# Directors' Duties Under the Companies Act 2016 and Your Personal Liability

> What ss.210 to 220 of the Companies Act 2016 actually require of a Malaysian director, what the offences cost personally, and which defences the Act gives you.

- Category: company-secretary
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/company-secretary/directors-duties

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The fine is three million ringgit and the sentence is five years. Not against the
company — against you. Section 213(3) of the Companies Act 2016 makes a breach of
directors' duties a criminal offence committed by the individual, and the same
ceiling reappears in s.217, s.218, s.221, s.222, s.223, s.224, s.225 and s.228.

That is the single fact most Malaysian summaries of directors' duties omit. They
describe fiduciary duty in the abstract, borrow a paragraph of English case law,
and stop. The Act does something much blunter: it converts the duties into
offences, extends them past the people whose names appear on the register, and
voids the indemnity clause your constitution probably contains.

This page is the map of that exposure — who is caught, what the four duty
provisions actually say, which two defences the Act gives you, and how the
duties are enforced.

## Who counts as a director under the Companies Act 2016?

Three definitions widen the net, and they operate at the same time.

| Provision | Who it catches |
| --- | --- |
| s.2 | Any person occupying the position of director **by whatever name called**; any person in accordance with whose directions or instructions the majority of directors are accustomed to act; an alternate or substitute director |
| s.57(7) | For the register — includes an alternate, substitute or **local** director |
| s.210 | For ss.213–218, 223 and 228 only — includes the **chief executive officer, chief financial officer, chief operating officer** or any other person primarily responsible for the management of the company |

Section 210 is the provision practitioners underuse. It means a CFO who never
sat on a board, was never appointed under s.201 and appears nowhere in SSM's
records is nonetheless bound by s.213 good faith, s.213(2) care and diligence,
s.217 nominee loyalty, s.218 improper use of position, s.223 substantial
disposals and s.228 related-party transactions — and is exposed to the same
RM3 million ceiling.

The s.2 limb catches the other end: the founder who resigned from the board to
manage optics but whose instructions the remaining directors still follow. If
the majority of the board is **accustomed** to act on those instructions, that
person is a director for every purpose of the Act.

## What does s.213 actually require?

Section 213 splits into two duties that are commonly run together and should
not be.

**s.213(1) — proper purpose and good faith.** A director shall at all times
exercise his powers in accordance with the Act, for a proper purpose and in
good faith in the best interest of the company. Three separate requirements
sit in that sentence. A power can be exercised in complete good faith and
still be exercised for an improper purpose — the classic case being an
allotment of shares made honestly, but to dilute a rival shareholder rather
than to raise capital.

"Best interest of the company" means the company, not the shareholder who
appointed you and not the group. Section 217 spells this out for nominee
directors and is dealt with below.

**s.213(2) — reasonable care, skill and diligence.** The standard is
deliberately two-limbed:

- **s.213(2)(a)** — the knowledge, skill and experience which may reasonably
  be expected of a director **having the same responsibilities**. This is
  objective. It is not "what you knew"; it is what someone in your seat, with
  your portfolio, should have known.
- **s.213(2)(b)** — **any additional** knowledge, skill and experience which
  the director in fact has. This is subjective and it only ever ratchets the
  standard upward. A director who is a chartered accountant is held to an
  accountant's standard when the board reviews the accounts. There is no
  corresponding relief for a director who knows less than the objective
  minimum.

Section 213(3) then makes contravention of the section an offence carrying up
to five years, up to RM3 million, or both.

## Which related duties carry the same penalty?

Sections 214 to 219 sit under the same subdivision and are best read as one
scheme. Note the section numbering carefully — it is routinely misreported.

| Section | Duty | Individual exposure |
| --- | --- | --- |
| s.214 | Business judgment rule — a **defence**, not a duty | — |
| s.215 | Reliance on information provided by others — a **defence** | — |
| s.216 | Responsibility for the acts of a delegatee | — |
| s.217 | Nominee director must not subordinate the company's interest to the nominator's | 5 years / RM3m / both |
| s.218 | No improper use of company property, information, position or opportunity, and no competing business | 5 years / RM3m / both |
| s.219 | Notify the company of your shareholdings and related particulars | 5 years / RM3m under s.219(1); RM25,000 plus RM1,000 a day under s.219(2) |
| s.220 | Preserves other written law — not a duty in itself | — |

Two frequent misattributions are worth correcting outright. **Reliance on
others is s.215, not s.214** — s.214 is the business judgment rule.
And **the preservation provision is s.220, not s.217.** Section 220 provides
that ss.214 to 219 shall be in addition to and not in derogation of any other
**written law** relating to the duty or liability of directors or officers.

That wording matters. Section 220 speaks of other written law. The preservation
of the general law duties themselves appears elsewhere, in s.214(1), which
deems a qualifying business judgment to satisfy s.213(2) **and the equivalent
duties under the common law and in equity** — language that only makes sense
because those equitable duties continue to exist alongside the statute. The
practical consequence is identical either way: codification did not replace
the fiduciary duties, it stacked a criminal layer on top of them.

