By AZIZAM AZIZAN
DISQUALIFICATION OF DIRECTOR
The Director’s Dilemma: Exploring Disqualification Under Company Law
In the realm of corporate governance, the role of directors is pivotal in steering the direction and success of a company. However, not all individuals are deemed suitable for this responsibility. The Companies Act 2016, a fundamental legal framework in Malaysia, outlines provisions for disqualifying directors who fail to meet certain criteria or engage in misconduct. This article delves into the disqualification of directors as per the Companies Act 2016, shedding light on the reasons, process, and implications of such disqualifications.
What does it mean by director?
S2 of Companies Act 2016 “Director” includes 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.
Persons disqualified from being a director
S198 of Companies Act 2016 A person shall not hold office as a director of a company or whether directly or indirectly be concerned with or takes part in the management of a company, if the person–
I. Undischarged bankrupt
II. Convicted whether within or outside Malaysia for any offences:
in connection with promotion or management of a corporation
involving bribery, fraud or dishonesty
involving breach of duties of directors
III. Disqualified by Court due to;
his conduct which has resulted in 2 companies went into liquidation in the last 5 years
His contravention of his duties under the Act
Habitual contravention of the Act
IV. Power of Registrar to remove name of directors who have been disqualified
Effect of Disqualifications
The period of disqualification for above cases (S198 (1) (b, c, d & e) is five (5) years. So, he is not required to apply for the court leave after the expiry of 5 years (from date he is convicted or if he is being sentenced to imprisonment, after his release from prison).
Any person who contravenes the above sections (S198) commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding RM1.0 million or both.
Sec 200 – registrar may remove the name of the director who has been disqualified
under Sec 198 & 199 from the register kept by the registrar.
Can a Disqualified Director act as Director again?
Yes, a disqualified director has the potential to act as a director again, a person may apply for a leave of the Court but the process and conditions vary based on the specific legal framework of the jurisdiction.
The Companies Act 2016 empowers regulatory bodies and concerned individuals to uphold the integrity of corporate leadership by scrutinizing and addressing instances of potential misconduct, incompetence, or breach of fiduciary duties. Through a structured process that encompasses investigation, due process, and potential legal consequences, the Act strikes a delicate balance between accountability and fairness.
By disqualifying directors who fail to meet the stipulated criteria or who engage in actions detrimental to the company, the legislation not only protects the interests of shareholders and stakeholders but also sends a resounding message that ethical conduct and diligent oversight are non–negotiable aspects of directorship. This, in turn, cultivates an environment of trust, transparency, and corporate responsibility, essential for sustained business growth and public confidence.