New Directions in Duties

and Liabilities of
Directors
By
LEE SWEE SENG
LLB(Hons) , LLM , MBA
LEE SWEE SENG & CO
MANAGING PARTNER
ADVOCATES & SOLICITORS
CERTIFIED MEDIATOR
PATENT AGENT
NOTARY PUBLIC
Copyright
www.leesweeseng.com
sweeseng@tm.net.my
New Directions in Duties and
Liabilities of Directors
 Duties and liabilities of directors under
common law
 Understanding the statutory duties of directors
under various legislative enactments
 Understanding recommendations proposed
by Finance Committee Report on Corporate
Governance and Corporate Law Reform
Committee
 Understanding duties and liabilities under
Bursa Securities Listing Requirement (BSLR),
Securities Commission Act 1993 and
Securities Industry Act 1983
Introduction
 Malaysia’s economy depends on the drive
and efficiency of the companies.
 Therefore, the effectiveness of the board of
directors in discharging their duties and
responsibilities determines Malaysia’s
competitive position.
 In other words, Company directors must be
free to drive their companies forward, but they
have to exercise that freedom within a
framework of effective accountability.
Directors in Malaysia
 An individual can be a director as long as he
is :
 A) 18 years old;
 B) must not be an undischarged bankrupt
 C) must not have been convicted of criminal
offence involving fraud or dishonesty
 D) must not have been imprisoned for an
offence under S132, S132A or under S303 of
Companies Act
 E) must consent to act as director
Corporate Governance
 A proper and efficient system of corporate
governance is necessary in the companies in
order to regulate the directors’ duties and
preventing them from abusing their powers.
 Corporate Governance is the system by
which business corporations are directed and
controlled.
 It is necessary to ensure that company
directors act in the best interests of their
companies as well as ensuring the
observance and compliance with all laws,
regulations and codes of conduct and best
practices.
Finance Committee Report on
Corporate Governance
 In March 1998, the Honourable Minister of
Finance announced the establishment of a
high level committee that would look into
establishing a framework for corporate
governance and setting best practices for the
industry.
 The Finance Committee's findings, which
were reported through the publication of the
Finance Committee Report on Corporate
Finance Committee Report on
Corporate Governance
 Governance in March 1999, represents the
end-product of an extensive collaborative effort
between government and industry, with the
implementation of key aspects of the Report
which would include the recommendations on
duties, obligations, rights and liabilities of the
directors.
 In this report, the Committee has not imposed
further duties and obligations of directors but
sought to clarify their duties and obligations in
such a way that directors are made to take
notice of and understand their obligations.
Directors under Section 4 of
the Companies Act 1965
 Section 4 of the Companies Act 1965 (CA)
defines director as:
 “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 directors of a
corporation are accustomed to act and an
alternate or substitute director”
Directors’ Duties and
Responsibilities
 A Director’s duties can arise under:-
 A) common law
 B) Statutory duties eg. Companies Act 1965
 C) Bursa Securities Listing Requirement
 D) Securities Commission Act 1993
 E) Securities Industry Act 1983
Common law Fiduciary Duty
 The fiduciary duties of a director is to act bona
fide in the interest of a company.
 Acting bona fide in the interest of a company
is to act with good faith for the benefit of the
company.
 A director is under a duty to ensure that any
act he undertakes is with a view to enhancing
the interest of the company either by
enhancing profits, reducing costs or even
positive publicity of the company.
 Kala Anandarajah, Corporate Governance : A Practical Approach
Duty to act bona fide in the
interest of the company
 Where a director is required to act bona fide
in the interest of a company, he must act
according to what he considers, not what a
court may consider, is in the interest of the
company : Re Smith and Fawcett Ltd
(1942) Ch 304
 The directors are the ones to determine what
is best for the company.
Duty to act bona fide in the
interest of the company
 In Intraco Ltd v Multi-Pak Singapore Pte
Ltd [1995] 1 SLR 313, the Court held that
the proper test in determining whether the
directors have acted bona fide was whether
an honest and intelligent man in the
position of a director in the whole of the
existing circumstances, have reasonably
believed that the transactions were for the
benefit of the company.
Recommendation of the
Finance Committee
 Issue:
 Is there a need for statutory clarification of the
term “best interest of a company”?

 The Committee submitted that bearing in

mind of the need for flexibility, the term should
not be clarified by statute.

 Recommendation:
 The term “best interest of a company” should
not be statutorily codified.
Obligation of directors to act
bona fide in the interest of the
company
 The law imposes on directors a certain trustees-
like duties.
This duties include:
 To act for a proper purpose
 To avoid conflict of interest
 Not to have other interest fetter his discretion
 To ensure that the interest of the members of
the company is protected
 To use reasonable diligence in the discharge of
his duties
Duty to act for proper purpose
 Directors are required to exercise powers
given to them for the proper purpose of the
company.
 The purposes may be set out in the articles of
association of the company.
 Therefore, directors are prohibited from
exercising its powers for any collateral
purposes or any act done for an
impermissible purpose.
Whitehouse & Anor v Carlton
Hotel Proprietary Ltd (1987)
162 CLR 285
 Mr Whitehouse as a director allotted two
class ‘B’ shares to each of the sons which
had the effect of passing control of the
company to them.
 The company later passed a resolution that
the class ‘B’ shares had never been issued
by arguing that the power was exercised to
achieve an impermissible purpose, namely to
defeat the voting power of the existing
shareholders by creating a new majority.
Whitehouse & Anor v Carlton
Hotel Proprietary Ltd (1987)
162 CLR 285

 The Court held that the articles of association

does not authorise the exercise by Mr
Whitehouse of that fiduciary duty for an
impermissible and vitiating purpose.
Acting for proper purpose and
in the best interest of the
company
 It is clear that in principle, a director must act
for proper purpose and in the best interest of
the company.
 This principle has been subject to various
argument in cases of Hogg v Cramphorn
[1967] Ch 254, Teck Corp Ltd v Miller
(1973) 33 DLR (3d) 288 and Howard Smith
Ltd v Ampol Petroleum Ltd [1974] AC 821
where the directors had acted in the best
interest of the company but the transaction
has been motivated by some improper
purpose.
Acting for proper purpose and
in the best interest of the
company
 The House of Lords in Howard Smith later
put a rest to the debate by putting the test
together:
 “For validity, what is required is bona fide
exercise of the power in the interest of
company: that once it is found that the
directors were not motivated by self-interest,
the matter is concluded in their favour and
that court will not enquire into the validity of
their reasons for making the issue.
Acting for proper purpose and
in the best interest of the
company
 On the other side, the main argument is that
the purpose for which the power is conferred
is to enable capital to be raised for the
company and that once it is found that the
issue was not made for that purpose, invalidity
follows..”
 In other words, although the directors may act
honestly for the benefit of the company, the
directors may still be held liable if they have
exercise their power for collateral purpose.
Recommendation of the
Finance Committee
 Issue:
 Should the fiduciary duty to act for a proper
purpose be codified?

 The Committee made comparison with the

position in Canada which includes the duty to
act for proper purpose in the statutory
formulation.
Recommendation of the
Finance Committee
 Recommendation:
 That Section 132(1) CA should be amended
to state explicitly the duty to act for a proper
purpose.

