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It is the right of a director of a company to inspect its accounting and other records is a right existing at common law and is recognised in the Companies Act. Such right is a concomitant of the fiduciary duties of good faith, care, skill and diligence which the director owes to the company, and as such, like other rights and powers, must be exercised for the benefit of the company. Without further delay, let us briefly share the laws in relation to this topic.
The law in relation to this topic
| Who can inspect the company’s accounts and records? | Under section 245:The accounts and records shall be kept at the registered office of the company or at a place the director thinks fit and shall at all times be open for the inspection by the company’s directors. This applies to accounts and records that are kept outside of Malaysia as well- it must be made available for inspection by the company’s directors at all times.Alternatively, the court may order that the accounts and records be opened to inspection by an approved company auditor acting for a director, subject to a written undertaking given to the court that the information acquired by the auditor during the inspection should not be disclosed by him except to that director. |
| Does a director need a reason to justify why he needs to examine the company’s accounts and records? | No. As noted in Dato’ Seri Timor Shah Rafiq v Nautilus Tug & Towage Sdn Bhd, even in a situation where a director is suspicious of the fact that there is something amiss with the company’s account and record, the company need not raise it as a reason to examine it- it is an automatic right conferred by the statute. |
| Does a director need to be a qualified accountant before he can examine the company’s accounts and record? | No. Similar to what was mentioned above, he can seek help from a professional accountant to assist him in examining the company’s accounts and records. As noted in Edman v Ross: “A director is not required to be a skilled accountant, and it is not expected of him that he should keep the books of the company himself. He is entitled to leave the details of management to other officers and he is protected from responsibility if he has no reason for suspecting the integrity and competence of those whom he employs. If, however, for his own information and in order to satisfy himself that things are as they should be, he wishes to inspect matters for himself he is within his rights, and if he can do this and can take copies which he may afterwards submit for the consideration of a skilled accountant there is no reason why he should not employ a proper agent to make the inspection and examination for him.” |
| Does that mean if he is a qualified accountant, he cannot obtain assistance from another accountant to examine the company’s accounts and records? | No. Even if the director is a qualified accountant, the court has noted that it does not by itself disqualify him from obtaining an assistance by another accountant. |
| What happens if a director fails to examine the company’s accounts and records? | He can be subjected to court proceedings and upon conviction, can be liable to a fine not exceeding RM500,000.00 or imprisonment not exceeding three years or both. |
The exception to the law mentioned above
The only time a director is barred from exercising his rights to inspect is when the court suspects that the inspection was done with an ulterior purpose such as with a view to cause detriment to the company and that the director is thus abusing the confidence reposed in him. However, the exception i.e. the ulterior purpose must be against the company. For example, in Welch & Anor v Britannia Industries Pte Ltd, the court noted that an intention to wrest control of the company from another shareholder cannot be regarded as synonymous with an intention to injure the company unless it can be shown that such an inspection will coerce the shareholder to give up control of the company.
Make an appointment with Company Secretary for advice and consultation
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