Corporate Governance

CHAPTER 9
CORPORATE GOVERNANCE
Chapter Objectives
After the completion of this chapter you should be able to understand amongst other things: the division of powers within a company the meaning and effect of corporate governance procedure for the appointment and removal of directors, company secretaries and other officers of the company proceedings at board meetings the different types of directors whether loans can be given to directors The function of the company secretary

1.0

The initial directors (at least two) are specifically named and appointed in the memorandum or articles: s 122(3). The directors collectively are referred to as a board of directors.

DIVISION OF POWERS WITHIN A COMPANY

2.1 The board of directors and general meeting are both organs of the company with their respective powers determined by the Act and articles.

ICSA IQS Corporate Law

240

Corporate Governance 2.2 The general meeting has specific powers but the residual powers vest with the directors. 2.3 If the members in general meeting disapprove of the actions of the board they can alter the articles to deprive the directors of some of their powers or they can exercise the power given to them by the articles to vote in directors whose policies they approve.

The Power of management 2.4 Articles usually confer wide powers of management of a company's affairs on the board of directors. 2.5 A common example of such a provision is Table A, art 73. It specifies that the directors manage the companys business. 2.6 The MSEB LR gives shareholders of listed companies a role in significant management decisions. 2.7 For, example, Rule 10.06 requires informed shareholder approval if a listed company proposes to enter into a transaction which involves the acquisition or disposal of assets with a value which exceeds twenty-five per cent of the company's equity share capital.

General meeting cannot override management decisions 2.8 A question often arises whether the general meeting of members can override the directors and involve itself in the management of their company.

ICSA IQS Corporate Law

241

Corporate Governance 2.9 The general principle was established in the early English case of Automatic SelfCleansing Filter Syndicate Co v Cuninghame where it was held that the members can not interfere with directors decision. 2.10 The principle that members in general meeting cannot override management decisions made by the board was confirmed in a different context in the English case of John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113.

Powers of general meeting limited by articles 2.11 The inability of the general meeting to interfere with the powers of the directors conferred by the articles was affirmed in the case of Re Chi Liung & Son Ltd; Tong Chong Fah v Tong Lee Hwa & Ors.

Statutory Powers vested in the General meeting 2.12 While the general power of management is exercised by or under the direction of the companys directors, there are certain specific provisions in the Act stipulating that directors may not exercise certain powers without the approval of the company in general meeting. The important statutory powers of the general meeting include the following: Disposal companys 132C or acquisition of The directors shall not enter into any transaction substantial value, or the disposal of a substantial portion of the companys assets which would materially and adversely affect the companys financial position, unless the proposal has been approved by the general meeting.

main

undertaking-s for the acquisition of an undertaking or property of

ICSA IQS Corporate Law

242

Corporate Governance Acquisition or disposal of substantial non-cash assets-s 132E Certain property transactions of a substantial value, between directors and their companies are voidable at the instance of the company, unless the company in general meeting ratifies the transactions within a reasonable time. Transactions entered into in breach of s 132E are voidable at the instance of the company and the directors are liable for severe criminal penalties Issue of shares by directors-s 132D With the exception of shares issued as consideration for the acquisition of shares or assets by the company, any share issue of shares by directors requires the prior approval of the general meeting. Payments made to directors upon retirement or resignation-s 137 Proposed benefits to directors by way of compensation for the loss of office or retirement from office must be disclosed to the members. The payment of such benefits is unlawful unless they are approved by the members in general meeting.

Ratification by General Meeting 2.13 If the directors purport to exercise a power, which should properly have been exercised by the general meeting, their action can be ratified by an ordinary resolution of the general meeting and the improper exercise of power becomes valid. 2.14 For example, Table A, art 98 vests the power to declare dividends to the company in general meeting.

ICSA IQS Corporate Law

243

Corporate Governance 2.15 If, contrary to that provision, the dividend is declared by the directors it is invalid until ratified by the members in general meeting.

Separation of Ownership and Management 2.16 The practice whereby companies confer a wide power of management on the board of directors results in separation of management and ownership. Ownership vests in the members. 2.17 In the case of large, public companies it is essential that management vests in the board of directors. 2.18 Where there are a large number of shareholders, it would quickly become unworkable if the general meeting had the power to manage the company. 2.19 In most listed companies the responsibility for overseeing the day-to-day business operations is in the hands of senior executives who are salaried employees. 2.20 The most senior executive may be designated the chief or principal executive officer, under whom there may be a number of subordinate managers. 2.21 Persons employed in an executive capacity are included within the definition of "officer" under s 4 of the Act, although apart from the chief executive officer, they are not necessarily directors of the company. 2.22 The function of the board of directors in larger companies is to set goals and policies for the company, to oversee the conduct of the company's business in order to identify principal risks and to ensure the implementation of appropriate systems to manage those risks.

ICSA IQS Corporate Law

244

Corporate Governance 2.23 In the case of small private companies, the directors and shareholders of such companies are often the same people and in practice there is no separation of management and ownership. 2.24 These may have evolved from sole traders or partnerships and even after incorporation, they continue to function in a similar manner as before. 2.25 However, to meet the requirements of the Act, the distinction between members in general meeting and directors is maintained even if in many cases it is a fictitious distinction.

CORPORATE GOVERNANCE
3.1 The development of increased interest in corporate governance reflects higher expectations by the investment community for greater effort by listed public companies to develop their own structures and procedures to ensure appropriate standards of corporate behaviour. 3.2 3.3 The emphasis is on self-regulation rather than legislation. Corporate governance mechanisms have the purpose of monitoring and controlling the management of corporations so as to result in more effective management and to enhance shareholder value. 3.4 The successful implementation of corporate governance principles enables a corporation to balance the need for managerial risk-taking and entrepreneurial abilities with mechanisms and procedures for monitoring and setting policy so that the actions of management correspond with the interests of shareholders and other interests in the community.

ICSA IQS Corporate Law

245

Corporate Governance

3.5

The movement towards greater scrutiny of corporate governance issues has developed worldwide in response to the globalisation of capital markets.

3.6

It is widely believed that mobile global capital will be increasingly invested in corporations which are well managed, best maximise long-term shareholder interests and follow corporate governance best practice.

3.7

It is important that corporate governance processes are revealed so that investor confidence is enhanced by assurance that appropriate monitoring occurs and procedures are in place.