 Implementation status:
 In progress
No Conflict Rule
 Directors must not, as a general rule, put
themselves in the position where their duties
to the company conflict with that of his own
interest.
 It is also not uncommon for a person to take
on directorships in more than one company.
 In doing so, the director can easily be placed
in the position of being subject to conflict.
No Conflict Rule
 Instances where director will be found in
breach of fiduciary duties:-
 A) director sets up another firm to compete
for contracts with the company : Avel
Consultants Sdn Bhd & Anor v Mohamed
Zain Yusof & Ors [1985] 2 MLJ 209
 B) director diverts a business opportunity for
his own profit : Hytech Builders Pte Ltd v
Tan Eng Leong & Anor [1995] 2 SLR 795
Secret Profit Rule
 A director who has entered into a contract
with his company in breach of his fiduciary
duties still remains accountable to his
company for any profit which he or she
derives from the breach.
 This profit rule can apply in instances where
even if there is no realistic possibility of
conflict between the interest and duty but
where the directors have made a profit :
Queenland Mines Ltd v Hudson (1978) 3
ACLR 176
Statutory Duties of Directors :
Section 131 Companies Act
(CA) 1965
 This provision are designed to achieve a
modification of the ‘no conflict rule’ by allowing
a company to enter into transactions with
directors provided their interest is disclosed to
the board.
 S131 CA provides that:
 “every director of a company who is in any
way, whether directly or indirectly, interested in
a contract or proposed contract with the
Statutory Duties of Directors :
Section 131 Companies Act
(CA) 1965
 company shall, as soon as practicable after
the relevant facts have come to his
knowledge, declare the nature of his interest
at a meeting of the directors of the company.”
 In a Singapore case of Yeo Geok Seng v PP
[2000] 1 SLR 195, Yong CJ held that S156
Singapore CA(S131 Malaysian CA) was not
confined to situations where the directors had
a personal interest that conflicts with his duty
but was wide enough to impose a duty of
disclosure on a director who holds directorship
in another company.
Recommendation of Finance
Committee
 Issue:
 Should the fiduciary duty to avoid conflict of
interest be codified?

 In the report, the Committee considered that

there are still gaps in the existing provisions in
statute in regulating abuses such as the
practice of operating business in competition
with the listed entity or taking advantage of
contracts belonging to the listed entity save
under the category of the “duty to act
honestly”.
Recommendation of Finance
Committee
 Although there are numerous fiduciary
principles under common law, the Committee
also considered it inappropriate for this
matter to be left purely to case law.

 Recommendation:
 That the common law fiduciary duty to avoid
conflict of interest should be codified
Recommendation of Finance
Committee
 Issue:
 Elements of the statutory fiduciary duty to
avoid conflict of interest

 The Committee does not intend to provide an

exhaustive discourse on the elements but
attempts to set a minimum number of rules
that regulate the conduct of a director acting
with an interest in matter.
Recommendation of Finance
Committee
 Recommendations:
 That the statutory fiduciary duty to avoid
conflict of interest should among other
things:-
 A) embrace the following conflict of interest
situations:-
 Misuse of corporate information, property or
position;
 The taking of corporate opportunities; and
Recommendation of Finance
Committee
 Engaging in business in competition with the
company.
 B) Set out he minimum procedures that
directors should adopt in conflict of interest
situations
 C) Preserve the power of court to enquire into
the fairness of a transaction at all times.
Statutory Duties of directors –
Section 132 CA 1965
 Section 132(1) CA 1965 sets out the
director’s duties to act honestly.
 Under S132(1), a director shall at all times act
honestly and use reasonable diligence in the
discharge of the duties of his office.
 Also, under S132(5), this duties are in
addition to and not in derogation of any
written law or rule of law relating to the duty or
liability of directors or officers of a company.
 Therefore, the common law and equitable
rules relating to directors are still relevant.
Statutory Duties of directors –
Section 132 CA 1965
 In Multi-Pak Singapore Pte Ltd v Intraco
Ltd [1994] 2 SLR 282, the court held that the
word 'honestly' does not mean that a director
would only be in breach of duty if he had
acted fraudulently. It means to act bona fide in
the interests of the company. In exercising
their discretion, the directors should only act
to promote or advance the interest of the
company.
Statutory Duties of directors –
Section 132 CA 1965
 In the later case of Rajabali Jumabhoy & Ors
v Ameerali Jumabhoy & Ors [1997] 3 SLR
802, the court made the following observation
after considering the decision of the New
South Wales Supreme Court in Blackwell v
Moray & Anor [1991] 5 ACSR 255:
 a)   a director may act in breach of his fiduciary
duties even though he has acted honestly;
 b)  a mere general sense of honesty of
purpose is not sufficient to satisfy the
requirement that a director acts bona fide for
the benefit of the company;
Statutory Duties of directors –
Section 132 CA 1965
  c)   acting bona fide for the benefit of the company
requires at the least a consideration of views and/or
of relevant material;
  d)   the abandonment of any proper consideration
of relevant facts; the fact of being rushed into a
meeting; ignorance and the lack of detailed
explanation of the implications of the issues under
consideration; the failure to exercise an
independent discretion and the mere doing of what
was it was thought a third party wanted cannot
amount to the bona fide exercise
of a director's discretion.
Recommendations of Finance
Committee
 Issue:
 Is there a need to clarify the duty to act
honestly?
 Recommendation:
 That the duty to act honestly in section 132 CA
should be re-formulated to require a director to
act “bona fide in the best interest of the
company
 Implementation status:
 In Progress
Duties of Skill and care
 Section 132(1) CA also sets out the duty of
the director to use reasonable diligence in the
exercise of the duties of his office.
 The duty of skill, care and diligence to be
exercised by the directors were established in
the leading case of Re City Equitable Fire
Insurance Co Ltd [1925] Ch 407.
 A director are under the duty to exhibit a
degree of skill that is reasonably expected from
a person with his knowledge and experience :
Re City Equitable Fire Insurance Co Ltd
Re City Equitable [1925] Ch
407
 A case where the liquidators of the failed
insurance co sued the directors for
negligence on 3 grounds:
 1) they allowed the co to lend substantial
funds on an unsecured basis to its chairman
and GM
 2) that they made improvident investments
 3) that they paid dividends out of capital
Re City Equitable [1925] Ch
407
The Court held:
 A director need not exhibit a greater degree
of skill than may reasonably be expected
from a person of his or her knowledge and
experience.
 A director is not bound to give continuous
attention to the affairs of the co as his or her
duties are of an intermittent nature to be
performed at periodic board meetings.
Re City Equitable [1925] Ch
407
 A director may, in the absence of grounds for
suspicion and having regard for the
exigencies of business, be justified in trusting
a person to whom a duty has been
delegated, to perform such duties honestly.
DANIELS v ANDERSON (1995) 16
ACSR 607 ‘AWA CASE’.
 AWA, A LARGE LISTED CO IN AUSTRALIA,
EMPLOYED A YOUNG FOREIGN EXCHANGE
MANAGER,ANDREW KOVAL, FOR ITS FOREIGN
EXCHANGE DEALINGS
 ANDREW CONCEALED LOSSES FROM
MANAGEMENT AS THERE WAS NO ADEQUATE
INTERNAL CONTROLS IN PLACE NOR PROPER
RECORDS IN PLACE
AWA CASE
 CO SUFFERED A LOSS OF A$50 MILLION
 CO DISMISSED KOVAL AND SUED
AUDITORS IN CONTRACT, ALLEGING
NEGLIGENCE IN AUDIT
 AUDITORS COUNTER-CLAIMED AGAINST
CO FOR CONTRIBUTORY NEGLIGENCE
ON GROUND
AWA CASE
 THE COURT HELD THE AUDITORS NEGLIGENT
BUT ALSO HELD THE COMPANY TO BE 20%
CONTRIBUTORILY NEGLIGENT.
 NONE OF THE NON-EXECUTIVE DIRECTORS
WERE FOUND LIABLE ON GROUND THAT THEY
WERE IGNORANT OF FAILURE TO ADHERE TO
FOREIGN EXCHANGE GUIDELINES OF THE CO.
AWA CASE
 DIRECTORS WERE UNDER A DUTY TO
FAMILIARISE THEMSELVES WITH THE
BUSINESS OF THE CO, AND TO MONITOR
ITS MANAGEMENT SO AS TO BE
SATISFIED THAT THE CO IS BEING
PROPERLY RUN
AWA CASE
 DIRECTORS ARE SUBJECT TO THE
COMMON LAW DUTIES OF CARE TO THE
CO WHICH REQUIRE THEM TO EXERCISE
REASONABLE CARE IN THE
PERFORMANCE OF THEIR OFFICE.
AWA CASE

