Governance and

New Rules Relating to

Directors

Wan Zulhafiz Wan Zahari, Ph.D.

Assist. Professor
Ahmad Ibrahim Kulliyyah of Laws
International Islamic University Malaysia
 Outlines
Introduction.
Appointment and selection.
Removal, resignation, retirement and
disqualification of directors.
Remuneration and compensation for
loss of office.
Liability insurance: exclusion of
liability.
 Introduction
Who are directors?
Sec 2 of CA 2016 "...any person
occupying the position of director of
a corporation by whatever name
called and includes a person in
accordance with whose directions or
instructions the majority of
directors of a corporation are
accustomed to act and an alternate
or substitute director."
 The definition covers shadow
directors and alternate or substitute
director.

Previously, Sec 4 of CA 1965. It has

similar provision except with
additional wordings majority of
directors.
Eligibility or qualification of
a director
Sec 196 of CA 2016

Minimum Number of Directors:-

Private Company 1 director
Public Company 2 directors

Previously Sec 122(1) of CA 1965

Every company must have at least 2
directors.
 Natural Person

Age Sec 196(1) of CA 2016 18

years old.
Sec 122 (2) of CA 1965 full age.

Requirements - Minimum number of

directors:
Principal of residence in Malaysia.
Not alternate or substitute director.
 Appointment of Director
Sec 202 of CA 2016 Appointment of
director of private company (min no.)
according to the application of
incorporation of company.
Subsequent directors appointed by
ordinary resolution.
Public company shall hold office until
next AGM.
Private company shall hold office in
accordance to the terms of appointment
 Previously, provided by AoA
Art. 67 (subsequent appointment by
ordinary resolution)
Art. 68 (Casual vacancy shall hold
office until next AGM).
Art.69 (Removal by ordinary resolution)
 Sec 203 of CA 2016 - Appointment of
Directors for Public Company
Voted by majority at a general meeting
to pass a resolution of motion for
directors appointment.
Failure to follow the procedure - will
render the directors appointment be
void.
A motion for approving a persons
appointment or for nominating a person
for appointment will be treated as
motion for directors appointment.
 Previously, Sec 126 of CA 1965
Mode of appointment of a director in
public company - Voted on individually.
BUTmay passed single resolution to
appoint ALL directors - unanimous
consent.
 Vacation of Office of
Directors
208. (1) of CA 2016 Automatic
vacation of office of directors:
a. Resignation.
b. Retirement and not re-elected.
c. Removal.
d. Disqualified under section 198 or 199.
e. Unsound mind under the Mental Health
Act 2001.
f. Dies.
g. Vacation by the terms of constitution.
 Previously, provided by Art 72, Table
A
automatic retirement and
resignation:
Ceases to be director by virtue of the
Act.
Becomes bankrupt.
Prohibited being director under the CA
1965.
Unsound mind.
Resignation by notice in writing.
Absent without permission from meeting
of directors for more than 6 months.
Hold any other office of profit in the
 Directors resignation
Sec 208 (2) of CA 2016 - Director
may resign his office by giving a
written notice to the company at its
registered office.
The notice shall be effective when it is
delivered at the address of the
registered office.
Sec 196 (3) of CA 2016 None of
directors can resign if the number of
directors of the company is reduced
below the minimum number.
Previously, under 122 (6).
 Sec 209 (1) of CA 2016 A director
cannot resign until that director has
called a meeting of members to
receive the notice of the resignation
and to appoint one or more new
directors.
Previously, provided by Art. 72(e),
Table A.
 Removal of a Director
Sec 206 of CA 2016
A director may be removed before the
expiration of the directors period of
office:
(i) Private Company director may be
removed by ordinary resolution,
subject to the constitution.
Previously, the removal provided by Art 69
of AoA.
The new bill does not change this position.
Sec 318(3) of CMSA 2007 - SC may
remove CEO/directorof listed company if
convicted of an offence under securities
law or action has been taken under the
(i) Public Company :-
Ordinary resolution at a meeting,
notwithstanding the constitution or any
agreement between company and its
shareholders.
Special notice of a resolution to remove a
director is required.
A vacancy on the board as a result of of the
removal of a director, may be filled as a
casual vacancy.
Where a director was appointed to represent
the interests of any particular class of
shareholders or debenture holders, the
resolution to remove him shall not take
