Contents Abstract 2 Introduction 3 Body 4 Definition of directors 4 Definition of disqualified directors 4 Circumstances for disqualification of directors 5 i. Undischarged bankruptcy (section 125) 5 ii. Convicted of crimes (section 130) 5 ii. Disqualification in insolvent companies (section 130A) 6 Comparison of penalty or punishment of disqualified director under Malaysia’s Law and United Kingdom’s (UK) Law 6 Example of cases involve directors disqualification in UK and Malaysia 7 Case 1 7 Case 2 8 Conclusion 10

Abstract

Director is one of the important people in the conducting of a company. Without them, the company cannot be operated and all matters concerning the company cannot be carried out. At present, when a company fall or declared bankruptcy, the director become a disqualified director and cannot be a director in other companies as they may cause a similar incident recurring. According to this matter, the punishment of the disqualified director in Malaysia is fixed to 5 years which in major or minor case and must pay a fine RM100, 000.00 or both. They can’t be a director of other company just because they fail to exercise their duties and caused they commit a major or minor cases in a long time period. This paper aim to examine whether the punishment of disqualified director can be implementing or change in Malaysia compare to other country.

Introduction

In Malaysia, the situation which the person who tend to be a disqualified director, the Court may make an order that person shall not, without the leave of the Court, be a director of or in any way, whether directly or indirectly, be concerned or take part in the management of a company for such period beginning on the date of the order and not exceeding five years as may be specified in the order while compare to other country like United Kingdom (UK), the director that has been disqualified would be punish in minimum 2 years until maximum 15 years cannot be a director based on the cases they commit. When we compare the punishment of disqualified director in United Kingdom (UK), we think in Malaysia should be implement the law and act that already have in Malaysia by change the punishment period like in United Kingdom (UK) country law. In the following paragraph of articles we will discuss the reasons and some cases why company law regarding the disqualified director punishment period in Malaysia should be implementing and change like other country law with new strategy and rule.

Body
Definition of directors
Director is a person who leads, manages, or supervises an organization, program, or project. In accordance with Companies Act 1965, the director of a company is one of persons appointed to manage the affairs of a company or corporation and has the responsibility for determining and implementing the company’s policy. Directors are elected at the first annual meeting of shareholders and at each successive annual meeting for one-year term, unless they are divided into classes. In a corporation that divided its directors into classes, called a classified board, conditions are often imposed concerning the minimum size of the board, the minimum number of directors to be elected annually, and the maximum number of classes or maximum terms. Under section 9, a director of a company is defined as a person who is appointed to the position of a director or alternate director regardless of the name given to their position. The section 9 definition also regards certain persons to be directors even though they are not validly appointed. Unless the contrary intention appears, a person who is not validly appointed as a director is also as a director if they act in the position of a director or the director are accustomed to act in accordance with the person’s instructions or wishes. Besides, section 250 (1) provides that the use of the term ‘director’ in the Act includes any person occupying the position of director, whether he calls himself a director or not. This section was needed because sometimes those who act as directors of a company call themselves managers, governors or some other title.

Definition of disqualified directors
Disqualified director is define are those who have been deemed unfit to carry out their business roles or other word. According to Company Directors Disqualification Act 1986 (CDDA), when a director has breach of their duty in the company whether in a major or minor case, the director are consider as disqualified director and banned from holding a directorship within 5 years because they are unfit to manage the affairs of a business, have been involved in misconduct to their business affairs and also personal bankruptcy. the directors who is personally insolvent, an undischarged bankrupt, or disqualified by a court order for implication in dishonesty or fraud punishable by imprisonment, may be disqualified from holding the office of a director.

