LegalTAPS (June 2017)
KEY HIGHLIGHTS ON THE BANKRUPTCY (AMENDMENT) BILL 2016
The rapid increase in the number of bankruptcy in Malaysia is of particular concern. According to the Malaysian Insolvency Department statistics, a total of 97,215 people were declared bankrupt between January 2012 and September 2016, with Selangor heading the list with 27,269 cases. As a result, the government introduced the Bankruptcy (Amendment) Bill 2016 (“the Bill”) with the aim to curb such continuing increase. The Bill was tabled for its first reading on 21 November 2016 and was passed by the Parliament during its second reading on 29 March 2017. It will make significant changes to the bankruptcy law once it is duly gazetted and enforced.
This article will highlight the key amendments under the Bill which, among others, include the following:
Change of Name from Bankruptcy to Insolvency
The Bankruptcy Act 1967 will be renamed as the Insolvency Act 1967. All references to the Bankruptcy Act 1967 in any written law or document shall be construed as references to the Insolvency Act 1967 when the Bill comes into operation.
Introduction of Voluntary Arrangement as a Pre-Bankruptcy Rescue Mechanism
Voluntary arrangement is defined as a composition in satisfaction of a debtor’s debt or a scheme of arrangement of a debtor’s affairs. A debtor may propose a voluntary arrangement to his creditors at any time before he is adjudged bankrupt and work out a proposal for settlement of debt with his creditors.
The debtor is required to appoint a nominee to supervise the implementation of the voluntary arrangement and to simultaneously apply to the court for an interim order of voluntary arrangement. It is pertinent to note that the nominee must be a registered chartered accountant, an advocate and solicitor, or such other person approved by the Minister upon recommendation by the Director General of Insolvency and must fulfil other conditions stated in the Bill.
The interim order of voluntary arrangement is valid for 90 days from the date of order and no further extension will be granted. During the validity of this interim order, the debtor is temporarily immune from all legal proceedings. No bankruptcy petition may be made or proceeded with against the debtor. Besides that, other legal proceeding, executions or legal processes are not allowed to be commenced or continued against the debtor unless with leave of the court.
Once the interim order has been made, the nominee shall summon every debtor’s creditor to a meeting for the purpose of approving the debtor’s proposal for voluntary arrangement. Special resolution is required to be passed in order to approve the proposed voluntary arrangement. The right of a secured creditor to enforce his security will not be affected unless with the secured creditor’s consent.
The nominee shall report the decision of the meeting to the court if the debtor and creditors could reach a consensus on the terms of the voluntary arrangement. The approved voluntary arrangement will take effect from the date of meeting and bind on all creditors. If the debtor fails to comply with any obligation under the voluntary arrangement, any creditor bound by the voluntary arrangement may file or proceed with a bankruptcy petition against the debtor. However, if the creditors decide not to approve the debtor’s proposal, the court may set aside the interim order.
Stricter Requirement for Service of Bankruptcy Cause Papers
There is no change in the mode of service of the bankruptcy cause papers i.e. it is required to be served personally on the debtor. However, stricter requirements are imposed in that substituted service will only be allowed if the creditor can satisfy the court that the debtor, with intent to defeat, delay or evade personal service, departs out of Malaysia or being out of Malaysia remains out of Malaysia or departs from his dwelling house or otherwise absents himself or secludes himself in his house or closes his place of business.
Increase in Minimum Debt Threshold
The minimum threshold to present a bankruptcy petition under the Bankruptcy Act 1967 will be increased from RM30,000 to RM50,000.
Introduction of Single Order for Bankruptcy
The Bill replaces the two-tier order system namely ‘receiving order and adjudication order’ under the Bankruptcy Act 1967 to a single order to be called ‘bankruptcy order’.