Finance Committee Report on Corporate Governance 3.8 In March 1999 the Finance Committee released its Report on Corporate Governance, which contained 70 recommendations pertaining to three broad areas: the development of the Malaysian Code on Corporate governance outlining a set of principles and best practice for corporate governance for listed companies reform of laws and regulations concerning the duties of directors and officers, improving disclosures, enhancing the rights of shareholders and improving the value of company meetings training and education for the corporate sector, particularly in improving the skills and qualifications of directors.

ICSA IQS Corporate Law

246

Corporate Governance 3.9 The Finance Committee will continue in existence to oversee the implementation of its recommendations to enhance corporate governance.

The Malaysian Code on Corporate Governance 3.10 The role of the Code is to guide boards of listed companies by clarifying their responsibilities and providing prescriptions strengthening the control exercised by boards over their companies

Meaning of Corporate Governance 3.11 The Finance Committee adopted the following definition for the purpose of the establishment of the Code on Corporate Governance: Corporate governance is the process and structure used to direct and manage the business and affairs of the company towards enhancing business prosperity and corporate accountability with the ultimate objective of realising long term shareholder value, whilst taking into account the interests of other shareholders. 3.12 The Finance Committees Report is set out in four parts, as follows: Principles-Part 1 sets out broad principles of good corporate governance for Malaysia. The objective is to allow companies to apply these flexibly and with common sense to the varying circumstances of individual companies. Best Practices in Corporate Governance-Part 2 sets pit best [practices for companies. It identifies a set of guidelines or practices intended to assist companies in designing their approach to corporate governance.

ICSA IQS Corporate Law

247

Corporate Governance Exhortations to other participants-part 3 is not addressed to listed companies but to investors and auditors to enhance their role in corporate governance. They are purely voluntary. Explanatory notes and mere best practice- part 4 provides explanatory notes to the principles and practices set out in parts 1 and 2 and 3. Part 4 also sets out best practices directed at listed companies that do not require companies to explain circumstances justifying departure form best practices-mere best practices. 3.13 The recommendations of the Malaysian Code on Corporate Governance were incorporated into Part E, Chapter 15 of the MSEB LR, which was reissued in January 2001. 3.14 Directors of listed companies are required by virtue of paragraph 15.26(a) of the Listing Requirements to include in their annual report a narrative statement of how they apply the principles set out in Part I of the Code to their particular circumstances. 3.15 This is to ensure sufficient disclosure so that investors and others can assess companies performance and governance practices, and respond in an informed way. 3.16 Compliance with the best practice guidelines of the Code is not mandatory. 3.17 However, paragraph 15.26 (b) of the Listing Requirements requires companies to explain any circumstances justifying departure from such best practices and the alternative to the best practice principles, if any, the company has adopted.

ICSA IQS Corporate Law

248

Corporate Governance THE BOARD OF DIRECTORS Powers of the board 4.1 The board of directors generally have wider powers than the general meeting of members. 4.2 This is because the articles typically provide directors with wide management powers: Table A, art 73. 4.3 The general meeting, though, is able to control the exercise of the board's powers indirectly through its power of appointment. 4.4 In Chan Choon Ming v Low Poh Choon & Ors, VC George JCA said that the directors - have powers conferred on them to manage the company. 4.5 The articles also usually confer various specific powers on the board of directors.

ICSA IQS Corporate Law

249

Corporate Governance Management Directors have power to manage the business of the company. Table A, art 73 specifies that they may exercise all powers of the company except those specifically conferred on the company in general meeting by the Act or the articles themselves Delegation of powers The board usually has specific powers in the articles to delegate its management function. Unless its articles provide otherwise, the directors may delegate any of their powers to a committee of directors, a director, an employee or any other person. Frequently, the board will appoint one of its members to the office of managing director: Table A, art 91. The board may delegate any of its powers to the managing director: Table A, art 93. Issue shares Once the company is incorporated the directors have the power to issue further shares subject to such rights and restrictions as they think fit: Table A, art 2. Registration of Transfer of shares Negotiable instruments receipts When a member wishes to transfer shares to another, the articles often give directors the right to refuse to register the transfer: Table A, art 22. A necessary adjunct to the power of management is the ability to and pay debts and give receipts on the company's behalf. Table A, art 77 specifies that the company's cheques, other negotiable instruments and receipts are to be signed, drawn, accepted and endorsed by any two directors or in such other manner as the board directs. Calling Meetings All companies must hold a general meeting of its members at least once in every calendar year: s 143. The articles may bestow the power of convening general meetings on the directors. Common seal Every company is required to have a common seal: s 16(5). The common seal when affixed to a document and authenticated by the appropriate officers represents the company's signature. The seal is affixed to deeds, certain instruments such as transfers of land, share certificates, and formal agreements. Table A, art 96 provides that

ICSA IQS Corporate Law

250

Corporate Governance every document to which the seal is affixed shall be signed by two directors, a director and secretary or a director and some other person appointed by the directors. Art 96 also specifies that the directors must provide for the safe custody of the seal, which must only be used, with their authority. Dividends The power to declare dividends is granted to the company in general meeting: Table A, art 98. This power is qualified by art 98 in that the dividend must not exceed the amount recommended by the board. dividends This enables directors to control the amount of

Proceedings of the board Meetings 4.6 The management of the company's business is usually vested in the board of directors collectively and not in individual directors, though sometimes, the board may delegate its powers to a managing director. 4.7 Table A, art 79 enables the directors to meet together as a board and regulate their meetings as they think fit. 4.8 A person elected by the directors must chair directors meetings: Tab A, art 85. To constitute a valid directors meeting requires more than the directors meeting together informally to discuss the companys affairs. 4.9 According to the case of Patch v Kennedy, a discussion between directors will not amount to an effective directors meeting unless the directors are aware, before proceeding to business that the occasion is to be a directors meeting. Informal

ICSA IQS Corporate Law

251

Corporate Governance meetings are common in the case of small companies where the directors and shareholders are identical. 4.10 In order to expedite the decision-making process in these companies. Directors may also make valid informal decisions without calling a proper meeting. The consent of all directors is required in the case of such informal decisions of the board. Resolutions 4.11 Directors make decisions at directors meetings by passing resolutions. Tab A, art A provides that a directors resolution shall be decided by a majority of directors present and voting. 4.12 Tab A, art 88 further specifies that in the event of an equality of votes the chairman has a casting vote, in addition to any vote they have in their capacity as a director. 4.13 Powers conferred upon directors are conferred upon them collectively as a board; therefore notice of an intended resolution must be given to every member of the board. If this were not the case there could be a situation where the company was managed by a clique and not by the board: Khoo Chan Yam v Gan Miew Chee @ Gan Gan Chua Poh & Ors 6 [2000] MLJ 20. Resolutions without meetings 4.14 Whilst it is usual for directors to meet together to conduct board meetings this is not always practical, particularly, as we noted above, in the case of small private companies.

