Directors, You Are Personally on the Hook: Deemed Liability Under Section 17A(3)
DIRECTORS’ LIABILITY | SECTION 17A(3) | CORPORATE GOVERNANCE
Directors, You Are Personally on the Hook: Deemed Liability Under Section 17A(3)
Why a bribe paid for your company can put you personally in the dock, who is caught, and what the courts expect from you to stay out of trouble
“But I Didn’t Know Anything About It”
Many people accept a directorship as a favour to a friend, a family member or a business partner. They sign the forms, attend the occasional meeting and leave the running of the company to others. Some are directors in name only and never ask questions.
Under Malaysia’s anti-corruption law, that approach can be dangerous. If the company is found to have committed a corruption offence under Section 17A of the Malaysian Anti-Corruption Commission Act 2009 (“MACC Act”), the law presumes that the people at the top committed the same offence. Saying “I didn’t know” is not, by itself, a defence.
This article explains how the deemed liability provision in Section 17A(3) works, who it catches, and what directors and managers must do to protect themselves, using real Malaysian court decisions on similar provisions.
First, a Quick Recap: The Company’s Liability
Section 17A came into force on 1 June 2020. It makes a “commercial organisation”, such as a company or partnership, guilty of an offence if a person associated with it, including a director, employee, agent or contractor, corruptly gives or offers a bribe to obtain or retain business, or a business advantage, for the organisation. The company’s only defence is to prove that it had adequate procedures to prevent bribery.
Section 17A(3) then takes things a step further by reaching past the company to the people who run it.
Doesn’t the Company Protect Its Directors?
Normally, yes. One of the biggest advantages of running a business through a company is limited liability. A company is a separate legal person, distinct from its shareholders and directors, a principle traced back to the classic English case of Salomon v A Salomon & Co Ltd. This allows people to take business risks without putting their personal assets at stake.
In Yap Sing Hock & Anor v Public Prosecutor [1992] 2 MLJ 714, the Supreme Court confirmed that this principle of separate legal personality applies in criminal cases as well. The court even held that a person who owns all the shares in a company can still commit an offence against the company’s own property, because the company is a separate victim. So ordinarily, the people at the helm of a company are not automatically liable for offences committed by the company.
Section 17A(3) is a clear exception to that general rule.
What Does Section 17A(3) Say?
When a commercial organisation commits an offence under Section 17A, a person is deemed to have committed the same offence if, at the time of the offence, he was:
- a director, controller, officer or partner of the organisation (the first limb), or
- a person concerned in the management of its affairs (the second limb).
Falling within either limb is enough. Like the company’s own offence, this is strict liability. The prosecution only needs to prove two things:
- that the company committed the Section 17A offence, and
- that the person held one of the listed positions, or was concerned in management, at that time.
Actual knowledge of the bribe is not required for a conviction. The deemed person is exposed to the same offence as the company, which under Section 17A carries a fine of at least ten times the value of the bribe or RM1 million, whichever is higher, or imprisonment of up to 20 years, or both.
Stricter than the UK Section 17A was modelled on the UK Bribery Act 2010, but on this point Malaysia went further. Under section 14 of the UK Act, a senior officer is liable only if the prosecution proves that the offence was committed with his consent or connivance. Under Section 17A(3), the burden is reversed. It is the individual who must prove that he did not consent or connive. This places a much higher level of accountability on top management in Malaysia. |
Who Is Caught? The First Limb
The first limb is objective. If you were listed as a director, controller, officer or partner when the company committed the offence, you are deemed to have committed it too.
At first glance, this is extremely wide. Both the Penal Code and the Companies Act 2016 define “officer” to include any director, secretary or employee of the company, as well as certain receivers, managers and liquidators. Read strictly, any employee could be deemed liable once the company is found guilty.
Will every employee really be charged?
Probably not. The purpose of Section 17A(3) is to make top management accountable and to push them to build a corruption-free culture. The book on which this article is based suggests that liability should fall on those in a position to manage the company’s affairs, implement policies and shape its culture, not on every member of staff.
In practice, charges are far more likely to be brought against those who were involved in or masterminded the bribery, or at least showed that they acquiesced in it. However, the decision on whom to charge rests entirely with the Public Prosecutor.
Not auditors and other outside agents
The deeming provision applies to people within the organisation. In Yue Chi Kin v Public Prosecutor [2020] 11 MLJ 758, an external auditor was convicted of abetting a listed company in submitting a misleading annual report. The High Court set aside the conviction and noted, among other things, that the similar deeming provision in the Securities Industry Act 1983 covered directors and officers of the company, but not agents such as auditors. The trial court had wrongly applied it to him.
