Director Interest

Director’s interest refers to any direct or indirect stake a director holds in a contract or proposed contract with the company. Under Section 221 of the Companies Act 2016, directors are legally obligated to disclose such interests to the board of directors. This disclosure must be made as soon as practicable after the director becomes aware of the interest, ensuring transparency and avoiding conflicts of interest in the company’s decision-making processes.

Importance of Directors’ interest in Shares

A person shall be deemed to have interest in a share where a body corporate has an interest in a share:

• The body corporate is, or its directors are accustomed, or is under obligation, whether formal or informal, to act in accordance with the directions, instructions, or wishes of that person in relation to that share.
• That person has a control interest in the body corporate
• That person or his associates, or that person and his associates are entitled to exercise or control exercise of not less than 20% of the votes attached to the voting shares in the body corporate.

Direct Interest

The director holds shares in it that entity, and personally have ownership stake in the contract or proposed contract

Indirect Interest

• By virtue of shares held by companies in which the director has interest
• An interest is deemed to exist where a person holds shares in a body corporate indirectly through one or more intermediary corporate entities.

Director Shareholdings Rule

Under Section 59 of the Companies Act 2016 (which replaces Section 134 of the repealed 1965 Act), every company is required to maintain a register of its directors’ shareholdings. This register must include details of any shares in the company—or in any related corporation—in which a director has an interest, along with the nature and extent of that interest

Penalty for Non-compliance

In accordance with Section 59(5) of the Companies Act 2016, a director who fails to notify the company of their shareholding interest commits an offence and is liable, on conviction, to a fine not exceeding RM50,000. Additionally, if the company fails to maintain the register of directors’ shareholdings or refuses to allow inspection, it may also be in breach of the Act and subject to penalties under the general provisions.