 A DIRECTOR CANNOT EXONERATE HIMSELF

FROM LIABILITY ARISING FROM NEGLIGENCE
BY PROCEEDING ON THE BASIS OF
IGNORANCE AND A FAILURE TO INQUIRE.
 DIRECTORS WERE NOT TO BE
DIFFERENTIATED MERELY IN TERMS OF
EITHER EXECUTIVE OR NON-EXECUTIVE
DIRECTOR, AS THE LATTER IS NOT
NECESSARILY SUBJECT TO A LOWER
STANDARD OF CARE.
Duties of Skill and care
 Director should also be held to owe objective
standard of care.
 However, director is not responsible for acts
and omissions of his co-directors even if he
did not attend board meetings : Marquis of
Bute’s [1892] Ch 100.
 On the other hand, even though directors are
responsible for acts or omissions of his co-
directors when he did not attend board
meetings, he may still be liable under the duty
to exercise diligence in performing his duties.
Duties of Skill and care
 The position of directors not being liable for
acts of his co-directors when he did not
attend board meetings may not be applicable
today.
 In Article 72 Table A CA, a director shall
vacate his office if he absents himself from
meetings of directors for a period of 6 months
without the leave of absence of the board.
Non-attendance of meetings
 BSLR 15.05
 (1) the office of a director shall become
vacant if the director:-
 a) becomes of unsound mind;
 b) becomes bankrupt
 c) is absent from more than 50% of the total
board of directors’ meetings held during a
financial year.
Recommendation of the
Finance Committee
 Issue:
 Should 132(1) CA spread its net wider and
codify the requirement of skill and care

 Recommendation:
 That Section 132(1) should be amended to
include the duties of skill and care

 Implementation status:
 In progress
Statutory Duties of directors –
Section 132 CA 1965
 S132(2) CA 1965 sets out the duty not to
misuse information or position.
 Under S132(2), an officer or agent of a
company or officer of the Stock Exchange shall
not make improper use of any information
acquired by virtue of his position as an officer
or agent of the company or officer of the Stock
Exchange to gain directly or indirectly an
advantage for himself or for any other person
or to cause detriment to the company.
 Hence, it is applicable to directors.
Statutory Duties of directors –
Section 132 CA 1965
 This provision can apply to information which
is not confidential as held in McNamara v
Flavel (1988) 13 ACLR 619 but only so long
as the information is of a kind which equity
would protect by injunction for breach of
fiduciary duty.
 S132 CA is sometimes regarded as a misuse
of information by insiders.
 Insider trading is in effect a misuse of
unpublished information of a company by
anyone in possession of such information
which is not generally available.
 Kala Anandarajah, Corporate Governance : A Practical Approach
Insider trading under Section
89 of the Securities Industry
Act (SIA) 1983
 Under Section 89E SIA, an insider (clearly
includes a director) shall not, in respect of
any information that is not generally
available:
 A) acquire or dispose of, or enter into an
agreement with a view to the acquisition or
disposition of such securities; or
 B) procuring, directly or indirectly, an
acquisition or disposal of such securities.
Insider trading under Section
89 of the Securities Industry
Act (SIA) 1983
 This provision would clearly includes
communication of the information to another
person if he knows that the other person
would tend to:
 A) acquire or dispose of, or enter into an
agreement with a view to the acquisition or
disposition of such securities; or
 B) procure a third person to acquire or dispose
of, or enter into an agreement with a view to
the acquisition or disposition of such
securities.
Criminal liability of Section
89E of SIA
 Any person who contravenes or fails to
comply with the above provisions commits an
offence and is liable on conviction to a fine of
a less than RM1 million and to imprisonment
for a term not exceeding 10 years.
Civil liability under Section 90
of SIA
 S90 SIA also provides that a person who
suffers loss or damages by reason of S89E
may recover the loss or damages by
instituting civil proceedings against the other
person.
Other provisions relating to
misuse of information
 Section 132A CA
 An officer, agent or employee of a corporation
or officer of the Stock Exchange who in or in
relation to a dealing in securities of the
corporation by himself or any other person
makes improper use to gain, directly or
indirectly, an advantage for himself or any
other person of specific confidential information
acquired by virtue of his position as such
officer, agent or employee or officer of the
Stock Exchange which if generally known
might reasonably be expected to affect
materially the price of the subject matter of the
dealing on
Other provisions relating to
misuse of information
 a Stock Exchange shall, in addition to any
penalty imposed under subsection (6), be
liable to any person for loss suffered by that
person by reason of the payment by him or to
him of a consideration in respect of the
securities greater or lesser, as the case may
be, than the consideration that would have
been reasonable if the information had been
generally known at the time of the dealing.
Other provisions relating to
misuse of information
 Section 132B CA
 Any person, who in or in relation to a dealing
in securities of a corporation, has any
information which if generally known might
reasonably be expected to affect materially the
price of the subject matter of the dealing on a
Stock Exchange and which -

 (a) he holds by virtue of his official capacity or

former official capacity;
 (b) it would be reasonable to expect a person
in his official capacity or former official
Other provisions relating to
misuse of information
 capacity not to disclose except for the proper
performance of the functions attaching to that
official capacity; and
 (c) he knows is unpublished price sensitive
information in relation to securities of the
corporation,

shall not make improper use of such information
to gain, directly or indirectly, an advantage for
himself or for any other person and any person
who contravenes the provision of this section
shall be guilty of an offence against this Act.
Section 132C Companies Act
1965
 Notwithstanding anything in a company's
memorandum or articles, the directors shall not
carry into effect any proposal or execute any
transaction for -
 (a) the acquisition of an undertaking or property of
a substantial value; or
(b) the disposal of a substantial portion of the
company's undertaking or property,

which would materially and adversely affect the
performance or financial position of the
company, unless the proposal or transaction has
been approved by the company in general
meeting.
Recommendation of the
Finance Committee
 Issue:
 Should Section 132C be amended?

