App 4A - Conflict of Interest
Molek Bhd is a company involved in manufacturing and selling beauty products made from
natural organic ingredients under the brand ErbanDK. Eve is one of its directors.
In August 2019, Eve decided not to seek re-election to the board at the next annual general
meeting in December 2019 as she was increasingly dissatisfied with the way the company is
managed. She informed the board of her decision.
Eve was approached by the founder of a reputable European natural health supplement
product, Ms Ell, who wants to expand the company’s business in the region. During her
discussion with the company in July 2019, Ms Ell offered to appoint Eve as the sole
distributor. Eve immediately agreed and made plans to set up her own business prior to the
expiry of her term as director by incorporating a company, DeCay Sdn Bhd.
In May 2019, Eve attended a trade expo in Germany on behalf of ErbanDK. Eve came across
a business owned by Rapunzel which produced organic skin care and hair care products. She
negotiated with Rapunzel to give ErbanDK exclusive distribution rights in Malaysia.
However, at a board meeting of ErbanDK in July 2019, the majority of the board of ErbanDK
was not interested in the products as they believed that their current products were far
superior, with Eve dissenting. Subsequently, in August 2019, Rapunzel offered the business
to Eve. Eve has agreed but they agreed that the business will commence after the AGM. She
distributed the products from January 2020 onward,
During this time, Molek Bhd also signed a contract with a UK-based private company.
Unknown to Eve, one of the UK company’s shareholders, was her stepson, who resided in the
UK for the last 15 years. Eve's stepson's investment in the UK company was discovered only
when the UK company breached the contract. Eve did not have any personal or business
contact with her stepson for the past 15 years.
Advise Eve of what she can and must do to avoid any allegation or liability, if any, of
breach of duty to avoid conflict of interest owed to Molek Sdn Bhd
, Eve was approached by the founder of a reputable European natural health supplement
product, Ms Ell, who wants to expand the company’s business in the region. During her
discussion with the company in July 2019, Ms Ell offered to appoint Eve as the sole
distributor. Eve immediately agreed and made plans to set up her own business prior to the
expiry of her term as director by incorporating a company, DeCay Sdn Bhd.
Whether Eve breached her duty to avoid conflict of interest by incorporating a company,
Decay Sdn Bhd prior to expiry of her term as director?
● Engaging in a competing business
● S.218(1)(e) - prohibits a director from “engaging” in business which is “in
competition” with the company, to gain directly or indirectly, a benefit for himself or
any other person, or cause detriment to the company.
○ Engaging = the director must be taking part or be involved in a business which
competes with the company’s business
○ In competition = the business must be in the same line of business or
substantially similar business
● (is the business in competition or not?)
● Aberdeen Railway Co
○ Issue: whether a director of a company is or not precluded from dealing on
behalf of the company himself or with a firm in which he is a partner
○ Held: A director cannot approve on behalf of the company any transactions
which involves himself as a contracting party.
● Scintronix Corp Ltd
○ Facts: Scintronix alleged that there was a competing business with Ho as both
are involved in the plastic industry and has the same clients
○ Held: There is NO competing business due to the general description of the
plastic industry as they could have the same clients but supply different
products.
● APPLICATION
○ ErbanDK manufactures and sells beauty products made from natural organic
ingredients.
○ ON THE OTHER HAND, Decay Sdn Bhd deals with natural health
supplement product business.
○ → Although the products may be a little bit different as ErbanDk deals with
beauty products and Decay Sdn Bhd deals with natural health supplement,
BUT BOTH products are similar as both are beauty products made from
natural organic ingredients. HENCE, they may have the same customers.
○ THUS, there is actual competition as both business are similar.
,● (What can Eve do to avoid any future liability?)
● Since, it is a competing business,
○ Eve is required to get consent under S.218(1)(e) and must disclose her
directorship under S.221(6).
● S. 218 (1) - must get consent or ratification of a general meeting
● S. 221(6) - Requirement of disclosure of another directorship
○ Must disclose multiple directorship
● S. 221(1) - must AS SOON AS practicable after the relevant facts have come to the
director’s knowledge, declare the nature of his interest at a MEETING OF THE
BOARD of directors.
● British Midland
○ Held: Director who wishes to engage in a competing business and not disclose
his intentions to the company ought to resign his office
● Kea Holdings
○ Held: No breach of fiduciary duties by conflict of interest for holding 2
directorship once it is disclosed and approved
● APPLICATION
○ Taking into consideration that the business is a competing business, Eve must
get the consent or ratification from the general meeting in order to proceed
with the business under section 218(1).