Who Is Caught? The Second Limb
The second limb covers anyone “concerned in the management” of the organisation’s affairs. This is a question of what the person actually does, not his title. A person does not even need to be formally part of the company to fall within it.
The phrase has not yet been tested under the MACC Act. However, in Leopad Holdings Sdn Bhd v Asian Shield Warehousing Sdn Bhd and another appeal [2021] 2 MLJ 424, a case about the restrictions on bankrupts, the Court of Appeal adopted an Australian explanation of what “taking part in the management” of a company means. It covers activities involving responsibility and participation in decision-making, but not routine clerical or administrative work. The court also noted that the frequency of involvement matters, and that a single, isolated act may not be enough.
On this basis, the second limb is likely to cover:
- shadow directors, meaning people whose directions or instructions the directors are accustomed to follow, and
- senior managers such as chief financial officers, chief operating officers and chief information officers.
Employees who simply carry out policies decided by management, without taking part in decision-making, are unlikely to be prosecuted.
Case Spotlight: Datuk Sahar bin Arpan v Public Prosecutor [2007] 1 MLJ 697 (Court of Appeal) The facts: Datuk Sahar, a member of the Melaka State Executive Council, bought a shelf company, Ivory Heights Sdn Bhd, for RM2,300. He appointed people of his choosing as directors and shareholders, handled its applications for state land and kept its file, documents and rubber stamp at his house. He then took part in three Executive Council meetings that approved the company’s applications, without declaring his interest. RM500,000 from the later sale of shares in the company ended up in his and his wife’s Tabung Haji accounts. The decision: The Court of Appeal upheld his conviction for corrupt practice and his sentence of two years’ imprisonment and a fine of RM20,000 on each charge. Although he was not a director on paper, the court found that he was the company’s directing mind and will and its shadow director. The formal directors simply acted on his instructions, like puppets whose strings he pulled. Why it matters: This was not a Section 17A case, but it shows that the courts look at who really controls a company, not whose names appear on the company records. Someone who runs a company from behind the scenes cannot hide behind nominee directors. |
Does the Company Have to Be Charged First?
Not necessarily. The courts have considered this under similar deeming provisions in other laws:
- In Timbalan Pendakwa Raya lwn Tay High Kuan dan satu lagi [2009] 8 MLJ 724, the managing director and operations manager of a beer exporting company were acquitted of attempting to evade customs duty. There was no evidence linking them to the offence apart from their positions. The High Court also remarked that the company should at least have been charged first, or together with them.
- However, in the later case of Dato’ Dr Haji Mohd Adam Che Harun v Public Prosecutor [2019] MLJU 2146, the High Court held that the company does not need to be charged or convicted. What matters is that the prosecution proves that the company committed the offence. It is up to the Public Prosecutor to decide whether to charge the company, a responsible director, or both. The Sessions Court in that case treated the remark in Tay High Kuan as merely advisory.
In other words, a director may find himself in court even if the company itself is never charged.
Is This Fair? What the Federal Court Said
Case Spotlight: Public Prosecutor v Gan Boon Aun [2017] 3 MLJ 12 (Federal Court) The facts: Gan Boon Aun, the founder and former chief executive of Transmile Group Bhd, was charged over a misleading statement in Transmile’s quarterly report for the financial year ended 31 December 2006, furnished to Bursa Malaysia. According to the Securities Commission, Transmile’s revenue had been inflated through fictitious sales between its subsidiary and 20 purported customers. The alternative charge relied on section 122(1) of the Securities Industry Act 1983, which deemed directors to have committed the company’s offence unless they proved that it was committed without their consent or connivance and that they had exercised due diligence. That provision is very similar to Section 17A(3). The argument: Gan argued that the provision was unconstitutional because it took away the presumption of innocence and allowed Parliament to decide guilt instead of the courts. The decision: The Federal Court unanimously held that the provision was constitutional. Its key reasons were:
What happened next: According to the book, Gan was convicted on 27 August 2020, fined RM2.5 million and jailed for one day. On 25 January 2022, the High Court increased his prison term to two years. |
Your Defence: Two Things You Must Prove
Once the prosecution proves that the company committed the offence and that you held a relevant position, you will be convicted unless you prove both of the following:
- the offence was committed without your consent or connivance, and
- you exercised the due diligence you ought to have exercised to prevent it, bearing in mind the nature of your role and all the circumstances.