ICSA IQS Corporate Law

252

Corporate Governance 4.15 Directors may therefore pass resolutions without a meeting being held by passing a circulating resolution. 4.16 Accordingly, Table A contemplates that directors need not be physically present in order to meet. 4.17 If all directors sign a document in favour of a resolution, that resolution is deemed to have been passed at a board meeting held on the day it was signed. Tab A, art 90 allows for such a resolution to consist of several documents in like form, each signed by one or more directors. Notice of meetings 4.18 The company's articles regulate meetings, however the frequency of board meetings is usually a matter for the directors to decide. 4.19 It is common practice for large public companies to hold meetings at regular intervals. 4.20 Table A, art 79, however, enables a director at any time to requisition the secretary to convene a board meeting. 4.21 Unless the articles provide otherwise, the general rule is that directors must receive notice of board meetings and of the agenda to be discussed, in sufficient time to enable them to attend. Notice of each meeting is not necessary, however, if the articles or the directors set regular fixed meetings. 4.22 The Court of Appeal in Aik Ming Sdn Bhd v Chang Ching Chuen, held that unless the articles of a company provide otherwise, a meeting convened without any notice at all is a nullity and all the business conducted at the meeting is void.

ICSA IQS Corporate Law

253

Corporate Governance 4.23 The Court has discretionary power under s 355 of the Act to make an order declaring that proceedings are valid notwithstanding such irregularity or deficiency where substantial injustice would result from the invalidation of proceedings at the meeting. 4.24 Section 355 (2) (a) vests in the Malaysian High Court the original discretion to make a validation order. Quorum 4.25 The articles usually specify how many directors constitute a quorum for a valid board meeting. 4.26 4.27 A quorum is the minimum number of directors required for a valid meeting. Table A, art 83 leaves the decision of the number necessary to constitute a quorum to the directors themselves. In the absence of such a determination, a board meeting requires a quorum of two directors. 4.28 A meeting cannot be constituted by one member and any resolutions purported to be passed at such a meeting are invalid: United Investment & Finance Ltd v Tee Chin Yong & Ors. 4.29 Statutory requirements with respect to minutes of directors meetings are those set out in ss 156 and 157. 4.30 Section 156 (1) requires the company to keep minutes of meetings of directors, signed by the chairman of the meeting. 4.31 Minutes, entered into books kept for that purpose, are to be taken as evidence of the proceedings to which the minutes relate: s 156(2).

ICSA IQS Corporate Law

254

Corporate Governance

4.32

These minutes must be kept at the companys registered office and shall be open to the inspection of any member without charge: s 157(1).

Delegation of powers by the board 4.33 The articles bestow general and specific powers on the board. It has long been held that unless there is some provision in the memorandum or articles to the contrary, the board cannot delegate its powers to others: Totterdell v Fareham Blue Brick Co. 4.34 In the above case of small private companies, it may be that there is no necessity for delegation of the board's powers. 4.35 However, even in such cases it is not unusual for the articles to enable the board to delegate broad powers to one or more of their number. 4.36 In the case of large companies there is a trend toward compartmentalisation whereby the board delegates its powers in relation to specific matters to particular directors or as is increasingly common, to committees of directors. 4.37 For example, it is not uncommon for a director with accounting expertise to be delegated the task of management of the company's financial affairs. 4.38 An increasingly common trend is for the board of public companies to be divided among directors to whom day-to-day management has been delegated and directors who do not take an active role in the daily management of the company but participate in broader policy decisions. There is thus a distinction between executive and non-executive directors.

ICSA IQS Corporate Law

255

Corporate Governance 4.39 Non-executive directors are frequently appointed because of their experience in business affairs or because their reputations add prestige to the company.

DIRECTORS
Definition 5.1 A director of a company is defined in s 4 as a person who is appointed to the position of a director or alternate director regardless of the name given to their position. 5.2 A director is not just a person formally appointed to the office. The s 4 definition also regards certain persons to be directors even though they are not validly appointed. 5.3 Unless the contrary intention appears, a person who is not validly appointed as a director is also regarded as a director if: the directors are accustomed to act in accordance with the persons instructions or wishes (shadow director); or they act as an alternate or substitute director.

De facto directors 5.4 A director is, by virtue of s 4, not just a person formally appointed to the office. The definition also includes person who claim and purport to act as directors.

ICSA IQS Corporate Law

256

Corporate Governance 5.5 Such persons are sometimes referred to as de facto directors and are subject to the same statutory and fiduciary duties as directors who have been validly appointed. 5.6 For example, in Corporate Affairs Commission v Drysdale, Drysdale was appointed as a director to fill a casual vacancy on the board. The articles provided that such a director could only hold office until the next annual general meeting at which he or she was permitted to stand for re-election. Drysdale's retirement or re-election was, however, not considered at the general meeting. Consequently, under the articles, he was no longer a director of the company. Nevertheless, he continued to participate in the management of the company as if he were a director. The High Court of Australia held that, despite the defect in his appointment, he was deemed to be a director and subject to various fiduciary and statutory duties of directors. 5.7 It seems that a person who acts as a controller of the company, whether or not they are held out or claim to be a director may be regarded as a de facto director: Mistmorn Pty Ltd v Yasseen. Shadow directors 5.8 The s 4 definitions also includes persons who act as shadow directors. These are persons whose instructions or wishes are customarily followed by the directors of a company, Re Hydrodam (Corby) Ltd. 5.9 Section 4(2) provides that a person who merely gives advice to the directors in his or her professional capacity is not to be regarded as a "director" for the purposes of s 4(1),Yap Sing Hock & Anor v PP.

ICSA IQS Corporate Law

257

Corporate Governance Types of directors 5.10 The most common types of directors within the board are: 5.11 managing directors; chairman of directors; governing directors; executive and non-executive directors; alternate or substitute directors; associate directors; and nominee directors.

