Is It The Director Or Company Secretary’s Fault When Things Go Wrong?

Directors get in trouble all the time

At the beginning of 2023, a labour supply company director was fined RM50,000 by the Sessions Court for submitting false documents to claim benefits under the Social Security Organisation’s Penjana programme.

Not too long ago, another company director was found guilty of offering millions in bribes to a minister over the selling of the Menara Kuala Lumpur Sdn Bhd (Menara KL) concession and shares.

And very recently, a director of a bitumen manufacturing company was charged with using controlled goods in their operations without permit.

As directors, each of them would have appointed a Company Secretary.

And as we know, a Company Secretary’s duties include advising the board on matters of statutory compliance – aka following the law.

By that logic, shouldn’t the Company Secretary also be held liable?

Not quite – not at all, actually, as operational judgements by directors fall outside the duties and liabilities of a Company Secretary.

Let us explain.

Duties & liabilities of a Company Secretary

We go into full detail in our article on what a Company Secretary does in Malaysia, but for the purposes of this post, here is a summary of a Company Secretary’s resposibilities:

• Ensure the company is in accordance with the Companies Act 2016
• Maintain company secretarial records
• Handle and organise board, general and extraordinary general meetings
• Maintain communications with shareholders and directors
• Maintain and update the company’s statutory documents such as the Registry of Members
• Update SSM of changes in company statutory information within the allowed time
• Prepare and file the company’s annual return with SSM

As you can see, a Company Secretary’s role is administrative in nature.

They – that is to say, we, – handle much of the day-to-day paperwork and ensure procedures are carried out properly and within the allowed time by SSM and other statutory bodies.

This frees the directors to focus on decisions regarding company operations.

Duties & liabilities of a Company Director

Once more, we have written a more in-depth guide on the duties of a director.

A director is responsible for deciding how to run the day-to-day operations of a company, as well as determining long-term strategy, known collectively as ‘business judgements’.

Making business judgements

A director is expected to demonstrate a satisfactory level of expertise, care, and diligence, as would be expected of anyone in such a key role.

This means that any strategic decision by the director must be done:

1. With full knowledge that it is legal and ethical
2. With the interest of the company as the top concern
3. Without directly or indirectly benefiting the director or their friends / family 

What about relying on company officers?

Yes, a director is expected to rely on information provided by a company officer or professional whom the director believes to be reliable.

However, a Company Secretary is not an expert on the various industry-specific statutes, and therefore cannot be expected to be a key advisor in that capacity. Their expertise lies in advising the board on compliance with the Companies Act in addition to other acts on corporate governance.

It would not be reasonable, for instance, to expect a Company Secretary to know that diesel is included in the Control of Supplies Act and advise the director mentioned at the start of this post. 

When is a Company Secretary liable?

The Company Secretary, as an officer of the company, may be held liable for the company’s default only where it is proven that the default occurred due to their negligence, default, or breach of duty.

This requires three elements to be established:

• it concerns a duty owed by the Company Secretary
• the Company Secretary failed to carry out their duty, and
• the damage suffered was caused directly by the Company Secretary’s breach of said duty

As has been established, the duties of the Company Secretary under the Companies Act 2016 are to do with administration and governance. 

Are Company Secretaries liable in employer – employee conflicts?

The short answer: no.

The longer answer: While it depends on the particulars of each case, employer – employee conflicts are usually due to operational decisions (or lack thereof), which means Company Secretary cannot be held liable for several reasons:

No operational control

In the role of a Company Secretary, there is no control over the company’s day-to-day operations, employee management, or hiring/firing decisions. These responsibilities fall within the purview of the company’s management and Board of Directors.

No personal involvement

If there has been no personal involvement in the alleged wrongful act or if it occurred without knowledge or consent, it would not be just or fair to hold the company secretary liable. A plaintiff must prove an active role in the alleged wrongful act to establish accountability.

No hiring / firing power

As a Company Secretary, there is no authority over hiring, firing, or employment decisions, including remuneration or disciplinary actions. These decisions are typically made by employers, senior management, or HR departments. Therefore, holding the Company Secretary liable for a matter in which there was no decision-making authority would be inappropriate.

No breach of duty

The primary duties of the Company Secretary under the Companies Act 2016 are primarily administrative and related to corporate governance. If no evidence can be produced to show a breach of these duties leading to the alleged wrongful act, there is no legal basis for liability.

Absence of vicarious liability

Vicarious liability typically applies when someone is held responsible for the actions or omissions of another person. In a workplace context, an employer can be liable for the acts or omissions of its employees, provided they occur in the course of their employment. However, as a Company Secretary, there is no employer-employee relationship and thus, there should be no vicarious liability for the company’s actions.

No legal basis to sue

Under Malaysian law, an employee who believes they have been wrongfully dismissed may make representations to the Director General for Industrial Relations under the Labour Ordinance or file a claim at the Labour Court. There is no provision in these laws that allows an aggrieved employee to sue the company secretary in a personal capacity.

Potential for abuse

Allowing an aggrieved party to sue a Company Secretary who has no operational involvement or control, could set a bad precedent and lead to frivolous lawsuits. This could have a detrimental impact on corporate governance as it might deter capable individuals from taking up company secretary positions due to the fear of unwarranted personal lawsuits.

No involvement in contractual employment relationship

The employment relationship is a contractual one between the employer and employee. As a company secretary, there is no involvement in this contract and, therefore, no privy to it. Accordingly, there should be no participation in disputes arising out of this contract.

Some final thoughts 

As decision makers of a company, directors are generally accountable for damages from business decisions while a Company Secretary is more likely responsible for administrative oversights or regulatory non-compliance.

We would like to add something here.

When things go wrong, finger pointing often has less to do with solving the issue and more with protecting personal interest.

The best solution is to prevent such incidents is to have both directors and Company Secretaries understand their roles and conduct themselves with accountability and transparency – and the company will live happily ever after!

Let MISHU handle your statutory compliance needs

As a Company Secretarial firm and business consultant, the MISHU team eats, lives, and breathes by assisting entrepreneurs with understanding and navigating the Companies Act 2016 (and a whole bunch of other acts too!)

If you like the idea a trusted business advisor who understands legislation and can advise, remind, and outright warn you on matters of regulatory compliance, we think this could be the beginning of a long and fruitful partnership – get in touch!