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ohia2016

How a director may be made personally liableUnder the laws of Malaysia, a company is required to have a minimum of 2 directors.
Many directors assume that a company (i.e., a private registered company and NOT a sole proprietorship) is a shield against civil suits; that the company alone will be made liable in the event something goes wrong.
This could not be further from the truth. There are numerous circumstances in which a director may attract personal liability. Personal liability is a terrifying prospect; it could lead to one becoming a bankrupt, causing one’s assets to vest with the Director General of Insolvency.
Consider a simple scenario. Builders Sdn Bhd is incorporated in 2004. It has 3 directors (Tom, Richard and Harry).
Builders is in the construction industry and develops houses. In 2008, due to the increase in the price of concrete, Builders is unable to develop houses in a cost-efficient manner.
Builders fails to pay one of its suppliers, Shylock Sdn Bhd. Shylock has supplied Builder with RM1,500,000.00 worth of steel but not received any payment for the same.
Shylock obtains Judgment in the Malaysian High Court against Builder. Shylock proceeds to wind-up Builder and a liquidator is appointed.
The liquidator of Builder subsequently discovers that there have been irregularities in Builder’s accounts.
In addition, there are a number of discrepancies that are of serious concern.
In such circumstances, Tom, Richard and Harry  may be made liable for the indiscretions committed in Builder’s name.

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In this article, we look at 5 common oversights that will encumber personal liability.

1.Failing to satisfy contributions to the Employers’ Provident Fund  (EPF)

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Failure to pay tax
When a company fails to pay any tax, a director may be made personally liable.

As such, if Builders has failed to pay any tax that is due and owing to the Inland Revenue Board, Tom, Richard and Harry may be made personally liable for the sums outstanding.

This is so even if Tom, Richard and Harry were unaware of the tax. The law presumes that every director is aware of the necessary taxes that need to be paid.

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3.Assisting the transportation of unlicensed foreign workers


In the example outlined above, Builders’ employees may consist of a number of unlicensed foreign workers.

If Builders was to assist these unlicensed employees to travel in between countries (e.g., if Builders was to book flights in and out of Malaysia), then Tom, Richard and Harry may be found guilty of a criminal offence.

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4. Breach of statutory duties


Under the Malaysian Companies Act 1965, there are statutory duties that a director must adhere to.

In general, a director must:-
◾Avoid any conflict of interest;
◾Declare his interest in any company undertaking;
◾Not make a loan to any other director of the company;
◾Not misuse and/or disseminate insider information;
◾Not make any false statement or report;
◾Not misrepresent the nature of any contract or make false promises.

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5. Failing to lodge statutory documents with the Companies Commission of Malaysia (CCM)


A company is required to lodge statutory documents with the CCM. Amongst others, these are:-
◾Company accounts;
◾Company’s annual returns;
◾Notice of change of directors;
◾Notice of change of registered office.

The Board of Directors is obligated to ensure that these documents are lodged with the CCM on time.

Failing to do so will cause the directors to be personally liable for any fine meted out by the CCM.

ohia2016

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