A company is required to keep a register of directors, managers and secretaries under s 141. The register must contain particulars of directors and their consent in writing for appointment: s 141(2). This register is open to inspection by members and any other person: s 141(5

Managing directors 5.12 Many companies appoint a managing director to be their chief executive officer and manage their day-to-day business. 5.13 Table A, art 91provides for the board of directors to delegate some of its functions to a managing director. Under art 93 the managing director has such of the board's powers as are conferred by the directors. Chairman of directors 5.14 Neither the Act nor the Table A articles bestow any special authority on the chairman of directors who is merely the director appointed to chair and exercise procedural control over directors meetings: Table A, art 85; and sign the minutes:

ICSA IQS Corporate Law

258

Corporate Governance s 156. In practice, however, the chairman is often given special powers and in large public companies the position carries great prestige : AWA Ltd v Daniels Governing directors 5.15 It is unusual for public companies to have a governing director. Some private companies, which are formed to operate a family business, provide for the nomination of a governing director: Re Chi Liung & Son Ltd; Tong Chong Fah v Tong Lee Hwa & Ors. Executive and Non Executive directors 5.16 5.17 Executive directors are full-time employees of the company. Their main role is to carry out the day-to-day management of the companys business. In this respect they comprise the senior management of the company. 5.18 In the case of large listed companies, the style and complexity of the business means that the board of directors must delegate substantial control of the companys activities to its management. 5.19 Non-executive directors have an important role to play in bringing an independent view to the boards deliberations. 5.20 They should consider the interests of the company as a whole rather than any sectional interest. 5.21 It is widely seen as a crucial aspect of good corporate governance that listed company board comprise a number, if not a majority of non-executive directors.

ICSA IQS Corporate Law

259

Corporate Governance 5.22 The effectiveness of company boards as monitors of management is enhanced by the appointment of a significant number of non-executive directors.

Alternate or substitute directors 5.23 If a director of a company is unable for any time to act as a director, he or she may appoint an alternate or substitute director. 5.24 A director of a public company, however, can only assign his or her office if approved by a special resolution of the company: s 138(1). 5.25 It is more common for the articles to provide a mechanism for the appointment of an alternate or substitute director. 5.26 Under Table A, art 82, a director may, with the approval of the board, appoint another to be an alternate or substitute director in his or her place during such period as is thought fit. 5.49 The appointment of an alternate director does not constitute an assignment of the office of director: s 138(2). 5.28 An alternate director is entitled to notice of, and to vote at, board meetings. He or she is an officer of the company and is subject to all the duties of directors. Anaray Pty Ltd v Sydney Futures Exchange Ltd 5.29 The practice of appointing alternate directors may come to be regarded as incompatible with the principles set out in the Code on Corporate Governance. Those principles highlight the importance of all directors having a continuous and informed role in the administration of the company and for appointments to the board to be made in accordance with formal and transparent procedures.

ICSA IQS Corporate Law

260

Corporate Governance Associate directors 5.30 Some companies adopt the practice of appointing their junior executives as associate directors. This is done to increase the status of the person appointed. In some cases associate directors are appointed to act in an advisory capacity because of their expertise in a particular area. The articles usually limit the powers of an associate director. Under Table A, art 94 the associate's right to attend or vote is subject to the board's approval.

Nominee directors 5.31 Sometimes a director is appointed to represent the interests of particular shareholders or creditors on the board of directors. 5.32 A holding company usually has power to appoint officers to the board of its subsidiary companies and frequently, they share the same boards. called nominee directors. Where directors are appointed to represent the interests of a particular group, they are

Committee of members 5.33 Companies with relatively large numbers on the board may decide that various management functions be delegated to committees of directors. 5.34 Table A, art 86 provides that committees of directors exercise such powers as are conferred by the board. 5.35 Any powers so exercised are deemed to have been. exercised by the board. Committees of directors are often delegated the task of overseeing the company's large-scale borrowings or construction of a particular project.

ICSA IQS Corporate Law

261

Corporate Governance

5.36

Where powers are delegated to a committee, the committee only as power to act within the scope of the powers delegated : Datuk Haji Harun bin Haji Idris & ors v Public Prosecutor

Appointment of directors 5.37 5.38 Section 122 requires every company to have at least two directors. The first directors must be appointed by being named in the memorandum or articles: s 122(3). 5.39 5.40 The company cannot be registered unless this is done: s 16(7). The Act does not set out the manner in which directors may be subsequently appointed. The articles generally regulate this. 5.41 Under Table A, art 63 directors so appointed retire from office at the first annual general meeting. 5.42 The articles of a company formed to take over the business of a sole trader or a partnership frequently name the vendor of the business as its first director. 5.43 That person is often also named as a governing or managing director to ensure continued control over the company. Consent 5.44 A director must consent in writing to holding the position.

ICSA IQS Corporate Law

262

Corporate Governance 5.45 Section 123(1) of the Act provides that a person shall not be named as a director or proposed director in the memorandum or articles or in a prospectus of the company unless they have consented in writing and the consent lodged with the Registrar. 5.46 Failure to comply with s 123 does not mean that an appointment is invalid. A person may still be regarded as a de facto director notwithstanding that the formalities of consent have not been complied with. Appointment by general meeting 5.47 The general meeting usually makes subsequent appointments of directors: Table A, art 66. 5.48 Provision is usually made for the directors to appoint someone to fill a casual vacancy: Table A, art 68. 5.49 In the case of public companies, where appointment of directors is by the general meeting, each director must be individually appointed by separate resolution. 5.50 More than one director may be appointed by a single resolution if the general meeting has first unanimously agreed to a resolution to that effect: s 126(1). 5.51 This section prevents the voting in of a director who was on a joint ticket with another who had strong support. 5.52 The appointment of a director in contravention of this section is void: S 126(2).

ICSA IQS Corporate Law

263

Corporate Governance Who may be appointed as a director? 5.50 5.51 A director must be a natural person of full age: s 122(2). Any provision in the memorandum or articles of a company which was in force prior to the commencement of the Act and which operated to constitute a corporation as a director is to be construed as if it authorised that corporation to appoint a natural person in its stead: s 122(4). 5.52 On the commencement of the Act any corporation which held office as director of a company shall cease to hold office and the vacancy may be filled as a casual vacancy in accordance with the articles: s 122(5). 5.53 Every director must have his principal or only place of residence within Malaysia: s 122(1). 5.54 The term residence is not defined in the Act but has been held to mean residence in one place with some degree of continuity: Fong Poh Yoke & Ors v The Central Construction Company (Malaysia) Sdn Bhd [1998] 4 CLJ Supp 12. 5.55 Presumably temporary or accidental absences will not preclude a person from being a director.

