Company Registration

Inspection Rights Of A Company Director

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Brief facts of the case

Dato’ Seri Timor is one of the nominee directors for the minority shareholder of Nautilus Tug. He sought an order from the court that the accounting and other records of Nautilus Tug be open to inspection and available for copying by an approved company auditor. This application was opposed by the majority shareholder of Nautilus Tug, on the basis that the application was made for an ulterior purpose.

Long story short, the court allowed Dato’ Seri Timor’s application. The court also briefly touched on the topic of a company director’s right to inspect the document, which we will briefly share below. 

Inspection Rights Of A Company Director

What is the law(s) governing such rights?

The court noted the right to inspect documents is governed by both the legislation (section 167(7) of the Companies Act 1965 (replaces by section 245(9) of the Companies Act 2016) and also the common law. For example, the court (referring to the case of Paul Nicholson lwn Faber Medi-Serve Sdn Bhd dan lain-lain states that (in relation to the right to inspect):

“…The right of a director to inspect the company’s documents was a mandatory right provided under s 167 of the Act. This statutory right was given so that the director could discharge his responsibilities fairly and equitably for the benefit of the company and the shareholders. The director was entitled to be informed regarding matters that had occurred in the company and such information could be obtained from the company’s documents…”

To what extent can a company director inspect those documents? 

The court noted that a director is well within his statutory and common law rights to require the company to furnish to the director any information (or documents) which reasonably concerns a director’s responsibilities. This includes the compilation of the information into documents, copying it, and even having the company bear all expenses for such exercise. 

This right is absolute- a director is entitled to inspection and is not required to demonstrate any particular ground or ‘need to know’ as a basis.

Why is this the case? As noted by the court, a director is primarily accountable for any company mismanagement, before any employees are held responsible. Their failures would attract liabilities for infringement of their fiduciary and statutory duties under the common law and the statute. Directors owe a stewardship obligation to the company, and it is thus quite basic that they could be liable for any improper management.

Therefore, the court pointed out that:

“…given these positive duties and potential liabilities, the law accords company directors a virtually absolute and unqualified right, to inspect the corporate books of the company they are responsible for. This cannot be interpreted as being merely confined to the right of the directors to view documents at a specified place on the premises of the company and not extended to the right to ask for copies to be made for the requesting directors. Otherwise, the true essence of the inspection rights is unjustifiably diminished to a considerable degree, whilst being injudiciously oblivious to the heavy management responsibilities shouldered by company directors under the law.”

Can such rights be overridden?

Yes. In fact, the court noted that the same right will be forfeited where it is exercised not to advance the interests of the company but some other ulterior purpose to injure the company. Above and beyond that, it is the responsibility of the party resisting the director’s right to inspect to show that the right is exercised in an illegal manner. As noted by the court:

“… It is for the defendant to show ‘clear proof’ and to satisfy the court ‘affirmatively’ that the grant of the right of inspection would be for a purpose detrimental to the interests of the company. There must be a ‘real ground’ that the right would be abused and that substantial harm would be caused to the company thereby…”

**In this particular case, the court noted that despite Nautilus Tug raising various complaints, none however had been shown to even remotely come close to constitute any form of clear evidence of improper or ulterior motive on the part of Dato’ Seri Timor that could justify denial of inspection rights under section 167(3).

 And there you have it. Hopefully, you have learned something new today!!

Make an appointment with Company Secretary and Business Lawyer for advice and consultation

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