The effect of a disqualification under section 125, 130 and 130A is to make it an offence for the disqualified person to be a director of a company or to manage companies whether directly or indirectly. This is not to say that the acts of such a person as a director are void. Nowhere in any of the section stated that a disqualified person automatically vacates office or that the lacks capacity to be director.
Circumstances for disqualification of directors i. Undischarged bankruptcy (section 125)
It is define under section 125 provides for a general rule that a bankrupt who has not obtained relief from the court cannot act as a director of, directly or indirectly takes part in or concerned in the management of, any corporation except with the leave of the Court shall be guilty of an offences against this act. The Act does not provide for the removal or disqualification from office of the bankrupt. The articles usually provide that the office of director shall become vacant if the director becomes bankrupt or enter into any arrangement or composition with creditors. A bankrupt who continue to act as a director commits an offense is liable to imprisonment for up to five years or a fine of RM 100,000.00 or both, if convicted. ii. Convicted of crimes (section 130)
A person who has been convicted of a certain offences enumerated in section 130 (1), whether within or outside Malaysia, must not without leave of the High court be a director promoter of, or be in any way directly or indirectly concerned or take part in the management in Malaysia of a corporation. The offences are those relating to; (1) any offences in connection with the promotion, formation or management of a corporation; (2) any offences involving fraud or dishonesty punishable on conviction with imprisonment for three months or more; or (3) any offences under section 132,132A or 303. The disqualification will last for five years (Malaysia Law) after the person/s conviction or, if he is sentenced to imprisonment, after his release from prison. During the prohibited period, he may act as director or be indirectly concerned or take part in the management in Malaysia of a corporation only with the leave of high Court.

ii. Disqualification in insolvent companies (section 130A)
The High Court is empowered under section 130A to disqualify a person, unless with the leaves of the High Court, from being concerned or taking part in the management of a company for a period not exceeding five years if that person falls under certain criteria in connection with the management of a failed company. There a penalty for non-compliance with this section. The criteria which the High Court will consider are; (1) that a person is or has been a director of a company which has at any time gone into liquidation and was insolvent at that time; and that a person is or has been a director of such other company which has gone into liquidation within five years of the date on which the first mentioned company went into liquidation; and (2) that his conduct as director of any of those companies makes him unfit to be concerned in the management of a company.

Comparison of penalty or punishment of disqualified director under Malaysia’s Law and United Kingdom’s (UK) Law

Generally in Malaysia’s law, any directors who has been charged bankrupt, convicted of crimes and directors of insolvent companies if convicted with the offences will disqualified being as director and will liable for the disqualification period up to 5 years for all offences. During the prohibited period, the directors are disqualified from directly or indirectly concerned or take part in the management of the company in Malaysia. As for United Kingdom’s law, the court provided the disqualification period for disqualified directors up to maximum 15 years and minimum 2 years upon to the offense done by a person.Compare in United Kingdom,the minimum period of disqualification arising from the revocation of a County Court administration order is two years. Have a long period of time the punishment in both countries. Malaysia can reduce from 5 years to 2 years punishment and provide a certain condition to the director to be fulfilled if they want to be a director in a short period of punishment. The condition such they need to settle all their debt within 1 year and pay the fine of RM200,000.00, after 2 years punishment they can be a director to other company. If the situation happens again, the director cannot be a director until get the permission of the court. The punishment given must base on the person’s offences either severe or mild cases.
Example of cases involve directors disqualification in UK and Malaysia
Case 1
According to the case of Wood v Mistry (10 July 2012), this case was initiated by the liquidator against former directors. The next solver company’s disqualification proceedings against Mr. Mistry which they claim to have; while acting as liquidator, fraudulent funds diverted from the companies for their own financial benefit, paid invoices which he knew to be false and failed to recover the sum of third party for the benefit of the companies. The judge said the court should make an order cancellation for solutions only where "serious misconduct" was established. He rejected the defense argument that the solution must have a financial interest for the disqualification was made and essentially states that the purpose of qualification is to protect the public, and the function of a liquidator, including consideration of the criminal sanctions or civil misconduct. Judge is satisfied that the conduct of Mr. Mistry has been "too inappropriate" and given 12 years qualifying order.
In the Singapore case of Public Prosecutor v Allan Ng Poh Meng (1990), the court accepted that a conviction for insider trading would result in disqualification as a director and that the legislation then in operation did not require the prosecution to prove fraud or dishonesty. It was enough that the offence involved dishonesty. Similarly, in Malaysia fraud or dishonesty are not essential ingredients of the criminal offence of insider trading contained in the SIA. Although it is not clear, following Ng’s case it is arguable that a conviction for insider trading would result automatic disqualification. Alternatively, an application for the removal of the director could be made under s 100(1) of the SIA, discussed below.
In Malaysia, if we want to penalize the persons in the same case, we should add the punishment to be more than 5 years and increase the fine more than usual. Since this is major case, so Malaysia should state disqualification period is about 10 years and above. If Malaysia wants to remain the punishment period of disqualified director for 5 years, the offence should be minor such as tort and property damage.

