Director’s Legal Duties and Obligations

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Companies’ directors are persons who are vested with the responsibility of the management of the company’s affairs. A company is usually composed of two main organs which are the board of directors and the members in general meetings. Every company provides the director extensive powers to supervise manage and control the company. Likewise every director owes certain duties and responsibilities towards the company. Directors stand in a relationship of trust and confidence with the company that is fiduciary relationship. [1]A fiduciary duty is an obligation to act in the best interest of another party. If a director said to be breach his fiduciary duties such as making secret profits, the company may sue him for damages or recover such secret profits from him. In other words, directors cannot and should not use his/her position to reap personal gains. Directors own to the company a duty to act in good faith for the benefit of the company. As seen above, directors stand in fiduciary relationship with the company, which is the relationship that is based on trust and confidence this means that the director should always act in the greatest curiosity of the company. Directors must always act in good faith in all matters that relate to the company. The directors must exercise their powers bona fide not for any collateral purpose but in what they consider is in the interest of the company. [2]This argument can be held by seeing at Section 132(1) of the Company Act 1965 which states that directors must exercise their discretion bona fide in what they consider – not what a court may consider – is in the interest of the company and directors must not exercise their powers for any ‘collateral purpose’. However, there is an issue whether directors also owed fiduciary duties to other people apart from their fiduciary obligations to the company. The Court fixed in the case of Percival v Wright that directors do not have any fiduciary obligation to disclose negotiations made when they just to buy shares in relation to the shareholders. However, this case also did not put any rule that directors of the company may not be in the fiduciary relationship with the shareholders. For example, the Court believed that the directors in the case of Allen v Hyatt have put her in a fiduciary relationship with some shareholders in the agency’s capacity to. This case shows that even in Percival v Wright directors do not owe any fiduciary duty to shareholders, it is likely that there is a fiduciary relationship between the directors and shareholders of the company which cannot be denied. The directors may also have a fiduciary obligation to employees in addition to the shareholders. [3]However, in Malaysia on the fiduciary duty of directors to staff is still unclear because according to Chan and Koh on Malaysian company law, the companies Act 1965 ‘ does not expressly provide that the directors of the company is to take attention to the interests of company employees in carrying out their functions ‘.

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