 Problem arises in Section 132C:

 A) Directors will not be prepared to say that a
transaction would adversely affect the
performance of financial position of a company
 B) Doubts as to whether in any one
transactions, approval of a general meeting is
necessary.
Recommendation of the
Finance Committee
 Recommendation:
 Section 132C of the CA should be amended so
that prohibition relates only to a relevant
acquisition or disposal which is material and the
removal of the requirement that it will adversely
affect the performance or financial position of
the company.
 Section 132C should be amended to set out the
criteria for materiality. The criteria for materiality
should be formulated in the same manner as
laid out in Rules 111-120 of Part 4 of the
Listing Requirements (regulation of related
party transactions).
Implementation status as at 31
December 2004
 As at 31 December 2004, 42.5% of the
recommendations in the Finance Committee Report on
Corporate Governance have been completed.

 Sources from Http://www.sc.com.my

Corporate Law Reform
Committee
 Recently, the Corporate Law Reform Committee
(CLRC) has made further reviews and
recommendations to the existing framework on
directors.
 In preparing this paper, reference was made to
international developments for comparative
analysis.
 Further, the CLRC referred to the High Level
Finance Committee Report on Corporate
Governance (1999) (the CG report) and where
appropriate, draws upon and develops the views
of the Finance Committee in so far as it
coincides with the objectives of the Corporate
Law Reform Programme.
The Aim of the CLRC
 improve the legal and regulatory structure
that will facilitate business in Malaysia;
 protect the interest of shareholders whilst
taking into account the interest of other
stakeholders;
 ensure the accountability of directors within a
flexible regulatory framework which promotes
efficient risk-taking via the codification of
duties and available defences for directors;
The Aim of the CLRC
 minimise the agency costs attached to the
director / shareholder relationship through the
disclosure obligation; and
 promote an appropriate balance between the
legal prescriptions and the self-regulation by
the industry.
Latest Development in the
Companies Act
 The Companies (Amendment) Bill 2007 has
been passed by the Parliament and will be
gazetted soon.
 This Act may be cited as the Companies
(Amendment) Act 2007.
 Therefore, it is important to note whether the
recommendations by the Finance Committee
and the CLRC will be incorporated in this new
Act.
Clarifying and Reformulating
the roles and functions of
company directors
 The CLRC noted that our Companies Act
does not have any provisions specifying the
roles and functions of the board because
there is a need for flexibility to be maintained.
 However, the CLRC also recognises that
there are views that corporate governance
failures are partly attributed to the lack of
knowledge of what is expected of directors
and board of directors.
Clarifying and Reformulating
the roles and functions of
company directors
 The roles and functions of a board may differ
from one company to another company.
 Example:
 A) private companies – board involves in day
to day management of company
 B) public companies – board exercises
supervisory function
 The CLRC is of the view that if statutory
restatement of the board’s role and functions
is to be incorporated in the Companies Act,
the restatement must be sufficiently flexible.
Clarifying and Reformulating
the roles and functions of
company directors
 Recommendations:
 The CLRC recommends that there should be
incorporated in the Companies Act, a general
statement of the board’s role and function, to
manage the affairs of the company.
 However, the statutory restatement must :
 A) be couched in general terms so as to
enable the general statement to cover all
possible variations in the perceived roles and
functions of the board.
Clarifying and Reformulating
the roles and functions of
company directors
 B) not impose additional duties and sanctions
on directors but must have informative effect
in that the statutory restatement which will
have the effect of informing directors what is
expected of them in respect of their roles.
Recommendations by CLRC
in relation to Section 132 CA
 The CLRC is of the view that the current
S132 CA does not assist a director in
appreciating and understanding his
obligations as a company director.
 Also, the requirement to act honestly in S132
is not currently defined by the Companies
Act.
 Hence, the CLRC is proposing to clarify and
restate the directors’ fiduciary duties.
Recommendations by CLRC
in relation to Section 132 CA
 The CLRC noted that the United Kingdom Law
Reform Bill 2005 and the New Zealand
Companies Act 1993 clearly provides that there
is a duty to act in the best interest of the
company and to exercise power for the benefit
of the company.
 The CLRC agrees with the views expressed in
the CG Report and recommends that the
Companies Act should incorporate the
recommendations of the CG report.
Recommendations by CLRC
in relation to Section 132 CA
 By replacing the word ‘honestly’ with the
phrase ‘to act in the best interest of the
company and to exercise powers for a proper
purpose’, a director will be informed of the
fact that the duty requires the directors to be
aware that his conduct and decisions must be
made in the best interest of the company and
that powers conferred must be exercised for
a proper purpose.
CLRC’s Recommendation –
Clarifying directors’ duties to
avoid conflict of interest
 The CLRC noted that our S132(1) CA does not
expressly cover most situations of conflict.
 S132(2) CA only address to one specific
‘conflict’ situation in that it deals with company
directors abusing corporate information which
he has acquired due by virtue of his position.
 Therefore, CLRC proposes that the CA
incorporates a provision which sets out in
general terms what are the conflict situations
which should be avoided by directors.
CLRC’s Recommendation –
Clarifying directors’ duties to
avoid conflict of interest
 Although there were provisions like S132A
and S132B which attempt to codify the
misuse of information and various insider
trading conduct, the CLRC is of the view that
these two provisions should be deleted as the
Securities Industries Act 1983 has adequate
insider trading provisions.
CLRC’s Recommendation –
Clarifying directors’ duties to
avoid conflict of interest
 The CLRC also made some considerations
on the common law position and S131 CA on
the duty of disclosure by directors.
 There are differing views as to the
appropriate organ to approve the conflict of
interest transaction.
 Common Law – approved by Shareholders
 S131 CA – approved by Board
CLRC’s Recommendation –
Clarifying directors’ duties to
avoid conflict of interest
 The CLRC also made a comparative study on
the position in UK and Australia.
 In UK, the matter is made by board of directors
but the approval is valid only where the
interested director is not counted towards the
quorum to consider the matter and the matter
was decided without the interested director’s
votes.
 In Australia, the position is the same in UK but
the Australian Corporation Act 2001 is silent
as to which organ to approve transaction.
CLRC’s Recommendation –
Clarifying directors’ duties to
avoid conflict of interest
 The CLRC is of the view that a conflict
transaction should be approved by the
shareholders because the conflict of interest
involves directors and directors’ decision may
be tainted by self-interest.
CLRC’s recommendations -
Director’s duty of care and
skill
 The CLRC noted that our Companies Act is silent
with respect to the care and skill that is expected
by a director.
 Therefore, the CLRC recommends that:
 a) the Companies Act should incorporate the
directors’ obligation to exercise care and skill; and
 b) the standard of care and skill expected of
directors should reflect a mixed test of subjective
and objective standard of care.
CLRC’s recommendations -
Director’s duty of care and
skill
 Duty to exercise care, skill and diligence
means the care, skill and diligence that would
be exercised by a reasonably diligent person
with:
 a) the general knowledge, skill and
experience that may reasonably be expected
of a director;
 b) the general knowledge, skill and
experience that a director has.
Companies (Amendment) Act
2007
 New Sections 131A and 131B:
 “Subject to section 131, a director of a
company who is in any way, whether directly
or indirectly, interested in a contract entered
into or proposed to be entered into by the
company, unless the interest is one that need
not be disclosed under section 131, shall be
counted only to make the quorum at the
board meeting but shall not participate in any
Companies (Amendment) Act
2007
 discussion while the contract or proposed
contract is being considered at the board
meeting and shall not vote on the contract or
proposed contract.”
 S131B provides that the directors have the
power to manage or supervise the affairs of
the company.
Companies (Amendment) Act
2007
 Amendment of Section 132
 (1) A director of a company shall at all times
exercise his powers for a proper purpose and
in good faith in the best interest of the
company.
 (1A) A director of a company shall exercise
reasonable care, skill and diligence with –
 (a) the knowledge, skill and experience which
may reasonably be expected of a director
having the same responsibilities; and
Companies (Amendment) Act
2007
 (b) any additional knowledge, skill and
experience which the director in fact has.

