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Australia and Malaysia have express provisions on the business judgment rule in
their statutes and discussion will only be in relation to these two jurisdictions. 111
Both the Australian and Malaysian statutes establish that the business judgment rule
is only applicable in respect of the duty of reasonable care, skill and diligence under
the Act, common law and in equity. The Australian statute specifically excludes the
applicability of the rule in respect of other directors‟ duties under the Corporations
Act 2001 or any other laws. The same position applies in the Malaysian Companies
Act 1965.
Section 180(2) of the Corporations Act 2001 permits directors who make business
judgment to seek protection against liability as long as:
a) the decisions are made in good faith and for proper purpose; and
b) directors or officers do not have any material personal interest in the subject
matter of the judgment; and
c) directors or officers reasonably believe that they are appropriately informed
about the subject matter; and
d) Directors or officers rationally believe the judgement is in the best interests
of the company.
The Corporate Law Reform Committee (CLRC) of Malaysia suggested the adoption
of the rule in order to prevent situations where the company incurs losses due to
directors‟ and the company‟s hesitation to take up opportunities associated with
111 See section 180(2) of the Australian Corporations Act 2001 and section 132(1B) of the Malaysian
Companies Act 1965. South African and Germany now have their own versions. The South African
Companies Act 2008 which replaces the Companies Act 1973 introduces a business judgment rule
in which a director will have satisfied his or her duties in regard to the matter at hand if he or she
took reasonably diligent steps to become informed about the matter, has no material financial
interest in the matter or had properly disclosed such interest, and made a decision rationally in the
belief that it was in the best interests of the company.
at 29 January 2011. The German Corporate
Governance Code also has the business judgment rule.
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