Section 1301 of the companies act give the provision about a director which may be

known as disqualified person if he is convicted for certain offences. A person who is

convicted of various specified offences involving fraud and dishonestly cannot take part in
the direction and management of a company within five years from conviction or in a case
when a prison sentence was imposed from release from person. Convictions of one of these
offences result in automatic disqualification from office of the director. Apart from the
above disqualification provisions, section 155 of the Singapore Companies Act provides for
automatic disqualification for persistent default in filing with the Registrar of Companies.

The disqualification provision is designed to protect the public and to prevent the
corporate structure from being used to the financial detriment of investors, shareholders,
creditors and persons dealing with the company. Any person who is disqualified from being
appointed a director is guilty of an offence if he takes part in the management of a company.
However, a convicted person may do so with the leave of the High Court. To obtain such
leave, the onus is on the applicant to convince the Court that the general intention of the Act
should be waived in a particular case.

In Quek Leng Chye v. Attorney General2, the appellants and two others were convicted of an
offence under Companies Act, for unlawful issue of letters of invitation to the public to
subscribe for shares in a company. The appellants applied to the High Court for orders
pursuant to section 130 that notwithstanding the conviction, each of them be at liberty to act
as directors and promoters or to be otherwise directly or indirectly concerned with or take
part in the management of companies in Singapore. The High Court refused the applications
for directorships but granted the applicants leave to be concerned in and take part in the
management of all but two of the companies of which they had been directors before their
convictions. The two excepted companies were those that had been directly concerned in the
setting up of a proposed club for which the letters of invitation had been issued. There were
cross appeals. The Attorney General’s appeal was against the grant of leave to take part in the
management of the various companies. The Court of Appeal disallowed the appeals of the
appellants but allowed the appeal of the Attorney General. The Privy Council on further
appeal upheld the decision of the Court of Appeal.

1
Section 130 companies act 1965

2
[1985] 2 MLJ 370

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 The prohibition is directed against persons who are likely to use the corporate
structure to the financial detriment of investors and persons dealing with the corporation. The
prohibition also described as being for the protection of the public shareholders, creditors and
others having dealing with limited liability companies. Types of offences which may cause
disqualification of the directors are, if he is convicted for offences in connection with the
promotion, formation or management of a corporation. Offences involving, fraud and
dishonestly will be punishable with imprisonment for at least three month. This section 130 is
related to offences under section 132,132A, and 303 0f the Malaysian companies act, while
Singapore is under section 157 or 339, which relate to a director’s duty to act with honestly
and keep proper accounts, and insider trading offences.

In Singapore, where a person convicted of the first of third types of offence as the
court has a discretion as to whether or not to disqualify that person from acting as a director
or taking part in the management of companies offences involving fraud and dishonestly,
however will result in an automatic disqualification to act as director.

Section 132 of the companies’ act 1967 stated as to the duty and liability of officers.
A director company shall at all times exercise his power for a proper purpose and in good
faith in the best interest of the company. A director of a company shall exercise reasonable
care, skill, and diligence. Otherwise, if there is negligence or breach of the duty, that director
will be disqualified person from continue managing his company. Insider trading is governed
mainly by section 132(2), section 132A and 132B. A director who makes improper use of
information acquired by virtue of his position to gain an advantage for himself or others or to
cause detriment to the company is guilty of an offence under section 132(3). To determine
whether any crime has been committed it is necessary to find whether any insider exists.
According to section 132B of the Malaysian Act to be an insider an individual must hold the
inside information by virtue of being connected with the company in question and it must be
reasonable to expect him not to disclose that information except for the proper performance
of the functions attaching to that official capacity. Also, he must know that the information is
unpublished price-sensitive information in relation to securities of the corporation.