○ Furthermore, she must disclose her directorship to the general meeting as
provided under section 221(6).
○ By applying S. 221(1), she must disclose/inform the nature of her interest at
the board’s meeting.
■ (if it is public company, must refrain from voting and participating)
■ (consent under 218, under 221 is disclosure sahaja + public company
je yg takleh vote and participate)
■ (must prove element of prohibited conduct dulu, baru boleh proceed ke
issue of consent)
, In May 2019, Eve attended a trade expo in Germany on behalf of ErbanDK. Eve came
across a business owned by Rapunzel which produced organic skin care and hair care
products. She negotiated with Rapunzel to give ErbanDK exclusive distribution rights in
Malaysia. However, at a board meeting of ErbanDK in July 2019, the majority of the board
of ErbanDK was not interested in the products as they believed that their current products
were far superior, with Eve dissenting. Subsequently, in August 2019, Rapunzel offered the
business to Eve. Eve has agreed but they agreed that the business will commence after the
AGM. She distributed the products from January 2020 onward,
Whether Eve had breached a duty to avoid conflict of interest by diverting corporate
opportunity of the company when she agreed to the offer made by Rapunzel?
● Diversion of corporate opportunity
● S. 218(1)(d) - prohibition of director to use any opportunity of the company which he
is aware of, in the performance of his functions as director, WITHOUT consent or
ratification of general meeting
● 2 test:
1) “Maturing business opportunity” test
- The company is actively seeking the business
- → proving that the company is actually in the midst of negotiation and
the director diverted it.
2) “Current line of business” test
- The newly found business is something that the company might
reasonably be interested in, given the company’s current line of
business
● 1) “Maturing business opportunity” test
● NOTES:
○ Fooster
○ Kenapa in this case no maturing business opportunity?
○ How does the court defined the maturing business opportunity? How does it
established?
○ Actively seeking to maksudnya apa?
○ S. 218(1)(d) - must prove that the opportunity is belongs to the company
○ Better case - Cooks v Deeks - bc it is in the midst of negotiation
● Cooks v Deeks
○ The court held that there was diversion of maturing business opportunity made
by the directors.
○ In this case, the directors had negotiated on the construction of a new railway
with another company by stating that they were acting on behalf of the
Molek Bhd is a company involved in manufacturing and selling beauty products made from
natural organic ingredients under the brand ErbanDK. Eve is one of its directors.
In August 2019, Eve decided not to seek re-election to the board at the next annual general
meeting in December 2019 as she was increasingly dissatisfied with the way the company is
managed. She informed the board of her decision.
Eve was approached by the founder of a reputable European natural health supplement
product, Ms Ell, who wants to expand the company’s business in the region. During her
discussion with the company in July 2019, Ms Ell offered to appoint Eve as the sole
distributor. Eve immediately agreed and made plans to set up her own business prior to the
expiry of her term as director by incorporating a company, DeCay Sdn Bhd.
In May 2019, Eve attended a trade expo in Germany on behalf of ErbanDK. Eve came across
a business owned by Rapunzel which produced organic skin care and hair care products. She
negotiated with Rapunzel to give ErbanDK exclusive distribution rights in Malaysia.
However, at a board meeting of ErbanDK in July 2019, the majority of the board of ErbanDK
was not interested in the products as they believed that their current products were far
superior, with Eve dissenting. Subsequently, in August 2019, Rapunzel offered the business
to Eve. Eve has agreed but they agreed that the business will commence after the AGM. She
distributed the products from January 2020 onward,
During this time, Molek Bhd also signed a contract with a UK-based private company.
Unknown to Eve, one of the UK company’s shareholders, was her stepson, who resided in the
UK for the last 15 years. Eve's stepson's investment in the UK company was discovered only
when the UK company breached the contract. Eve did not have any personal or business
contact with her stepson for the past 15 years.
Advise Eve of what she can and must do to avoid any allegation or liability, if any, of
breach of duty to avoid conflict of interest owed to Molek Sdn Bhd
, Eve was approached by the founder of a reputable European natural health supplement
product, Ms Ell, who wants to expand the company’s business in the region. During her
discussion with the company in July 2019, Ms Ell offered to appoint Eve as the sole
distributor. Eve immediately agreed and made plans to set up her own business prior to the
expiry of her term as director by incorporating a company, DeCay Sdn Bhd.
Whether Eve breached her duty to avoid conflict of interest by incorporating a company,
Decay Sdn Bhd prior to expiry of her term as director?