effect until his successor has been
appointed.
Previously, under Sec 128 of CA 1965.
Solaiappan & Ors v Lim Yoke Fan & Ors
[1968] 2 MLJ 21
Issue: What is the position if the AOA
provides for a shorter notice, than the
statutory requirement under Sec 153 of
CA 1965 i.e. 28 days notice of the
resolution?
Held: The shorter notice shall be
sufficient.
Sec 288(7) provides that, nothing in
this section will prevent the company
from removing the director under any
power which exist apart from this
 Subsequent to this case, Sec 128(2) of
CA 1965 was amended.
The words under this section were
removed, which then caused
ambiguity. As a result,
Directors of public company may be
removed by a simple resolution passed at
a general meeting irrespective of AoA.
A special notice must be given to the
company in respect of the resolution to
remove a director even it had followed
procedures under AOA.
Such procedures under Sec 128 shall also
be applicable to private company.
 CA 2016 provides that special notice
is required only if removal is made
under that particular section i.e. s
206.
Hence, it only applies to public
company and should not be
extended to private companies.
The effect of the law reform is a
reversion to the original position
prior to the amendment to Sec 128
of CA 1965 and reverting to the law
in Solaippan.
 Right to be heard for directors of
public company against removal
now under its own provision i.e. Sec
207 of CA 2016.
Previously, explained under Sec 128 (3)
& (4) of CA 1965.
 Directors Retirement
Sec 205 of CA 2016
A private company may pass a written
resolution to determine the retirement of
a director.
The CB retains the concept of retirement
by rotation which shall be applicable to
public company.
However, under the CB, a retiring
director may be appointed by the
company to fill in the vacancy or if the
resolution for re-appointment of the
retiring director is not passed.
Disqualification of Directors
Sec 198 of CA 2016 Automatic
Disqualification:
undischarged bankrupt.
convicted of an offence relating to the
promotion, formation or management of a
corporation.
convicted of an offence involving bribery,
fraud or dishonesty
convicted of an offence under sections
213, 215, 216, 217, 218, 228 and 539.
disqualified by the Court under section
199.
 Disqualification by Court
Sec 199 of CA 2016
The Court may disqualify a director
of a company if
within the last five years, the companies
under his directorship went into
liquidation (insolvency) 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. (*additional)
due to his habitual contravention of this
Act.*
 Remuneration
Sec 230 (1) of CA 2016 The fees of
the directors, and any benefits
payable to the directors including
any compensation for loss of
employment of a director or former
director
(a) of a public company; or
(b) of a listed company and its
subsidiaries,
shall be approved at a general
meeting.
 Private Company:-
The Board may approve the fees of the
directors and any benefits payable to the
directors including any compensation for
loss of office.
However, such approval must be tabled to
shareholders within fourteen days from
the date of the approval.
If unfair at least 10% voting by the
shareholders, it will be subject to
shareholders approval.
If no approval obtained from shareholders,
the payment shall constitute a debt due
by the director to the company.
 Directors Service
Contracts
Sec 231 of CA 2016 defines
directors service contracts.
a director of the company undertakes
personally to perform services, as a
director or otherwise for the public
company or for a subsidiary of the public
company; or
services that a director of the public
company undertakes personally to
perform as director or otherwise are
made available by a third party to the
public company, or to a subsidiary of the
 Sec 232 of CA 2016 prescribes that
the service contract of a director of a
public company should be made
available for inspection at the
company's registered office.
It is to promote greater transparency
and accountability of directors.
 Compensation for loss of
office
Sec 227 of CA 2016
Although a directors remuneration in
general is not subject to shareholders
approval, the CA identifies certain type
of payments to a director which is
unlawful, unless approved by the
company in general meeting.
The purpose of this section is to
prevent the directors from making
gratuitios payment resulting in
dissipation of companys funds.
 The types of payment subject to Sec
227 of CA 2016 are:
Any payment by way of compensating a
director for loss of office as an officer in
a company or its subsidiary.
