If the company director has to leave for some reason and such resignation or termination occurred, it must not have an impact on the required number of directors, according to Malaysian Companies Act. Depending on the type of business, you might need to have someone step in to take over first. Finding the ideal candidate for the position can take some time, which is not always simple. Additionally, the legal criteria will still need to be met.
It is common for ‘nominee’ directors to be selected to subsidiary businesses within large global corporate groups. This could be a local representative individual or a senior parent company employee who serves as a director of each group company.
Refer to our guide on Nominee directors in Malaysia for more information about the process of appointing a nominee director.
CHALLENGES AND ESSENTIALS OF NOMINEE DIRECTORS IN MALAYSIA
Commercial Exchanges
This refers to an incorrect distribution of money or transactions. A general rule would be that such trades are used for the company and not for the nominee director’s expenditure or benefit, depending on the type of organization and situation. It can be viewed as resource abuse.
Company Bankruptcy
When the company is insolvent, the nominee director will also have difficulties. His or her decisions regarding who to give priority to—the business or the creditor—might not be as simple. In this situation, a conflict of interest is similarly inappropriate.
Confidential Information
It is considered leaking private information when a nominated director withholds information, particularly when it relates to his or her dual loyalty outside of the organization. Some of them might not be harmful, but others might end up being harmful to the business and a breach of duty. This also holds true for the misuse of knowledge acquired through employment.
Legal Compliance
It is crucial to make sure that all applicable laws, regulations, and corporate governance guidelines are followed. The nominee directors must be aware of their responsibilities and ensure that the company operates legally.
Resignation and Transition
A nominee director may be required to resign from their post if their relationship with the shareholder who selected them changes or if they run into ethical issues, which could result in changes to the composition of the board.
Accountability
The decisions and actions of nominee directors are their own responsibility. If they make decisions that damage the company, they might be held personally liable for any losses the company suffers.
Lack of expertise
Nominee directors might not have what it takes to make informed decisions on certain matters. This could make it more difficult for the board to discuss and make decisions effectively.
Risk of Misalignment
There is a possibility that the nominee who is appointed won’t have priorities and objectives that line up with the company’s long-term objectives. Decisions that are best for the shareholder but not always for the company may result from this imbalance.
Transparency
The board must communicate effectively and transparently. If nominee directors are unable to effectively convey or explain their affiliations and potential conflicts of interest, it may harm the trust of other board members and stakeholders.
Reach out to us at Relin Consultants – Leading Global Business Set Up Partners for further assistance with appointing a nominee director in Malaysia.
