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CSP CHAP 6: DIRECTORS - Coggle Diagram
CSP CHAP 6: DIRECTORS
Directors & Officer Insurance
- CA 2016 empowers a company to purchase an insurance scheme to cover the liability of directors, officers and auditors
- Public listed companies usually have such insurance scheme to cover the liability of its directors and officers although it is paid by the directors and officers for tax reasons
Number of director
- Private Co
- Public Co
Types of Director
- Executive directors
- salaried director who is a full-time working director delegated with managerial or executive powers by the board to carry out the day-to-day management of the company’s business
- Non-Executive directors
- A director who does not hold any salaried appointment with the co and receives a relatively small director’s fee as laid down in the articles/general meeting
Directors of listed company
- A listed company must ensure that at least 2 directors or 1/3 of the BOD of the entity, whichever is higher are independent directors
- At least one director must be a member of MIA or have at least 3 years’ working experience and must passed examinations or member of one of association specified in Accountant Act 1967
Independent director
- is independent of management and free from any business or other relationship which could interfere with exercise of independent judgement or ability to act in the best interests of the company
Qualification of Director
- Minimum requirements:
- must be a natural person
- at least 18 years old
- ordinarily resident in Malaysia and his principal or any place of residence in Malaysia
Disqualification of Director
- an undischarged bankrupt
- has been convicted of an offence relating to the promotion, formation or management of a corporation (in or outside Malaysia)
- has been convicted of an offence involving bribery, fraud or dishonesty (in or outside Malaysia)
- has been convicted of an offence under sec 213, 217, 218, 228 and 539 of CA 2016
- has been disqualified by the court
Power of Court to disqualify a director
- the CCM can apply to the court for an order to disqualify a person from acting/holding office as a director/promoter or be concerned with or take part in the management of a company; directly or indirectly;
- if:
- Within the last five years, the person has been a director of two or more companies which went into liquidation resulting from the company being insolvent due to his conduct as a director which contributed wholly or partly to the liquidation
- Due to his contravention of the duties of a director; or due to his habitual contravention of the Act
Procedure to disqualify a director/promoter
- Official Receiver shall make an application to CCM if arisen and CCM will take action of the proceedings by:
- furnishing the Court with relevant information of the company
- produce and permit inspection of relevant company’s documents
- If the Court satisfied with the information and documents received, the Court may disqualify a person from acting or holding office as a director or promoter of a company
- A notice of not less than 14 days should be given to the person referred above by the CCM or Official Receiver of the intention of disqualifying him as a director/promoter
Appointment of Director
- A person cannot be appointed as a director of a company unless he has consented in writing to be a director and has made a declaration that he is not disqualified
First Director
- the person named as director in incorporation application
- shall hold office as a director from the date of incorporation until he ceases to hold office as a director in accordance of the Act
Subsequent Director
- At any time, the Board may appoint a director in addition to existing director
- May be appointed by ordinary resolution
- appointed directors shall hold office until the next AGM and in accordance with the term of appointment
Appointment of Directors of Public Co
- shall be appointed in a general meeting of the company
- A resolution of the appointment for each director must be made separately and be voted individually UNLESS it is fully agreed by the members of the general meeting
- A resolution passed in contravention of this section shall be void, whether or not it was objected
Register of Director
- Companies are required to have a register of directors to contain the service address of a director in addition to his name, residential address, date of birth, business occupation , identification and particulars of other directorships of public companies or subsidiaries of public companies
- Any changes in the register of directors must be notified and lodged with the Registrar of Companies within 14 days from the change
Retirement of Director
- A private company may pass a written resolution
- A public company, it is provided that at the first AGM all directors shall retire from office at the conclusion of the meeting. At subsequent annual general meeting 1/3 of the directors for the time being will retire from office and if the number is not three or multiple of three then the number nearest to 1/3 will retire
Retirement of Director by Rotation
- Every year, the directors to retire shall be the directors who have been longest in office since the directors’ last election
- if there are more directors have the same length of service, their retirement shall be determined by lot, unless they agreed among themselves who’s going to retire
- A retiring director shall be eligible for re-election if he is not disqualified
- Company may appoint any person who qualified to fill casual vacancy at the AGM which a director retires – unless the constitution provide otherwise
Re-election of retiring director
- if there is no appointment to fill casual vacancy, and the director offers himself for re-election, he may be re-elected UNLESS
- the company resolved not to fill the vacated office or the resolution to re-elect the director did not get the majority/lost
- a listed company must have provision in its articles for election of directors to take place every year; and all directors except the managing director shall retire from office once at least in each 3 years, but shall be eligible for re-election
- any director appointed by the board to fill casual vacancy shall hold office until the next AGM, and shall then be eligible for re-election
Removal and Procedure to removal of Director
- may be removed before the expiration of the director’s period of office by ordinary resolution; except otherwise provided by the constitution of a private company.