Section 217 deserves separate attention because of how many Malaysian boards
are constructed. A director appointed by virtue of employment, or as the
representative of a member, employer or debenture holder, must act in the best
interest of **the company**, and where his duty to the company conflicts with
his duty to his nominator, he shall not subordinate the company's interest.
A private-equity nominee who votes the way the fund instructed, against the
company's interest, commits an offence carrying five years.

## What are the two statutory defences, and what do they not cover?

### The business judgment rule (s.214)

A director who makes a business judgment is deemed to meet s.213(2) and the
equivalent common law and equitable duties if **all four** conditions are met:

1. the judgment is made for a proper purpose and in good faith;
2. the director has **no material personal interest** in the subject matter;
3. the director is informed about the subject matter to the extent he
   reasonably believes appropriate in the circumstances; and
4. the director reasonably believes the judgment is in the best interest of
   the company.

"Business judgment" is defined in s.214(2) as any decision on whether or not
to take action in respect of a matter relevant to the business of the company —
which expressly includes a decision **not** to act.

The limit is exact: **s.214 deems compliance with s.213(2) only.** It says
nothing about s.213(1). A director who acted for an improper purpose cannot
reach the business judgment rule at all, because condition 1 fails on its own
terms. The rule protects commercially wrong decisions. It does not protect
disloyal ones.

Condition 2 is the one that fails in practice. Where a director has any
material personal interest in the subject matter, the defence evaporates — and
that is precisely the situation in which a related-party transaction, a
director's loan or a service contract renewal comes before a small board.

### Reliance on others (s.215)

Section 215(1) allows a director, in exercising his duties, to rely on
information, professional or expert advice, opinions, reports or statements —
including financial statements and other financial data — prepared by:

- any **officer** of the company whom the director believes on reasonable
  grounds to be reliable and competent on the matter;
- any other person **retained by the company** on matters the director
  reasonably believes to be within that person's professional or expert
  competence;
- **another director** in relation to matters within that director's authority;
- any **committee of the board** on which the director did not serve, in
  relation to matters within the committee's authority.

Then comes the condition that ends the defence for most boards. Section 215(2)
deems reliance to be on reasonable grounds only if it was made in good faith
**and after making an independent assessment** of the information, having
regard to the director's knowledge of the company and the complexity of its
structure and operations.

An independent assessment is not the same as receiving a report. A director
who accepts a set of management accounts without interrogating them has not
made an independent assessment, and s.215 does not assist.

### Delegation (s.216)

Section 216(1) permits the board to delegate any of its powers to a committee,
a director, an officer, an employee, an expert or any other person. Section
216(2) then makes the directors responsible for the delegatee's exercise of
the power **as if they had exercised it themselves**.

The escape in s.216(3) has two limbs, both of which must hold: the directors
believed on reasonable grounds at all times that the delegatee would exercise
the power in conformity with the directors' own duties, **and** believed on
reasonable grounds, in good faith and after proper inquiry where the
circumstances indicated a need for inquiry, that the delegatee was reliable
and competent.

"Proper inquiry, if the circumstances indicated the need for the inquiry" is
the operative phrase. Red flags — a resignation, a qualified audit opinion, an
unexplained variance — convert a passive delegation into a duty to ask.

## Can the company protect me by contract or insurance?

Mostly not, and the constitution you inherited at incorporation may contain a
clause that is void.

**Section 288** makes void any provision, whether in the constitution or in
any contract with the company or otherwise, that exempts an officer or auditor
from, or indemnifies him against, any liability which by law would otherwise
attach for negligence, default, breach of duty or breach of trust in relation
to the company. A blanket indemnity clause is not merely unenforceable in
part — the section voids it.

**Section 289** then carves out what a company may do:

- **s.289(3)** — indemnify an officer for **costs** in proceedings where
  judgment is given in his favour, he is acquitted, he is granted relief under
  the Act, or the proceedings are discontinued or not pursued;
- **s.289(4)** — indemnify against liability **to a person other than the
  company**, and the costs of defending or settling such a claim, but
  **excluding** any fine imposed in criminal proceedings and any sum payable
  to a regulatory authority by way of penalty for non-compliance of a
  regulatory nature.

Read together: the RM3 million fine under s.213(3) can never be paid by the
company on your behalf, and neither can a regulatory penalty. Directors' and
officers' insurance operates inside the same boundary.

## How are these duties actually enforced?

Four independent routes, and they are not alternatives — the same conduct can
run down more than one.

**1. Criminal prosecution by SSM.** The s.213(3) offence is prosecuted against
the individual. A conviction under ss.213, 217, 218, 228 or 539 then triggers
automatic disqualification under s.198(1)(d).

