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Enter Deli

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Submitted By cylord
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1. Were there any abuses of power by the management and breach of fiduciary on the part of the directors?
Yes, there are breached of fiduciary duties by the management or directors of Delima Enterprise Sdn Bhd.
In general, directors take up a fiduciary position or relationship with the company. A fiduciary relationship is the relationship between a person in a position of trust in which the fiduciary and the person for whose benefit the fiduciary acts. In other words, a fiduciary’s powers are exercised on behalf of others who are being in a position of dependence. In this case, directors of Delima Enterprise Sdn Bhd have fiduciary duties to the shareholders and stakeholders of the company. In addition, they also control property in which others have an interest.
According to Section 132(1) of Companies Act 1965, a director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. The directors have the following duties as being in fiduciary position: a. Duty to exercise power in good faith and in the interest of the company. b. Duty to avoid conflict of interest. c. Duty to exercise power for the proper purpose.

a. Duty to exercise power in good faith and in the interest of company
The directors of a company must exercise their powers in good faith and in the best interest of the company as a whole. It means that, directors of the company must act in the interest of the shareholders as a collective group of the company and not for their own interest. Thus, the important factor that must be taken into consideration when directors exercise their powers is for the best interest of the company. However, if anyone else’s interest had been given priority, the directors are in breach of their duty to the company.
In accordance to the case, the auditor had found that there were several personal withdrawals and the personal vehicle expenses for Encik Zayed and Puan Hashimah totaling RM50,150 were charged to the company during the year 2006. Based on this finding, it can be concluded that Encik Zayed and Puan Hashimah as the directors of the company had breached their fiduciary duty to exercise power in good faith and in the interest of the company as they had used the company’s funds for their own interests. Even though both of them are the owners of the company, they cannot use the company’s funds for their own expenses as the company is a separate legal entity from its members.

b. Duty to avoid conflict of interest
As being in fiduciary position, a director is under a duty to avoid conflict of interest. It means that, directors should not engage into situation in which there is a possibility that their personal interest could conflict with the company. Directors will be breached the fiduciary duty if they placed their own personal interest in priority over the interest of the company.
In accordance to the case, the auditor had found that there were several personal withdrawals and the personal vehicle expenses for Encik Zayed and Puan Hashimah totaling RM50,150 were charged to the company during the year 2006. Once again, this situation can be used to illustrate that both of them as the directors of Delima Enterprise Sdn Bhd had breached the fiduciary duty to avoid conflict of interest as they had misused the company’s funds for their own personal interest and not for the company. In fact, the property or the funds of the company must only be used to make profit or to give benefit to the company.

c. Duty to exercise power for the proper purpose
A director is also under a duty to exercise power for a proper purpose. If a director is entrusted by the company to do something for certain purpose, the power must be exercised only to achieve that purpose. Hence, the power cannot be exercised for the purpose of private advantage or for any purpose not connected to his/her power as a director. As such, directors are said to have breached the fiduciary duty if they misapply the company’s assets or use the powers for the wrong purpose as well as by letting the company not adhere in accordance to the laws pertaining to the company.
By referring to the case of Delima, the directors or management of Delima Enterprise Sdn Bhd were said to have breached the fiduciary duty to exercise power for the proper purpose as they had not performed the statutory audit for the company as well as due to their misconduct behavior. As a result, the company may have difficulty in obtaining financial assistance to implement the contracts of the company that will tarnish the company’s reputation. In fact, the directors or management of the company were supposed to perform the audit and meet the necessary requirement for a company upon establishment of Delima Enterprise Sdn Bhd. Furthermore, the misconduct behavior by the directors of the company by abusing their powers as a director by making several personal withdrawal and expenses in which were charged to the company was not supposed to be done as the funds of the company should belong to the company as the company’s asset.

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