View/Open - Research Commons - The University of Waikato

The importation of the US concept of rationality into the Australian law and the
difficulty of interpretation may affect the effectiveness of the Malaysian business
judgement rule. This is because the uses of the objective test and reasonableness in
relation to director‟s duty has been long established by both statute and the common
law. Directors are generally protected from liability if the decisions they made
reasonably in the interest of the company. Hence, there is a possibility that directors
will be held liable for decisions which are rational, i.e. which have logical basis but
are not what reasonable directors would have taken. In this situation, the purpose of
introducing the rule will be futile, since for directors the existing laws are sufficient
to cover the reasonable situation.
The requirement that directors should be appropriately informed of the subject matter
will encourage directors to make responsible decisions. The new amendment to the
Act also provides that directors may rely on the reasonable information provided by
a third party in exercising their duty. 123 In doing so, directors must be cautious of the
additional costs that the company may incur and evaluate whether it is worthwhile
since costs are also one of the factors that directors must consider before making
decisions.
The requirement that the decisions must be made in good faith and for a proper
purpose is consistent with the fiduciary duty required from directors. The existence
of this rule is to ensure that the decisions are not made with improper motives such
as to transfer wealth from the company to the directors. Creditors are indirectly
protected since they can be assured that any decisions must be in accordance with the
objectives of the company, which they have knowledge of and approve of before
deciding to advance credit.
Directors are also required to obtain relevant information before any decision is
reached. The availability of relevant information may assist directors to determine
123 See sections 132(1C) and (1D) of the Malaysian Companies Act 1965.
214