Any payment which is as consideration
for or in connection with a directors
retirement from an office in a company
or its subsidiary.
Any payment to be made to any director
of a company in connection with the
transfer of the whole or any part of the
undertaking or property of the company.
 Previously, the prohibitions were
provided by Sec 137(1) of the CA
1965.
The CA 2016 enhances the current
position by requiring any payment
for loss of office of directors of public
companies to be approved by
disinterested members.
Payment has also been interpreted
widely to include property or asset
which has monetary value, given to a
director as consideration for or in
 This section is not confined to loss of
office as director but applies to a
director losing any office he holds
as an officer in the company or in
its subsidiary.
The scope is wider as compared to
the UK and Australian counterpart
loss of office as a director.
 Under Sec 227 (5) of CA 2016, the
following payment do not require
companys approval and are not
considered as compensation for loss
of office:
(a) any payment under an agreement
entered into before the
commencement of this Act.
(b) any payment under an agreement,
where particulars have been disclosed
to and approved by special
resolution of the company.
 (c) any bona fide payment by way of
damages for breach of contract.
(d) any bona fide payment by way of
pension or lump sum payment in
respect of past services including any
superannuation or retiring allowance,
superannuation, gratuity or similar
payment, where the value or amount of
the pension or payment, except so far
as it is attributable to contributions
made by the director, does not exceed
the total remuneration of the
director in the three years
immediately preceding his
 (e) any payment to a director under an
agreement made between the
company and the director before he
became a director of the company as
a consideration or part of a
consideration for the director agreeing
to serve the company as a director.
Previously, the similar provisions
provided by Sec 137(5) of CA 1965.
 Particulars of the payment, including
the amount, must be disclosed to the
members of the company and
approved by the company in general
meeting.
The payment must be approved by
an ordinary resolution in general
meeting.
 Liability of Officer
Officer or auditor of a company is
not allowed to be exempted and
indemnified for his liability.
Who is officer?
Sec 289 (9) of CA 2016.
(a) any director, manager, secretary or
employee of the corporation.
(b) a former officer.
(c) a receiver.
(d) a liquidator.
 Exclusion Liability
Sec 288 of CA 2016
Any clause in a company
constitution/ contract in respect of
any negligence, default, breach of
duty or breach of trust in which the
officer/ auditor is guilty to the
company will be void.
 Indemnity and Insurance
Sec 289 (1) A company cannot
indemnify or effect insurance to
officer or auditor, in respect of :-
the liability for any act or omission in
his capacity as an officer or auditor; or
the costs incurred by that officer or
auditor in defending or settling any
claim or proceedings relating to any
such liability.
Sec 289 (2) If done so, such
indemnity will be void.
 Sec 289 (9) of CA 2016
effect insurance includes pay,
whether directly or indirectly, the
costs of the insurance.
indemnify includes relieve or
excuse from the officers/ auditors
liability towards the company.
 Exceptions to the general rule:-
Sec 289 (3)
if a director is successful in his
defense or is acquitted in his trial,
the director is allowed to be indemnified
by a company for any costs of defending
such legal proceedings.
Sec 289 (4)
company may indemnify its directors
against any liability and costs of such
proceedings whilst proceedings are
ongoing, for civil (and not criminal)
proceedings brought by a third party.
 It is important to note that CA 2016
modifies that position, previously it
was not allowed at all.
However, the new provision
distinguishes between proceedings
involving the company and those
involving third parties.
Having said that, its not an easy and
straight forward case.
It is crucial as litigation in Malaysia
tends be costly and lengthy process.
 Previously, under Section 140 of CA
1965, there is some ambiguity on
whether a company may
contribute to premiums payable
for Directors' & Officers' Insurance
taken out for their directors.
However, under Sec 289 (5) of CA
2016, a company may with prior
approval of its Board, purchase
insurance for its directors against
any civil (and not criminal) liability
and costs incurred by the person in
his capacity as a director.
Thank you for your kind attention.