You must prove these on a balance of probabilities, which is a lower standard than proof beyond reasonable doubt. In Pillay v Public Prosecutor [1965] 1 MLJ 35, the High Court described this burden as a comparatively light one. Even so, it is a burden that must be discharged with real evidence.
Element 1: No consent or connivance
If you genuinely had no knowledge of the bribe, this element is likely to be satisfied. But lack of knowledge cannot be wilful ignorance of the company’s affairs, especially for a director.
Case Spotlight: Azmi bin Sulaiman v Public Prosecutor [2016] MLJU 1347 (High Court) The facts: Azmi was a director of Eternal Light Property Sdn Bhd, a housing developer in Air Itam, Penang. The houses were delivered late, and in December 2008 the Housing Tribunal ordered the company to pay damages to several purchasers. The company never paid, and it was later wound up. Azmi was charged under a deeming provision in the Housing Development (Control and Licensing) Act 1966 that is similar to Section 17A(3). His defence: Azmi claimed that he was not aware he was a director and did not know he had signed documents relating to his directorship. The decision: The court rejected this as a bare denial and wilful blindness. A person who accepts a directorship takes on duties under statute and the common law and is taken to have agreed to carry them out carefully and honestly. A director cannot escape by calling himself a sleeping, silent or non-executive director. If he never intended to perform the duties, he should not have accepted the appointment. His conviction and the minimum sentence of one year’s imprisonment on each of the four charges were upheld, and his request to be released on a good behaviour bond was refused. The lesson: Doing nothing is not a defence. A director who stays oblivious and takes no steps to find out about or prevent wrongdoing, even wrongdoing by others with influence over the company, cannot rely on his own ignorance. |
Where you did know about the wrongdoing, merely not agreeing with it privately is not enough. You must show that you actively opposed it.
Case Spotlight: The Megan Media Case (Mohd Adam Che Harun) The facts: Dato’ Dr Haji Mohd Adam Che Harun was the executive chairman and a director of Megan Media Holdings Berhad, a listed company. After the managing director left in late 2006, he became its top executive. On 30 March 2007, the company submitted its third quarter results to Bursa Malaysia, showing revenue of about RM306 million. Of this, about RM227 million came from 227 fictitious invoices for sales that never happened. The results were approved by a board meeting that he chaired. The evidence against him: The financial controller testified that when others proposed reporting a loss for the quarter, the chairman disagreed and wanted the company to report a profit. There was also evidence that he told staff to hide the true financial position from an incoming vice president, and that he signed a letter to a bank that concealed the truth about fictitious financing. He held an accounting degree and a PhD on the Malaysian stock exchange, and had sold about 7.7 million shares in the company in 2006. What the courts said about the defence:
The outcome: The Sessions Court sentenced him in 2017 to 18 months’ imprisonment and a fine of RM300,000. On appeal in 2019, the High Court upheld the conviction but reduced the prison term to six months, taking into account his age of 76, his health and the fact that his personal assistant, who had pleaded guilty, received only a fine. The fine of RM300,000 was maintained. Other points from the High Court: The company itself did not need to be charged, and the prosecution was entitled to charge only the chairman rather than the entire board. |
The book also points out that doing nothing despite knowing about a bribe is likely to amount to connivance. According to the UK Law Commission, connivance is wider than taking part in a crime. A person can connive by knowing that a corrupt act may happen, or that there is a risk of it, and then doing nothing to stop it.
Element 2: Due diligence
Unlike companies, which have the Government’s Guidelines on Adequate Procedures, there are no specific guidelines on what due diligence means for individual directors and managers. In practice:
- Taking steps to make the company comply with the Guidelines on Adequate Procedures, built around the T.R.U.S.T. principles, is the most practical way for top management to show due diligence.
- If the company is convicted, its own adequate procedures defence has already failed. A director may then need to show the concrete steps he personally took to push for the procedures to be put in place, even if they were not fully implemented. The standard expected of individuals is likely to be lower than that expected of the company.
- The standard depends on your role. Directors and senior executives who can control the whole organisation are expected to do more. Lower-level staff are judged only on matters within their own responsibilities.
