I read the news on the Companies Commission of Malaysia charging NWP Holdings Bhd for its failure to obtain shareholders’ approval for directors’ fees. This failure was for two financial years of 2017 and 2018. This charge relates to section 230 of the Companies Act 2016 (CA 2016), being a new provision requiring shareholders in a general meeting to approve the fees of the directors. Essentially, the shareholders having a say on the directors’ pay. This is the first reported prosecution involving this section.
Update: Interestingly, NWP Holdings had eventually obtained shareholders’ approval in 2020 to approve these directors’ fees. You can see the Notice of Meeting for an EGM and the outcome of the meeting of 17 December 2020 where the shareholders approved the directors’ fees.
Under the law, for all public companies, section 230(1) of the CA 2016 requires that all fees of the directors, and any benefits payable to the directors, must be approved by the shareholders at a general meeting.
Section 230(6) of the CA 2016 goes on to say that a company that contravenes section 230(1) commits an offence and shall, on conviction, be liable to a fine not exceeding RM3 million. Any payment in contravention of section 230(1) shall constitute a debt due by the director fo the company.
Historically, the previous Companies Act 1965 (CA 1965) did not have such a provision. It was common then to have the Articles of Association of the company to provide that the shareholders in a general meeting would have the right to determine the remuneration of the directors.
The Corporate Law Reform Committee (CLRC) analysed whether there should be a codification of the shareholders having a say on the directors’ remuneration. There would be a conflict of interest for the directors to solely determine their own remuneration. Looking at the legal positions in Australia, Singapore, New Zealand and the UK, the CLRC made the recommendation that directors’ remuneration should be made subject to shareholders’ approval. This would promote greater transparency which in turn will promote accountability of directors.
The CA 2016 then incorporated this recommendation through section 230 of the CA 2016. We have seen the effect of this accountability in the directors’ remuneration for FGV Holdings Bhd in 2019. It was then described as an unprecedented move when the shareholders of FGV Holdings initially rejected the directors’ remuneration in the AGM in June 2019. The issue was only resolved at an EGM in November 2019 where the shareholders agreed to the reduced remuneration.
Back in 2018, I had also written an article on Say on Pay: 6 Issues on Shareholders’ Say on Executive Salaries.