Protection for Guarantors
The Bill provides an absolute prohibition to commence any bankruptcy action against a social guarantor. “Social guarantor” is defined as a person who provides, not for the purpose of making profit, the following guarantees:
| a) | a guarantee for a loan, scholarship or grant for educational or research purposes; |
| b) | a guarantee for a hire-purchase transaction of a vehicle for personal or non- business use; and |
| c) | a guarantee for a housing loan transaction solely for personal dwelling. |
Besides that, a creditor is also prohibited from commencing bankruptcy proceedings against a guarantor (other than a social guarantor) unless he has obtained leave from the court. Before granting the leave, the court must be satisfied that the creditor has exhausted all modes of execution and enforcement to recover the debts owed to him by the debtor. In other words, the creditor shall have commenced all execution proceedings which include seizure and sale, judgment debtor summon, garnishment and bankruptcy or winding up proceedings against the borrower before applying for leave of court to commence bankruptcy proceedings against the guarantor.
No Objection for Discharge of Certain Bankrupts
Under the Bill, a creditor is prohibited from objecting to the discharge of the following categories of bankrupts:
| a) | a person who was adjudged bankrupt because he was a social guarantor; |
| b) | a bankrupt with a disability under the Persons with Disabilities Act 2008; |
| c) | a bankrupt who has passed away; and |
| d) | a bankrupt suffering from a serious illness certified by a Government Medical Officer. |
Automatic Discharge of Bankrupt
A bankrupt will be entitled to automatic discharge from bankruptcy after 3 years from the date of his submission of a statement of affairs provided that he has achieved an amount of target contribution of his provable debt and has complied with the requirement to render an account of moneys and property to the Director General of Insolvency.
The creditor may however object to the discharge on the following grounds:
| a) | the bankrupt has committed an offence under the Bankruptcy Act 1967 or under certain provisions of the Penal Code relating to fraudulent disposition or concealment of his property to prevent the distribution to creditors; |
| b) | the automatic discharge would prejudice the administration of the bankrupt’s estate; or |
| c) | the bankrupt has failed to co-operate in the administration of his estate. |
Establishment of Insolvency Assistance Fund
The Bill introduces a fund to be known as the Insolvency Assistance Fund to be administered and controlled by the Director General of Insolvency for the following purposes:
| a) | for payment of all costs, fees and allowances to advocates or other persons in any proceedings on behalf of a bankrupt’s estate or to recover assets of the estate; |
| b) | for payment of such costs and fees in the administration of a bankrupt’s estate as the Director General of Insolvency may determine; |
| c) | for payment of any expenses to provide an efficient and effective administration of a bankrupt’s estate that meets an appropriate standard of service; or |
| d) | for such other purposes as may be prescribed. |
Joey Tan
Associate
joey.tan@taypartners.com.my
TO BID, OR NOT TO BID, THAT’S THE QUESTION
“This article discusses the recent developments in England and Canada on the nebulous concept of keyword advertising in the context of trade mark infringement and passing off, and how they might impact the Malaysian courts in their approach.”
Introduction
Ever wondered why when you look for some words or phrases using a search engine (such as Google), certain websites seem to appear more often than the others, with the “Ad” tag next to them?
Thanks to keyword advertising, commercial entities are finding it easier than ever to promote their businesses online.
What is Keyword Advertising?
Keyword advertising is a form of online advertising where a commercial entity pays search engines to display its website on the search engine results page (SERP) when a user employs certain search words or phrases. For instance, a search for “smartphones” may yield results which are paid advertisements showing above or alongside other organic search results for the term. Search engines allow commercial entities to bid for individual search terms, where the “winner” of the bid gets to have its website appear at the top of the results page.
Vendors of keyword advertising service are numerous, and include Google AdWords, Yahoo! Search Marketing and Bing Ads. Being a rather invisible feature to the eyes of a consumer, the business scale of keyword advertising services is often underestimated. By way of illustration, Google AdWords made up 77% of Google’s USD 75 billion revenue in 2015 – a staggering amount of USD 52 billion considering the multitude of services offered by the internet giant1.
Where does the law come in?