 Business judgment
 (1B) A director who makes a business
judgment is deemed to meet the requirements
of the duty under subsection (1A) and the
equivalent duties under the common law and
in equity if the director
Companies (Amendment) Act
2007
 (a) makes the business judgment in good faith
for a proper purpose;
 (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
Companies (Amendment) Act
2007
 (d) reasonably believes that the business
judgment is in the best interest of the company.
 Prohibition against improper use of
company's property, position, corporate
opportunity or competing with the company
 (2) A director or officer of a company shall not,
without the consent or ratification of a general
meeting-
Companies (Amendment) Act
2007
 (a) use the property of the company;
 (b) use any information acquired by virtue of his
position as a director or officer of the company;
 (c) use his position as such director or officer;
 (d) use any opportunity of the company which
he became aware of, in the performance of his
functions as the director or officer of the
company; or
Companies (Amendment) Act
2007
 (e) 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.";
 and
 (d) in subsection (6), by inserting after the
definition of
 "agent" the following definitions:
Companies (Amendment) Act
2007
 ' "business judgment" means any decision on
whether or not to take action in respect of a
matter relevant to the business of the
company;
 "director" includes the chief executive officer,
the chief operating officer, the chief financial
controller or any other person primarily
responsible for the operations or financial
management of a company, by whatever
name called;'.
Companies (Amendment) Act
2007
 Deletion of section 132A
 The principal Act is amended by deleting
section 132A.
 Deletion of section 132B
 The principal Act is amended by deleting
section 132B.
Other statutory obligations
 Obligation to keep registers
 To make documents available for inspection
 Keeping minutes of meetings
 Keeping accounting records and books
 To hold AGM
 To lodge changes in particulars of the
company, directors and secretaries
 To record and note interests of and disclosure
by directors or chief executives, their spouses,
children or parents of their interest in
securities of a company
New Section 167A on system
of Internal control
 S167A provides:
 Except as otherwise provided for in the listing
requirement of a stock exchange in relation to
companies whose share are listed for
quotation on the stock exchange, the
directors of a public company or a subsidiary
of a public company shall have in place a
system of internal control that will provide a
reasonable assurance that:
New Section 167A on system
of Internal control
 A) assets of the company are safeguarded
against loss from unauthorised use or
disposition; and
 B) all transaction are properly authorised and
that they are recorded as necessary to
enable the preparation of true and fair profit
and loss account and balance sheets and to
give a proper account of the assets.
 Penalty: Imprisonment of 6 months or
RM10,000 or both
UK Company Act 2006

 Received Royal Assent on 8th November

2006 and all parts of the Act will be
commenced by October 2008.
UK Company Act 2006
 S170 provides the scope and nature of
general duties owed by a director of a
company to a company.
 The general duties :
 S171 - Duty to act within powers
 S172 - Duty to promote the success of the
company
 S173 - Duty to exercise independent judgment
UK Company Act 2006
 S174 - Duty to exercise reasonable care, skill
and diligence
 S175 - Duty to avoid conflict of interest
 S176 - Duty not to accept benefits from third
parties
 S177 - Duty to declare interest in proposed
transaction or arrangement
S172 UK CA 2006
 1) A director of a company must act in the way he
considers, in good faith, would be most likely to
promote the success of the company for the benefit of
its members as a whole, and in doing so have regard
(amongst other matters) to-
 (a) the likely consequences of any decision in the
long term,
 (b) the interests of the company's employees
 (c) the need to foster the company's business
relationships with suppliers, customers and others,

 (d) the impact of the company's operations on the

community and the environment,
S172 UK CA 2006
 (e) the desirability of the company maintaining
a reputation for high standards of business
conduct, and
 (f) the need to act fairly as between members
of the company.
 (2) Where or to the extent that the purposes of
the company consist of or include purposes
other than the benefit of its members,
subsection (1) has effect as if the reference to
promoting the success of the company for the
benefit of its members were to achieving those
purposes
S172 UK CA 2006
 (3) The duty imposed by this section
has effect subject to any enactment
or rule of law requiring directors, in
certain circumstances, to consider or
act in the interests of creditors of the
company.
S173 UK CA 2006
 (1) A director of a company must exercise
independent judgment.
(2) This duty is not infringed by his acting-
  
 (a) in accordance with an agreement duly
entered into by the company that restricts the
future exercise of discretion by its directors,
or
 (b) in a way authorised by the company's
constitution.
S174 UK CA 2006
 (1) A director of a company must exercise
reasonable care, skill and diligence.
(2) This means the care, skill and diligence that
would be exercised by a reasonably diligent
person with-
 (a) the general knowledge, skill and experience
that may reasonably be expected of a person
carrying out the functions carried out by the
director in relation to the company, and
 (b) the general knowledge, skill and experience
that the director has.
Directors’ duties under BSLR
- Directors’ Training
 Para 15.09 LR
 1) A director of a listed issuer must ensure
that he attends such training programmes as
may be prescribe by the Exchange from time
to time
 2) The Board of directors must disclose in the
annual report of the listed issuer whether its
directors have attended training for the
financial year. Where one of its directors have
not attended the training for the financial year,
the board of directors must state the reasons
in the annual report.
Directors’ duties under BSLR -
Corporate Governance
Disclosure
 Para 15.26 Disclosure pursuant to the
Code
 A listed issuer must ensure that its board of
directors makes the following statements in
relation to its compliance with the Malaysian
Code on Corporate Governance in its annual
report:-
 A) a narrative statement of how its listed
company has applied the principles set out in
Part 1 of the Malaysian Code on Corporate
Governance to their particular circumstances;
and
Directors’ duties under BSLR
- Corporate Governance
Disclosure
 B) a statement on the extent of compliance
with the Best Practice of Corporate
Governance set out in Part 2 of the
Malaysian Code on Corporate Governance
which statement shall specifically identify and
give reasons for any area of non-compliance
with Part 2 and the alternatives to the Best
Practices adopted by the listed issuer if any.
Directors’ duties under BSLR
- Corporate Governance
Disclosure
 Para 15.27 Additional statements by the
board of directors
 A listed issuer must ensure that its board of
directors makes the following additional
statement in its annual report:-
 A) a statement explaining the board of
directors’ responsibility for preparing the
annual audited accounts; and
 B) a statement about the state of internal
controls of the listed issuer as a group.
Contents of Internal Controls
 In making the internal control statement, a
listed issuer is required to address the
Principles and best Practices in the Code,
namely:
 A) Principle D II in Part 1 of the Code which
reads as follows:
 “the Board should maintain a sound system
of internal control to safeguard shareholders’
investments and company’s assets.”
 Practice Note No.9/2001 Disclosure in relation to Malaysian Code on
Corporate Governance and the state on internal control
Contents of Internal Controls
 B) Best Practice AAI in Part 2 of the Code
which read as follows:
 “the Board should explicitly assume the
following specific responsibilities, which
facilitate the discharge of board’s stewardship
responsibilities:-
 Identify principal risks and ensure
implementation of appropriate system to
manage risks