Share qualification of directors 5.56 The articles of a company often require a director to hold a minimum number of shares in the company. This required number of shares is called the director's share qualification. 5.57 A share qualification serves two purposes.

ICSA IQS Corporate Law

264

Corporate Governance

5.58

It provides directors with an added incentive to ensure the financial success of their company. It is also attractive to shareholders to see that directors are risking their own money as well as that of the members.

Persons disqualified from acting as a director 5.58 The Companies Act and Securities Industry Act (SIA) contain a number of provisions under which directors may be disqualified. Automatic disqualification Convicted person of S 130 (1) CA insolvent s 130A CA s 100 (1) (kk) SIA

Disqualification by court Directors order companies

Breach of KLSE Listing Rules

5.59

An undischarged bankrupt who acts as director of, or directly or indirectly takes part in the management of a company, except with the leave of the court is guilty of an offence: s 125(1).

5.60

The Act does not provide for the removal or disqualification from office of the bankrupt.

5.61

The articles usually provide that the office of director shall become vacant if the director becomes bankrupt or enters into any arrangement or composition with creditors: Tab A, art 72.

ICSA IQS Corporate Law

265

Corporate Governance 5.61 The acts of a person disqualified from the office of director are still binding on the company: s 127 Asia Commercial Finance (M) Bhd v Pasadena Properties Development Sdn Bhd Managing a Corporation 5.62 The meaning of management of a company for the purpose of the disqualification provisions is not defined in the Act. The Australian case of Commissioner for Corporate Affairs v Bracht (1989) 7 ACLC 40, held that a bankrupt participated in the making of decisions that affected a substantial part of the companys business and was therefore involved in managing the corporations. Automatic Disqualification 5.63 A person who has been convicted of certain offences cannot be a director, promoter or in any way take part in management of a company, within five years of conviction or release from prison, without leave of the court: s 130(1). The specified offences include: (i) an offence in connection with the promotion, formation or management of a corporation; (ii) any offence involving fraud or dishonesty punishable by imprisonment for a period of three months or more, (iii) offences under ss 132, 132A and 303 of the Act. Disqualification by Court Order 5.64 Section 130A provides creditors with additional protection from persons who continually set up companies which fail. 5.65 This section enables the Registrar and the Official Receiver to apply for court orders prohibiting certain persons from being a director or from being in any way concerned in or taking part in the management of a corporation for a period of five years from the date of the order, without leave of the court.

ICSA IQS Corporate Law

266

Corporate Governance

5.66

Under this section, a person may be prohibited if he or she was a director of two or more insolvent companies in the previous five years an the court determines that persons conduct as a director makes him or her unfit to be concerned in the management of a company.

5.67

A person applying for leave must give not less than ten days' notice to the Registrar and the Registrar must be made a party to the proceedings: s 130(2).

5.68 5.69

The burden of proving that leave should be granted is on the applicant. Section 100(1) of the Securities Industry Act 1983 allows an application to the High Court by the Securities Commission or by a stock exchange for an order removing a person form the position of director of a public company for such time as the Court thinks fit.

5.70

The application may be made where a person has committed an offence in relation to dealing in securities or has contravened the listing requirements of the stock exchange.

Vacation of office Under the Act 5.71 vacant: where a director has not obtained the share qualification within two months of appointment or has ceased to hold the share qualification. He The Act provides various grounds upon which the office of director becomes

ICSA IQS Corporate Law

267

Corporate Governance or she may be reappointed after obtaining the qualification: s 124(1) and (4). in the case of a public company or subsidiary of a public company, where a director attains the age of 70 years, the director's office is vacated at the conclusion of the next annual general meeting: s 129(2). The person may, however, be reappointed in subsequent years but the maximum duration of the appointment can only be from one annual general meeting to the next. Where the director seeks such reappointment the director must disclose his or her age and the general meeting must pass a special resolution approving the appointment. Under the articles 5.72 Where the articles provide for the appointment of a director for a specified period of time, the appointment ceases at the expiration of that time and the position becomes vacant. 5.73 The articles usually specify additional grounds for vacation of the office of a director. Under Table A, art 72 the office becomes vacant if a director. ceases to be a director by virtue of the Act; becomes bankrupt or makes any arrangement or composition with his creditors generally; becomes prohibited from being a director by reason of any order made under the Act; becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental disorder;

ICSA IQS Corporate Law

268

Corporate Governance

resigns his or her office by notice in writing to the company; for more than six months is absent without permission of the directors from meetings of the directors held during that period;

without the consent of the company in general meeting holds any other office of profit under the company except that of managing director or manager; or

is directly or indirectly interested in any contract or proposed contract with the company and fails to declare the nature of his interest in manner required by the Act.

Termination of appointment as director 5.74 5.75 A director may be appointed for such a term as is provided by the articles. Table A, art 63 requires a proportion of the directors to retire from office in rotation. A retiring director is then eligible for re-election. 5.76 This ensures that management of the company retains continuity by allowing most directors to remain in office for more than one year. 5.77 To meet the needs of particular companies, the articles may allow directors to be appointed for life, for an indefinite term or a certain prescribed term. 5.78 Where a director is appointed for a particular term, at the expiration of that term the appointment is terminated.

ICSA IQS Corporate Law

269

Corporate Governance 5.79 5.80 A director may also resign from office. Table A, art 72(c) provides that the office of a director becomes vacant if the director resigns from office by notice in writing to the company.

Removal of directors 5.81 The general meeting of shareholders can only remove a director if empowered to do so by the articles. Most articles have a provision to this effect. 5.82 Table A, art 69 empowers the company to remove any director before the expiration of the term of office by ordinary resolution. 5.83 If the articles confer no such power, a special resolution would first be necessary to alter the articles to provide the necessary authority. 5.84 In the case of public companies, s 128 provides that the general meeting may, by ordinary resolution, remove a director before the expiration of his or her period in office. 5.85 Removal in this manner is permitted despite anything to the contrary contained in the articles or in a separate agreement between the director and the company: Tuan Ishak Ismail v Leong Hup Holdings Bhd & Ors. 5.86 Section 128 attempts to give shareholders of public companies some control over the composition of the board of directors. It prevents directors who are opposed by the majority of shareholders from remaining in office. 5.86 A resolution for the removal of a director by the general meeting under s 128 requires special notice of 28 days to be given.