A director is perhaps the most obvious candidate for being an insider. Having control
of the company’s property, he is in a position to acquire, accumulate and exploit facts about
the company’s operations which are secret outside the board room. The question of insider

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trading arose in a Singapore case, Public Prosecutor v. G. Choudhary,3 where the respondent,
chairman and chief executive of Ben & Co. Ltd., a public trading company, was tried for 112
charges under the Companies Act. He pleaded guilty to all charges except the first eight. The
trial proceeded on those eight charges. He was acquitted on charge No. 8 but was convicted
and sentenced on the first seven charges. The first six were identical and framed under
section 132A.4 The respondent was convicted by the lower Court for making use of specific
confidential information that Ben & Co. Ltd. was facing a financial crisis to gain advantage
for himself while dealing in the securities of Ben & Co. Ltd. The information, it was found,
he acquired by virtue of his position as an officer of Ben & Co. Ltd. and that the information
if generally known, might reasonably be expected to affect materially the prices of the shares
he was selling on the Stock Exchange. The High Court on appeal held that the six charges as
framed were invalid and quashed the convictions.

On application by the prosecution, two questions were reserved for the decision of the
Court of Criminal Appeal, whether in alleging that the accused had been dealing in the
securities of Ben & Co. Ltd. by himself by disposing of 360,000 shares in a number of
transactions and making use of confidential information that the company was facing a
financial crisis, he could be described as having acted upon specific confidential information
thereby committing a breach of provisions of section 132A(1) of the Companies Act and
whether in law the charges Nos. 1 to 6 disclosed offences under s. 132A(8) of the said Act.

The Court answering both questions in the affirmative held that it was a question of
fact in each case to be resolved on the evidence adduced at the hearing of the case as to what
is specific confidential information and what information as used in the section, meant
knowledge of a particular event or situation such as advice, communication, intelligence,
news, notification and the knowledge which the respondent had of the then financial situation
of the company was specific information that anyone familiar with the market knows could
markedly affect the prices of the particular shares and could result in the suspension of the
trading of the shares on the Stock Exchange and it was in view that this was one of the kinds
of confidential information that an insider might not use for his own benefit and to the
detriment of the investing public, that the legislature had enacted section 132A.

3
[1981] 1 MLJ 7
4
An equivalent provision section 158 in Singapore, now repealed by act 15 1986

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 If investigation under any other part or where a company is wound up, it is shown that
proper books of account were not kept by the company through the period of two years
immediately preceding the commencement of the investigation or winding up or the period
between the incorporation of the company and the commencement of the investigation or
winding up every officer who is default shall, unless he acted honestly and shows that in the
circumstances in which the business of the company was carried on default was excusable, be
guilty of an offence against the act. If that matters are found out as the ground of company
wound up, so the director is being disqualified.

Section 303 provided liability where proper accounts not kept5, if on an investigation
under any part or where company is wound up, it is shown that proper books of account were
not kept by the company thought the period of two years immediately preceding the
commencement of the investigation or winding up or the period between the incorporation of
the company and investigation of winding up, every officer who is default shall, unless he
acted honestly and shows that in the circumstances in which the business of the company was
carried on the default was excusable. Be guilty of an offence against this act. So, The Act
specifically disqualifies a person who has been convicted of certain offences from managing
companies for five year, for any offence under section 132 or 303 of the act.

In United Kingdom, a comprehensive provision imposing civil and criminal liability

for fraudulent trading was first introduced as section 75 of the company’s act 1928 on the
recommendation of the Greene committee and then consolidated as section 275 of the
company act 1929. It created a range of sanction, including a power of disqualifies anyone
held liable under its term for a maximum period of five years. However, it only applies once
the company was being wound up and so was limited in scope. Section 188 (1) (a) gave the
court power to disqualify a person convicted on indictment of any offence in connection with
the promotion, formation or management of a company for maximum periods of five years.
This greatly extended the original power of disqualification conferred on the civil and
criminal court by section 275 of the company act 1929 which had been confined in scope to
fraudulent trading.

As additional, there is also the relief from disqualification of a director. A disqualified

director may apply to court for leave to take part in the management of a corporation. In
exercising its discretion, the court takes into account such matters, the nature of the offence

5
Section 303 companies act 1965

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committed, the nature of the director’s involvement, the general character of the director, and
the interests of the shareholders, creditors and employees. Risk to the public should the
director resume a management position. It is for the director to satisfy the court that he has
the high degree of commercial integrity function in limited liability companies should be
endorsed.