While keyword advertising at its nascent stage seemed harmless, there were soon growing concerns when more and more commercial entities began bidding on trade marks and trade names not belonging to them as keywords. The question therefore is, whether the act of bidding on another’s trade mark in the course of online advertising activity amounts to an infringement of the trade mark and/or passing off. Some claim that it is not a “use” of the trade mark as the connection between the keyword and the resulting advertisement is not visible or known to the consumers. Others, however, argue that the company in using the trade mark as a keyword has clearly taken unfair advantage of the trade marks for which their proprietor has exclusive rights. While the Malaysian courts have yet to have the occasion to consider the matter, two recent cases in the EU and Canada may help shed some light.
England
In Victoria Plum Ltd (t/a Victoria Plumb) v Victorian Plumbing Ltd & Ors2, the High Court dealt with the issue of trade mark infringement in the context of keyword advertising, as well as the co-existence of two parties with confusingly similar trade names.
Both parties are bathroom retailers who started trading in 2001. The claimant, Victoria Plum owns several EU and UK trade marks for “VICTORIA PLUMB”. The defendant, Victorian Plumbing, started bidding on the claimant’s name (and trivial variations of the name) in 2008, and increased such spending substantially from the end of 2012. As a result, the claimant filed a suit against the defendant on the basis that the defendant’s bidding on the claimant’s trade marks and displaying advertisements containing them amounted to an infringement of the claimant’s trade marks and passing off.
In ascertaining whether there is an infringement of the claimant’s trade marks, the court held that two questions should be addressed, namely, identification of the marks in dispute, and secondly, whether such use by the defendant is likely to adversely affect the origin function of the trade marks.
The court made particular reference to the CJEU case of Google France Sarl v Louis Vutton Malletier SA3. It accepted the view that a user who searches a specific brand name is likely to be looking for that brand, and that bidding on trade marks would not be objectionable where the advertiser ensures that its advertisements allow normally informed and reasonably attentive internet users to identify the sources from which the goods or services originate. The court found that the defendant’s advertisements had failed to enable the internet users to make such determination, and the risk of confusion was compounded by the striking similarity between the claimant’s trade marks and the defendant’s name.
The court went on to consider the defendant’s claim of honest concurrent use, and observed that where two separate entities have co-existed for a long period of time and have been using the same or closely similar marks honestly, the inevitable confusion may have to be tolerated. This, however, has not gone in the defendant’s favour, as the court held that the defence of honest concurrent use only entitled the defendant to continue to use its own name “Victorian Plumbing”. Since the defendant has never used the claimant’s trade mark “VICTORIA PLUM” (and the minor variations thereof), it cannot rely on the defence to claim that the claimant’s trade marks have become an indicia of origin for the defendant’s products and services.
Canada
The issue of trade mark infringement was also considered in the case of Vancouver Community College v Vancouver Career College (Burnaby) Inc. 4. The appellant, Vancouver Community College, is a public post-secondary education institution and the respondent, Vancouver Career College, is a private post-secondary education institute. The appellant alleged that the respondent had infringed and passed off the former’s official marks “VCC” and “Vancouver Community College” in its internet advertising and internet domain of “VCCollege.ca”. Initially dismissed by the trial judge, the appellant’s claim was subsequently allowed by the Court of Appeal for British Columbia. The issue which the appellate court was tasked to examine was whether the trial judge had erred in assessing confusion only when the internet users arrived at the respondent’s website.
The court held that the trial judge had erred in delaying the application of the “first impression test” to the user’s arrival at the respondent’s website, when that moment ought to have been at the time when the search results appeared. On this premise, the court found nothing in the respondent’s domain name “VCCollege.ca” that distinguished it from the appellant, being the rightful owner of the official mark “VCC”. The letters “-ollege” added to the acronym “VCC” were as equally reminiscent of the appellant as the respondent, and there was no statement by the respondent that sought to disclaim any affiliation with the appellant. The critical factor in deciding whether there is confusion, according to the court, was the message communicated by the respondent, namely how a consumer would have reacted upon encountering the trade mark. The act of bidding on trade marks, by itself, however, is not delivery of a message.