ICSA IQS Corporate Law

270

Corporate Governance 5.87 This notice must also be given to the director concerned who is given the right to be heard on the resolution at the meeting, irrespective of whether he or she is a member: s 128(2). 5.88 The director may also require the company to send copies of his or her representations regarding the removal to every member of the company: s 128(3). 5.89 In Solaiappan v Lim Yoke Fan, the Federal Court considered whether the special notice requirements for the removal of directors under s 128 applied where the companys articles provided for a lesser period 5.90 The vacancy created by the removal of a director may be filled at the general meeting at which he or she was removed or it may be filled by the directors as a casual vacancy under Table A, art 68: s 128(5). 5.90 Section 128 only applies to the removal of directors of public companies. In the case of private companies, the articles govern the procedure for removal of directors. 5.91 Table A, art 69 provides that a company may remove a director by ordinary resolution. 5.92 The board notwithstanding anything in the articles or any agreement cannot remove a director of a public company to that effect: s 128(8). 5.93 Section 128(2) only applies where removal is by resolution and not by other means specified in the company's articles. 5.94 For example, in Tien Ik Sdn Bhd & Ors v Kuok Khoon Hwong Peter, the company's articles allowed a director to be removed by serving notice, in accordance with its art 85(f) and signed by a majority of directors, to that effect.

ICSA IQS Corporate Law

271

Corporate Governance The Supreme Court held that s 128(2) of the Act does not apply to the removal of a director by notice under which the director was required to vacate his office as director but may apply to cases where the director is removed 5.95 Section 128 permits a public company in general meeting to remove all appointed directors, despite its reference to a singular director. 5.96 This would not result in a breach of s 122(1) which requires every company to have at least two directors where it is proposed to immediately replace the removed directors: 5.97 In Malaysia, the High Court has held that it is acceptable for a company to have only one director so long as he or she takes steps to appoint another or others within the grace period allowed by the Act: Wong Kim Fatt v Leong & Co Bhd. 5.98 Where a director is removed prior to the expiry of his term, the question arises whether he can restrain the company from so acting or obtain damages for wrongful dismissal. 5.99 A director cannot prevent the company from exercising its right to remove him. The equitable remedies of injunction and specific performance are not granted to enforce personal relations on unwilling parties: Noor Aini binte Majid v Pentex Sdn Bhd.

6 6.1

PAYMENT AND OTHER BENEFITS TO DIRECTORS One consequence of the fact that directors stand in a fiduciary relationship with respect to the company will be discussed.

ICSA IQS Corporate Law

272

Corporate Governance 6.2 Table A, art 70 provides that directors may receive such remuneration as is from time to time determined by the company in general meeting. That article also sanctions the payment of travelling and other expenses properly incurred by the directors in connection with the company's business. 6.3 The payment of excessive remuneration to directors may constitute oppressive or prejudicial conduct under s 181, especially where dividends are not paid or reduced to a small amount. 6.4 This may be unfairly detrimental to a shareholder who is prevented from being a director. Unless there is evidence of oppression is not the function of the court to question whether payments or remuneration sanctioned by the company are excessive or improper: Low Tien Sang & Sons Holding Sdn Bhd & Ors v How Kem Chin & Ors (High Court, Kuala Lumpur).

Disclosure 6.5 Information concerning directors remuneration must be contained in the financial statements laid before the annual general meeting of all companies. 6.6 The annual return, lodged by all companies, except exempt private companies, with the Registrar and placed on the public record also contains the companys financial statements: s 165, Eight Schedule Part 11. 6.7 In order to comply with the accounts requirements of the Ninth Schedule of the Act, the profit and loss statement must set out the total amount paid to directors as remuneration for their services to the company or its subsidiaries.

ICSA IQS Corporate Law

273

Corporate Governance Loans to directors 6.8 A specific type of contract, which may be entered into by a director with his company is a loan to the director from the company. 6.9 Section 133 restricts the giving of such loans to directors by 'Companies other than exempt private companies: s 133(1). 6.10 This recognises that small, tightly held companies, in which the directors and shareholders are mostly the same people, often find it useful to lend to their directors. Where the interests of directors and shareholders closely coincide, there is little likelihood of abuse in the company granting loans to directors. 6.11 In the case of larger companies, which may directly or indirectly raise money from the public, however, s 133 aims to prevent directors improperly using the funds of the company. 6.12 This may arise where the terms of the loan are more favourable to the director than would be commercially available elsewhere. 6.13 Even where the terms of the loan are similar to those available commercially, the policy of the section is that the director should borrow from those available outside sources and not from the company. 6.14 Section 133A prohibits a company, other than an exempt private company, from making a loan to any person connected with a director of the company. 6.15 Section 122A states that, for the purposes of Div 2 of Pt V, a person shall be deemed to be connected with a director if he or she is (a) a member of that director's family; or

ICSA IQS Corporate Law

274

Corporate Governance

(b) a body corporate which is associated with the director; or (c) a trustee of a trust (other than an employee share scheme or pension); or (d) a partner of that director or a partner of a person connected with that director. 6.16 "Member of that director's family" is defined in s 122(2) to include the spouse, parent, child (including adopted child and stepchild), brother, sister and the spouse of his or her child, brother or sister. 6.17 A body corporate is associated with a director for the purposes of s 122A(1)(b) in the following cases: s 122A(3): (i) the body corporate is accustomed to act on the directions, instructions or wishes of that director; or (ii) that director has a controlling interest in the body corporate; or (iii)that director or persons connected with that director or that director and person connected with that director are entitled to exercise or control the exercise of not less than 15 per cent of the votes attached to voting shares in the body corporate. 6.18 Also included within the prohibition of s 133A are guarantees and the provision of security given by a company in connection with a loan made to a person connected to a director by any other person. 6.19 Exceptions to the prohibition set out in ss 133 and 133A include: loans made by a company to a related corporation;

ICSA IQS Corporate Law

275

Corporate Governance provision of funds to meet expenditure incurred for the purposes of the company or to enable an officer of a company properly to perform his or her duties. The provision of such funds is subject to approval by the general meeting of the company. Full disclosure must be made at the general meeting: s 133(2)(a). This requirement is also necessary for the following exceptions: the provision of funds to a full time employee of a company or its holding company to purchase a home. The provision of such funds is also subject to approval of the general meeting of the company as outlined above; a loan made by a company to a director who is a full time employee of the company or a related corporation where the company at a general meeting has approved a scheme for the making of such loans and the loan is made in accordance with the scheme. This allows a company to make loans as part of an employees incentive scheme; and loans made by a company engaged in the business of lending money, where the loan is in the ordinary course of its business. Thus, for example, a bank may make loans to its directors. Where a company makes a loan, gives a guarantee or provides security in contravention of ss 133 or 133A, the company is not guilty of an offence but any director, of the company who gave the authorisation is guilty of an offence. 6.20 Loans coming within the exceptions still require disclosure in the annual companys financial statements in accordance with the Ninth Schedule of the Act. 6.21 In addition, directors in default are jointly and severally liable to indemnify the company against any loss arising from for loans, guarantees or security made without company approval under s 133: s 133(3).