Case Spotlight: Pillay v Public Prosecutor [1965] 1 MLJ 35 (High Court) The facts: Pillay was the Ipoh branch manager of Century Motors Ltd, a small subsidiary of Borneo Motors Ltd. The company failed to pay an employee’s provident fund contribution of $11 for one month. Instead of charging the company, the authorities charged Pillay as manager under a deeming provision similar to Section 17A(3). He was convicted and fined $100. The decision: The High Court quashed the conviction. The evidence showed that Pillay dealt only with sales. Salaries, personnel matters and provident fund payments were handled entirely by the parent company. He could not be said to have failed in diligence over a task that was never his to perform. The judge added that singling out an officer for punishment when he was not personally at fault offends the moral conscience, and that justice in such cases is achieved by charging the company. The lesson: The law does not expect every officer to answer for everything the company does. Each person is judged by the responsibilities of his own role. |
What Have Courts Imposed in Similar Cases?
There had been no charge against an individual under Section 17A at the time the book was written. The sentences below come from cases under other laws with similar deeming or corruption provisions, and they give a sense of how seriously the courts treat these matters:
Case | Role | Outcome |
|---|---|---|
Gan Boon Aun (Transmile) | Founder and former chief executive | Fined RM2.5 million and jailed one day in 2020, increased to two years’ jail by the High Court in 2022 |
Mohd Adam Che Harun (Megan Media) | Executive chairman and director | 18 months’ jail and RM300,000 fine, reduced on appeal to six months’ jail with the fine maintained |
Azmi bin Sulaiman (Eternal Light Property) | Director who claimed he did not know he was one | One year’s jail on each of four charges, the minimum sentence, upheld |
Datuk Sahar bin Arpan (Ivory Heights) | Shadow director and state executive councillor | Two years’ jail and RM20,000 fine on each charge, upheld |
Practical Checklist for Directors and Senior Managers
- Know what you are signing up for. Do not accept a directorship as a mere favour. If you are not prepared to carry out the duties, do not take the role.
- Stay informed. Read board papers, ask questions and understand the company’s key risks, especially dealings with government, agents and major contracts.
- Push for adequate procedures. Make sure the company has an anti-corruption policy, risk assessments, due diligence on business partners, reporting channels and training, in line with the T.R.U.S.T. principles.
- Record your objections. If you disagree with a decision that may involve wrongdoing, make sure your objection is clearly minuted. Silence at a board meeting may be treated as approval.
- Act early, not after the scandal. Raise concerns internally and, where appropriate, report to the authorities as soon as you become aware of wrongdoing. Reports made only after a matter becomes public may be seen as an afterthought.
- Keep a paper trail. Retain emails, memos and minutes showing the steps you personally took to prevent corruption. These may be your most important evidence.
- Be clear about your role. Make sure your responsibilities are properly defined. As Pillay shows, you are judged by what you were responsible for.
- Watch out for shadow control. If you give instructions that the board routinely follows, you may be treated as a director even if you are not one on paper.
Conclusion
Section 17A(3) sends a clear message: the people who run a company cannot shelter behind it when it commits a corruption offence. The law presumes that they are responsible, and it is up to them to prove otherwise. The Federal Court in Gan Boon Aun has confirmed that this approach is fair and constitutional.
The good news is that the defence is real and achievable for those who genuinely do their job. Directors and managers who stay informed, insist on proper anti-corruption procedures, speak up and put their objections on record are in the best position to protect themselves. Those who sign on the dotted line and look the other way are the ones most at risk.
Cases Referred To
- Public Prosecutor v Gan Boon Aun [2017] 3 MLJ 12 (Federal Court)
- Dato’ Dr Hj Mohd Adam Che Harun v Public Prosecutor [2019] MLJU 2146 (High Court)
- Public Prosecutor v Datuk Dr Mohd Adam Che Harun [2017] MLJU 2442 (Sessions Court)
- Azmi bin Sulaiman v Public Prosecutor [2016] MLJU 1347 (High Court)
- Pillay v Public Prosecutor [1965] 1 MLJ 35 (High Court)
- Timbalan Pendakwa Raya lwn Tay High Kuan dan satu lagi [2009] 8 MLJ 724 (High Court)
- Yue Chi Kin v Public Prosecutor [2020] 11 MLJ 758 (High Court)
- Leopad Holdings Sdn Bhd v Asian Shield Warehousing Sdn Bhd and another appeal [2021] 2 MLJ 424 (Court of Appeal)
- Datuk Sahar bin Arpan v Public Prosecutor [2007] 1 MLJ 697 (Court of Appeal)
- Yap Sing Hock & Anor v Public Prosecutor [1992] 2 MLJ 714 (Supreme Court)
- Salomon v A Salomon & Co Ltd [1897] AC 22 (House of Lords)
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