The Case

The Companies Commission of Malaysia has charged NWP Holdings Berhad (“NWP”), a company listed on Bursa Malaysia, for alleged breaches of section 230(1)(b) of the Companies Act 2016 (“CA 2016”). The charges relate to NWP’s alleged failure to obtain shareholders’ approval at annual general meeting for the directors’ fees paid for the financial years ended 31 August 2017 and 31 August 2018.[1]

NWP has been charged notwithstanding the payment of directors’ fees for the said financial years was ratified by the shareholders of NWP during the extraordinary general meeting held on 17 December 2020.

On 8 February 2021, NWP pleaded not guilty to the said charges. [1] As at the date of this post, the latest announcement by NWP to Bursa Malaysia in relation to the said charges states that the Sessions Court has fixed 7 April 2021 for mention.[2]

The Laws

Public company

Section 230(1) of the CA 2016 provides that the fees of directors and benefits payable to the directors of (i) a public company; or (ii) a listed company and its subsidiaries, shall be approved at a general meeting. Contravention of section 230(1) is an offence. On conviction, a company is liable to a fine not exceeding RM3 million. Any payment in contravention of section 230(1) constitutes a debt due by the director to the company.[3]

Private company

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.[4]

Section 230(3) of the CA 2016 requires the Board’s approval to be recorded in the minutes of the directors’ meeting and the Board to notify the shareholders of the approval of the fees within 14 days from the date of the approval. Failure to comply with section 230(3) is an offence. On conviction, the company and its officers are liable to a fine not exceeding RM250,000.[5]

Section 230(4) of the CA 2016 allows members holding at least 10% of the total voting rights of a private company and who consider that the payment of fees or benefits to directors of the  company was not fair to the company, within 30 days after they have knowledge of such payments, to require the company to pass a resolution to approve the payment either by way of a written resolution or at a general meeting. Unless an approval has been obtained through a resolution passed under section 230(4), the payment constitutes a debt due by the director to the company.[6]

Subsidiary of Newly Listed Public Company to Take Note

A subsidiary of a public listed company, where the subsidiary is an unlisted private company, should take note of the change in the approval required for directors’ fees and benefits payable to the directors of the subsidiary upon listing of the holding company.

Section 230(2) of the CA 2016 applies to such subsidiary prior to listing of the holding company and section 230(1)(b) applies to the subsidiary upon listing of the holding company. Prior to the listing of the holding company, subject to the constitution, the Board may approve the directors’ fees and benefits payable to the directors of the subsidiary. After the holding company is listed, the directors’ fees and benefits payable to the directors of such subsidiary has to be approved at a general meeting.

There will be a lapse of time between the listing date of the holding company and the date of annual general meeting of the holding company after its listing. Such subsidiary should ensure there is no inadvertent breach of section 230(1) of the CA 2016 during this period.

Until the case of NWP is decided, it is prudent for directors’ fees and benefits payable to the directors of a subsidiary of a newly listed public company to be approved at a general meeting prior to the payment instead of having the payment being ratified by shareholders later.

[1]https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3128359

[2]https://www.bursamalaysia.com/market_information/announcements/company_announcement/announcement_details?ann_id=3135727

[3] Section 230(6), CA 2016

[4] Section 230(2), CA 2016

[5] Section 230(7), CA 2016

[6] Section 230(5), CA 2016

The information in this article is intended only to provide general information and does not constitute any legal opinion or professional advice.