Act and the constitution of the company, if any;
and
(b) the directors believed on reasonable grounds, in good faith and after
making a proper inquiry, if the circumstances indicated the need for the
inquiry, that the delegatee was reliable and competent in relation to the
power delegated.
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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST

Fiduciary duty imposed on a director to avoid conflict of interest

which means that a director must not place himself in a position
where his duty to the company and his personal interest may
conflict.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST

CASE: Aberdeen Railway Co v Blaikie Bros

A railway comp entered into a contract to supply a large quantity of iron seats
with a partnership.At the time the contract was entered into , one of the partners
was a director of the comp.Upon discovering this, the comp sought to avoid the
contract.
The court held that the comp could avoid the contract because it was the duty of
director to avoid a conflict of interest.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST

CASE: IDC v. Cooley (1972)

Cooley was the director of IDC. IDC tendered but did not get the project from
the Gas Board. The GB then offered the contract to Cooley. Cooley resigned
from IDC and accepted the offer.
Court held: the main issue was whether Cooley had breached his duty. Cooley
had to put himself in a position where his duty to the company conflicted with
his own interest. He was accountable to IDC for the profit as he had breached
his duty.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
Duty to avoid conflict of interest is titled as 'Prohibition agst improper use of property, position,etc.
Sec 218 (1) states that:
A director or officer of a company shall not, without the consent or ratification of a general meeting
a) Use the property of the comp
b) Use any info acquired by virtue of his position as a director or officer of the co
c) Use any opportunity of the co which he became aware of, in the performance of his functions as
the director or officer of the co; or
d) Engage in business which is in competition with the company
to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the
company.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST

Sec 218(2) :
Any person who contravenes this section commits an offence and
shall, on conviction, be liable to imprisonment for a term not
exceeding five years or a fine not exceeding three million ringgit or
to both.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
The situations of 'conflict of interest' based on Sec 218(2) :
(a) Misuse or improper use of comp's properties or funds
CASE: Lai Ah Kau v PP
it was held that the directors must separate the comp's interests from
their own & act as trustees for all comp funds which come into their
hands

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
The situations of 'conflict of interest' based on Sec 218(2) :
(b) Misuse of information
CASE: Electro Cad Australia Pty Ltd & Ors v Mejati RCS Sdn Bhd & 3 Ors
The defendant were the director of the Plaintiff's comp.The issue was whether
by disclosing the Plaintiff's secret to others(patent in the business of automatic
gates),the defendants was in breach of his fiduciary duty.
It was held that the defendant was in breach of his fiduciary duties ( use the
position in a comp for the benefit of another comp)

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
(c) Misuse of position
CASE:Cook v Deeks
4 directors – 3 directors disposed director ~ formed another
comp.Directed contract that were meant for the comp to the new
comp.P’ sued on the ground of breach of director’s duty & to make
D’ account for their profit.
Held: There was a breach of duty on the part of the three directors as
the interest in the newly formed comp conflicted with the their duties
owed to the comp.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
(c) Misuse of position
CASE: Fur v Tomkies
T, a director of Fur Ltd, negotiates for the sale of part of the
company’s business to another company and obtains commission.
T was liable for breach of duty & liable to account to the comp the
money that he received.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
(c) Misuse of position
CASE:Mahesan v Malaysian Govt Officers Co-operative Housing Society
Mahesan, a director of Society received a bribe in a transaction involving the
purchase of land from Manickam.Manickam purchased the land for $456,000 &
sold it to society for $944,000. One quarter of profit was paid to Mahesan.
It was held Mahesan has breached his duty to the society.Therefore, the society
had an option to recover the amount of the bribe or the damages for the loss
incured.Since the amount of damages was greater than the bribe , Mahesan was
ordered to pay damages to the society.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
(c) Misuse of position
CASE: Regal (Hastings) Ltd v Gulliver
R owed a cinema wanted acquire 2 other cinemas with a view to sell all share.
It had insufficient capital to acquire 2 cinemas & so form a subsidiary comp in
which is held some of the shares.
The other shares were held by director of Regal Cinema were acquired and the
share in both Regal and the subsidiary were sold.
It was held that the directors were in breach of fiduciary duty to the comp as
they have obtained shares for the purpose of acquiring shares & gained profit.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
(c) Misuse of position
CASE:Peso Silver Mines Ltd v Cropper
C was MD of PSM – An outsider offered several mining claims to the
company. This offer was considered by BOD and rejected for the interest of
PSM.After that, C was approached by comp’s geologist with a suggestion that a
group be form to acquire the mining claims. Set up a new company.
It was held that C was not in breach of duty.He was approached to take up the
claims in his capacity as an individual member of the public and not as a
director of a comp.