 Practice Note No.9/2001 Disclosure in relation to Malaysian Code on

Corporate Governance and the state on internal control
Contents of Internal Controls
 Reviewing the adequacy and integrity of the
company internal control system and
management information system, including
system for compliance with applicable laws,
regulations, rules, directives and guidelines

 Practice Note No.9/2001 Disclosure in relation to Malaysian Code on

Corporate Governance and the state on internal control
Non-compliance of the BSLR
 Section 11 of the Securities Industry Act
1983 provides that :
 Where any person fails to comply the rules of
stock exchange, that person has committed a
breach.
 If a person has committed a breach, the
Securities Commission may take one or more
of the following actions:
 A) direct the person to comply with, observe,
enforce or give effect to those rules;
Non-compliance of the BSLR
 B) impose a penalty in proportion to the
severity or gravity of the breach but not
exceeding RM1 million
 C) reprimand the person in breach
 D) require the person in breach to take steps
as the Commission direct to remedy the
breach.
BREACH OF BSLR
 PARA 16.16 BSLR
 IN THE EVENT OF BREACH OF LR BY A
LISTED ISSUER OR ITS DIRECTORS, THE
BSLR MAY, AFTER CONSULTATION WITH
SC, TAKE OR IMPOSE SUCH ACTIONS OR
PENALTIES AS IT CONSIDER
APPROPRIATE.
ACTIONS OR PENALTIES IN
RELATION TO DIRECTORS
 PARA 16.17(1)(b)
 ISSUANCE OF PUBLIC REPRIMAND
 IMPOSITION OF A FINE NOT EXCEEDING
RM1 MILLION
 PROHIBITION OF DEALINGS IN
SECURITIES
COMMON BREACHES OF
BSLR

 LATE SUBMISSION OF QUARTERLY

REPORT
 LATE SUBMISSION OF ANNUAL
AUDITED ACCOUNTS TOGETHER WITH
AUDITORS’ AND DIRECTORS’ REPORT
 FAILURE TO MAKE IMMEDIATE
ANNOUNCEMENTS IN RESPECT OF
WINDING-UP PETITION
COMMON OFFENCES AND
PENALTIES

 OUT OF THE 326 INVESTIGATION

CASES INITIATED AND CARRIED OUT
ON PUBLIC LISTED COMPANIES
DURING THE FINANCIAL YEAR ENDED
31/12/2003, 169 (51.8%) WERE DUE TO
FAILURE IN COMPLYING WITH
DISCLOSURE REQUIREMENTS.
 Investigation Cases initiated during the FYE 31/12/2003

1%

40%
48%

1%
3% 5% 2%
Failure to comply w ith the policy on Response to Unusual Market Activity/Failure to promptly provide information or
documents to the Exchange
Failure to comply w ith requirements on Corporate Disclosure Policy and Immediate Announcements

Failure to comply w ith Approved Accounting Standards

Failure to release Quarterly Reports on time

Failure to furnish Annual Audited Accounts on time

Failure to furnish Annual Reports on time

Others

Bursa Securities Annual Report 2003

COMMON OFFENCES AND
PENALTIES

 BURSA SECURITIES ISSUED 44 PUBLIC

REPRIMANDS IN 2006 FOR VARIOUS
BREACHES OF THE LISTING REQUIREMENTS.
 ALMOST ALL OFFENCES WERE A RESULT OF
BREACHING CHAPTER 9 CONTINUING
REQUIREMENTS.
 28 OUT OF THE 44 REPRIMANDS INCLUDED
PENALTIES WHICH INVOLVED FINES THAT
RANGED FROM RM3,000 TO RM400,000.
 PUBLIC REPRIMANDS WITH
PENALTIES BY BURSA
SECURITIES IN 2004

Public Reprimands with Penalties by Bursa Securities in

2004

7
6
Frequency

5
4
3
2
1
0
9.22(1) 9.23(b) 9.03(1) 9.23(a) 9.04(f) 9.04(l) 9.16(1) PN PN 9.11(1)
1/2001 1/2001
para para
2.1(d) 2.1(e)

Offence - breach of
 Offences (Year 2004)– breach of
Frequency
Listing Requirement Section

9.22(1) Quarterly Report Periodic Disclosure 6

Submission of Annual Audited Accounts

9.23(b) Periodic Disclosure 6
and Annual Report

Immediate Disclosure of
9.03(1) Disclosure of Material Information 4
Material Information

Submission of Annual Audited Accounts

9.23(a) Periodic Disclosure 3
and Annual Report

Examples of Events which Require Immediate Disclosure of

9.04(f) 2
Immediate Disclosure Material Information

Examples of Events which Require Immediate Disclosure of

9.04(l) 2
Immediate Disclosure Material Information

Content of Press or Other Public

9.16(1) Preparation of Announcements 2
Announcement

PN 1/2001 Immediate Disclosure of

(affects 9.03 & 9.04) 2
para 2.1(d) Material Information

PN 1/2001 (affects 9.03 & 9.04) Immediate Disclosure of

2
para 2.1(e) Material Information

Response to Unusual Market

9.11(1) Unusual Market Activity 1
Activity
Total number of separate offences 26
Actions taken for breaches of
BSLR – As at 31 Dec 2005
25 Public reprimand & fines

20

15

10

0
Para Chapter Chapter Para Para Para Para
9.11 9 except 8 16.11 9.22(1) 9.23(a) 9.23(b)
9.11
 Sanctions imposed for
12
months ended 31 Dec
Offences for Year 2005  2005
Public Reprimand &
Type of cases Fine
Failure to comply with the policy on Response to Unusual Market

Activity/Failure to promptly provide information or documents to

the
Exchange - Part F of Chapter 9 of the LR 1
Failure to comply with requirements on Corporate Disclosure
Policy and
immediate Announcement - Chapter 9 (except for Part F, Para
9.22-9.26
of the LRD) 8
Failure to comply with Continuing Listing Obligations - chapter 8
of LR 4
Breach of Directors for causing, aiding or abetting; or permitting
a breach of
LR by Listed Issuer - Para 16.11 of LR 12
Failure to release Quarterly reports on time - Para 9.22(1) of LR 18
Failure to furnish Annual Reports on time - Para 9.23(a) of LR 12
Failure to furnish Annual Audited Accounts on time - Para
9.23(b) of LR 20
TOTAL 75
 PUBLIC REPRIMAND BY BURSA
ON COMPANIES & DIRECTORS
 BURSA MALAYSIA SECURITIES BERHAD (BURSA
SECURITIES) PUBLICLY REPRIMANDED THE PRINCIPAL
OFFICERS OF MULTI VEST RESOURCES BERHAD
(“MVEST”), i.e. MR. K. SELVESWARAN A/L KANAGARATNAM
(SENIOR VICE PRESIDENT- GROUP OPERATIONS DIVISION
AT THE MATERIAL TIME) AND MR TANG YOW SAN (VICE
PRESIDENT, GROUP FINANCE DIVISION/JOINT COMPANY
SECRETARY AT THE MATERIAL TIME) FOR BREACH OF
PARAGRAPH 14.05 OF THE LISTING REQUIREMENTS OF
BURSA SECURITIES.

