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COMMON OFFENCES UNDER THE COMPANIES ACT 1965 By LEE SWEE SENG LLB, LLM, MBA Advocate & Solicitor Notary Public, Trademark, Patent Agent Certified Mediator.

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Presentation on theme: "COMMON OFFENCES UNDER THE COMPANIES ACT 1965 By LEE SWEE SENG LLB, LLM, MBA Advocate & Solicitor Notary Public, Trademark, Patent Agent Certified Mediator."— Presentation transcript:

1 COMMON OFFENCES UNDER THE COMPANIES ACT 1965 By LEE SWEE SENG LLB, LLM, MBA Advocate & Solicitor Notary Public, Trademark, Patent Agent Certified Mediator ©copyright

2 Offences by Company A company is a separate legal entity from its Directors and Shareholders Who is liable for offences of a Company? Can Directors be jointly and severally liable?

3 Infringement of the Act by Directors Section 370 of CA 1965 The Company and every officer of the company who is in default is guilty of an offence under the Act Default –Knowingly and willfully is guilty of the offence –Authorizes or permits the commission of the offence

4 Infringement of the Act by Directors Case: –Manning v Cory [1974] ACLC (WA) the words ‘knowingly and willfully… require that the prosecution to establish a case to answer must lead evidence upon which, if accepted, it could be held that the accused knew the thing not done was not done and in the free exercise of his will authorized or permitted the non-doing…’ need not to prove that the accused knew there was a law in force which made the failure to do the act unlawful.

5 Whether Mens Rea an ingredient of offence? Principle expressed by Denning LJ in the following words: –A company may in many ways be likened to a human body. It has a brain and a nerve center which controls what it does. It also has hands which hold the tools and act in accordance with directions from the center. Some of the people in company are mere servants and agents who are nothing more than hands to do work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.

6 Whether Mens Rea an ingredient of offence?  Poyser v CCA [1985] 9 ACLR 651.  It was held that to obtain a conviction, it was not necessary to prove that the bankrupt knew that his act amounted to taking part in management, nor that this constituted an offence.  It is enough to show that the bankrupt voluntarily performed the act complained of.

7 Offences by Company Example: Section 46 EPF Act ) Where any contributions remaining unpaid by a company, a firm or an association of persons, the directors of such company including any persons who were directors of such company during such period in which contributions were liable to be paid, or the partners of such firm, including any persons who were partners of such firm during such period in which contributions were liable to be paid, or the office-bearers of such association of persons, including any persons who were office-bearers of such association during such period in which contributions were liable to be paid, as the case may be, shall together with the company, firm or association of persons liable to pay the said contributions, be jointly and severally liable for the contributions due and payable to the Fund.

8 Liability of Directors Lembaga Kumpulan Wang Simpanan Pekerja v Adorna RMIT Sdn Bhd & Ors [2003] 4 MLJ 729 “ Directors are alter ego of a company. It is therefore not appropriate for a director to attempt to escape culpability by pleading that he is a sleeping partner or director, or a silent director or a non-active director. ”

9 Personal Liabilities of Directors Income Tax Act A. Director 's liability. (1) Notwithstanding anything contrary to this Act or any other written law — (a) where any tax is due and payable under this Act by a company, any person who is a director of that company during the period in which that tax is liable to be paid by that company; or …

10 Personal Liabilities of Directors … (b) where any debt is due and payable from an employer under any rules made pursuant to section 107 and the employer is a company, any person who is a director of that company during the period in which the debt is liable to be paid by that company, shall be jointly and severally liable for such tax or debt, as the case may be, that is due and payable and shall be recoverable under section 106 from that person.

11 Personal Liabilities of Directors (2) “ director ” means any person who — (a) is occupying the position of director (by whatever name called), including any person who is concerned in the management of the company's business; and (b) is, either on his own or with one or more associates within the meaning of subsection 139(7), the owner of, or able directly or through the medium of other companies or by any other indirect means to control, more than fifty per cent of the ordinary share capital of the company

12 Personal Liabilities of Directors Immigration Act 1959/63 55A. Conveying a person to Malaysia contrary to this act (1) Any person involved, directly or indirectly, in conveying to Malaysia in or on any vehicle, vessel or aircraft any person contrary to this Act shall be guilty of an offence (3) Where the offence under subsection (1) has been committed by a body corporate, any person who at the time of the commission of the offence was a member of …

13 Personal Liabilities of Directors … the boards of directors, a manager, a secretary or a person holding an office or position similar to that of a manager or secretary of the body corporate shall be guilty of that offence and shall, on conviction, be liable to a fine of not less than thirty thousand ringgit but not more than one hundred thousand ringgit and to imprisonment for a term not less than two years but not more than ten years and shall also be liable to whipping of not more than six strokes.

14 Personal Liabilities of Directors Banking and Financial Institutions Act Offences by institution and by servants and agents. (1) Where any offence against any provision of this Act has been committed by any institution, any person who at the time of the commission of the offence was a director, officer, or controller, of the institution or was purporting to act in any such capacity, or was in any manner or to any extent responsible

15 Personal Liabilities of Directors … for the management of any of the affairs of such institution, or was assisting in such management, shall be guilty of that offence unless he proves that the offence was committed without his consent or connivance and that he exercised all such diligence to prevent the commission of the offence as he ought to have exercised, having regard to the nature of his functions in that capacity and to all the circumstances.

16 Breach of BSLR Para BSLR In the event of breach of LR by a listed issuer or its directors, the BSLR may, after consultation with SC, take or impose such actions or penalties as it considers appropriate.

17 Actions or Penalties in relation to Directors Para BSLR – Types of actions or penalties Issuance of caution letter Issuance of private reprimand Issuance of public reprimand Imposition of fine not exceeding RM 1 million Issuance of letter directing listed issuer to rectify Suspension of trading De-listing of listed issuer Any other action which the Exchange deem appropriate

18 Common Breaches of BSLR Late submission of quarterly report Late submission of annual audited accounts together with auditors ’ and directors ’ report Failure to make immediate announcements in respect of winding up petition

19 Common Offences and Penalties Bursa Securities issued 44 public reprimands in 2006 for various breaches of the listing requirements. Almost all offences were a result of breaching Chapter 9 Continuing requirements. 28 out of the 44 reprimands include penalties which involves fines that ranged from RM3,000 to RM400,000.

20 PUBLIC REPRIMANDS WITH PENALTIES BY BURSA SECURITIES IN 2004

21 26Total number of separate offences 1 Response to Unusual Market Activity Unusual Market Activity9.11(1) 2 Immediate Disclosure of Material Information (affects 9.03 & 9.04) PN 1/2001 para 2.1(e) 2 Immediate Disclosure of Material Information (affects 9.03 & 9.04) PN 1/2001 para 2.1(d) 2Preparation of Announcements Content of Press or Other Public Announcement 9.16(1) 2 Immediate Disclosure of Material Information Examples of Events which Require Immediate Disclosure 9.04(l) 2 Immediate Disclosure of Material Information Examples of Events which Require Immediate Disclosure 9.04(f) 3Periodic Disclosure Submission of Annual Audited Accounts and Annual Report 9.23(a) 4 Immediate Disclosure of Material Information Disclosure of Material Information9.03(1) 6Periodic Disclosure Submission of Annual Audited Accounts and Annual Report 9.23(b) 6Periodic DisclosureQuarterly Report9.22(1) SectionListing Requirement Frequency Offences (Year 2004)– breach of

22 Actions taken for breaches of BSLR – As at 31 Dec 2005

23 75TOTAL 20 Failure to furnish Annual Audited Accounts on time - Para 9.23(b) of LR 12Failure to furnish Annual Reports on time - Para 9.23(a) of LR 18Failure to release Quarterly reports on time - Para 9.22(1) of LR 12 Breach of Directors for causing, aiding or abetting; or permitting a breach of LR by Listed Issuer - Para of LR 4 Failure to comply with Continuing Listing Obligations - chapter 8 of LR 8 Failure to comply with requirements on Corporate Disclosure Policy and immediate Announcement - Chapter 9 (except for Part F, Para of the LRD) 1 Failure to comply with the policy on Response to Unusual Market Activity/Failure to promptly provide information or documents to the Exchange - Part F of Chapter 9 of the LR Public Reprimand &FineType of cases Offences for Year 2005 Sanctions imposed for 12 months ended 31 Dec 2005