- the removal of a director of a public company, who represent the interests of any particular class of shareholders, shall not take effect until the director’s successor has been appointed
- Special notice is required to bring the resolution to remove a director or to appoint another person to replace the removed director in the same meeting
- Special notice served by shareholder to the company before GM to propose the resolution for removal of a director
- Company shall send a copy of that special notice to the director concerned
- The director is entitled to make oral representation. He may make representation in writing not exceeding a reasonable length to the company and request to send a copy to members prior to the meeting
- If the representation is not sent to members, the director may require the representation be read out at the meeting
- However, if the Court satisfied that this right has been abused, the copies of the representation need not be sent out to the members or read out in the meeting
- If that is the case, the Court may order the director to pay; in whole or in part; the cost of the removal
Vacation of office of director
It is provided that the office of a director shall be vacated if the person holding that office:
- Resigns by giving a written notice to the company at its registered office
- Has retired in accordance with Companies Act 2016 or the company’s constitution but is not re-elected
- is removed from office in accordance with Companies Act 2016 or the company’s constitution
- becomes disqualified from being a director under CA2016
- becomes unsound mind
- Dies
- Otherwise vacates his office in accordance with the company’s constitution
Directors' Remuneration
- Public Co
- The remuneration and benefits of directors must be approved by shareholders at general meeting
- Private Co
- The remuneration of directors may be approved by the BOD. Shareholders of minimum 10% voting rights may request that a director’s remuneration be subject to shareholders’ approval if they view the remuneration determined by the board as being unfair.
Directors Fees and Benefit
- Public Co
- The fees and benefits (including compensation for loss of office) for directors of public, listed and subsidiaries companies, it shall be approved at a general meeting
- Private Co
- The Board of directors may, but subject to Constitution, approve the fees and benefits for its directors
- The approval given by the Board must be recorded in Board minutes and be notified to the members of the company within 14 days from the date of approval
- Whenever the fee is made or the benefit is payable; any member with at least 10% shareholding, who consider that the payment is not fair to the company (within one month after the notice), may require the company to pass a written resolution or ordinary resolution at general meeting to approve the payment
- If the resolution not passed, the payment shall be a debt due by the director to the company
Directors Service Contract
- referred to any contract where director undertakes personally, or through a third party, to perform services for public company or its subsidiaries
- A public company shall keep and maintain a copy of their directors’ service contract and make it available for inspection at its registered office for at least a year from the date of termination or expiry of the contract
- Company should notify Registrar if the service contract is not kept at company’s registered office
- Company should notify Registrar if the service contract is not kept at company’s registered office
- Members with at least 5% shareholding are entitled to inspect and provided with a copy of the service contract on payment of such fee
- If requested, the company shall provide the copy within 7 days from the date the request is received by the company
The impact of directors' remuneration and service contract
- will promote greater transparency which in turn will raise the accountability of directors
- Public companies will need to review their directors’ service contract to see if appropriate term need to be made to confidentiality provisions to allow for inspections to be made
DIRECTORS’ INDEMNITY & INSURANCE
- Regulates which losses incurred are insurable and which are not. Only effect the insurance with prior BOD’s approval in specific instance such as civil liability for any act in directors’ capacity and costs incurred in defending a civil / criminal claim (provided that the director is released in the criminal claim, the director is granted relief under the new Act or where proceedings are discontinued). Non-compliance of this provision, the director will personally liable. No indemnity or insurance effect to directors in any civil/criminal liability for breaching the duty of directors to exercise their powers