Analysis
The takeaway from the cases of Victoria Plum and Vancouver Community College is that the act of bidding on trade marks belonging to another is not legally objectionable, and the deciding factor lies in the nature and content of the paid links on the results page. While commercial entities may take comfort in that, adequate disclaimer or sufficient information must be provided to allow internet users to discern the difference between the bidders and the trade mark owners, more so when both entities are trading under identical or similar names. Such disclaimer or information should be made available on the results page, which is the point where internet users would have formed their first impression as to the origin of the products and services provided by individual advertisers.
It remains interesting how the Malaysian courts would approach the issue of keyword advertising in light of the cases discussed above. As it stands, to succeed in a trade mark infringement claim in Malaysia, the plaintiff must prove that the defendant has used a mark identical or confusingly similar to the plaintiff’s trade mark as is likely to deceive or cause confusion in the course of trade in relation to the goods or services in respect of which the trade mark is registered (Section 38(1) Trade Marks Act 1976). As to what amounts to use of trade mark in the course of trade, the Federal Court case of Mesuma Sports Sdn Bhd v Majlis Sukan Negara Malaysia (Pendaftar Cap Dagangan Malaysia, interested party) 5 held that the phrase “in the course of trade” is not limited to manufacturing and selling the goods or services bearing the trade mark, and should be liberally construed to include even non-profit activities by reference to the trade mark.
Going by this, the Malaysian courts may be inclined to find that the act of bidding on another’s trade mark constitutes “use” of a mark in the course of trade, and the argument that such bidding activity is invisible to the public may unlikely carry much weight in the courts’ consideration.
The next question, which is critical for deciding if there is infringement of a trade mark, is whether such use is likely to deceive or confuse the public. There will arguably be no risk of confusion if the party bidding on a trade mark uses a trade name which is displayed on the results page that is clearly distinguishable from that of the trade mark owner. On the other hand, in a case similar to Victoria Plum and Vancouver Community College, a sufficient and clear disclaimer disassociating the bidder from the trade mark owner may be necessary to substantiate the defence that there is no deception or confusion caused to members of the public by the display of one’s advertisement above (or below) the trade mark owner’s advertisement.
A passing off claim requires the plaintiff to prove that goodwill and reputation subsist in the plaintiff’s business by reference to the mark in issue, that the defendant has (or is likely to) caused misrepresentation by bidding on the mark, and that the plaintiff has (or is likely to) suffered damage to its business or goodwill. On the assumption that goodwill and reputation subsist in the said mark, the determining factor would inevitably be whether the defendant has done enough to disclaim or deny any connection to the plaintiff when the advertisements are displayed on the results page. Similarly, if the marks are identical or similar, more would be expected of the defendant to take all necessary measures to negate or avoid any risk of confusion.
| 1 | https://www.investopedia.com/articles/investing/020515/business-google.asp |
| 2 | [2016] EWHC 2911 (Ch) |
| 3 | (Case C-236/08); [2010] RPC 19 |
| 4 | 2017 BCCA 41 |
| 5 | [2015] 6 MLJ 465 |
Low Kok Jin
Associate
kokjin.low@taypartners.com.my
CORPORATE ESPIONAGE: THE ART OF INDUSTRIAL WAR
Sir Francis Bacon, and maybe Lord Petry Baelish before him, said:
“Knowledge is Power”
In the current age of business and technology, knowing what your competitors do and having sufficient knowledge on how they work, including possession of information such as industrial manufacture, concepts, ideas, designs, techniques, processes, recipes and formulas, is the key to success or even survival of your corporation. To remain competitive and relevant in the market, some unscrupulous corporations would go to the extreme length and cost to acquire these competitive intelligence clandestinely and sometimes illegally, by way of corporate or industrial espionage.
Essentially, corporate or industrial espionage is the act of obtaining confidential information of your competitor which you are not supposed to have. The sabotage may be achieved through various illicit means – from stealing operational information (client list, pricing, marketing strategies, research and development) to bribing, blackmailing, extorting, harassing employees of competitors into revealing confidential information and technological surveillance involving unlawful installation of recording devices and spyware. Development of high resolution cameras, miniature and portable data storage devices and the internet have made corporate or industrial espionage much easier as confidential information may be copied and transferred with just the ‘click’ of the button.