24 PUBLIC REPRIMAND BY BURSA ON COMPANIES & DIRECTORS Bursa Malaysia Securities Berhad (Bursa Securities) publicly reprimanded the principal officers of Multi Vest Resources Berhad ( “ MVEST ” ), i.e. Mr. K. Selveswaran A/l Kanagaratnam (Senior Vice President- Group Operations Division at the material time) and Mr Tamg Yow San (Vice President, Group Finance Division/Joint Company Secretary at the material time) for breach of Paragraph of the Listing Requirements of Bursa Securities

25 PUBLIC REPRIMAND BY BURSA ON COMPANIES & DIRECTORS Bursa Malaysia Securities Berhad has publicly reprimanded Mr. Sabjit Singh S/O Sarban Singh, the former director of QSR AND KFC for breach of Paragraph 2.17(3) of the Listing Requirements of Bursa Securities. ( “ BURSA SECURITIES LR ” )

26 FINES IMPOSED BY BURSA ON COMPANIES & DIRECTORS Bursa Malaysia Securities Berhad (BURSA SECURITIES) publicly reprimanded and imposed a total fine of RM700,000 on YCS Corporation Bhd for breach of Paragraph 9.23 of the Listing Requirements of Bursa Securities. (BURSA SECURITIES LR) 9 Aug 2005

27 FINES IMPOSED BY BURSA ON COMPANIES & DIRECTORS Besides, the former director of YCS Corporation Berhad, Yap Kwee Huat was being reprimanded and imposed a fine of RM100,000 for breach of Paragraph 16.11(a) BSLR for causing the company to breach Paragraph 9.23 of the BSLR in respect of the failure to submit the annual report 2001 and annual audited account 2001 within stipulated timeframes. 9 Aug 2005

28 FINES IMPOSED BY BURSA ON COMPANIES & DIRECTORS Bursa Malaysia Securities Berhad has publicly reprimanded and imposed a fine of RM100,000 on each of the Directors of Tanamas for breach of Paragraph 16.11(a) of the Listing Requirements of Bursa Securities. (BURSA SCURITIES LR) 9 Aug 2005

29 FINES IMPOSED BY BURSA ON COMPANIES & DIRECTORS Besides, Bursa Securities also publicly reprimanded the former executive director of Tanamas, namely Dato ’ Hamzah Bin Zainuddin for breach of Paragraph 16.11(b) of the BSLR. 9 Aug 2005

30 FINES IMPOSED BY BURSA ON COMPANIES & DIRECTORS Bursa Securities has publicly reprimanded Dceil International Berhad for failure to make immediate announcements in respect of various defaults in payment of credit facilities by subsidiaries of the company. Bursa has also taken enforcement action against the executive directors of the company, namely Dato ’ Dr Tan Seng An and Datin Tan Bee Lian to be in breach of Para and Para of the LR. 20 Dec 2006

31 FINES IMPOSED BY BURSA ON COMPANIES & DIRECTORS Penalties imposed under Para 16.11: Public Reprimand and a fine of RM25,000 Penalties imposed under Para 14.05: Public Reprimand and a fine of RM500,000

32 Incorporation/Registration of New Companies & Business Annual Change ( ) Local companies (private limited) 35,91938,29337,46538,0761.6% Local companies (public limited with share capital) % Local companies (limited by guarantee) % Local companies (unlimited) 00000% Source: SSM Annual Report 2006

33 Incorporation/Registration of New Companies & Business Annual Change ( ) Total (new local companies incorporated) 36,08238,53737,70238,2521.5% Total (new foreign companies registered) % Total (new local companies incorporated and foreign companies registered) 36,12338,57937,74038,2931.5% Source: SSM Annual Report 2006

34 Incorporation/Registration of New Companies & Business Annual Change ( ) Businesses (sole proprietorship) 131,946143,954153,665180, % Businesses (partnership) 49,00445,25239,43035, % Total (new businesses registered) 180,950189,206193,095216, % Source: SSM Annual Report 2006

35 Compliance Rate for Annual Return Lodged by Companies COMPLIANCE RATE (Annual Report Lodged)

36 Press Release CCM aims to raise corporate compliance rate to 90% –The CCM will intensify its enforcement to raise the corporate compliance rate for companies registered under the Companies Act, 1965 to 90% by next year. –Chief Executive officer, Abdul Karim Abdul Jalil, said this was to encourage good corporate governance values and greater participation by local and foreign investors. –“CCM is working hard to achieve the targeted 85% compliance rate by this year compare with 80.2% last year. We will work at every angle to achieve the 90% compliance rate by Now, we are focusing on the enforcement issues to ensure the officers in default are fully aware of their responsibility in complying with the Act,” he told reporters after the annual CCM East Malaysia regional Dialogue Source:

37 Number of Inspection/Compound Notice Issued Year Number of Inspections 113,033157,237112,264 Number of compounds 130,024136,841112,017 Number of compounds paid 121,36892,10077,322 Total compound revenue(RM) 18.5 million22.7 million36.0 million Source: SSM Annual Report 2006

38 Serious Corporate Governance Cases Compounded Upon Inspection Offence (Companies Act 1965) Total Compounds Section 69E Failure to notify on acquisition of substantial shareholding RM 10,000 (1 case) Section 69F Failure to notify on disposal of substantial shareholding RM 440,000 (37 cases) Section 69F(2) Failure to provide notice in writing w/in 7 days of change in the interest(s) of the substantial shareholding RM 105,000 (4 cases) Section 69G Failure to notify on cessation of substantial shareholding RM 20,000 (2 cases) Source: SSM Annual Report 2006

39 Complaints Received and Disposed of YearNo. of Complaints ReceivedNo. of Complaints Disposed of CompanyBusinessCompanyBusiness cases78 cases48 cases78 cases cases110 cases63 cases110 cases cases152 cases92 cases117 cases Source: SSM Annual Report 2006

40 Breakdown of Complaint Cases Disposed of in 2006 Source: SSM Annual Report 2006

41 Category of Serious Corporate Governance Cases Complained Section (Companies Act 1965) OffencesNo. of Cases Section 169Failure to table accounts.130 Section 364(2)Making false and misleading statement.100 Section 131Disclosure of interest in contracts, property, officers etc 20 Section 132Breach of duty and liability of officers. Section 132ESubstantial property transactions involving directors. Source: SSM Annual Report 2006

42 Category of Serious Corporate Governance Cases Complained Section (Companies Act 1965) OffencesNo. of Cases Section 167Failure to keep accounts for 7 years. 18 Section 125Undischarged bankrupt acting as director. 4 Section 133AProhibition of loan to persons connected with directors 1 Section 135General duty to make disclosure1 Section 174Powers and duty of auditors as to reports on accounts 1 Section 367Use of a company name in business prior to incorporation. 1 Source: SSM Annual Report 2006

43 Complaint Cases Compounded After Investigation Offence (Companies Act 1965)Total Compounds Section 69E & 69FRM 200,000 (1 case) Section 143, 165 & 169RM 108,000 (4 cases) Source: SSM Annual Report 2006

44 Criminal Sanction  The intensification of surveillance and inspection activities on companies, directors, company secretaries, auditors and businesses had resulted in the increased rate of criminal investigations and prosecutions.  Initiation of prosecutions had witnessed a significant increase, resulting from the various enforcement initiatives undertaken by SSM.  A total of 6,493 cases were prosecuted in courts for various offences under the Companies Act 1965 and Registration of Businesses Act 1956 in Source: SSM Annual Report 2006