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 DIRECTOR'S DUTIES: TO AVOID CONFLICT OF
INTEREST
(c) Competition with the comp
CASE: Shanghai Hall v Chong Mun & Others
There is no rule that a person cannot be a director of two competing
companies.As long as the potential conflict is disclosed to the company and
approved by the company.

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DIRECTOR'S DUTIES: DUTY TO DISCLOSE INTEREST IN
CONTRACT

Sec 221. (1) Subject to this section, every director of a company who is in any
way, whether directly or indirectly, interested in a contract or proposed contract
with the company shall, as soon as practicable after the relevant facts have come
to the director’s knowledge, declare the nature of his interest at a meeting of the
board of directors.
To avoid being in breach of duty, directors must make full & frank disclosure of
their interest in any contract with the comp at a meeting of the board of
directors.The disclosure is required under sec 219(1)p0ol

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 LOAN TO DIRECTORS

A company’s constitution may have given power to its BOD to lend

money, including lending it to a director
However, a company, according to Section 224(1) shall not :
Make a loan to a director of the co. or for a co. which by virtue of
Section 7 is deemed to be related to that co., or
Enter into any guarantee or provide any security in connection with
a loan made to such a director by any other person.

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 LOAN TO DIRECTORS

A company’s constitution may have given power to its BOD to lend

money, including lending it to a director
However, a company, according to Section 224(1) shall not :
Make a loan to a director of the co. or for a co. which by virtue of
Section 7 is deemed to be related to that co., or
Enter into any guarantee or provide any security in connection with
a loan made to such a director by any other person.

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 LOAN TO DIRECTORS

Section 224(1) generally prohibits a co. from giving

loans or securities for loans to its directors & the
directors of its related co.

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 EXCEPTIONS

 Local Company : Section 224 applies to a company, which is defined in section 2

(1) as a company incorporated in Malaysia & does not apply to a foreign
company.
 However, foreign company is subject to the laws of the country of incorporation
& those laws might prohibit it from giving loans or providing securities for loans.

 Exempt Private Company : Section 224(2)(a) expressly excludes its application to

an exempt private company.

 Expenses loan : Section 224(2)(b) provides that subject to subsection (3),

company may give loan to a director to enable him meet expenses incurred by
him or for the purpose of the company or to perform his duties as an officer of the
company.
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 EXCEPTIONS

 Home loan : Section 224(2)(c) provides that a company may

give a loan to its director who is also a full-time employee of the
company or its holding company for the purpose of purchasing
a home.

 Staff loan : Section 224(2)(d) provides that a company may

give to its director or the director of its holding company who
is a full-time employee of the company or its holding company a
loan “where the company has passed a resolution to approve a
scheme for the making of loans to employees of the company &
the loan is in accordance with that scheme.”
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 LOANS TO PERSONS CONNECTED WITH DIRECTORS

Section 225 prohibits a company from giving a loan or

providing a security for a loan granted to a person connected
with its director or a person connected with the director of
its holding company.

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 LOANS TO PERSONS CONNECTED WITH DIRECTORS
 Section 197 states the definition of a person connected with a director
to be as follows :
The director’s family members that is :
a) His spouse,
b) His child (natural / adopted / step)
c) His parent
d) His brother/sister
e) The spouse of his child, brother or sister

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 LOANS TO PERSONS CONNECTED WITH DIRECTORS

A body corporate where :

a) The body corporate or the majority of its directors are
accustomed to act in accordance with the directions, instructions /
wishes of that director
b) The director has a controlling interest, or
c) The director and/or persons connected with him are entitled to
exercise or control 20% or more of its voting power.

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