The Directors' Report and Statutory Declaration: s.251 to s.253

Start with a correction, because it changes what you do.

Section 251 of the Companies Act 2016 is not the lodgement section. It does not mention the Registrar. It is the provision under which the Board approves the financial statements and a statutory declaration is attached. Circulation sits in s.258 and lodgement in s.259. A number of widely circulated summaries describe s.251 as requiring financial statements to be lodged with SSM, and a company that follows them will be looking for a deadline that is not in the section.

Here is what each provision actually does.

Section 251 — Board approval and the statutory declaration

Section 251(1) requires financial statements to be:

• (a) approved by the Board; and
• (b) accompanied with a statutory declaration by a director or, where the director is not primarily responsible for the financial management of the company, by the person who is so responsible, setting forth his opinion as to the correctness or otherwise of the financial statements and, where applicable, the consolidated financial statements.

That second limb is the one to read carefully. The default declarant is a director. The alternative is available where the director is not primarily responsible for financial management — in which case the person who is takes the declaration. It is not a free choice between the two.

Section 251(2) then requires the directors to make a statement, in accordance with a resolution of the Board, stating whether in their opinion the financial statements are drawn up in accordance with applicable accounting standards so as to give a true and fair view of the financial position and financial performance of the company and of the group.

Section 251(3) fixes the signatures: the s.251(2) statement shall be signed by at least two directors and, in the case of a sole director, by that director — and shall be attached to the financial statements for circulation under s.257.

Section 251(4) exposes the company and every officer in contravention, in respect of any financial statements circulated, published or issued, to a fine up to RM500,000 or imprisonment up to one year or both.

Section 252 — preparing and signing the report

Section 252(1) requires the directors to prepare, for each financial year, a report, and that report shall be attached to the financial statements prepared under s.248.

Section 252(2) then requires the directors’ report:

• (a) to be approved by the Board; and
• (b) to be signed on the directors’ behalf by at least two directors, or in the case of a single director, by that director.

Section 252(3) adds a presentation requirement that is easy to fail: every copy of the directors’ report laid before a company at an annual general meeting under s.340, sent to a member under s.257, or otherwise circulated, published or issued by the company, shall state the name of the person who signed the report on the directors’ behalf. A scanned signature without a printed name does not satisfy it.

The penalties are split:

Breach	Exposure
A director failing to take all reasonable steps to secure compliance with s.252(1)	Fine up to RM500,000 or imprisonment up to 1 year or both — s.252(4)
Company and every officer contravening s.252(2) approval and signature rules	Fine up to RM20,000 — s.252(5)

Section 253 and the Fifth Schedule — what goes in

Section 253(1) requires the report to contain:

• (a) the name of every person who was a director of the company during the financial year, and during the period from the end of the financial year to the date of the report;
• (b) the principal activities of the company in the course of the financial year, including its subsidiaries; and
• (c) the matters set out in the Fifth Schedule.

Where consolidated financial statements are prepared, s.253(2) reads the reference to the company as a reference to the company and the subsidiary undertakings included in the consolidation. Section 253(3) permits the report to include a business review as set out in Part II of the Fifth Schedule, or any other reporting as prescribed — permissive, not mandatory.

Part I paragraph 1 of the Fifth Schedule is the substance. In summary:

Item	Requirement
(a)	Net profit or loss for the financial year after provision for income tax
(b)	Amounts and particulars of material transfers to or from reserves or provisions
(c)	Shares or debentures issued during the year — purpose, classes, numbers and amounts, and terms of issue
(d)	Arrangements enabling directors to acquire benefits by acquiring shares or debentures, subsisting at year end or at any time in the year, with names of the directors involved
(e)	For each person who was a director at year end — his interests in shares and debentures according to the s.59 register, at the end of the year, at the beginning of the year or on becoming a director, and the total bought and sold during the year
(f)	Dividends recommended, and dividends paid or declared since the end of the previous financial year
(g), (h)	Whether reasonable steps were taken on bad and doubtful debts, and whether the directors are aware of circumstances rendering those amounts inadequate
(i), (j)	Whether reasonable steps were taken to write down unrealisable current assets, and whether values or valuation methods are misleading
(k)	Charges over assets securing another person’s liabilities, and contingent liabilities, arisen since the year end
(l)	Contingent or other liabilities becoming enforceable within twelve months after the year end that may affect the company’s ability to meet its obligations
(m)	Any circumstances not otherwise dealt with that would render an amount stated in the accounts misleading
(n)	Whether results were substantially affected by an item, transaction or event of a material and unusual nature
(o)	Any material and unusual item, transaction or event arising between the year end and the date of the report
(p)	Any other details as determined by the Registrar