Case 2
Under Section 160(2), the court has the power to make a disqualification order against a person "for such period as it sees fit. The analogous English provisions considered in that fifteen years. The Court of Appeal endorsed the division of the potential fifteen year disqualification period into three bracket which is top bracket, minimum bracket and middle bracket. The top bracket (over 10 years) shows that they should be reserved for particularly serious cases. These may include cases where a director who already had one period of disqualification imposed on him fell to be disqualified yet again. The minimum bracket (2 to 5 years) should be applied where, although disqualification was mandatory, the case was, relatively, not very serious and the middle bracket (6 to 10 years) should apply for serious cases which do not merit the top bracket. The related issue in UK is in below cases.
In case of Re Sevenoaks Stationers (Retail) Ltd, the official receiver applied under Section 6 of the Company Directors Disqualification Act 1986 for the disqualification of C, a director of five insolvent companies. The allegations in a report by the official receiver, in support of the contention that C was 'unfit to be concerned in the management of a company' within Section.6 (1) (b), included failing, in respect of one company, to keep proper accounting records and failure to pay Crown debts for PAYE and contributions. Harman J found most of the allegations proved, but also found, inter alia, that proper accounting records had not been kept for all the companies, not merely the one alleged. He made a disqualification order for seven years. C appealed from; inter alia, the length of the order. Dillon LJ said that, although the official receiver could be permitted by the court to rely on allegations not made in his report or affidavit provided that could be done without injustice to the director, the disqualification period could only be fixed on the basis of matters proved which had been properly alleged. Since the judge had erred in the latter respect and failing to keep proper accounting records was a serious matter, the period imposed should be reduced to five years.
The case related in Malaysia is Chew v NCSC, Chew had been convicted under the Companies (Acquisition of Shares) Code, section 44 in circumstances where he and his advisers had wrongly interpreted a section of the Takeover Code resulting in the making of false statements. Chew was convicted and fined RM500. He sought leave under section 227 (s 125, 130) to be a director of a large number of companies including some public companies. Leave was granted in the interests of shareholders, creditors and employees of the companies. The court held that it was unlikely that further breaches of the law would occur if Chew was able to act as a director and his integrity remained intact. Olney J discussed the policy of section 227 (s 125, 130). Given that the disqualification imposed by s 227 was not part of the punishment for the offence the conviction for which gives rise to the disqualification, it should be concluded that the provision was inserted for the purpose of either deterring would-be offenders or for protecting the public from exposure to persons who have offended and who might re-offend if not restrained or both.
From the above cases, it is truly showed that in Malaysia, if a person is disqualified being as a director, the person will be punish to five years period of disqualification if he or she had commits any offense either major or minor. While for overseas such as in United Kingdom (UK), the law was fixed the penalties up to 2 years until 15 years. Under section 130, Malaysia also carries out the penalties of 5 years or RM100000 or both. This is unfair and should be repealed. In Malaysia, if that persons involve in major or serious offence, the punishment should be over than 10 years and if involves in mandatory offence, the punishment should be 6 to 10 year. Furthermore, if Malaysia involve in minor case, the punishment should be less than 5 years. So, Malaysia needs to execute the sentence as other countries which are 2 to 15 years. They should not fix disqualification director penalties to 5 years. Since the above case is minor case, so Malaysia should state disqualification period is less than 5 years.

Conclusion
In a nutshell, Company Law of disqualified director in Malaysia regarding the period of punishment should be implement and change from fixed 5 years to the period minimum 2 years and maximum 15 years such in United Kingdom (UK) law. Moreover,in order to make the different punishment, the disqualified directors that commit a major case would be punish at the long time period while the minor case in a short period of time based on the cases they commit. In addition the disqualified director also must be paid a fine more than RM 100,000.00 and some penalty if they are entitle to the some cases that make they be a disqualified person. All the rule can be implementing in Malaysia in order to prevent the director from become a disqualified director and make them can’t be a director for other companies continuously. It seem that the United Kingdom (UK) law is more reasonable compare to the Malaysia law which is United Kingdom (UK) law is more applicable to be implement or amend the Malaysia law. So, in Malaysia should or need to adopt this UK law in order to make the Malaysia law more applicable and useful.