The danger of corporate or industrial espionage is very real. In 2012, Dyson Technology Limited, having invested £100 million over 15 years in developing high speed brushless motors for its vacuum cleaners and hand dryers, accused Robert Bosch Limited of unlawfully obtaining the secret motor technology from a corporate ‘spy’ working in its advanced digital motor development team, who allegedly has a pre-existing consultancy agreement with Bosch Lawn & Garden Ltd1.
In 1993, Adam Opel AG sued Volkswagen for corporate espionage when 8 key members of its company defected to Volkswagen, alleging that they brought along with them company documents containing trade secrets2. The case was eventually settled out of court at the sum of $100 million3.
In the United States, corporate espionage is a serious offence and penal in nature. The Economic Espionage Act 1996 and the more recent Defend Trade Secrets Act 2016 are two existing legislations in the United States against corporate espionage. Other than civil rights to claim for damages against offenders, corporate espionage is also punishable under criminal law whereby offenders may be fined for $5 million or 3 times the value of the stolen trade secrets including expenses for research and the costs to reproduce the trade secrets. The offenders also face the possibility of jail up to 10 years. Under the Defend Trade Secrets Act 2016, a company may apply to the court for seizure order, injunction and damages against the offenders. The United States’ approach is viewed as a leading example in tackling corporate espionage.
In recent years, European countries have started to pay attention to corporate espionage. Acknowledging that countries within the EU community have different laws when it comes to trade secrets theft which may make it difficult and expensive for companies to bring legal action against the offenders, the European Commission has published a press release proposing for uniform rules to protect trade secrets which differ from the other ‘exclusive’ intellectual property rights4.
While the concept of corporate or industrial espionage is still fairly new to Malaysia, it does not mean we never had a brush with it. In 2013, Malaysia’s leading telecommunications company, Telekom Malaysia Bhd, was alleged to have been involved in a corporate espionage plan when an employee of one of its multinational partners allegedly gained access to a rival’s facility abroad by masquerading as a member of Telekom Malaysia Bhd’s entourage5.
Telekom’s case illustrates that corporate espionage could happen to anyone and it does not matter whether the company is actively or passively involved nor aware of the unlawful activity. Unlike the United States and to a certain extent, the EU, Malaysia does not have a specific legislation to combat corporate or industrial espionage. Corporations would need to take proactive steps to identify and prevent perpetration of corporate or industrial espionage, including having proper code of business ethics, standard operating procedures and policies in place, instilling legal awareness and protection protocols, and keeping their internal security mechanism alert at all times.
| 1 | Dyson Technology Limited v. Robert Bosch Limited & Ors, High Court of Justice, Chancery Division, HC12E04131. |
| 2 | General Motors Corp. v Jose Ignacio Lopez De Arriortua, 948 F. Supp. 656 (1996). See also 948 F. Supp. 670 (1996). |
| 3 | With ancillary agreement worth $1 billion. |
| 4 | European Commission, “Commission proposes rules to help protect against the theft of confidential business information”, 28 November 2013. Retrieved from https://europa.eu/rapid/press-release_IP-13-1176_en.htm. |
| 5 | Zurairi AR, TM’s LTE Rollout Rocked By Corporate Espionage, published in Malay Mail Online on 10 July 2013. Retrieved from https://www.themalaymailonline.com/malaysia/article/tms-lte-rollout-rocked-by-corporate-espionage. |
Yeo Yen Hock
Associate
yenhock.yeo@taypartners.com.my
OVERVIEW OF DIRECTORS’ DUTIES & RESPONSIBILITIES UNDER THE COMPANIES ACT 2016
Introduction
Following a lengthy review and consultation process, the new Companies Act 2016 (“CA 2016”) has finally come into effect on 31 January 2017 with the exception of Section 241 and Division 8 of Part III of the CA 2016. The Companies Act 1965 (“CA 1965”) which governed companies and corporation related matters for about 50 years has since been repealed.