45 Serious Corporate Governance Compounded After Investigation Offences (Companies Act 1965)Total Compounds Section 69E Failure to disclose acquisition of substantial shareholding RM 50,000 to RM 650,000 (3 cases) Section 69F Failure to disclose disposal of substantial shareholding RM 10,000 (1 case) Section 125(1) Failure to disclose interest in company RM 9,000 (1 case) Section 130 Convicted person acting as director RM 2,500 (1 case) Section 364(2) Making false and misleading statement RM 10,000 (2 cases) Source: SSM Annual Report 2006

46 Serious Corporate Governance Compounded After Investigation Offences (Companies Act 1965)Total Compounds Section 132C Failure of director to get approval of the company for disposal of the company’s undertaking/property RM 40,000 (1 case) Section 167 Failure to keep accounts for 7 years RM 18,000 (1 case) Section 172 Failure to appoint an auditor RM 700 (1 case) Section 367 Conducting a business prior to incorporation RM 10,000 (1 case) Source: SSM Annual Report 2006

47 Prosecution Cases Year No. of Cases Prosecuted No. of cases Disposed of CompanyBusinessCompany Business 20042,970 cases986 cases1,747 cases713 cases 20053,938 cases1,096 cases3,020 cases877 cases 20065,271 cases 1,222 cases 3,348 cases 926 cases Source: SSM Annual Report 2006

48 Common Offences Prosecuted under the Companies Act 1965 Common offences prosecuted under the Companies Act 1965 in 2006: –Section 125 Undischarged bankrupt acting as company director. –Section 132 Breach of fiduciary duties. –Section 143 (1) Failure to lodge annual general meeting. –Section 165 (1) Failure to lodge annual return. –Section 169 Failure to table accounts –Section 167 Failure to keep accounting records Source: SSM Annual Report 2006

49 Common Offences Prosecuted under the Companies Act 1965 Common offences prosecuted under the Companies Act 1965 in 2006: –Section 363 Share hawking. –Section 364 (2) Making false and misleading statements –Section 366 Inducing persons to invest money Source: SSM Annual Report 2006

50 Invitations to the public to lend money or to deposit money with a corporation.  Section 38 of CA ) An invitation to the public to deposit money with or lend money to a corporation or proposed corporation can be issued provided that:- –a prospectus contains an undertaking by the corporation to issue acknowledgement of the indebtedness of the corporation has been registered by the Registrar. Penalty: –Imprisonment for five years or –Fine RM100,000

51 Invitations to the public to lend money or to deposit money with a corporation.  What is a "Get-Rich-Quick" scheme? A plan which offers high or unrealistic rates of return for a small investment while at the same time promising that such investment is easy and risk-free. The following "Get-Rich-Quick" schemes are prohibited under the legislation administered by Bank Negara Malaysia : Illegal Deposit Taking Activities Illegal deposit taking is an act of receiving, taking or accepting of deposits (moneys, precious metal, precious stone, any other article etc.) from members of the public that promises a repayment with interest or returns in money or money's worth without a valid licence under the Banking and Financial Institutions Act 1989 (BAFIA). Source:

52 Invitations to the public to lend money or to deposit money with a corporation. Illegal Foreign Currency Dealings The following acts tantamount to illegal foreign currency dealings: –Buying or selling of foreign currency by a person who is not an authorized dealer unless such person has obtained the permission of the Controller of Foreign Exchange under the Exchange Control Act 1953 (ECA). –Buying or selling of foreign currency by a resident who is not an authorised dealer, with a person outside Malaysia except if the resident has obtained the permission of the Controller of Foreign Exchange under the ECA. Source:

53 Prospectus  Section 39 (4) of CA 1965  Where a prospectus relating to any shares or debentures of a corporation is issued and it does not comply with the Act, each director of the corporation and other persons responsible for the prospectus shall be guilty of an offence against the Act. Penalty: Imprisonment for 5 years; or Fine RM 30,000  Certain defenses are however provided under s.39(5): a)if he proves that he was not cognizant as regards the matters not disclosed; b)if he proves that non-compliance or contravention arose from an honest mistake or facts; c)the non-compliance was in the opinion of the Court immaterial

54 Prospectus  Further, by virtue of s.39(6), a director or other person shall not incur liability for non-inclusion of matters specified in paragraph, 17 of the Fifth Schedule unless it is proved that he had knowledge of the matters.  Public Prosecutor v. Huang Sheng Chang [1983] 2 MLJ – five directors pleaded guilty and were convicted in the District Court of Singapore on a charge, inter alia, that they being directors of a company caused a document to be sent out offering shares in the company to the public. –They sent invitations to 2000 individuals and companies to join a exclusive club and take one share each in the company. The letter of invitation and its enclosures disclosed no information whatever about the company.

55 Prospectus –Held: by the District Court that the letter of invitation was an offer to the public to purchase shares in the company and was deemed to be a prospectus under s.43 of the Act. –It was further held that the letter did not comply with the requirements of the Companies Act as to the issuance of prospectuses under s.39(4).

56 Criminal liability for statement in prospectus Section 47 of CA ) Any person who authorized or caused the issue of a prospectus with untrue statement or willful non- disclosure shall be guilty of an offence against this Act Exception- he proves either that: –the statement or non-disclosure was immaterial or –he had reasonable ground to believe and did, up to the time of the issue of the prospectus, believe the statement was true or the non-disclosure immaterial. Penalty: –Imprisonment for five years or –Fine Rm100,000

57 Power of company to alter its share capital Section 62(4) of CA 1965 Where a company has increased its share capital beyond the registered capital, it shall within 14 days after the passing of the resolution authorizing the increase lodge with the Registrar notice of the increase. If any company fails to comply with subsection (4) the company and every officer of the company who is in default shall be guilty of an offence against this Act. Penalty: –Fine RM1,000 –Default penalty

58 Purchase by a company of its own shares, etc. Section 67A (2) of CA 1965 A public company with a share capital may purchase its own shares provided: –it is solvent at the date of the purchase –will not become insolvent due to the obligation to pay the share –the purchase is made through the Stock Exchange –good faith and in the interest of the company A company within 14 days lodge a notice with the Registrar and the Stock Exchange Penalty: –Imprisonment for five years or –Fine RM100,000

59 Furnishing of information and particulars of share holding. Section 69A of CA ) Request by the Registrar in writing to furnish all the necessary information and particulars of shareholding and have them verified by statutory declaration 2) Any company, person and individual shall within 7 days of the receipt of such notice furnish all the necessary information requested Penalty: –Imprisonment for five years or –Fine RM50,000 – Default penalty.

60 Default penalties Any section or part of a section of this Act there appears the expression “Default penalty” it shall indicate that any person who is convicted of an offence against this Act in relation to that section or part shall be guilty of a further offence against this Act if the offence continues after he is so convicted and liable to an additional penalty for each day during which the offence so continues of not more than the amount expressed in the section or part as the amount of the default penalty or, if an amount is not so expressed, of not more than RM 200.

61 Obligation of a substantial shareholder A substantial shareholder shall notify company of: –his interests, change in his interest –the date he ceased to be a substantial shareholder Section 69M of CA 1965 A person who fails to comply with section 69E, 69F, 69G or 69J shall be guilty of an offence. Penalty :Fine RM1,000, Default Penalty:Fine RM50,000.00

62 Definition of substantial shareholder Section 69D of CA 1965 A person has a substantial shareholding in a company if he has an interest or interests in one or more voting shares in the company and the nominal amount of that share, or the aggregate of the nominal amounts of those shares, is not less than five per centum of the aggregate of the nominal amounts of all the voting shares in the company. A person has a substantial shareholding in a company, being a company the share capital of which is divided into two or more classes of the shares, if he has an interest or interests in one or more voting shares included in one of those classes and the nominal amount of that share, or the aggregate of the nominal amounts of those shares, is not less than five per centum of the aggregate of the nominal amounts of all the voting shares included in that class.