There is no gazetted compound schedule or practice directive fixing a compound
amount for a directors'-duty offence — the Companies Act 2016 contains no
compounding provision of its own. SSM's only compounding power is the general
one in s.38A(1) of the Companies Commission of Malaysia Act 2001 (Act 614),
under which the Registrar may, **with the written consent of the Public
Prosecutor**, compound an offence for an amount **not exceeding 50% of the
maximum fine** — so up to RM1.5 million against the RM3 million ceiling. That is
a case-by-case discretion, not a tariff. SSM's only published compound
instrument, Practice Directive 1/2017, covers late-lodgement defaults, not
directors'-duty offences.

**2. Statutory derivative action (ss.347–348).** A complainant may, with the
leave of the Court, bring proceedings in the company's name. The clocks are
tight and symmetrical: **thirty days' written notice to the directors** of the
intention to apply for leave under s.348(2), and once leave is granted,
proceedings must be initiated **within thirty days** under s.348(3). The Court
considers whether the complainant is acting in good faith and whether it appears
prima facie to be in the best interest of the company. Proceedings once brought
cannot be discontinued, compromised or settled except with the leave of the
Court under s.348(5).

**3. Oppression relief (s.346).** A member or debenture holder may apply where
the company's affairs are conducted in a manner oppressive or in disregard of
their interests. This is the route that most Malaysian shareholder disputes
actually take.

**4. Personal liability in insolvency.** Section 540(1) allows the Court, on
the application of a liquidator, creditor or contributory, to declare any
person who was knowingly a party to carrying on business with intent to defraud
creditors or for any fraudulent purpose **personally responsible, without any
limitation of liability**, for the debts of the company. Section 539 attaches
liability where proper accounting records were not kept. Limited liability is
a shield with a hole in it, and s.540 is that hole.

## Common mistakes

**Treating s.213(1) and s.213(2) as one duty.** They have different content and
different defences. The business judgment rule reaches only s.213(2). Advisers
who describe s.214 as "the defence to a breach of directors' duties" overstate
it materially.

**Citing s.214 as the reliance provision.** It is s.215. The error appears in a
striking number of published Malaysian summaries, and it matters because the
two provisions have entirely different conditions — s.214 requires an absence
of material personal interest, s.215 requires an independent assessment.

**Assuming the C-suite is outside the duty regime.** Section 210 puts the CEO,
CFO and COO squarely inside ss.213–218, 223 and 228. An unlisted Sdn Bhd whose
finance director is not on the board should be briefing that person on s.218
opportunity and s.228 related-party rules exactly as if they were.

**Relying on an indemnity clause in the constitution.** If it indemnifies
against liability for breach of duty, s.288 makes it void. Many constitutions
adopted at incorporation from generic templates still carry one.

**Believing a resignation ends the exposure.** It does not end exposure for
acts done while in office, and if the board remains accustomed to act on your
instructions, the s.2 definition keeps you a director regardless of what the
register says. Section 227(7) separately extends the loss-of-office rules to
any person who **has at any time been** a director.

**Assuming a sole director and sole shareholder can do as he likes.** The duty
runs to the company as a separate legal person. Section 218(1) requires the
consent or ratification of a **general meeting** before a director uses company
property, information, position or opportunity for personal benefit — and in a
one-person company that means actually holding and minuting the meeting, not
assuming it.

## What's next

Work through the specific duties in the order a company secretary meets them.
Interest in contracts is the duty that fails most often in practice, and the
failure is usually a missing minute — see
[disclosure of interest](/en/company-secretary/disclosure-of-interest). The
personal notification duty on shareholdings runs on a 14-day clock most
directors have never heard of, covered in
[director shareholding notification](/en/company-secretary/director-shareholding-notification).

For board changes, [appointing and resigning directors](/en/company-secretary/appoint-resign-director)
sets out the consent, minimum-number and vacation rules, and
[removing a director](/en/company-secretary/remove-a-director) covers the
written-resolution prohibition that catches most private companies. On money
flowing to directors, see [loans to directors](/en/company-secretary/loans-to-directors)
and [directors' fees approval](/en/company-secretary/directors-fees-approval).

## Sources

- Companies Act 2016 (Act 777), reprint as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Companies (Amendment) Act 2024 (Act A1701) — https://www.ssm.com.my/Pages/Legal_Framework/Document/A1701%20BI.pdf (SSM)
- Practice Directive 1/2017 (Revised 1 October 2024) — Late Lodgement Penalties — https://www.ssm.com.my/Pages/Legal_Framework/Document/Practice%20Directive%201_2017%20(Revised)%201%20Oct%202024.pdf (SSM)
- Companies Commission of Malaysia Act 2001 (Act 614), reprint as at 1 March 2018 — s.38A compounding of offences and First Schedule (Act 777 listed as item 1) — https://www.ssm.com.my/Pages/Legal_Framework/Document/CCMA%20Act%20614_as%20at%201%20March%202018).pdf (SSM)
- MAICSA Annual Conference 2017: Three Questions Raised — confirms CA 2016 has no compounding section; the power is s.38A of the SSM Act, in force 31 January 2017 (50% cap, PP consent) — https://themalaysianlawyer.com/2017/09/15/maicsa-annual-conference-2017-three-questions-raised/ (The Malaysian Lawyer)

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