ICSA IQS Corporate Law

276

Corporate Governance Consequences of breach of s 133 6.22 The company retains the right to recover the loan or its liability under a guarantee or security where the prohibition under ss 133 or 133A is breached: ss 133(5) and 133A(3). 6.23 This overcomes the common law rule that the parties to an illegal contract are not assisted by the courts to enforce any rights under the contract. 6.24 Given the right of recovery, the Federal Court later held that a guarantee or security given in breach of the s 133 (1) prohibition is valid and not void: Cooperative Central Bank Ltd v Feyen Development Sdn Bhd.

Compensation for loss of office 6.25 Section 137 attempts to limit the power of the board of directors to pay compensation to a director for loss of office. At common law, directors are under a duty to exercise their powers in good faith. safeguarding the interests of shareholders. 6.26 It is unlawful for a company to make a payment or give any benefit to a director by way of compensation for the loss of office or retirement from office unless particulars of the proposed payment have been disclosed to the members of the company and approved by the general meeting: s 137(1). 6.27 Certain payments set out in s 137(5) are "exempt benefits" which are not subject to the prohibitions of s 137(1). Section 137 goes further in

ICSA IQS Corporate Law

277

Corporate Governance THE COMPANY SECRETARY 7.1 7.2 7.3 Every company is required to have at least one secretary: s 139(1). The Act only prescribes one as the minimum number. A company may, however, have more than one secretary. Large companies often have a secretary, as well as assistant or deputy secretaries. 7.4 7.5 The term "secretary", unlike "director, is not defined in the Act. However, a secretary of a company is included within the s 4 definition of officer and is subject to the statutory duties of officers and agents under s 132 of the Act.

Appointment of secretaries 7.6 Section 139(1A) requires the first secretary of the company to be named in the memorandum or articles. The office of secretary must not be vacant for more than one month at any one time: s 139(1B). 7.7 Table A, art 95 provides that a secretary of the company holds office on such terms and conditions, as to remuneration and otherwise, as the directors determine. 7.8 Section 139(3) states that secretaries are to be appointed by the directors; the procedure is not laid out. 7.9 Presumably it is by a resolution of the board. In the case of small private companies, it has been recognised by the courts that certain formalities need not

ICSA IQS Corporate Law

278

Corporate Governance be strictly complied with where all the shareholders have consented or acquiesced. 7.10 In Northside Developments Pty Ltd v Registrar-General (1987) 5 ACLC 642, a private company, whose only function had been to hold land, was managed by one director and his accountants. 7.11 One of the accountants, Horder, had acted as secretary despite no formal appointment. 7.12 The Australian equivalent of s 139(3) did not specify how the appointment of a secretary was to be made; however, it was held that the directors and shareholders had all acquiesced to Horder exercising the office of secretary and the directors were regarded as having done that in which they had all acquiesced. On the other hand, Horder's purported successor was held not to have been appointed. A notice filed with the Corporate Affairs Commission [the Companies Registry] purporting to show a change of secretary provides prima facie evidence but cannot stand in the face of actual evidence. Directors who leave management to one director cannot be assumed to have delegated authority to the one director to appoint whomever he wished as secretary without prior consultation. 7.13 Though the Act is silent, Table A, art 95 states that the directors have the power to remove the secretary. 7.14 A secretary may normally resign on reasonable notice to the company, that is, to the board of directors. 7.15 In the Northside Developments case, resignation notified to a de facto managing director without authority to accept it was held to be invalid. 7.16 A director of a company may also be its secretary.

ICSA IQS Corporate Law

279

Corporate Governance

7.17

However, s 139(5) specifies that where a provision requires something to be done by a director and a secretary, that requirement is not satisfied if it is done by the person who is both director and secretary.

7.18

A person may be a secretary of more than one company and may have other employment.

7.19

Section 141 requires the company to keep a register of its directors, managers and secretaries.

7.20

With respect to the secretary, the register must specify his or her full name, residential address and other occupation, if any.

7.21

Under s 141(6) the company is required to lodge with the Registrar: within one month after its incorporation, a return containing the particulars of the register of secretaries; within one month after a secretary is appointed, a return containing the secretary's full name, address and other occupation (if any); and within one month after a person ceases to be a secretary, a return notifying that fact.

Who may be appointed as a secretary? 7.22 A secretary must be a natural person of full age: s 139(1).

ICSA IQS Corporate Law

280

Corporate Governance 7.23 The secretary, or if there is more than one, each of them, must name his or her principal or only place of residence in Malaysia: s 139(1). 7.24 The secretary who is ordinarily so resident is required to be present at the company's registered office either in person or by an agent or clerk during the hours when the office is required to be open and accessible to the public: s 139(3). 7.25 A company secretary must be: a member of a professional body or any other body prescribed by the Minister; or 7.26 licensed by the Registrar of Companies: s 139A.

The Finance Committee recommended that formal and ongoing training be required for public company secretaries to ensure compliance with the Code on Corporate Governance.

7.27

This recommendation recognises the crucial role of the company secretary in advising the board of its compliance with the Code and with other relevant laws and rules, particularly securities and banking laws.

7.28

Additionally, the Committee recommended that company secretaries must also be educated on their independence regarding giving advice without fear or favour.

7.29

A person cannot act as a secretary if he or she is: an undischarged bankrupt; convicted of any of the following offences:

ICSA IQS Corporate Law

281

Corporate Governance

(a) those in connection with the promotion, formation or management of a corporation; (b) those involving fraud or dishonesty where the punishment is imprisonment for a period of three months or more; (c) those involving dishonesty and lack of reasonable diligence in the discharge of director's duties: (d) insider trading; and (e) those involving situations where proper company accounts are not kept; or no longer a member of a body prescribed by the Minister under s 139B; or no longer holding a licence to act as company secretary issued by the Registrar of Companies: s 139c(l).