63 Substantial shareholder to notify company of his interest  Section 69E of CA ) A person who is a substantial shareholder in a company shall give notice in writing to the company stating his name, nationality and address and full particulars of voting shares in the company in which he has an interest or interests and full particulars of each such interest and of the circumstances by reason of which he has that interest. 2) The notice shall be given- a)if the person was a substantial shareholder on the date on which this Division came into operation- within 1 month after that date; or b)if the person became a substantial shareholder after that date- within 7 days after becoming a substantial shareholder.

64 Substantial shareholder to notify company of change in his interests.  Section 69F of CA ) Where there is a change in the interest of a substantial shareholder in a company, he shall give notice in writing to the company stating his name and full particulars of the change, including the date of the change, and the circumstances by reason of which that change has occurred. 2) The notice shall be given within 7 days after the date of the change.

65 Person who ceases to be substantial shareholder to notify company.  Section 69G of CA ) A person who ceases to be a substantial shareholder in a company shall give notice in writing to the company stating his name and the date on which he ceased to be a substantial shareholder and full particulars of the circumstances by reason of which he ceased to be a substantial shareholder. 2) The notice shall be given within 7 days after the person ceased to be a substantial shareholder.

66 Company to keep register of substantial shareholders Section 69L of CA ) A company shall keep a register of substantial shareholders. 2) The Registrar may require the company to furnish the register. 3) The company shall furnish the same within 14 days after the receipt of the notice Penalty: Fine RM5000 Default Penalty:Fine RM500

67 Undischarged bankrupts acting as directors Section 125 of CA ) Every person who being an undischarged bankrupt acts as director of, or directly or indirectly takes part in or is concerned in the management of, any corporation except with the leave of the Court shall be guilty of an offence against this Act. notice of intention shall be served on the Minister and on the Official Receiver Penalty: –Imprisonment for five years or –Fine RM100,000

68 Undischarged bankrupts acting as directors KONG SIEW KEN V LAW AH LAN & ANOR [2002] 5 MLJ 296 –The second defendant was adjudged a bankrupt in After becoming a bankrupt, he continued to represent himself in the company correspondence as chairman or director and took part in the management of the company and was even appointed general manager. –The second defendant's shares in the company was transferred to one Ho Kum Chen at 10 sen per share before being subsequently transferred to the second defendant's wife, namely, the first defendant. –The plaintiff prayed to the court for an injunction to restrain the second defendant from continuing to take part in the management of the company and that the transfer to Ho Kum Chen, and subsequently to the first defendant was void because it did not comply with art 34A of the company's articles of association.

69 Undischarged bankrupts acting as directors –Held: Allowing the application for injunction. –Section 125(1) of the Companies Act 1965 prohibited an undischarged bankrupt from acting as director of a company or taking part directly or indirectly in the management of a company except with leave of court. There was therefore a basis for granting the application for injunction unless the second defendant was now no longer a bankrupt.

70 Disqualification of directors of insolvent companies Where on an application under s.130A of the Act and it appears to the Court: –a person is a director of *a company which has gone into liquidation *such other company which has gone into liquidation within 5 years of the date of liquidation of the 1st company The Court may make an order that that person shall not, without the leave of the Court, be a director or take part in the management of a company for a period of 5 years. Penalty: –Imprisonment for three years or –Fine RM10,000 or both

71 Disclosure of interests in contracts, property, offices, etc  Section 131 of CA ) Every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company shall, as soon as practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a meeting of the directors of the company. Penalty: Imprisonment for 7 years; or RM150,000 / both

72 Companies (Amendment) Act 2007 New Sections 131A and 131B: “ Subject to section 131, a director of a company who is in any way, whether directly or indirectly, interested in a contract entered into or proposed to be entered into by the company, unless the interest is one that need not be disclosed under section 131, shall be counted only to make the quorum at the board meeting but shall not participate in any

73 Companies (Amendment) Act 2007 discussion while the contract or proposed contract is being considered at the board meeting and shall not vote on the contract or proposed contract. ” S131B provides that the directors have the power to manage or supervise the affairs of the company.

74 Companies (Amendment) Act 2007 S131. Disclosure of interests in contracts, property, offices, etc. (1) Subject to this section every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company shall, as soon as practicable after the relevant facts have come to his

75 Companies (Amendment) Act 2007 knowledge, declare the nature of his interest at a meeting of the directors of the company. (2) The requirements of subsection (1) shall not apply in any case where the interest of the director consists only of being a member or creditor of a corporation which is interested in a contract or proposed contract with the first

76 Companies (Amendment) Act 2007 mentioned company if the interest of the director may properly be regarded as not being a material interest. (3) A director of a company shall not be deemed to be interested or to have been at any time interested in any contract or proposed contract by reason only -

77 Companies (Amendment) Act 2007 (a)in a case where the contract or proposed contract relates to any loan to the company that he has guaranteed or joined in guaranteeing the repayment of the loan or any part of the loan; or (b) in a case where the contract or proposed contract has been or will be made with or for the benefit of or on behalf of a corporation which by virtue of section 6 is deemed to be related to the company that he is a director of that corporation,

78 Companies (Amendment) Act 2007 and this subsection shall have effect not only for the purposes of this Act but also for the purposes of any other law, but shall not affect the operation of any provision in the articles of the company.

79 Companies (Amendment) Act 2007 (4) For the purposes of subsection (1), a general notice given to the directors of a company by a director to the effect that he is an officer or member of a specified corporation or a member of a specified firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that corporation or given

80 Companies (Amendment) Act 2007 firm shall be deemed to be a sufficient declaration of interest in relation to any contract so made if it specifies the nature and extent of his interest in the specified corporation or firm and his interest is not different in nature or greater in extent than the nature and extent so specified in the general notice at the time any contract is so made, but no such notice shall be of

81 Companies (Amendment) Act 2007 effect unless either it is given at a meeting of the directors or the director takes reasonable steps to ensure that it is brought up and read at the next meeting of the directors after it is given.

82 Companies (Amendment) Act 2007 (5) Every director of a company who holds any office or possesses any property whereby whether directly or indirectly duties or interests might be created in conflict with his duties or interests as director shall declare at a meeting of the directors of the company the fact and the nature, character and extent of the conflict.

83 Companies (Amendment) Act 2007 (6) The declaration shall be made at the first meeting of the directors held - (a) after he becomes a director; or (b) (if already a director) after he commenced to hold the office or to possess the property, as the case requires.

84 Companies (Amendment) Act 2007 (7) The secretary of the company shall record every declaration under this section in the minutes of the meeting at which it was made. (7A) For the purpose of this section, an interest of the spouse of a director of a company (not being herself or himself a director of the company) and an interest of a child, including adopted child or stepchild,

85 Companies (Amendment) Act 2007 of a director of the company (not being himself or herself a director of the company) in the shares or debenture of the company, shall be treated as an interest in the contract and proposed contract.

86 Companies (Amendment) Act 2007 (7B) Where a contract or proposed contract is entered into in contravention of this section, the contract or proposed contract shall be voidable at the instance of the company except if it is in favour of any person dealing with the company for any valuable consideration and without any actual notice of the contravention.

87 Companies (Amendment) Act 2007 (8) Except as provided in subsection (3) this section shall be in addition to and not in derogation of the operation of any rule of law or any provision in the articles restricting a director from having any interest in contracts with the company or

88 Companies (Amendment) Act 2007 from holding offices or possessing properties involving duties or interests in conflict with his duties or interests as a director. Penalty: Imprisonment for seven years or one hundred and fifty thousand ringgit, or both.

89 Disclosure of interests in contracts, property, offices, etc Lim Foo Yong v. Public Prosecutor [1976] 1 LNS 62 –the managing director of a company was convicted by the Sessions Court on a charge under s. 131(1) CA 1965 for failing to declare his interest in a contract with another company at a meeting of directors after the relevant facts had come to his knowledge. –Held: The vital fact which needed to be proved in such cases to show the guilt of the accused person was his knowledge of the contract. On the facts, however, the conviction was quashed.