 8.3.2006
 PUBLIC REPRIMAND BY BURSA
ON COMPANIES & DIRECTORS

 BURSA MALAYSIA SECURITIES BERHAD

HAS PUBLICLY REPRIMANDED MR.
SABJIT SINGH S/O SARBAN SINGH, THE
FORMER DIRECTOR OF QSR AND KFC
FOR BREACH OF PARAGRAPHS 2.17(3)
OF THE LISTING REQUIREMENTS OF
BURSA SECURITIES (“BURSA SECURITIES
LR”).

 8.3.2006
FINES IMPOSED BY BURSA ON
COMPANIES & DIRECTORS
 BURSA MALAYSIA SECURITIES BERHAD
(BURSA SECURITIES) PUBLICLY
REPRIMANDED AND IMPOSED A TOTAL
FINE OF RM700,000 ON YCS CORPORATION
BERHAD FOR BREACH OF PARAGRAPH
9.23 OF THE LISTING REQUIREMENTS OF
BURSA SECURITIES (BURSA SECURITIES
LR)
 9 Aug 2005
 FINES IMPOSED BY BURSA ON
COMPANIES & DIRECTORS
 BESIDES, THE FORMER MANAGING DIRECTOR
OF YCS CORPORATION BERHAD, YAP KWEE
HUAT WAS BEING REPRIMANDED AND
IMPOSED A FINE OF RM100,000 FOR BREACH
OF PARAGRAPH 16.11(a) OF THE BURSA
SECURITIES LR FOR CAUSING THE COMPANY
TO BREACH PARAGRAPH 9.23 OF THE BURSA
SECURITIES LR IN RESPECT OF THE FAILURE
TO SUBMIT THE ANNUAL REPORT 2001 AND
ANNUAL AUDITED ACCOUNT 2001 WITHIN THE
STIPULATED TIMEFRAMES.
 9 Aug 2005
FINES IMPOSED BY BURSA ON
COMPANIES & DIRECTORS
 BURSA MALAYSIA SECURITIES BERHAD
HAS PUBLICLY REPRIMANDED AND
IMPOSED A FINE OF RM100,000 ON EACH
OF THE DIRECTORS OF TANAMAS FOR
BREACH OF PARAGRAPH 16.11(a) OF THE
LISTING REQUIREMENTS OF BURSA
SECURITIES (BURSA SCURITIES LR)
 9 Aug 2005
FINES IMPOSED BY BURSA ON
COMPANIES & DIRECTORS
 BESIDES, BURSA SECURITIES ALSO
PUBLICLY REPRIMANDED THE FORMER
EXECUTIVE DIRECTOR OF TANAMAS,
NAMELY DATO’ HAMZAH BIN ZAINUDIN
FOR BREACH OF PARAGRAPH 16.11(b) OF
THE BURSA SECURITIES LR.
 9 Aug 2005
FINES IMPOSED BY BURSA
ON COMPANIES &
DIRECTORS
 Bursa Securities has publicly reprimanded Dceil
International Berhad for failure to make immediate
announcements in respect of various defaults in
payment of credit facilities by subsidiaries of the
company.
 Bursa has also taken enforcement action against
the executive directors of the company, namely
Dato’ Dr Tan Seng An and Datin Tan Bee Lian to be
in breach of Para 16.11 and Para 14.05 of the LR.
 20 Dec 2006
FINES IMPOSED BY BURSA
ON COMPANIES &
DIRECTORS
 Penalties imposed under Para 16.11:
 Public Reprimand and a fine of RM25,000

 Penalties imposed under Para 14.05:

 Public Reprimand and a fine of RM500,000
Directors’ duties under SC
Policies and Guidelines on
Issue/Offer of Securities
 The guidelines of the SC sets out the
requirements which have to be met before
embarking a corporate proposal set out in
S32 of the Securities Commission Act 1993.
 Para 4.07
 Each director concerned is required to give a
declaration in the form stipulated in the
Schedule of this guidelines as to his/her
fitness and competence to act as directors.
Directors’ duties under SC
Policies and Guidelines on
Issue/Offer of Securities
 Para 6.20
 No material conflict of interest between the
company and its directors or substantial
shareholders should exist.
 Where conflict of interest exists, the company
is required to declare the nature, character
and extent of the relationship and the conflict
of interest to the SC.
Securities Fraud

 Yip Yee Foo and Chung Wai Meng, directors of

Cold Storage (Malaysia) Bhd (CSM), were
charged on 24 Sept 2004 for defrauding CSM by
transferring RM185 million of CSM’s funds to pay
for the purchase of CSM shares by Fulham
Finance and Trade Ltd and Excoplex Sdn Bhd
 They were both charged in the alternative for
CBT of the said RM185 million.
 Source: www.sc.com.my
 False or Misleading Statements
under Securities Commission Act
1993
 Section 32B, where any statements or
information is required to be submitted to the
Commission in relation to or in connection with
any proposal submitted pursuant to section 32
(a) an applicant, any of its officers or associates
(b) financial adviser or an expert; or
(c) any other person,
shall not
 False or Misleading Statements
under Securities Commission Act
1993
(aa) submit or cause to be submitted any statement
or information that is false or misleading;
(bb) Submit or cause to be submitted any
statement or information from which there is a
material omission; or
(cc) Engage in or aid or abet conduct that he knows
to be misleading or deceptive or is likely to
mislead or deceive the Commission.
 False or Misleading Statements
under Securities Commission Act
1993
Punishment
(4) Fine not exceeding three million ringgit or
imprisonment for a term not exceeding ten
years or both.
Section 138(2), ... Any person who was a director,
a chief executive officer, an officer, an
employee, a representative or the secretary of
the body corporate …shall be deemed to have
committed that offence unless he proves that
the offence was committed without his consent.
 False or Misleading Statements
under Securities Commission Act
1993
Yap Kim Seng the Managing Director of Pasaraya
Hiong Kong Sdn Bhd was charged for causing to
be submitted to the SC false information. The
false information was submitted in connection with
Ocean Capital Berhad’s application to SC for its
proposed corporate restructuring exercise, which
included the proposed acquisition of PHK. PHK’s
Financial Statements for the year ended 31.3.2003
contained fictitious sales totaling RM7,786,665
which had the effect of increasing PHK’s profit
before tax to RM13,073,565.
False or Misleading Statements
under Securities Commission Act
1993
Had the fictitious transactions not been
captured in the accounting records of PHK, it
would have recorded a profit before tax of
RM5,286.900. This would have resulted in
PHK reporting an after tax profit of well
below the minimum RM8,000,000 required
for a listing on the Main Board of the Kuala
Lumpur Stock Exchange.
 False or Misleading Statements
under Securities Commission Act
1993
The Sessions Court sentenced Yap Kim Seng
to two years’ imprisonment after taking into
consideration the potential loss that could have
occurred had the restructuring proposal been
implemented.