Function of a secretary Administrative role 7.30 7.31 The nature of the secretary's duties varies from company to company. Responsibilities are imposed upon the secretary by the Act, the articles or the appointing board of directors. 7.32 The courts' present view of the function of a company secretary has changed from that held in the late 19th and early 20th centuries.

ICSA IQS Corporate Law

282

Corporate Governance 7.33 Secretaries were initially regarded as persons of low status and authority in the company. 7.34 In Newlands v National Employers Accident Assoc, the functions of a secretary were described as clerical and ministerial only. In Bamett, Hoares & Co v South London Tramways Co., the secretary was regarded as a mere servant of the company. This is no longer the present view. The office of secretary, particularly in large companies, is now regarded as a position of importance with significant responsibilities and influence. 7.35 Salmon LJ in the case of Panorama Developments (Guilford) Ltd v Fidelis Furnishing Fabrics Ltd, described a secretary as the company's chief administrative officer. 7.36 A company secretary is now also seen as having customary authority to bind the company to certain contracts with outsiders. 7.37 The customary authority of a secretary includes the authority to enter into contracts connected with the administration of a company and the counter-signing of the affixation of the companys seal pursuant to a resolution of the board of directors. It does not extend to entering into commercial transactions decided upon by the secretary: Mohamed b Othman v Abdul Shattar b Abdul Rahim . Responsibility imposed by the board 7.38 The company secretary's role in the company is not managerial or executive. 7.39 Apart from statutory duties, he or she undertakes functions which are assigned by the articles or by contract of service, or as is usually the case, by the directors.

ICSA IQS Corporate Law

283

Corporate Governance 7.40 This is illustrated in Wong Kim Fatt v Leong & Co Sdn Bhd & Anor. The company had two shareholders. The majority shareholder, acting in accordance with his rights under the articles requisitioned for the purchase of the shares of the plaintiff, the shareholder. One of the grounds on which the plaintiff opposed this compulsory acquisition was that the company's secretaries had no authority to issue the notice of requisition of his shares. Chang Min Tat J dismissed this argument, holding that the secretaries were carrying out the instructions of the other director, which were given properly and in accordance with the company's articles. 7.41 In many instances, the secretary is responsible for the preparation of the company's accounting records. 7.42 7.43 This responsibility is not imposed by the Act, but rather the board of directors. A secretary who assumes that responsibility may be made liable as an officer in default under s 370(3). 7.44 In Deputy Commr. for Corporate Affairs v Stokes, the Commissioner argued that the secretary was responsible to ensure the company maintained accounting records that correctly record and explain its transactions and financial position under the Australian Uniform Companies Act equivalent of s 167. The court rejected this argument. Burt CJ held that directors have the responsibility to ensure the company's compliance with accounting records. In order to ascertain whether the secretary is an officer in default in respect of a failure to keep accounts, the proper approach is to determine what obligations the secretary assumes in each particular case.

ICSA IQS Corporate Law

284

Corporate Governance Statutory Responsibilities 7.45 Some provisions of the Act specify that a breach renders the officers in default guilty of an offence. 7.46 Section 370(3) provides that an officer in default is one who is in any way knowingly and wilfully guilty of the offence or authorises or permits the commission of the offence. 7.47 Accordingly, the Act makes the secretary prima facie responsible for: the maintenance of the company's registered office in accordance with s 119; the lodgement of returns with the Registrar of the particulars of directors, managers and secretaries required by s 141; the lodgement of the company's annual return with the Registrar in accordance with s 165. Some of the main duties of a secretary. 7.48 The list is not exhaustive: to carry out the functions of the chief administrative officer of the company; to ensure that the necessary registers required to be kept by the Act are established and properly maintained;

ICSA IQS Corporate Law

285

Corporate Governance to ensure that all returns required to be lodged with the Registrar are prepared and filed within the appropriate time limits; to organise and attend meetings of the shareholders and directors, including the sending out of notices, the preparation of agendas etc; to be conversant with meeting procedures; to ensure that the company's books of accounts are kept in accordance with the Act and that the annual accounts and reports are prepared in the form and at the time required by the Act; to supervise the company's share capital generally, including the preparation of allotment letters, issue of share certificates, etc; 7.49 7.50 to supervise the preparation of tax returns etc; to attend to the company's insurance requirements; and to be conversant with statutory requirements.

The articles may also impose responsibilities on the secretary. A document upon which the company's seal is affixed must be signed by a director and countersigned by a secretary: Table A, art 96.

ICSA IQS Corporate Law

286

Corporate Governance

DEFECTIVE APPOINTMENTS
8.1 Both the Act and the articles impose formal requirements with respect to the appointment and qualification of directors. 8.2 In some cases directors or secretaries may act despite the fact that there is a technical defect in their appointment. 8.3 8.4 Section 127 deals with the problem of defective appointments. The acts of directors, managers or secretaries are valid notwithstanding any defect that may afterwards be discovered in their appointment or qualification: s 127. 8.5 Table A, art 89 similarly validates the acts of the board of directors or committees of directors. 8.6 8.7 The court also has power to validate contraventions of the Act: s 355. This power does not extend to validating acts which are void and therefore a nullity: Aik Ming Sdn Bhd v Chang Ching Chuen [1995] MLJ 770. 8.8 Section 127 applies to validate acts of directors, managers and secretaries which may affect not only the shareholders but also outsiders. 8.9 In so far as that section affects outsiders, it is governed by the rule in Royal British Bank v Turquand 8.10 Under s 124(3) and art 72 the office of director is vacated if a director does not have the required share qualifications, becomes bankrupt or becomes prohibited from being a director by reason of any order of court.

ICSA IQS Corporate Law

287

Corporate Governance 8.11 Section 127 validates the acts of such directors notwithstanding any defect that may afterwards be discovered in his or her appointment or qualification. 8.12 In Asia Commercial Finance (M) Bhd v Pasadena Properties Development Sdn Bhd [1991] 1 MLJ 111, the High Court held that a person disqualified under s 125 had no capacity to affirm an affidavit on behalf of the company. However, the court did not consider the application of s 127, which provides that the acts of a person disqualified from the office of director are still binding on the company. 8.13 Section 127 does not, however, apply to validate acts of directors who in fact were never appointed to the office or who continue to act after their term has expired

ICSA IQS Corporate Law

288