90 YEO GEOK SENG V PUBLIC PROSECUTOR [2000] 1 SLR 195 The appellant was at all material times the managing director of Mcspec Far East Development Pte Ltd ('MFED') and a director of Xiamen Mcspec (S) Pte Ltd ('XMS'). He was also a director, manager and 50% shareholder of Triple Star Shipping and Trading Co (Pte) Ltd ('Triple Star'). In January 1992, MFED was awarded a contract to build Tampines West Community Centre ('TWCC'). The appellant, on behalf of MFED, then entered into a contract with XMS to award the construction of TWCC to XMS. Under the contract with XMS, consultation fees were payable to MFED and were to be deducted from XMS's progress claims.

91 YEO GEOK SENG V PUBLIC PROSECUTOR [2000] 1 SLR 195 When XMS was constructing TWCC, Triple Star was supplying building materials to XMS under a supplies agreement. The appellant failed to declare at a meeting of the directors of XMS any interest in the contract with MFED to construct TWCC or in the supplies agreement with Triple Star. The appellant was charged and convicted in the district court of two offences, one under s 156(5) and the other under s 156(1) of the Companies Act (Cap 50) (the 'Act'). The conviction under s 156(5) was for failing to declare, at a meeting of the directors of XMS, his interest in the contract with MFED to construct TWCC as the managing director of MFED

92 YEO GEOK SENG V PUBLIC PROSECUTOR [2000] 1 SLR 195 Whereas that under s 156(1) was for failing to declare his interest in the supplies agreement with Triple Star as a director and shareholder of Triple Star. Held, dismissing the appeal: –In this case, there was clearly a conflict of duty arising from the appellant's office of managing director of MFED and that of director of XMS. –If a person undertakes such duties and responsibilities as a company director, he should also be responsible for familiarizing himself with the various rules of disclosure and other statutory duties under the Act.

93 Duties of the Directors Section 132 of CA 1965 Section 132 (1) of CA 1965 A directors of a company shall at all times exercise his power of a proper purpose and in good faith in the best interest of the company. Section 132 (1A) of CA 1965 A director of a company shall exercise reasonable care, skill and diligence with- a)the knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities; and b)Any additional knowledge, skill and experience which the director in fact has.

94 Duties of the Directors  Re Kie Hock Shipping [1971] Pte Ltd 1 [ ] CLR 544  The 1 st respondent, Tay Hock Gwan, was at all material times the managing director and the major shareholder of the company. At the date of the winding of the company he was holding 98% of the issued share capital of the company. He was also at all material times the managing director and had sole control of 12 companies he incorporated in the Republic of Panama (the Panamanian companies).  The 2 nd respondent, Tay Beng Chuan, is the nephew of the first respondent. He was at all material times the executive director of the company. He was also a shareholder of the company, he owned 2% of the issued share capital of the company at the date of the winding-up order.  The company was engaged in operating and chartering its own vessels, hiring of its motor launches, operating a workshop to service and repair its vessels and acting as agent for vessels owned by its related companies.

95 Duties of the Directors  By 1977 the company was in critical financial difficulties. The debts of the Panamanian companies were increasing. Both the respondents took no action whatsoever to recover the debts owed to it from the Panamanian companies.  Held: A director had to act honestly and had to exercise such degree of skill and diligence as would amount to the reasonable care which an ordinary man might be expected to take, in the circumstances, on his own behalf.  Every director owed a duty to his company to use reasonable diligence in discharge of his duties. Failure by a director to do so would be a breach of duty of his office. That breach would give rise to an action by the company against the director for damages suffered by the company. The commission of that breach of duty by the director would also be a criminal offence.  The 2 nd respondent would be jointly and severally liable with the 1sr respondent. As he had not acted honestly and reasonably in the discharge of his duties as a director.

96 Duties of the Directors Section 132 (1B) of CA 1965 A director who make business judgment is deemed to meet the requirements of the duty under subsection (1A) and the equivalent duties under the common law and in equity if the director- a)makes the business judgment in good faith for a proper purpose; b)does not have a material personal interest in the subject matter of the business judgment; c)is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and d)reasonably believe that the business judgment is in the best interest of the company.

97 Duties of the Directors SONS OF GWALIA Ltd v MARGARETIC and Another (No S208 of 2006) ING INVESTMENT MANAGEMENT LLC v MARGARETIC and Another (No S209 of 2006) 2007 HCA 1 –Held:The Act imposes many duties upon directors. Section 180 expressly requires that they act as carefully and diligently as a reasonable person would in the circumstances of the corporation and its business. –An (exculpatory) ''business judgment'' will be taken to have been made not improperly if it is made in good faith for a proper purpose on a properly informed basis rationally in the best interests of a company, and without consideration of material personal interest. –It is unnecessary to refer in detail to directors' other obligations. The point can be made however that directors can be rendered personally liable, certainly at the suit of a liquidator or administrator, but not directly, except in certain circumstances, the creditors, for what may well have occurred here, insolvent trading.

98 Duties of the Directors Section 132 (1C) of CA 1965 A director, in exercising his duties as a director may rely on information, professional or expert advice, opinions, reports or statements including financial statements and other financial data, prepared, presented or made by- a)any officer of the company whom the director believes on reasonable grounds to be reliable and competent in relation to matters concerned; b)any other person retained by the company as to matters involving skills and expertise in relation to matters that the director believes on reasonable grounds to be within the person’s professional or expert competence; c)another director in relation to matters within the director’s authority; or d)any committee to the board of directors on which the director did not serve in relation to matters within the committee’s authority

99 Duties of the Directors Section 132 (1D) CA 1965 The director's reliance made under subsection (1C) is deemed to be made on reasonable grounds if it was made- a)in good faith; and b)after making an independent assessment of the information or advice, opinions, reports or statements, including financial statements and other financial data, having regard to the director’s knowledge of the company and the complexity of the structure and operation of the company.

100 Duties of the Directors Section 132C of CA 1965 Approval of company required for disposal by directors of company's undertaking or property. 1) Notwithstanding anything in the memorandum or articles of association of the company, the directors shall not carry into effect any arrangement or transaction for – a)the acquisition of an undertaking or property of a substantial value; or b)the disposal of a substantial portion of the company's undertaking or property, unless the arrangement or transaction has been approved by the company in a general meeting.

101 Duties of the Directors Section 132 (1D) of CA 1965 The director’s reliance made under subsection (1C) is deemed to be made on reasonable grounds if it was made- a)in good faith; and b)after making an independent assessment of the information or advice, opinions, reports or statements, including financial statements and other financial data, having regard to the director’s knowledge of the company and the complexity of the structure and operation of the company.

102 Duties of the Directors Industrial Concrete Product Bhd –v- Concrete Engineering Products Bhd [2001] 8 CLJ 262  Concrete Engineering Products Sdn Bhd (‘CEPCO’) and Industrial Concrete Products Sdn Bhd (‘ICP’) were rival companies dealing in the manufacture of spun concrete piles and poles.  In early 1996, a group of businessmen led by Low Thean Hock (‘Repco Low’) acquired a controlling interest in CEPCO, and subsequently appointed Choo Chin Thye (‘Choo’) as their nominee and director in CEPCO.  As a director of CEPCO, Choo was mandated to sign CEPCO’s banking instruments but was not conferred with any other executive authority. That notwithstanding, Choo went on to run CEPCO with a clear display of authority. He took steps to retrench some staff and had also chaired all the board meetings of CEPCO.

