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the prospect of success as well as the effects on creditors. If directors are able to
gauge the prospect of success, they may also be able to predict the effect of their
decision on the solvency of the company. The condition that directors must ensure
that the judgement is in the interests of the company can also be a tool to protect
creditors especially when directors are able to predict the success of the project.
The introduction of the business judgment rule into the Malaysian Companies Act
1965 is timely. The courts have been slow in responding to the needs of the business
community and prefer to rely on traditional doctrines instead. Therefore, Parliament
must take appropriate steps to ensure that the needs of the business community are
looked after. As to whether the introduction of the rule will encourage directors to
take more risks, it is too soon to tell but in order to be protected, directors will have
to ensure that the conditions are fulfilled. Directors, therefore, are driven to be
responsible and accountable for their actions.
The effect of the business judgment rule is to provide a safe harbour for directors,
should their decisions turn out to be the wrong. 124 Nevertheless, the business
judgment rule in the statutes to a certain extent provides protection to creditors. This
can be seen from the four conditions that must be fulfilled before directors can avail
themselves of the rule.
9.5 Liability for Civil Wrongs in Torts
It has been settled law that the company will be vicariously liable for torts committed
by its agents and employees as long as they act within the scope of their
employment. 125 Directors are not liable in this circumstance because they are
considered to be the minds and will of the company, which means their actions are
124 Farrar above n35 at 149.
125 Lloyd v Grace, Smith & Co [1912] AC 716.
215