Indemnity
- A company is enables to indemnify an officer or auditor for any costs incurred by him or the company in respect of any proceedings:
- That relates to the liability for any act or omission in his capacity as an officer or auditor, and
- Judgment in favor of director or acquittal, or
- Auditor granted relief under the Act, or
- Legal proceedings discontinued or not pursued
- A company may indemnify an officer or auditor in respect of:
- Any liability to any person, other than the company, for any act or omission in his capacity as an officer or auditor, and
- Costs incurred by that director, officer or auditor in defending or settling any claim or proceedings relating to any such liability EXCEPT for paying fine in criminal proceedings, penalty in regulatory proceedings, defending criminal proceedings where there is conviction
Requirements for Indemnity/D&O Insurance
- Approval by the board
- Record in the board minutes
- Disclose the particulars of any indemnity or insurance in the directors’ report in the financial statements
Function of the Board
- The Board has all the powers 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 Companies Act 2016 or in the constitution of the company.
Duties & Responsibilities of Directors
- exercise his power for proper purpose & in good faith in the best interest of the company
- exercise reasonable care, skill and diligence with the knowledge and experience which are expected from them
Responsibility of a nominee director
- appointed by virtue of his position as an employee of the company, as a representative of a member, employer or debenture holder
- shall act in the best interest of the company
- conflict of interest between his duty to act in the best interest of the company and his duty to his nominator, he must prioritize his duty to the company
Director with interest in contract shall be counted as quorum in board meeting but shall not participate in any discussion and vote on the proposed contract.
Register of directors’ shareholdings
- Register of directors’ shareholdings should be kept by every co at its registered office and opened for inspection by any member without charge and other person on payment
Loan to directors
- A company is not allowed to:
- make loans to its directors or to directors of its holding, subsidiaries or fellow subsidiary companies
- enter into any guarantee or provide any security for loan to such director
- Unless prior approval of the company is given through passing resolution about the purpose of expenditure, amount of the loan or the extent of the guarantee / security is disclosed
- If no authorization is given, the loan shall be repaid after 6 months from the conclusion of AGM (public co) or after 12 months from the making of the loan (private co)
Loans to Persons connected with Directors
- A co is prohibited to:
- make a loan to any person connected with a director of the co or of its holding co, or
- enter into any guarantee or provide any security in connection with a loan made to such person by any other person
Exception of Loans to Persons connected with Directors
- Inter co loan within a group of co
- A co whose ordinary business includes the lending of money
- Anything done by the co in the ordinary course of that business (banking, finance)
- Any loan made to a person connected with a director who is working full-time in the co
Payments to Director for Loss of Office
- A co is prohibited from:
- Making any payment to any director as a compensation for loss of office OR as consideration for his retirement from any such office, or
- Making any payment to any director of the co in connection with the transfer of the undertaking or property of the co
- Unless the particulars and the amount have been disclosed to and approved by the members of co in GM
- The directors & persons connected to directors (public co) who interested with the payment above shall not vote on the resolution
Solvency test requirement for the purpose of
- Dividend payouts
- Redemption of preference shares
- Capital reduction
- Share buyback
- Financial assistance
Director's Code of Ethics
- to ensure proper behavior and ethical conduct of directors
- The principles (transparency, integrity, accountability and corporate social responsibility)
- Every director, in performance of his duties, should at all times observe corporate governance,
Relationship with shareholders, employees, creditors and customers, and social responsibility and environment