103 Duties of the Directors  In March 1996, without any prior approval by the Board of Directors (‘the Board’), Choo approached the managing director of ICP (‘Lim’) and offered ICP to acquire CEPCO’s core business.  Apparently, Choo did inform the board sometime in May 1996 about his offer to ICP, but there was nothing to show that the board had ratified his action.  Be that as it may, in June 1996, in an effort apparently to legalise the takeover of CEPCO’s core business by ICP, Choo executed a management agreement allowing ICP to manage CEPCO’s core business and a letter of intent to dispose of its assets pertaining to its core business to ICP.  In July 1996, one Dato’ Muhammad Fasir became the new controlling shareholder in CEPCO, following which Choo resigned as a director of the company.  Having come under a new management, CEPCO prohibited ICP from managing its core business, whereupon ICP sued CEPCO claiming for an injunction, specific performance and damages for breach of contract.

104 Duties of the Directors  Held: Without any mandate by the board, and when the board, who has the right under art. 116 of the Articles of Association of CEPCO to manage the affairs of the company, had not given him any special powers, Choo clearly did not have actual authority to enter into the management agreement or the letter of intent.  Choo had not acted bona fide in the interest of CEPCO and neither did he promote and advance CEPCO’s interest or consider the relevant facts before committing the acts as alleged. His entire action was solely towards the benefit and interest of the group that nominated him to the Board.  Such interest not only conflicted with CEPCO’s interest but was disastrous to the company, resulting in its assets being nearly stripped and its core business on the verge of being annexed by its main competitor. For that, Choo was guilty of being in breach of his fiduciary duty.

105 Duties of the Directors SIMMAH TIMBER INDUSTRIES SDN BHD V. DAVID LOW SEE KEAT & 2 ORS [1999] 1 LNS 14  The plaintiff is in the business of manufacturing inter alia wooden doors and frames and possesses various assets. It was also the lawful assignee of a lease of a piece of land. This was also its place of business.  The 1 st defendant had resigned as a director cum secretary of the plaintiff’s company. It is not in dispute that during his tenure of office the 1 st defendant was the director primarily responsible for the financial management of the plaintiff.  The 2 nd defendant had bought over the plaintiff in 1980 and was its director from 1980 to There were only 2 shareholders in the plaintiff between 1980 to , namely the 2 nd defendant and his brother, Yam Chok.

106 Duties of the Directors  It is clear that the two of them injected much money in respect of the building and towards the running of the plaintiff. It is also not in dispute that the 2 nd defendant had pledged four of his own properties to UMBC Bank to enable the plaintiff to benefit from overdraft facilities and term loans. In addition, the 2 nd defendant and Yam Chok also granted directors' loans to the plaintiff.  However, since the plaintiff was running at a loss, and the 2 nd defendant having lost heavily, the 1 st defendant and one Duncan Yeong (Duncan) who were employees of the plaintiff wished to take over the company.  An agreement dated (the lease back agreement) was entered into between the parties.  This arrangement was approved by a resolution of the plaintiff dated  The 2 nd Defendant then left for Australia to stay with his children where he remained for nearly 2 years.

107 Duties of the Directors  Having thus taken control of the plaintiff, the 1 st defendant entered into an agreement on behalf of the plaintiff with the 3 rd defendant whereby in consideration of the plaintiff agreeing to sub-let a portion of the business premises occupied by the plaintiff, the 3 rd defendant agreed to pay the plaintiff rental and utilities charges incurred by 3 rd defendant.  Although the agreement is dated the 1 st defendant testified that it was only entered into after he took over the company but that it was back-dated  The Plaintiff now claims against the 1 st defendant, based on his breach of duty as a director of the plaintiff and also as a trustee of the company.  An account of all monies received by the 1 st defendant under the sub-lease agreement entered into between the plaintiff and the 3 rd defendant dated  Payment of all sums received and found due after the taking of the account, with interest.

108 Duties of the Directors  Held: In all the circumstances, therefore, it is my finding that the 1 st defendant had indeed taken the monies paid by the 3 rd defendant for the sub-rentals and the electricity charges and that he did not account at all to the plaintiff.  The duties and liabilities of a director of a company are governed by section 132 of the Act. In addition, a director also in a position as a fiduciary of the company, being a person entrusted with the assets of the company and whose duty it is to perform to the best interest of the company.  I find that the 1 st defendant had clearly breached his duties as a director and as a fiduciary of the plaintiff. He had obtained secret profits for himself and he must therefore render a true and complete account to the plaintiff and pay the plaintiff for all sums due and arising therefrom.

109 Duties of the Directors Section 132 (2) of CA 1965 Prohibition against improper use of company’s property, position, corporate opportunity or competing with the company. A director or officer of a company shall not, without consent or ratification of a general meeting- a)use the property of the company; b)use any information acquired by virtue of his position as a director or officer of the company; c)use his position as such director or officer;

110 Duties of the Directors d)use any opportunity of the company which he became aware of, in the performance of his functions as the director or officer of the company; or e)engage in business which is in competition with the company, to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company

111 Loans to directors. Section 133 of CA ) A company (other than an exempt private company) shall not make a loan to its director or enter into any guarantee or provide any security in connection with a loan made to such a director Exception: –expenditure incurred –a director who is engaged in the full-time employment of the company Shall obtain prior approval Penalty:Fine RM10,000

112 Loans to directors. The Co-operative Central Bank Ltd v Feyen Development Sdn Bhd [1995] 4 CLJ 300 –The appellant co-operative society had granted a loan to its member, one Lim Kon Kwee, who was also a director of the respondent company. –The respondent had guaranteed the loan to its said director, and in the event, had created 2 separate charges in favour of the appellant as security. –Upon default committed by the respondent under the charges, the appellant applied for orders of sale of the charged property. –The respondent, in an apparent attempt to avoid repaying the loan and get back its property free of charges, filed proceedings and prayed for declarations that the loan and the charge transactions were illegal, void and unenforceable having breached s.133 of the Act.

113 Loans to directors. -Held: The Court will not lend its aid to enable the chargor respondent to take advantage of its own default by relying on its own breach to avoid the charge transactions and thereby escape its obligations thereunder, unless this is what the clear language of the statue is thought to require. -Having regard to the context and purpose of s.133 (1), and also the principle underlying s.133 (5) of the Act, a breach of sub-section (1) of s.133 does not have the result contended for by the respondent company. -It follows that even accepting that the charge transaction herein did breach s.133 (1) of the Act, no civil consequences flowed therefrom, that is to say, no voidness or unenforceability attached to the loan or the charge transactions. -Appeal allowed.

114 Loan to directors TEOH PENG PHE v WAN & CO [2001] 5 MLJ 149 –The plaintiff submitted that at the EGM of the company held on 27 August 1999, an item on the agenda sought a resolution that members ratify loans and advances made to certain debtors of the company. These debtors he alleged were wholly or substantially companies in which the directors themselves had interest. –The plaintiff alleged that the directors of the company had taken advantage of their position and had utilized funds of the company for their own private purpose in breach of their fiduciary duty which they owed to members of the company.

115 Loan to directors The auditors had prepared three sets of draft statement of accounts wherein the plaintiff had detected certain material discrepancies. The plaintiff was unable to obtain the full information pertaining to the disclosure of the true identities of the wrongdoers who were in breach of their fiduciary duty arising from the misuse of such funds of the company except from the defendant auditor. Held: In making the loans in the manner alleged by the plaintiff, the directors had in fact transgressed into that aspect of corporate law which prohibits loans to directors or to persons connected with them. The transgression could not be ratified merely by a resolution passed by a simple majority at a general meeting, the effect of which would have left the minority who voted against dissatisfied Therefore, the directors of the company had taken advantage of their position and had utilized funds of the company for their own private purpose in breach of their fiduciary duty which they owe to members of the company.

