Directors in Malaysia: Key Legal Duties, Disqualification and Removal Under the Companies Act 2016

As EuroCham Malaysia’s exclusive Legal Knowledge Partner for Malaysia, Aqran Vijandran provides weekly legal insights tailored for EuroCham members. This article was prepared in that capacity by Dr. Harald Sippel (admitted in Austria, European Union) and Raja Nadhil Aqran (specialising in corporate and employment law).

For European companies operating in Malaysia – whether through a subsidiary, joint venture or branch – understanding the appointment, authority and removal of directors is essential. Malaysian law places direct obligations on directors, and breaches can expose not just the company, but also the individuals, to liability.

Who Can Be Appointed as a Director in Malaysia?

Under Section 196 of the Companies Act 2016 (“CA 2016”), directors must be:

– natural persons (not body corporates);
– at least 18 years old; and
– willing to consent in writing to the appointment.

Most importantly, at least one director must ordinarily reside in Malaysia – this requirement applies to both private and public companies.

Note for European companies: a foreign national, whether from the EU or elsewhere, can be appointed as a director of a Malaysian company, provided that person is resident in Malaysia. Many European companies therefore combine one or more expatriate directors with a locally resident director to satisfy statutory requirements and maintain regulatory accessibility. See here for a detailed overview of these requirements.

Authority of Directors

Directors must understand their duties and their authority when representing the company. With respect to the authority, one can differentiate between:

– Actual authority: powers explicitly granted by the board or constitution.
– Ostensible authority: authority a company represents a director as having, even if not actually granted.

The rule in Turquand’s case (indoor management rule) protects third parties who act in good faith by allowing them to assume that a company’s internal procedures have been properly followed – unless there are clear red flags. In practice, this means that if a director appears to have authority, the company may still be bound by their actions, even where the director has acted beyond internal expectations.

Note for European companies: for this reason, it becomes very important to ensure that a company’s constitution clearly defines what a director can and cannot do (on the importance of having a tailor-made constitution, also see here). In Malaysia, this is a critical safeguard – without a properly drafted constitution, shareholders may find themselves bound by contracts or commitments entered into by directors who have exceeded the authority they were intended to have.

Disqualification of Directors

Even if the baseline criteria are met, Section 198 CA 2016 provides several grounds for disqualification, including:

– being an undischarged bankrupt;
– conviction of offences related to fraud, bribery or dishonesty (in Malaysia or abroad); or
– breaches of directors’ duties under the CA 2016 or court-ordered disqualification.

Note for European companies: a director convicted of offences overseas can be disqualified in Malaysia – meaning a “clean” record under EU law alone may not be sufficient. Continuing to act while disqualified is a serious offence, punishable by up to five years’ imprisonment or fines of up to RM1 million.

Removal of Directors

The removal of directors is governed by the company’s constitution and the CA 2016.

Private Companies

– Ordinary resolution: Shareholders may remove a director by simple majority at a general meeting (s.206(1)(a)).
– Special notice: At least 28 days’ notice must be served on the company and the director (s.206(3)). The director has the right to make oral or written representations.
– Physical meeting only: Removal cannot be effected by written resolution (s.297(2)(a)).
– Constitutional override: If the company’s constitution provides specific removal mechanisms, these prevail (as confirmed in Low Thiam Hoe v Sri Serdang Sdn Bhd).

Public Companies

– Section 206(2) allows shareholders to remove a director by ordinary resolution notwithstanding anything in the constitution or any contract.
– The same 28-day special notice requirement applies.
– Where the outgoing director represents a class of shareholders or debenture-holders, removal is ineffective until a replacement is appointed.

Case Law on Removal of Directors

The removal of directors is a critical aspect of corporate governance and is generally subject to the company’s constitution. A well-drafted constitution provides clarity on the procedures for removal, the rights of shareholders, and any additional safeguards for directors. Where the constitution prescribes a removal mechanism, that process prevails. If the company has no constitution or the constitution is silent, the default provisions of section 206 apply.

Malaysian courts have reinforced the principles of director removal:

– Chan Eng Leong & Anor v Goh Choon Kim & Ors – a company cannot exclude a shareholder’s statutory right to remove a director.
– Tan Ken Meng v HSL Plastics Sdn Bhd & Ors – directors in private companies may be removed via ordinary resolution, even if it shifts control of the company.

These decisions highlight the importance of understanding both statutory and constitutional frameworks.

Significance of a Company Constitution

While the Companies Act 2016 provides shareholders with a statutory right to remove directors, the company’s constitution plays a critical role in shaping how that right can be exercised. A constitution may add safeguards for directors or require specific procedures to be followed.

For European businesses, this means that removal is never a purely statutory exercise – it also depends on what is written into the constitution. Companies should therefore ensure their constitution allows directors to be removed for the reasons most relevant to their operations, whether that is loss of shareholder confidence, breach of duties, or failure to meet performance expectations.

A carefully drafted constitution provides clarity, reduces disputes, and gives shareholders and boards the flexibility to address governance issues without unnecessary litigation.

See here for the most important points regarding tailor-made constitutions.

Suspension of Directors

Unlike removal, suspension is not expressly provided for in the CA 2016. Courts have held that:

– In Jerry Ngiam Swee Beng v Abdul Rahman Bin Mohd Rashid, there is no statutory basis for suspension.
– In Dato’ Shun Leong Kwong v Menang Corporation (M) Bhd, the High Court held that boards cannot suspend directors unless expressly authorised by the constitution.

Again, this underlines the importance of a carefully drafted constitution.

Note for European companies: European parent companies should note that unlike some EU jurisdictions, Malaysian law does not recognise a general power to suspend directors – unless the company’s constitution expressly grants this authority.

Conclusion

Directors play a central role in ensuring compliance and sound governance. Their appointment, disqualification, removal and authority are governed by both statute and company-specific constitutions. For European companies in Malaysia, ensuring that director arrangements comply with the CA 2016 – and that governance documents are carefully drafted – is key to avoiding disputes and liabilities.

As EuroCham Malaysia’s Legal Knowledge Partner, Aqran Vijandran supports European businesses in navigating Malaysian corporate governance requirements and mitigating compliance risk.

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