The provisions relating to the duties and responsibilities of directors stipulated in the CA 1965 are largely maintained in the CA 2016. The significant changes brought by the CA 2016 include the introduction of solvency statement, business review report and enhancement of fines and imprisonment terms for breach of directors’ duties and responsibilities.
Who owes the duties and responsibilities?
Section 2 of the CA 2016 states that a “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. This definition has not undergone significant changes, save for the words “the majority of” have been inserted into the definition. This insertion seeks to reduce the requisite threshold to establish that a person is a “shadow director”. A person is deemed to be a director for the purpose of the CA 2016 if “the majority of” directors act in accordance to his directions or instructions.
For the purposes of the subdivision 3, in sections 213, 214, 215, 216, 217, 218, 223 and 228 of the CA 2016, the definition of “director” includes chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the company. This is similar to definition previously stipulated in section 132(6) of the CA 1965.
Directors’ duties and responsibilities
Solvency statement
A solvency statement is a new obligation introduced in section 113 of the CA 2016. Before a company undertakes a transaction relating to reduction of share capital, redemption of preference shares, provision of financial assistance or share buyback, its directors are required to make a solvency statement to confirm that the company satisfies the solvency test. A solvency statement shall be made by:
| a) | all of the directors in the case of a transaction relating to a reduction of share capital or redemption of preference shares; and |
| b) | the majority of the directors in the case of a transaction relating to provision of financial assistance or share buyback. |
In forming an opinion, the directors are required to inquire into the company’s state of affairs and prospects and take into account all the liabilities of the company, including contingent liabilities.
Generally for redemption of preference shares out of capital, provision of financial assistance or reduction of capital, the solvency test takes into account:
| a) | cash flow solvency: there will be no ground on which the company could be found to be unable to pay its debts; and |
| b) | balance sheet solvency: the assets of the company is more than the liability of the company as at the date of the transaction. |
For a share buyback, the solvency test is satisfied if:
| a) | the share buyback would not result in the company being insolvent and its capital being impaired at the date of the solvency statement; and |
| b) | the company will remain solvent after each buyback during the period of 6 months after the date of the declaration. |
A director who makes a solvency statement without having reasonable grounds for the opinion expressed in the statement commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding 5 years or to a fine not exceeding RM500,000 or to both.
Directors’ report
Section 252 of the CA 2016 requires the directors of a company to prepare a report for each financial year and such report shall be attached to the financial statements. Any director who fails to take all reasonable steps to prepare the directors’ report commits an offence and shall, on conviction, be liable to a fine not exceeding RM500,000 or imprisonment not exceeding 1 year or to both.
Apart from the directors’ report which is a requirement retained from the CA 1965, business review report has been introduced in the CA 2016. section 253(3) states that the directors’ report “may include” a business review and the contents to be included in the business review report are set out in Part II of Fifth Schedule of the CA 2016. The words “may include” suggest that the nature of reporting is voluntary and the directors would not be penalized if they do not produce the business review report.
Proper purpose and in good faith
Section 213(1) of the CA 2016 stipulates that a director of a company shall at all times exercise his powers in accordance with this Act, for a proper purpose and in good faith in the best interest of the company. This provision is largely similar to section 132(1) of the CA 1965, but the words “in accordance with this Act” are newly inserted into the CA 2016. Thus, the director shall not only exercise his powers for a proper purpose and in good faith in the best interest of the company, he shall also exercise such powers in accordance with the CA 2016.
Reasonable care, skill and diligence
Section 213(2) of the CA 2016 has retained the duty of a director to exercise reasonable care, skill and diligence with the knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities and any additional knowledge, skill and experience which the director in fact has.
Business judgment rule
The provisions on business judgment rule which were previously set out in section 132(1B) and section 132(6) of the CA 1965 are now consolidated in section 214. A director who makes a business judgment is deemed to meet the requirements of the duty if the director makes the business judgment for a proper purpose and in good faith, does not have a material personal interest in the subject matter of the business judgment, is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances, and reasonably believes that the business judgment is in the best interest of the company. For the purposes of this section, “business judgment” means any decision on whether or not to take action in respect of a matter relevant to the business of the company.
