Under Section 230 of the Companies Act 2016, directors’ fees for a private company may, subject to the Constitution, be approved by the Board pursuant to subsection (2), which may be subject to further approval by way of a written resolution or at a general meeting pursuant to subsection (4), failing which such payment made shall constitute a debt due by the director to the company;
Whereas, directors’ fees for a public company, shall be approved at a general meeting pursuant to subsection (1), failing which the company shall, on conviction, be liable to fine not exceeding RM3,000,000 and any payment made to the director in contravention of subsection (1) shall constitute a debt due by the director to the company.
Approval for fees of directors
230. (1) The fees of the directors, and any benefits payable to the directors including any compensation for loss of employment of a director or former director –
- of a public company; or
- of a listed company and its subsidiaries,
shall be approved at a general meeting.
(2) In the case of a private company, the Board may, subject to the constitution approve the fees of the directors and any benefits payable to the directors including any compensation for loss of employment of a director or former director.
(3) Any approval made under subsection (2) shall be recorded in the minutes of the directors’ meeting and the Board shall notify the shareholders of the approval of the fees within fourteen days from the date of the approval.
(4) Where a fee is made or other benefits payable to which subsection (2) applies, members holding at least ten per centum of the total voting rights and who consider that the payment was not fair to the company, within thirty days after they have knowledge of such payments, may require the company to pass a resolution to approve the payment either by way of a written resolution or at a general meeting.
(5) Unless an approval has been obtained through a resolution passed under subsection (4), the payment shall constitute a debt due by the director to the company.
(6) A company that contravenes subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding three million ringgit and any payment in contravention of subsection (1) shall constitute a debt due by the director to the company.
(7) The company and every officer who contravene subsection (3) commit an offence and shall, on conviction, be liable to a fine not exceeding two hundred and fifty thousand ringgit.
Q: Would an appointment of a director itself by virtue of his office automatically entitle that director to remuneration? The answer is in the negative.
In the Court of Appeal case of Ever-Yield Sdn Bhd v Yap Keat Choon and other appeals [2023] 2 MLJ 90, the passages from the case of Wong See Yaw & Anor v Bright Packaging Industry Bhd [2016] 6 CLJ 465 was quoted as follows:-
[27] It is apposite that I now state the law applicable to the matter in contention. It is a well-established common law rule in company law which is elementary and uncomplicated, but does not appear to be fully understood in practice by corporations, including even public listed companies. It is this. Directors of a company have no authority to expend on the funds of the company to pay themselves or any one of their number, unless they are authorised for such purpose by the company’s constitution in its M&A or the payment is approved by the members of the company (see In Re George Newnam And Co [1895] 1 Ch 674). Bowen LJ in Hutton v West Cork Railway Co [1883] 23 Ch 654 stated as follows:
A director is not a servant [ie, employee]. He is a person who is doing business for the company, but not upon ordinary terms. It is not implied from the mere fact that he is a director that he is to have right to be paid for it.
[28] A director of a company therefore does not have a right to be remunerated as of right by virtue of his office except as provided by its constitution or approved by its shareholders. In Re Richmond Gate Property Co Ltd [1964] 3 All ER 936, it was held that in the absence of any resolution concerning the amount of directors’ remuneration passed pursuant to the articles in general meeting prior to the liquidation of the company, the directors were thus not entitled to any remuneration. In Guinness PLC n Saunders [1990] 2 AC 663, the articles provided that the remuneration of the director performing services for the company outside the scope of the ordinary duties of a director was to be determined by the company’s Board as a whole. The House of Lords held that as no determination had been made by the Board, the relevant director was not entitled to any remuneration. The director in question had been given special remuneration by a committee of the Board, an act which the committee had no authority to perform. Accordingly the director had to return the remuneration. Even his claim for quantum meruit was refused since in that case the parties could be said to have agreed how remuneration was to be decided, but instead not followed.
[29] Neither is the fact that a person is a director of a company in itself makes that person an employee, which would otherwise entitle him to remuneration as an employee.