116 Loans to persons connected with directors. Section 133A of CA ) A company (other than an exempt private company) shall not- a)make a loan to any person connected with a director of the company or of its holding company; or b)enter into any guarantee or provide any security in connection with a loan made to such person by any other person. 2) Exception - a)where a loan is made to a subsidiary or holding company or a subsidiary of its holding company; b)to a company whose ordinary business includes the lending of money or the giving guarantees in connection with loans made by other persons;

117 Loans to persons connected with directors c)Loan is made to a person connected with a director who is engaged in the full time employment of a company or its related corporation. 3) Nothing in this section shall operate to prevent the company from recovering the amount of any loans or the amount for which it becomes liable under any guarantee entered into or in respect of any security provided in contravention of this section. Penalty: RM10,000

118 Loans to persons connected with directors.  Ming Holdings (M) Sdn Bhd v Syed Azahari Noh Shahabudin & Anor [2003] 5 CLJ 251  At the request of the 1 st and 2 nd defendants, the plaintiff had deposited a certain amount of Palmco shares with the banks granting the loan facilities to the defendants.  The plaintiff contended that it had loaned the said shares on the express and implied understanding that it were to be returned to the plaintiff.  However, the defendants breached the terms and conditions of their loan facilities and defaulted in loan repayments. Thus, the plaintiff’s shares were force-sold by the banks at a loss to the plaintiff. The plaintiff claimed for loss and damages suffered against the defendants.

119 Loans to persons connected with directors Held: The plaintiff was not prevented from recovering the value of the security pledged pursuant to s. 133A (3) of the Companies Act 1965 (‘the Act’), where it was provided that although the charge transactions breached s.133 (1) of the Act, there was no voidness or unenforceability attached to the loan.

120 Statutory meeting and statutory report Section 142 of CA 1965 The Act deals with convening what is called a statutory meeting of the members of company. This provision applies to all limited companies having a share capital. A statutory meeting has to be convened within a period of not less than 1 month and not more than 3 months after commencement of the business It is designed to appraise the members of the affairs of the company in its management and conduct of its business.

121 Statutory meeting and statutory report Non compliance pursuant to s.142 is an offence an officer and Director should be punishable in default. Penalty: RM 5000 Default penalty: RM 100

122 Failure to lodge Annual General Meeting Section 143 of CA ) A general meeting of every company to be called the “annual general meeting” shall in addition to any other meeting be held once in every calendar year and not more than 15 months after the holding of the last preceding annual general meeting, but so long as a company holds its first annual general meeting within 18 months of its incorporation, it need not hold it in the year of its incorporation or in the following year.

123 Failure to lodge Annual General Meeting If default is made in holding an annual general meeting- a)the company and every officer of the company who is in default shall be guilty of an offence against this Act; Penalty: Fine RM5,000. Default penalty: Fine RM100; and b)the Court may on the application of any member order a general meeting to be called.

124 Failure to lodge Annual Return Section 165 of CA 1965 Annual return by company having a share capital. 1)Every company having a share capital shall make a return containing the particular referred to in Part I of the 8 th Schedule and accompanied by such copies of documents as are required to be included in the return in accordance with Part II of that Schedule and such of the certificates and other particulars prescribed in that Part as are applicable to the company. 2)The return shall be in accordance with the form set out in Part II of the 8 th Schedule or as near thereto as circumstances admit and shall be made up to the date of the annual general meeting of the company in the year or a date not later than the 14 th day after the date of the annual general meeting.

125 Failure to lodge Annual Return Annual return by company not having a share capital. 5) A company not having a share capital shall, within 1 month after each annual general meeting of the company, lodge with the Registrar a return in the prescribed form and made up to the date of the annual general meeting or a date not later than the 14 th day after the date of the annual general meeting. Penalty: Fine RM2000. Default Penalty

126 Press Release CCM withdraws charges against Assemblyman Zakaria  CCM withdrew more than 30 charges it made against 2 companies, whose directors included Port Klang State Assemblyman Datuk Zakaria Md Deros.  CCM prosecution head told the Magistrate’s Court that the charges against the companies and their directors were withdrawn on the instruction of the Deputy Public Prosecutor. –Zakaria and 5 of his business partners, as directors of Harvest Court Industries Bhd and Titi Steel Sdn Bhd, were charged with, among other: –Failure to submit financial statement from 2002 to –Failure to notify CCM of their change of address. –Failure to hold AGM from 2002 to 2005, and –Failure to submit profit and loss accounts for 2001 and  Their counsel, Mozni Sham Ahmad, when met outside the court said the charges were withdrawn as “the outstanding problems had been settled.” Source:

127 Press Release Zakaria can continue as rep until the court makes its decision  Datuk Zakaria Md Deros, who is facing 39 charges under the Companies Act with 5 other people, can continue serving his constituents until the court makes its decision.  Datuk Seri Dr Mohamad Khir Toyo said everyone should wait for the outcome of the legal proceedings before jumping to conclusions. He also said he was expecting a report from the state Umno secretary.  Datuk Zakaria and the 5 directors of Harvest Court Industries Bhd and Titi Steel Sdn Bhd were supposed to be charged on Friday but all failed to turn up in court.  The companies were being taken to court by the CCM for 4 offences, namely failure to notify change of address, failure to hold AGM, failure to submit financial statements and failure to submit profit-loss accounts. Source:

128 Press Release CTOS: Directors of three firms to be charged.  Directors of 3 companies linked to credit information provider Credit Tip-Off Service (CTOS) will be charged in court.  The CMM said the 3 companies were CTOS Data System Sdn Bhd, CTOS Business System Sdn Bhd and CTOS EMR Sdn Bhd.  The directors will be charged in the Kuala Lumpur magistrate’s court with, among others, failure to submit audited accounts, not holding AGM and failure to display their company names in all offices.  CTOS which has been providing credit information for 17 years, made the headlines after a deluge of complaints that its database was inaccurate and was not updated, causing many innocent people to be blacklisted by financial institutions and credit card issuers which used its service. Source: New Straits Times, 6 July 2007

129 Press Release CTOS directors, secretary faking 85 charges under Companies Act Two siblings who are company directors and two company secretaries from CTOS were charged with 85 counts of offences under the Companies Act The directors- Chung Tze Keong and Chung Tze Wen – and the secretaries – Chiam Tow Loon and Leonie Lee Shuet Fong- pleaded not guilty to all charges. The Chungs, who were directors of Data Systems Sdn Bhd and CTOS EMR Sdn Bhd, are charged before the Session Court Judge Akhbar Tahir with failing to table the 2005 profit and loss accounts of the 2 companies under Section 169(1) of the Act. If convicted, they are liable to 5 years’ jail or RM30,000 fine. The Chungs were also charged before Magistrate Syahrin Jeli Bohari with 12 counts of failing to file the companies’ annual statements from 2003 to 2005, three counts of failing to hold AGM and 2 counts of failing to file the companies’ financial statements. Source:

130 Press Release Meanwhile, the company secretaries are charged with 12 counts of failing to file the companies’ annual statements and 3 counts of failing to hold AGM. The Chungs also claimed trial, on behalf of CTOS Sdn Bhd, to 4 counts of failing to file the company’s annual statement and 1 count each of failing to hold AGM and failing to display the company’s name. CTOS Data Syatem Sdn Bhd, CTOS EMR Sdn Bhd and CTOS Business Sysytem Sdn Bhd also face similar charges and the Chungs pleaded not guilty on their behalf. Source:

131 Auditor reports on account Section 174 (1) of CA 1965 Every auditor shall report to the members on account required before any general meeting and those records relating to those accounts. Section 174 (3) of Ca 1965 It is the duty of the auditor to form an opinion in his report particulars of any deficiency, failure or shortcomings on accounting and other records kept by the company. Section 174 (4) of CA 1965 Right to have an access at all reasonable time to the accounting and other records of the company and entitled to require such information and explanation from any officer for the purpose of audit. Such failure of the above he shall forthwith report the matter to the Registrar.

132 Auditor reports on account Section 174 (9) of CA 1965 Such refusal, obstruction, delaying an auditor in the performance of his duties or the exercise of his powers shall be guilty of an offence Penalty: Imprisonment for two years; or Fine RM 30,000 / both

133 Fraudulent Trading Section 304 of CA 1965 It is an offence for a director to carry on business of the company with intent to defraud creditors or for any fraudulent purpose. The intent to defraud will be inferred from the fact that the company has continued to carry on the business and to incur debts when to the knowledge of the directors, there is no reasonable prospects of the creditors ever receiving payments of those debts. Actual dishonesty on the part of the director in question must be established before the provisions can be invoked.

