Due diligence with appointing nominee director in malaysia

Due Diligence: A Hidden Nominee Director Risk

Why nominee directors exist 

To speak plainly, a nominee director is less of a business partner, and more of a reliable proxy so plans to incorporate in Malaysia can proceed without interruption.

As a result, the task of sourcing and appointing a nominee director is nearly always outsourced to business advisors like MISHU.

However, the lack of oversight into nominee director sourcing can hurt business owners.

In this post, we show an example of a questionable nominee director appointment, how it impacts a business, and how you can ensure it doesn’t happen to yours.

Gaps in statutory law on Nominee Directorship

The eligibility requirements to be a nominee director are the same as a regular director:

  • at least eighteen years old
  • living in Malaysia
  • cannot be a bankrupt 
  • has not bee convicted of a felony within the past five years

Additionally, as of December 2023, there is no law that limits the number of directorships a person can hold – instead, it is left to the individual and business owner to judge their capacity to serve.

It’s a reasonable mechanism where normal directors are concerned – they play an active role that has direct impact on business operations.

Therefore, business owners directly and actively participate in hiring for this role.

On the other hand, a nominee director plays a much more passive role, and business owners often entrust the hiring with consultants.

Is this something to be concerned about? 

We’ll let the recent story from Singapore – which has a local director requirement just like Malaysia – do the talking.

The Grab driver with 60 nominee directorships

You can read the full news story here, but for your convenience, we’ve condensed it below:

  1. Through a Singaporean firm that helped foreign businesses, 46-year-old Singaporean Grab driver named Leonard Koh became nominee director for 60 different companies over the course of four years.
  2. It was discovered that one of the companies was being used as a funnel illegal money, and that Leonard had failed to recognise as he had not carried out due diligence expected of his role.
  3. According to the prosecutor, Leonard did not perform any checks, assuming that the Singaporean firm and the company’s foreign directors would handle all compliance matters.
  4. In fact, when appealing for leniency, Leonard’s defence counsel said her client was “a private-hire driver for ride-sharing firm Grab with no related skills”.

It’s hard not to question a system that cannot prevent one individual from assuming so many directorships. 

Especially one without sufficient experience or formal training.

Potential business impact

Imagine you owned one of the other 59 companies Leonard was nominee director for.

Leonard would most likely resign.

You would need to find a replacement urgently, as without a local director you are in violation of the Companies Act.

At the same time, the role is not actually urgent, because you’re only hiring to stay compliant.

It’s frustrating to spend valuable resources on somethat that, at the end of the day, is just a formality.

And worse, if the next nominee director was selected without strict due diligence, there’s a chance of this repeating down the line.

Ensure consultant conducts due diligence

Start off on the right foot by engaging business advisors that have and follow strict standards.

This includes nominee director candidates but extends to clients as well – how stringent are their KYC procedures?

This should translate into tangible steps, such as: 

  • Having a clear outline of their due diligence process
  • Thorough background checks of potential nominee directors
  • Scrutiny of respective professional track records
  • Confirmation of credibility and reliability

For example, MISHU has initial, enhanced, and ongoing due dilligence policies that comply with the requirements of Malaysia’s Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001.

Ultimately, before trusting a consultant to find you a nominee director, establish their thoroughness in selecting and vetting!

Let MISHU handle your Nominee Directorship

HOBD Adrian

MISHU’s team of professionals can help you source the perfect nominee director and manage all paperwork to ensure a smooth appointment that fully protects you and your company’s interests.

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