TEO JENG YUDirectors' Duties in Malaysia: A Practical Overview for Boards
Directors of a Malaysian company owe duties both under the Companies Act 2016 and at common law, and these duties apply regardless of how the company is performing. A breach can expose a director to personal liability even where the company itself suffers no obvious loss, or is otherwise performing well.
The Core Duties
Directors must act in good faith in the interests of the company, exercise their powers for a proper purpose, and exercise reasonable care, skill and diligence — a standard that combines both the knowledge and experience the individual director actually has, and the minimum a reasonably diligent person in that role would be expected to bring.
Directors must also avoid conflicts of interest, disclose any interest in a proposed transaction, and refrain from making improper use of their position or company information for personal gain or to the detriment of the company.
These duties are owed to the company, not directly to individual shareholders — which is part of why remedies for a breach (such as a derivative action) are typically framed as being brought on the company's behalf.
Duties Do Not Pause in Distress
When a company is facing financial difficulty, directors' duties do not relax — if anything, the practical risk increases. Directors of a company that is, or is likely to become, insolvent should pay particular attention to the interests of creditors, and to the risks of continuing to trade, or incurring further debt, without a reasonable prospect of the company being able to meet its obligations.
Continuing to trade while insolvent, without a credible plan, can expose directors to personal liability for wrongful or insolvent trading, separate from any liability the company itself may face.
Governance in Practice
Related-party transactions — dealings between the company and a director, a director's family member, or another company the director controls — are a recurring area of dispute, and should be properly disclosed, documented, and where appropriate approved independently of the interested director.
Board decisions generally, and particularly significant or unusual transactions, should be minuted with enough detail to show the board turned its mind to the relevant considerations, rather than simply recording the outcome. In a later dispute, the contemporaneous record is usually what determines whether a duty was actually discharged.
- Disclose and properly document related-party transactions before they are entered into
- Minute board decisions with the reasoning, not just the outcome
- Treat creditors' interests as relevant once insolvency becomes a real, not remote, possibility
- Obtain independent advice for significant or conflicted transactions
Remedies for Shareholders
Where a director's breach of duty harms the company, a derivative action allows a shareholder to bring proceedings on the company's behalf. Where the conduct is instead unfairly prejudicial to a shareholder's own interests, an oppression action may be the more appropriate remedy — the two are related but distinct, and the right choice depends on precisely how the harm is framed.
Our corporate practice advises boards, directors and shareholders on governance, directors' duties, related-party transactions, and disputes arising from an alleged breach of those duties.
Good governance practices, properly documented, are the most effective protection a board has — both against disputes arising in the first place, and against personal liability if one does.
This article provides general information about Malaysian law as a matter of public interest. It does not constitute legal advice and should not be relied on as a substitute for advice from qualified counsel on the specific facts of a matter. Laws and their interpretation change, and this article may not reflect the most current position.
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