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10.6 Duty of Directors under Malaysian Law
10.6.1 Introduction
The fraudulent trading provision in Malaysia is stated in section 304(1) of the
Companies Act 1965 and is inherited from section 332 of the UK Companies Act
1948. The English version of fraudulent trading continues to exist in its current
form in section 213 of the Insolvency Act 1986 for civil liability, and section 993
of the Companies Act 2006 for its criminal liability. Since the provision was
enacted following the old law, any defects of the old law which prompted the UK
to amend its legislation remain in section 304(1).
Although the UK has two separate sections on fraudulent trading, there is only
one section which deals with both civil and criminal liability in the Malaysian
Companies Act 1965. One of the drawbacks of having both criminal and civil
liability in one provision is the tendency of the court to apply the higher criminal
standard, resulting in a small number of cases being brought to the court. In its
report, the Cork Committee recommended that the fraudulent trading provision
should maintain its criminal liability and a new civil provision be introduced in
the form of wrongful trading in section 214.
However, when the Insolvency Act 1986 was enacted, the civil aspect of
fraudulent trading was maintained in section 213. Due to the similarities in the
wording of the provisions, the Malaysian courts have since referred to the English
cases under section 213 in interpreting the elements of section 304(1). 272 The
Singaporean provisions on fraudulent and insolvent trading will also be compared
because they are exactly the same as Malaysia. The Singaporean Companies
1967 adopted an Act similar to the Malaysian Companies Act 1965 after its
separation from Malaysia in 1965. Since them various changes have been made
to the Singaporean Act.
272 It should be noted that the elements of fraudulent trading in section 993 of the UK Companies
Act 2006 are similar to section 213 of the UK Insolvency Act 1986.
294