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insist on protection to directors in discharging their duties by including the business
judgment rule is to protect honest directors and also to dissuade them from leaving
the company so that they will continue to use their skills to manage the company. 216
This is consistent with one of the objectives of company legislation which is to
facilitate commerce. The committee did not address specifically the issue of
directors‟ duties in insolvent situations; instead, the emphasis was on the need to
incorporate director‟s common law duties for proper purpose and in good faith in the
interests of the company into the Act. The priority of the committee, it seems, is not
the person who is responsible for the company‟s dire financial state, but on how to
salvage the company. Hence, in the area of corporate insolvency reform, the
committee emphasized the need to have rehabilitation measures in addition to the
provisions in section 176. As such, directors‟ liability in insolvent situations
continued to be governed by section 303(3) and section 304, which are based on the
English 1948 Act.
The influences of English law in Malaysian courts remain steadfast, although the
decisions by English courts are only persuasive and not binding. In addition, English
commercial law will be applicable in Malaysia, provided there is a lacuna in the law
and so long as the law is appropriate to the local circumstances. Section 5(1) of the
Civil Law Act 1956 stipulates that the law in England as at 7 April 1956 is
applicable in all States in Malaysia except for Penang and Malacca. In Sabah,
Sarawak, Penang and Malacca, section 5(2) of the Civil Law Act 1956 allows
continuing reliance on the current English law. Although section 5(2) allows for the
continuing reception of English commercial law in the four states, in practice, judges
seldom refer to the provision in section 5 when making decisions and do not make
distinctions as to where the cases took place.
216 CLRC Clarifying and Reformulating the Directors‟ Role Duties above n213 at [3.18].
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