In M&A deals, it’s common for the purchasers (i.e., the new shareholders) to nominate their own directors to the board  of directors of the target companies. Such directors are known as nominee directors.

Under the Companies Act 2016 of Malaysia, although a nominee director is appointed to represent the interest of the nominator, the director must act in the best interest of the target company. In the event of any conflict between the director’s duty to act in the best interest of the company and the duty to the nominator, the duty to act in the best interest of the company prevails. This is provided under section 217 of the Companies Act 2016.

A nominee director’s duty may be tested in situations where prioritizing the nominator’s interest conflicts with the company’s long-term goals. If a nominee director prioritizes the interest of the nominator over those of the company, this could lead to breaches of fiduciary duty, potentially resulting in legal consequences.

A director who contravenes this duty commits an offence under the Companies Act 2016 and on conviction, is liable to imprisonment or a fine or both.

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This post was first posted on LinkedIn on 7 January 2025.