● Engaging in a competing business
● S.218(1)(e) - prohibits a director from “engaging” in business which is “in
competition” with the company, to gain directly or indirectly, a benefit for himself or
any other person, or cause detriment to the company.
○ Engaging = the director must be taking part or be involved in a business which
competes with the company’s business
○ In competition = the business must be in the same line of business or
substantially similar business
● (is the business in competition or not?)
● Aberdeen Railway Co
○ Issue: whether a director of a company is or not precluded from dealing on
behalf of the company himself or with a firm in which he is a partner
○ Held: A director cannot approve on behalf of the company any transactions
which involves himself as a contracting party.
● Scintronix Corp Ltd
○ Facts: Scintronix alleged that there was a competing business with Ho as both
are involved in the plastic industry and has the same clients
○ Held: There is NO competing business due to the general description of the
plastic industry as they could have the same clients but supply different
products.
● APPLICATION
○ ErbanDK manufactures and sells beauty products made from natural organic
ingredients.
○ ON THE OTHER HAND, Decay Sdn Bhd deals with natural health
supplement product business.
○ → Although the products may be a little bit different as ErbanDk deals with
beauty products and Decay Sdn Bhd deals with natural health supplement,
BUT BOTH products are similar as both are beauty products made from
natural organic ingredients. HENCE, they may have the same customers.
○ THUS, there is actual competition as both business are similar.
,● (What can Eve do to avoid any future liability?)
● Since, it is a competing business,
○ Eve is required to get consent under S.218(1)(e) and must disclose her
directorship under S.221(6).
● S. 218 (1) - must get consent or ratification of a general meeting
● S. 221(6) - Requirement of disclosure of another directorship
○ Must disclose multiple directorship
● S. 221(1) - must AS SOON AS practicable after the relevant facts have come to the
director’s knowledge, declare the nature of his interest at a MEETING OF THE
BOARD of directors.
● British Midland
○ Held: Director who wishes to engage in a competing business and not disclose
his intentions to the company ought to resign his office
● Kea Holdings
○ Held: No breach of fiduciary duties by conflict of interest for holding 2
directorship once it is disclosed and approved
● APPLICATION
○ Taking into consideration that the business is a competing business, Eve must
get the consent or ratification from the general meeting in order to proceed
with the business under section 218(1).
○ Furthermore, she must disclose her directorship to the general meeting as
provided under section 221(6).
○ By applying S. 221(1), she must disclose/inform the nature of her interest at
the board’s meeting.
■ (if it is public company, must refrain from voting and participating)
■ (consent under 218, under 221 is disclosure sahaja + public company
je yg takleh vote and participate)
■ (must prove element of prohibited conduct dulu, baru boleh proceed ke
issue of consent)
, In May 2019, Eve attended a trade expo in Germany on behalf of ErbanDK. Eve came
across a business owned by Rapunzel which produced organic skin care and hair care
products. She negotiated with Rapunzel to give ErbanDK exclusive distribution rights in
Malaysia. However, at a board meeting of ErbanDK in July 2019, the majority of the board
of ErbanDK was not interested in the products as they believed that their current products
were far superior, with Eve dissenting. Subsequently, in August 2019, Rapunzel offered the
business to Eve. Eve has agreed but they agreed that the business will commence after the
AGM. She distributed the products from January 2020 onward,
Whether Eve had breached a duty to avoid conflict of interest by diverting corporate
opportunity of the company when she agreed to the offer made by Rapunzel?
● Diversion of corporate opportunity
● S. 218(1)(d) - prohibition of director to use any opportunity of the company which he
is aware of, in the performance of his functions as director, WITHOUT consent or
ratification of general meeting
● 2 test:
1) “Maturing business opportunity” test
- The company is actively seeking the business
- → proving that the company is actually in the midst of negotiation and
the director diverted it.
2) “Current line of business” test
- The newly found business is something that the company might
reasonably be interested in, given the company’s current line of
business
● 1) “Maturing business opportunity” test
● NOTES:
○ Fooster
○ Kenapa in this case no maturing business opportunity?
○ How does the court defined the maturing business opportunity? How does it
established?
○ Actively seeking to maksudnya apa?
○ S. 218(1)(d) - must prove that the opportunity is belongs to the company
○ Better case - Cooks v Deeks - bc it is in the midst of negotiation
● Cooks v Deeks
○ The court held that there was diversion of maturing business opportunity made
by the directors.
○ In this case, the directors had negotiated on the construction of a new railway
with another company by stating that they were acting on behalf of the
