(Sec Update) Understanding the Role and Responsibilities of Directors under the Companies Act 2016

Under The Companies Act 2016, directors have very important duties and can face severe penalties if they don't follow the rules. This includes big fines or even jail time if they misuse their role or cause financial harm to their company.

A key court case, known as "Delta-Pelita Sebakong Sdn Bhd v. Wong Hou Lianq & Ors And Other Appeals [2020] MLRAU 41," showed how important it is for directors to be open about any personal interests they might have in deals the company is considering. This openness is crucial to avoid conflicts of interest and to make sure directors are looking out for the best interests of the company.

Therefore, directors play important roles in steering the course of a company. The Companies Act 2016 outlines the duties, powers, and responsibilities of directors within Malaysian companies. Understanding these provisions is essential for directors to fulfill their obligations effectively and ensure the sustainable growth and success of their organizations.

Duties of Directors

Directors owe fiduciary duties to the company, including:

1. Duty of Care, Skill, and Diligence

Directors must act with reasonable care, skill, and diligence in the performance of their duties. This involves making informed decisions, staying informed about the company's affairs, and thinking carefully before making decisions.

2. Duty to Act in Good Faith:

Directors must act honestly and in the best interests of the company, prioritizing its success over personal interests or relationships.

3. Duty to Avoid Conflicts of Interest:

Directors must avoid situations where their interests conflict with those of the company. If a conflict arises, directors must disclose it and refrain from participating in related decisions.

4. Duty to Not Misuse Information or Position:

Directors must not misuse confidential information or their position for personal gain or to the detriment of the company.

Powers of Directors

Directors are empowered to manage the company's business and exercise its powers, subject to the company's constitution and any restrictions imposed by shareholders through resolutions passed at general meetings. These powers include:

1. Power to Manage:

Directors are responsible for managing the company's day-to-day affairs and strategic direction.

2. Power to Delegate:

While directors can delegate certain tasks, they remain ultimately responsible for the company's actions and decisions.

3. Power to Enter Contracts:

Directors have the authority to enter into contracts on behalf of the company, subject to any limits set by the company's constitution or shareholders.

Conclusion

Directors play a crucial role in the governance and success of companies, and their responsibilities are outlined in detail under the Companies Act 2016.

By understanding and fulfilling their duties, directors can contribute to the long-term viability and growth of their organizations while upholding the principles of good corporate governance.

PS : Authored by Miss Hui Ting, our secretarial associate from THK

Visit Us

Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients