THE NEW COMPANIES ACT 2015 - DIRECTOR INCLUDES "SHADOW" DIRECTOR.
Don't mess with this new Companies Act.
Section 4(1) of the Companies Act provides that unless a contrary intention appears, the term ‘director’ includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the director of a corporation are accustomed to act and an alternate or substitute director.
The term ‘director’ has two meanings;
a. Natural and ordinary meaning and
b. Extended meaning.
"Shadow director" shall falls within the meaning of Section 4 (1).
There are a least two elements present.
a. Directions and instructions from the shadow director;
b. The recipient is "accustomed to act" according to the directions and instructions.
What is "Directions and instructions’ in the context of this new Companies act?
Communication is considered to be direction or instruction if it is understood or expected by both giver and receiver that the communication would be acted upon by the receiver and it is not necessary to prove the existence of an understanding or expectation that the communication would be acted upon by the recipient and that can sufficiently prove existence of communication between them.
In Datuk Sahar bin Arpan v Public Prosecutor [2007] 1 MLJ 697, the accused was charged for committing corrupt practice. Evidence shows that the accused took part in the state Exco meeting that approved the project to which he had an interest. The accused systematic participation in the project was shown by the initial purchase by the accused and subsequent dealing with the state authority. This form the linkage and nexus between the accused and the project. He was found to be the puppeteer who pulled the strings of his puppets (directors of the company). The Court of Appeal found him to be a shadow director. The Court adopted the definition of shadow director in Re Hydrodam (Corby) Ltd (1994) 2 BCLC 180:
"Shadow director" does not claim or purport to act as a director, on the contrary, he claims not to be a director. He can just acts in the shadow, directing, influencing, coordinating lurking behind person who, he claims, are the only directors of the company to the exclusion of himself. By the definition of "shadow director" he is not omitted out as a director by the company.
The phrase "ACCUSTOMED TO ACT" is directed at results flowing from directions and instructions and not the underlying means through which the results are obtained.
The Australian Federal Court held in Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459; the phrase accustomed to act did not require that there be directors or instructions embracing all matters involving the board. Rather, it was sufficient to show that when called upon, the directors were accustomed to act in accordance with the instruction received.
In addition to the above 2 elements, section 4 (2) excludes a person "GIVING ADVICE IN A PROFESSIONAL CAPACITY AS A PERSON IN ACCORDANCE WITH WHOSE DIRECTION THE DIRECYORS OF A COMPANY ARE ACCUSTOMED TO ACT"; by reason only that the director act on the advice.
The “SOMETHING MORE” must be related to the function of a director which the shadow director person and in respect of which the majority of the board would refer to -Secretary of State for Trade and Industry v Deverell [2000] 2 WLR 907.
What ia the Legislative Intention?
The legislative purpose in giving an extended meaning to the term director is to deal with a person who is not lawfully appointed but who nonetheless exercise the function of a director or who is in a position to exert real influence in the management of the affairs of companies. The intentions are to promote transparency with respect to the true identities of persons managing companies and impose sanctions and liabilities against de facto and shadow directors who, in defence to allegations of breach of duties, claim that they are not director. Therefore, the quest to identify or to ascertain whether a person can be considered as a shadow director has to be interpreted in light of this legislative intention.
The person lurking in the shadow is deemed, believed, considered, supposed to be the director if the.majority of the director in a company acted in accordance to his direction or instruction.
When will this Act (which contain more than 600+ sections) be enforced. As at to date it has not been enforced.
Whether there exist "SHADOW DIRECTOR"ship, probably can be tested on 1NGB to see if a person has acted incontravention to this act.
Mohdar Ismail
Company Secretary
Don't mess with this new Companies Act.
Section 4(1) of the Companies Act provides that unless a contrary intention appears, the term ‘director’ includes any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the director of a corporation are accustomed to act and an alternate or substitute director.
The term ‘director’ has two meanings;
a. Natural and ordinary meaning and
b. Extended meaning.
"Shadow director" shall falls within the meaning of Section 4 (1).
There are a least two elements present.
a. Directions and instructions from the shadow director;
b. The recipient is "accustomed to act" according to the directions and instructions.
What is "Directions and instructions’ in the context of this new Companies act?
Communication is considered to be direction or instruction if it is understood or expected by both giver and receiver that the communication would be acted upon by the receiver and it is not necessary to prove the existence of an understanding or expectation that the communication would be acted upon by the recipient and that can sufficiently prove existence of communication between them.
In Datuk Sahar bin Arpan v Public Prosecutor [2007] 1 MLJ 697, the accused was charged for committing corrupt practice. Evidence shows that the accused took part in the state Exco meeting that approved the project to which he had an interest. The accused systematic participation in the project was shown by the initial purchase by the accused and subsequent dealing with the state authority. This form the linkage and nexus between the accused and the project. He was found to be the puppeteer who pulled the strings of his puppets (directors of the company). The Court of Appeal found him to be a shadow director. The Court adopted the definition of shadow director in Re Hydrodam (Corby) Ltd (1994) 2 BCLC 180:
"Shadow director" does not claim or purport to act as a director, on the contrary, he claims not to be a director. He can just acts in the shadow, directing, influencing, coordinating lurking behind person who, he claims, are the only directors of the company to the exclusion of himself. By the definition of "shadow director" he is not omitted out as a director by the company.
The phrase "ACCUSTOMED TO ACT" is directed at results flowing from directions and instructions and not the underlying means through which the results are obtained.
The Australian Federal Court held in Australian Securities Commission v AS Nominees Ltd (1995) 18 ACSR 459; the phrase accustomed to act did not require that there be directors or instructions embracing all matters involving the board. Rather, it was sufficient to show that when called upon, the directors were accustomed to act in accordance with the instruction received.
In addition to the above 2 elements, section 4 (2) excludes a person "GIVING ADVICE IN A PROFESSIONAL CAPACITY AS A PERSON IN ACCORDANCE WITH WHOSE DIRECTION THE DIRECYORS OF A COMPANY ARE ACCUSTOMED TO ACT"; by reason only that the director act on the advice.
The “SOMETHING MORE” must be related to the function of a director which the shadow director person and in respect of which the majority of the board would refer to -Secretary of State for Trade and Industry v Deverell [2000] 2 WLR 907.
What ia the Legislative Intention?
The legislative purpose in giving an extended meaning to the term director is to deal with a person who is not lawfully appointed but who nonetheless exercise the function of a director or who is in a position to exert real influence in the management of the affairs of companies. The intentions are to promote transparency with respect to the true identities of persons managing companies and impose sanctions and liabilities against de facto and shadow directors who, in defence to allegations of breach of duties, claim that they are not director. Therefore, the quest to identify or to ascertain whether a person can be considered as a shadow director has to be interpreted in light of this legislative intention.
The person lurking in the shadow is deemed, believed, considered, supposed to be the director if the.majority of the director in a company acted in accordance to his direction or instruction.
When will this Act (which contain more than 600+ sections) be enforced. As at to date it has not been enforced.
Whether there exist "SHADOW DIRECTOR"ship, probably can be tested on 1NGB to see if a person has acted incontravention to this act.
Mohdar Ismail
Company Secretary
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