Reliance on information provided by others
In respect of a director’s reliance on information, professional or expert advice, opinions, reports or statements including financial statements and other financial data, provisions similar to section 132(1C) of the CA 1965 can now be found in section 215 of the CA 2016.
Responsibility for actions of delegatee
The provisions on the responsibility of directors for actions of delegate are retained in section 216 of the CA 2016. Where the directors have delegated any power, the directors are responsible for the exercise of the power by the delegatee as if the power had been exercised by the directors themselves. The directors are not responsible if the directors believed on reasonable grounds at all times that the delegatee would exercise the power in conformity with the duties imposed on the directors, and the directors believed on reasonable grounds, in good faith and after making a proper inquiry, that the delegatee was reliable and competent in relation to the power delegated.
Responsibility of a nominee director
A director who was appointed by virtue of his position as an employee of a company, or who was appointed by or as a representative of a member, employer or debenture holder, shall act in the best interest of the company and in the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, he shall not subordinate his duty to act in the best interest of the company to his nominator. This provision is mostly similar to section 132(1E) of the CA 1965.
Prohibition against improper use of property and position
Section 218 of the CA 2016 retains the prohibition against improper use of property and position by a director. A director or officer of a company shall not, without the consent or ratification of a general meeting:
| 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 |
| 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.
Duty to make disclosure
The general duty placed on a director to make disclosure on the particulars relating to the shares, debentures, participatory interests, rights, options and contracts has also been maintained in section 219 of the CA 2016. The penalty on conviction for non-disclosure is increased to imprisonment for a term not exceeding 5 years or a fine not exceeding RM3 million or both, whereas the penalty on conviction for any delay in making such disclosure is a fine not exceeding RM5,000 and in the case of a continuing offence, to a further fine of RM1,000 for each day during which the offence continues.
The disclosure requirement and exceptions stipulated in section 221 of the CA 2016 in relation to a director’s direct or indirect interest in a contract or a proposed contact also remain the same as that of in the CA 1965.
Approval of company required for disposal by directors of company’s undertaking or property
Section 223 of the CA 2016 states that the directors shall not enter or carry into effect any arrangement or transaction for the acquisition of an undertaking or property of a substantial value, or the disposal of a substantial portion of the company’s undertaking or property unless:
| a) | the entering into the arrangement or transaction is made subject to the approval of the company by way of a resolution; or |
| b) | the carrying into effect of the arrangement or transaction has been approved by the company by way of a resolution. |
Item (a) above was not found in section 132C of the CA 1965. This insertion allows the directors to enter into the arrangement or transaction for acquisition of a substantial value or disposal of a substantial portion prior to the passing of a resolution in relation thereof.
Related Party Transactions
Pursuant to section 228 of the CA 2016, a company shall not enter or carry into effect any transactions with a director or a substantial shareholder of the company or its holding company, or its subsidiary, or a person connected with a director or substantial shareholder unless:
| a) | the entering into the arrangement or transaction is made subject to the shareholders approval at the general meeting; or |
| b) | the carrying into effect of the arrangement or transaction has been approved by shareholders at the general meeting. |
The director or substantial shareholder or person connected with the director or substantial shareholder who is interested in the arrangement or transaction are prohibited from voting million or to both. The maximum fine on conviction has increased from RM30,000 under the CA 1965 to RM3 million under the CA 2016, while the imprisonment term remains at a term not exceeding 5 years.
Conclusion
On the whole, the CA 2016 retains the provisions relating to the duties and responsibility of directors contained in its predecessor while introduces changes such as the enhancement of penalty and the introduction of solvency statement and business review report. While such changes aim to strengthen corporate governance in relation to the affairs of the directorship of a company, this would also mean that the directors will be held to higher accountability standards to ensure that companies are managed properly.
Yap Joe Yee
Associate
joeyee.yap@taypartners.com.my
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