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case, directors should disclose their interests in the assets to the
company. 77
Directors also breach their duty if they received a bribe or secret commission from a
third party so that the company will act in accordance with the third party‟s wishes. 78
In Simmah Timber Industries Sdn Bhd v David Low See Keat & Ors, 79 the first
defendant, who was the director, and the second defendant entered into a lease-back
agreement with the company. The first defendant had obtained shares in the
company in exchange for transferring the company‟s assets to the second defendant.
As a result of the transfer, the first defendant controlled the company. The first
defendant later entered into a sub-lease agreement with the second defendant in
which payments were to be made to the company. The first defendant, however, took
the payment under the sub-lease and did not account for it to the company. The court
has described the arrangement as a "cleverly planned subterfuge to deplete the
company‟s funds" and found that fraud has been committed on the company by its
director. The court held that the director had breached his duty to the company by
making secret profits. In this case, although it was the company which had been
injured through depletion of its funds, creditors were also affected since it
undermined the company‟s ability to pay its creditors.
Misuse of the company‟s funds is another instance where directors‟ breach of duty
directly affects creditors if it results in the company having difficulty in paying its
creditors. In Paul A Davies (Aust) Pty Ltd v Davies, 80 the directors were found to
have breached their duty by using the company‟s funds for their own purpose. The
directors in the case had decided to venture into a new business due to the economic
downturn. The directors obtained an interest free loan from the company. The
77 See Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378.
78 Mahesan v Malaysian Government Officers Cooperative Housing Society [1978] 1 MLJ 149.
79 [1999] 5 MLJ 421.
80 (1983) 1 ACLC 1091.
205