134 Fraudulent Trading Where any business of a company is carried on with the intent or for the purpose to defraud, every person who was knowingly a party to the carrying on the business with that intent or purpose shall be guilty of an offence. Penalty: Imprisonment for 3 years; or Fine RM 10,000

135 Fraudulent Trading SIOW YOON KEONG v. H ROSEN ENGINEERING BV [2003] 4 CLJ 68  In the present case, Ventura should have paid Rosen the RM423,000 upon receiving it but failed to do so; instead, the appellant, being the alter ego of Ventura, used the money or part of it to invest in the share market under his own name.  Then, upon realizing that he was going to incur losses in his investments, he caused a resolution to be passed by the Board of Directors to ratify the investments and the use of the company’s funds, including that which was due to Rosen, for the investments.  As a result, he had bailed himself out and the losses were passed on to the company; thus, Rosen could not be paid.

136 Fraudulent Trading  Held: By any standard, civil or criminal, there was clearly an intention to defraud Rosen or it was all done for a fraudulent purpose. Therefore, on the facts, it was clear that a case had been made out under s. 304(1) of the Act.  We therefore dismiss the appeal with costs. We order that the deposit be paid to the respondent towards taxed costs.

137 Restriction on offering shares, debentures, etc for subscription or purchase.  Section 363 (1) of CA 1965  A person shall not, whether by appointment or otherwise, go from place to place- a)offering shares for subscription or purchase to the public or any member of the public; or b)seeking or receiving offers to subscribe for or to purchase shares from the public or from any member of the public. Exception: This section shall not apply to an offer for subscription or purchase or invitation to subscribe for or purchase or recommendation to which the Securities commission Act 1993 applies.

138 Restriction on offering shares, debentures, etc for subscription or purchase.  Section 363 (3) of CA 1965  A person shall not make an offer to the public or to any member of the public (not being a person whose ordinary business it is to buy or sell shares, whether as principal or agent) of any shares for purchase.  Section 363 (5) of CA 1965  Every person who acts, or incites, causes or procures any person to act, in contravention of this section shall be guilty of an offence against this Act. Penalty: Imprisonment for 10 years; or Fine RM 250,000

139 Restriction on offering shares, debentures, etc for subscription or purchase.  Section 363 (6) of CA 1965  Where a person convicted of an offence under this section is a corporation, every officer concerned in the management of the corporation shall be guilty of the like offence unless he proves that the act constituting the offence took place without his knowledge or consent.

140 False and misleading statements Section 364 of CA 1965 It is an offence for an officer of a company to knowingly authorize, direct or consent to any advertisement, circular or publication containing a false statement of capital which is misleading or in which there is no mention of the nature of the capital or in which the amount of paid-up capital or the amount of charge on uncalled capital is not stated prominently Penalty: Imprisonment for 10 years; or Fine RM 50,000 / both

141 Press release by SC Transmile’s case; –The Securities Commission (SC) charged two former directors of Transmile Group Berhad (TGB) for knowingly authorising the furnishing of misleading statement to Bursa Malaysia Securities Berhad in relation to TGB’s “Quarterly Report on Unaudited Consolidated Results for the Financial Year Ended 31 Disember 2006”. The misleading statement was in respect of TGB’s reported revenue of RM989,191,000.

142 Press release by SC The two directors are Chin Keem Feung, former Independent Non-Executive Director of TGB, and Shukri bin Sheikh Abdul Tawab, former Independent Non-Executive Director of TGB. Both Chin Keem Feung and Shukri bin Sheikh Abdul Tawab were also the members of TGB’s audit committee at the time when the alleged offence was committed. They are charged under section 122B(b)(bb) of the Securities Industry Act 1983 (SIA). The SC had earlier in July 2007 offered compounds of RM500,000 each to Chin Keem Feung and Shukri bin Sheikh Abdul Tawab for the offence. The criminal charges against the two follow their failure to pay the compound within the permitted time.

143 Press release by SC The charges against Chin Keem Feung and Shukri bin Sheikh Abdul Tawab alleged that both of them knew the statement submitted was misleading when they authorised the same for submission to Bursa Malaysia Securities Berhad. The three other Transmile directors that were charged by the SC on 12 July 2007 are Gan Boon Aun, former Chief Executive Officer of TGB; Lo Chok Ping, former Chief Financial Officer of TGB; and Khiudin bin Mohd, TGB’s Executive Director. Gan Boon Aun was released on bail of RM1 million. Lo Chok Ping and Khiudin bin Mohd were released on bail of RM300,000 and RM500,000 respectively, with their travel documents to be surrendered to the Court. Source:

144 False Reports Section 364A of CA )An officer of a corporation who, with intent to deceive, makes or furnished or knowingly and willfully authorizes or permits the making or furnishing of, any false or misleading statement or report relating to the affairs of the corporation shall be guilty of an offence. 2)“officer” includes a person who at any time has been an officer of the corporation. Penalty: Imprisonment for 10 years; or Fine RM 250,000 / both

145 False Reports Hotel Singapura Inter Continental Ltd. [ ] Singapore Case Unreported cited in Myint Soe in “Directors’ Liabilities and the Criminal Law”, [1986] 1 MLJ cxli. –Hotel Singapura announced that it had bought a prime property for development through its subsidiary. –A few days later it informed the Stock Exchange that it had acquired 52% of the equity of an investment company in Hong Kong. These announcements elevated share prices of Hotel Singapura. –About three weeks later it was announced by the company that both deals had been called off. In due course, an inspector was appointed to investigate into the affairs of the company.

146 False Reports –Held: As a result of Inspector’s report, the chairman of Hotel Singapura was charged and convicted of violation for willfully making false statements to the Stock Exchange.

147 Fraudulently inducing persons to invest money Section 366 of CA )Any person who making of a statement, promise or forecast knowing it to be misleading, false or deceptive, or dishonestly, concealing material facts to induce another person to enter an agreement to acquire, dispose or underwrite marketable securities on lending or depositing money with any corporation is an offence. Penalty: Imprisonment for 10 years; or Fine RM 250, 000 / both 2)By the same section conspiracy to commit such an offence is also punishable.

148 Fraudulently inducing persons to invest money 3)Whoever being an officer or agent of any corporation by any deceitful means or false promise and with intent to defraud, causes or procures any money to be paid or chattel or marketable security to be delivered to that corporation or to himself or any other person for the use of benefit or on account of that corporation shall be guilty of an offence against this Act. Penalty: Imprisonment for 7 years; or Fine RM 30,000 / both

149 Fraud by officers Section 368 of CA )Every person who while an officer of a company- a)Has by deceitful or fraudulent or dishonest means to give credit to the company; b)With intent to defraud creditors of the company by connived any execution or made gift, transfer against the company; c)with intent to defraud by concealing or removing any part of the property before the date of unsatisfied judgment or order against the company shall be guilty of the offence. shall be guilty of an offence against this Act. Penalty: Imprisonment for 10 years; or Fine RM 250,000

150 Compounding of offences Section 371A of CA ) The Registrar may, in a case where he deems fit to do so, compound any offence committed by any person under this Act, by making a written offer to such person to compound the offence by paying to the Registrar such sum of money within such time a may be specified in the offer. 2) An offer under subsection (1) may be made at any time after the offence has been committed, but before any prosecution for it has been instituted, and where the amount specified in the offer is not paid within the time specified in the offer, or within such extended period as the Registrar may grant, prosecution for the offence may be instituted at any time thereafter against the person to whom the offer was made. 3) Where an offence has been compounded under subsection (1), no prosecution shall thereafter be instituted in respect of such offence against the person to whom the offer to compound was made.


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