Securities Commission
Press Release : 16.1.2006
 Profile of Offences Prosecuted by
the Securities Commission (1999-
August 2004)
 Fraud (5.7%) (3 cases,11 individuals)
 Short selling & licensing related offences (32%)
(17 cases, 18 individuals
 * Corporate Governance (45.3%) (24 cases, 40
individuals)
 Futures industry Offences (17%) (9 cases, 17
individuals)
Source: Paper presented by Nik Ramlah Mahmood at The 6th Asian
Roundtable on Corporate Governance 2-3 Nov 2004
 Profile of Offences Prosecuted by
the Securities Commission (1999-
August 2004)
* Corporate Governance offences include:
 Providing false or misleading info on
proposals/dealings in securities or affairs of
company
 Fraud involving directors or management
 Mis-utilisation of public issue proceeds
 Breach of condition of SC’s approval
 Trading offences involving directors or
management
Common Offences committed
by directors
 s55(1)(a) of the Securities Commission
Act 1993
 No person shall authorise or cause the issue
of a prospectus which contains-
 (a) any statement or information that is
false or misleading; or
 (b) any statement or information from which
there is a material omission.
Common Offences committed
by directors
 122B. False reports to Commission, stock
exchange or recognised clearing house.
 A person who-
 (a) with intent to deceive, makes or furnishes; or
 (b) knowingly authorises or permits the making or
furnishing of,
 any false or misleading statement or report to
the Commission, a stock exchange or a
recognised clearing house relating to-
Common Offences committed
by directors
 (aa) dealings in securities;
 (bb) the affairs of a listed corporation;
 (cc) any matter or thing required by the
Commission for the due administration of this Act;
or
 (dd) the enforcement of the rules of a stock
exchange or the rules of a recognised clearing
house,
Common Offences committed
by directors
 commits an offence and is liable on
conviction to a fine not exceeding three
million ringgit or to imprisonment for a term
not exceeding ten years or to both.
Common Offences committed
by directors
 s364(2) CA
 Every person who in any return, report, certificate,
balance sheet or other document required by or for
the purposes of this Act makes or authorizes the
making of a statement false or misleading in any
material particular knowing it to be false or
misleading or intentionally omits or authorizes the
omission or accession of any matter or thing thereby
making the document misleading in a material
respect shall be guilty of an offence against this Act
Press Release from SC
 SC charges three persons for submitting
false information in NasionCom case - 28
May 2007
 This is in relation to NasionCom Holdings
Bhd (NasionCom) financial statements for the
year ended 31 December 2005 and
NasionCom Prospectus for listing on the
MESDAQ Market.
 http://www.sc.com.my
Press Release from SC
 Offences committed by the directors:
 A) under s55(1)(a) of the Securities
Commission Act 1993 (SCA) for causing the
issuance of NasionCom Prospectus for listing
on the MESDAQ Market, which contained
misleading information. This offence is
punishable under s55(3) of the SCA which
carries a maximum penalty of RM3 million fine
or 10 years imprisonment or both;
Press Release from SC
 B) under s122B(a)(bb) Securities Industry Act
1983 (SIA) read together with s122 of the
same Act , in his capacity as a director, is
deemed to have submitted false information to
the SC contained in the 2005 Annual Report of
NasionCom, in particular, its revenue for the FYE
31 December 2005. This offence is punishable
under s122B of the SIA, which carries a
maximum fine of RM3 million or imprisonment
not exceeding 10 years or both; and
Press Release from SC
 C) under s364(2) of the Companies Act 1965
for authorising the making of false statements
in the documents of NasionCom Sdn Bhd
which are required to be kept under s167(1) of
the Companies Act 1965. These false
statements were used for the preparation of
NasionCom's Financial Statement for the FYE
31 December 2005. This offence is punishable
under s364(2) of the Companies Act 1965
which carries a maximum imprisonment of 10
years or RM250,000 fine.
Press Release from SC
 SC charges Tan Siok Wan and Lee Sin Teck for
falsifying information in GP Ocean listing
proposal - 18 April 2007
 Tan Siok Wan, co-founder and Executive
Director/Chief Operating Officer of GP Ocean, and Lee
Sin Teck, co-founder and Managing Director/Executive
Vice Chairman of GP Ocean, were charged for
submitting misleading information to the SC in
connection with GP Ocean’s proposal for listing on the
Main Board of Bursa Malaysia Securities Berhad.
Press Release from SC
 Following the SC’s investigation, it was
revealed that the misleading information
submitted was contained in:
a) the GP Ocean’s ‘Directors’ Report and
Audited Financial Statements 31 January
2006’ at page nine and 25; and
b) the list titled ‘GP Ocean Food Berhad Top
Ten Customer’.
Press Release from SC
 Tan Siok Wan and Lee Sin Teck are charged
for an offence under section 32B(1)(a)(aa) of
the Securities Commission Act 1993 (SCA)
read together with section 138(2) of the SCA.
Press Release from SC
 SC charges two more directors of GP Ocean
for submitting misleading information in GP
Ocean listing proposal - 22 May 2007
 The directors were charged for submitting
misleading information to the SC in connection
with GP Ocean's proposal for listing on the
Main Board of Bursa Malaysia Securities
Berhad.
 http://www.sc.com.my
Press Release from SC
 GP Ocean submitted its listing proposal to
the SC on 23 August 2005. They later revised
the proposal and resubmitted to the SC on 15
February 2006.
 The SC's investigation revealed the
submission of misleading information
pertaining to revenue figures for financial
statements for the year ended 31 January
2006 amounting to:
Press Release from SC
 RM142,452,400 for Gropoint Fisheries Sdn
Bhd and RM38,009,652 for Gropoint Seafood
Industries; and
 RM180,462,052 for GP Ocean.
 The directors are charged for an offence
under section 32B(1)(a)(aa) of the Securities
Commission Act 1993 (SCA) read together
with section 138(2) of the SCA.
Conclusion
 It appears that the task of clarifying and
reformulating directors’ duties so as to
promote accountability is not an easy one but
it has to be done so as to ensure that our
corporate law framework remains effective
and can facilitate business.
 The confidence of the investors should not be
derogated by poor performance of the
directors
Conclusion
 Although the Companies (Amendment) Act
2007 has incorporated major changes to
directors’ duties especially in S132, it can be
seen that the recommendations of the CLRC
has not completely found its way to the Act.
 Contributions from Sum Wai Hoe, LLB
(Leeds), CLP
 The End
Thank you