Who is Not Eligible to Become a Director of Sdn. Bhd.

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Before opening a company, it is necessary to know and understand the qualifications and disqualifications of company directors. Other than that, it is important that directors of Malaysian companies act according to the responsibilities of their duties in order to avoid breaching the company law and committing criminal offences. This article provides an overview of the qualification, disqualification, resignation and removal of directors. 

Definition of Director 

Before we get into today’s topic, let’s briefly bring over the definition of what a “director” is. Section 2 of the CA 2016 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 directors or instructions most directors of a corporation are accustomed to act, as an alternate or substitute director. The new definition lowers the threshold of directorship compared to its previous counterpart in Section 4 of the CA 1965. It now only requires the directions or instructions to be followed by majority of directors, instead of the entire board of directors.  

Disqualifications of Director 

Who is disqualified to become a director of Sdn Bhd

Who cannot be a director in Malaysia?  

To elaborate further from the picture above, a person is not eligible to become a director of the company if: –

  • Less than 18 years old. 
    • A director shall be a person who is at least 18 years of age.  
  • Is an undischarged bankrupt 
    • A person who has been adjudicated bankrupt and has not been discharged from his bankruptcy cannot hold office as a director or take part in the management of the company. It is immaterial whether he was made a bankrupt within or outside Malaysia.  
  • A convicted person  
    • A person who has been convicted inside or outside of Malaysia of any the following offences: –
  • Offences related to the promotion, formation or management of a corporation  
  • Offences under section 213,217,218,228 or 539 
  • Crime involving bribery, fraud or dishonesty 

**The prohibition period is 5 years calculated from the date he is convicted, or if he is sentenced to imprisonment, 5 years from the date of his release from prison. Nevertheless, he may be re-appointed or hold office as a director with the court’s approval.  

  • An auditor 
    • An auditor of a company cannot be a director of the company. His spouse is also not allowed to be a director of the company. If he wishes to be appointed as a director of the company, he or his spouse has to resign as the company’s auditor.  
  • Prohibited by the constitution of the company 
    • A company in its constitution may require its directors to hold a minimum number of shares in the company. If the director did not hold the minimum number of shares required within the prescribed period, he would be disqualified from being a director of the company.  
  • Has touched on the powers granted to the Court by Section 199 
    • On application by the Registrar to disqualify persons from acting as director or promoter, or be concerned with or taking part in the management of a company if: – 
      1. Within the last 5 years, the person has been a director of 2 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; 
      2. Due to his contravention of the duties of a director; or  
      3. Due to his habitual contravention of the CA 2016.  

Under CA 1965, the Registrar of Companies has to meet all 3 requirements as stated above while under CA 2016, the Registrar of Companies has to prove only one of them. 

Resignation, Vacation or Death of a Director 

 Resignation, Vacation or Death of last remaining director
(aka Single Person Company)

The CA 2016 codifies article 72 of Table A under the Fourth Schedule of the CA 1965 into a provision. Section 208(1) states that the office of a director of a company shall be vacated if the person holding that office: –  

  1. Resigns in accordance with subsection (2); 
  1. Has retired in accordance with the CA 2016 or the constitution of the company; 
  1. Is removed from the office in accordance with the CA 2016 or the constitution of the company; 
  1. Becomes disqualified from being a director under section 198 or 199: 
  1. Becomes of unsound mind; 
  1. Dies; or 
  1. Otherwise vacates his office accordance with the company’s constitution.  

Sometimes, the board of directors may reject the resignation is because the resigning director is: – 

  1. A contract employee 
  1. A party to the shareholder’s agreement  
  1. Involved in a likely serious breach of trust case  

Source: https://www.ssm.com.my/Pages/Training_Academy/SSMNC_2017/session_1_khuzairi_yahaya_part_2_0.pdf  

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