Paragraph 1(e) is why the s.219 shareholding notices matter — the report is built out of the s.59 register, and the register is built out of those notices.

Paragraph 2 requires the report to state, for directors and past directors, the amount of fees and other benefits distinguished separately, inclusive of fees, percentages, bonuses, commissions and compensation for loss of office; the estimated money value of non-cash benefits; amounts paid to any third party for a director’s services; and the total of any indemnity given to, or insurance effected for, any director, officer or auditor. Where a director or his firm acts in a professional capacity, those amounts are excluded from the aggregate but must be shown separately.

Paragraph 3 requires each director to state whether, since the end of the previous financial year, he received or became entitled to receive a benefit — other than one included in the disclosed remuneration or his fixed salary as a full-time employee — by reason of a contract made by the company or a related corporation with him, with a firm of which he is a member, or with a company in which he has a substantial financial interest, and if so its general nature.

Paragraph 4 requires a subsidiary to name its ultimate holding company and, if known, its country of incorporation. Paragraphs 5 and 6 cover options granted over unissued shares — number and class, expiry date, basis of exercise, and any right to participate in another company’s share issue — and shares issued during the period on the exercise of such options.

Where the actual deadlines live

Neither s.251 nor s.252 carries a date. The clocks are:

• s.258(1)(a) — a private company shall circulate the financial statements and reports within six months of its financial year end;
• s.259(1)(a) — lodge with the Registrar within thirty days of circulation;
• s.248(1)(a) — the first financial statements are due within eighteen months of incorporation.

The two relief provisions are worth knowing. Section 255 lets the directors apply to the Registrar for an order relieving them from any requirement as to the form and content of the financial statements or the directors’ report — but under s.255(2) not where inconsistent with approved accounting standards, and under s.255(5) only where compliance would be misleading, inappropriate to the company’s circumstances, or impose unreasonable burdens. Section 255(3) allows a class-wide order. And section 254 applies the form and content rules to a licensed institution with such modifications as Bank Negara Malaysia determines.

Common mistakes

Treating s.251 as the lodgement provision. It is Board approval plus the statutory declaration. Lodgement is s.259 and circulation is s.258. This error is common enough in published summaries that it is worth checking any checklist you have inherited.

Having the wrong person make the statutory declaration. Section 251(1)(b) routes it to the person primarily responsible for financial management only where the director is not. It is not a choice of convenience.

One signature on a two-director board. Sections 251(3) and 252(2)(b) both require at least two directors where there is more than one.

Omitting the signatory’s name from circulated copies. Section 252(3) requires every copy to state it.

Naming only the directors in office at year end. Section 253(1)(a) requires every person who was a director during the year, and also during the period from the year end to the date of the report.

Filling paragraph 1(e) from the share register. It must come from the s.59 register of directors’ shareholdings, which is a different book with a different statutory trigger.

Forgetting paragraph 2’s last limb. The total of any indemnity given to, or insurance effected for, any director, officer or auditor is a required disclosure and is frequently omitted.

What’s next

Once the report is approved and signed, the circulation and lodgement clocks take over — see financial statements lodgement for the s.258 and s.259 sequence, and unaudited financial statements where the company claims audit exemption.

Two inputs to the report have their own pages: director shareholding notification feeds paragraph 1(e), and directors’ fees approval feeds paragraph 2.