Question

QUESTION 2

Novus Sdn. Bhd is an interior design company. Its directors are Nobi, Dori, Ita and Moon. Nobi is the managing director of the company. Together the directors hold 30% of the company shares.

Recently the directors of Novus Sdn. Bhd. discover that Lotus Bhd. is making a bid to take over Novus Sdn. Bhd. by purchasing majority shares in the company. It is rumoured that Lotus Bhd. plans to remove Novus Sdn. Bhd.’s directors once it gains control of the company. Accordingly, the directors of Novus Sdn. Bhd cause the company to issue new shares to Mala, a member of the company who strongly opposes the takeover, to block Lotus Bhd.’s take over bid. The issuance of the new shares has the effect of reducing Lotus Bhd.’s percentage of shareholding in the company.

Meanwhile, Nobi successfully negotiates a contract on behalf of Novus Sdn. Bhd. with Ace Sdn. Bhd. However, the company has recently learned that Nobi has received a commission of RM300,000 from the negotiation, which Nobi has not disclosed to the company.

Novus Sdn. Bhd. seeks your advice as to whether any of its directors have breached their duty. Advise Novus Sdn. Bhd.

Answer 1

Yes, Nobi as the managing director of Novus Sdn. Bhd breached his fiduciary duty of loyalty towards the company. under Common law, all directors and officers have fiduciary duty that requires them to act in good faith and in the best interests of the company.

Duty of loyalty is one of those duty. Under this duty, Director must act in best interest of the company. They are require to be loyal and avoid all possible conflicts of interest as director.

This duty imposes number of responsibilities upon them like Keep information confidential, and not disclose or use, any information that they come across as directors.

Duty of loyalty has three main components:

first directors must not taken over corporate opportunities for their own personal gain.

second directors must avoid having a personal interest in transactions between the corporation and another party.

Third is director must keep the corporation's information private.

In this case, Novi as managing director negotiates a contract on behalf of Novus Sdn. Bhd. with Ace Sdn. Bhd. In this negotiation he received a commission of RM300,000 which he did not disclosed to the company. so this shows that he had personal interest in the negotiation where he earns profit or personal gain. he also did not disclose this information to company's other directors which is very important responsibility of an director.so Novi breached his duty as director.