In the complex theatre of corporate governance, information is the primary currency. For a director to navigate their fiduciary duties—acting in the best interest of the company with reasonable care, skill, and diligence—they must be fully apprised of the company’s financial health and operational pulse. This necessity is protected by a legal cornerstone often described by the courts as “absolute”: the director’s right of inspection under Section 245 of the Companies Act 2016(formerly Section 167 of the 1965 Act).
As a legal practitioner, I often see boards attempting to “gatekeep” information during times of internal strife. However, the law is clear: a director does not need to beg for permission to see the books.
1. The Statutory Mandate: A Duty to Keep and a Right to See
The law imposes a dual obligation. Under Section 245(1), a company and its directors are legally mandated to maintain accounting and other records that “sufficiently explain the transactions and financial position of the company”. These records must be kept for seven years.
Complementing this duty is Section 245(4), which stipulates that these records “shall at all times be open to inspection by the directors”. As observed in Paul Nicholson lwn. Faber Medi-Serve Sdn Bhd & Satu Lagi [2002] 5 CLJ 383, this is a mandatory right intended to ensure transparency and prevent malfeasance within a corporation.
2. Why the Right is Considered “Absolute”
The judiciary has consistently rebuffed attempts to limit this right. In the seminal case of Dato’ Tan Kim Hor & Ors v. Tan Chong Consolidated Sdn Bhd [2009] 2 MLJ 527 CA, the Court of Appeal reaffirmed that the right is “absolute”.
Because a director is personally accountable for the company’s management, they are prima facie entitled to inspection and do not need to demonstrate a “need to know” or provide a specific justification for their request. As noted in James Theophilus Fredericks v. Pelopor Dinamik Sdn Bhd [2020] 6 CLJ 266, to enforce this right, one need only show they are a director, that they demanded inspection, and that the demand was refused.
3. The Scope: More Than Just a Balance Sheet
What exactly can a director look at? The definition of “accounting records” under Section 2 of the Act is broad, including invoices, receipts, cheques, vouchers, and working papers necessary to explain the accounts.
Furthermore, this right extends to subsidiaries. In Datuk Beh Kim Ling & Anor v. NEP Holdings (M) Bhd [2023] 8 MLJ 81, the court held that the right of inspection includes the records of subsidiaries if they are necessary to provide a true and fair view of the company’s affairs.
4. Inspection Through Agents and the Right to Copies
Directors are not always accountants. Recognizing this, Section 245(8) allows the Court to order that records be open to inspection by an approved company auditor acting for the director, provided a confidentiality undertaking is given to the court.
Moreover, the right to “inspect” would be a hollow victory if the director could not take the information home to study. Following the Australian principle in Edman v. Ross (1922) 22 SR (NSW) 351, Malaysian courts have ruled that the right to inspect inherently includes the right to take copies and extracts. Without copies, the exercise of the right would be “impaired and rendered not entirely effective”.
5. When Can a Company Refuse? (The High Bar of “Ulterior Purpose”)
A company can only lawfully deny access if it can provide clear proof that the director is motivated by an ulterior or improper purpose detrimental to the company’s interests.
Hostility between board members is not a valid reason for refusal. As the court in Loh Teck Wah v. Lim Pang Kiam & Ors [2022] 6 CLJ 549 pointed out, “hostility might often be the explanation for the application in the first place”. Even if a director has set up a competing business, this does not automatically disqualify them from seeing the books; the company must affirmatively prove that the director intends to use the information specifically to injure the company.
6. The “Haw Par” Principle: The Termination of the Right
There is a temporal limit to this power. The right of inspection is tethered to the office of the director. Once a person is removed or ceases to be a director, their statutory interest in inspection ends.
As established in Haw Par Bros (Pte) Ltd v. Dato Aw Kow [1973] 2 MLJ 169, an ex-director has no proprietary or managerial interest in the records and cannot invoke the statutory right under Section 245. As recently affirmed in Low Ean Nee v. SNE Marketing Sdn Bhd [2024] 1 CLJ 24, any existing court order for inspection effectively becomes ineffective upon the director’s removal.
Conclusion
The director’s right to inspect is not a personal privilege but a vital tool for corporate accountability. It ensures that those at the helm can satisfy themselves that the “smoking gun” of financial irregularity is not hiding in the shadows of unmaintained or concealed records. As the Court of Appeal in Dato’ Seri Timor Shah Rafiq v. Nautilus Tug & Towage Sdn Bhd [2022] 8 CLJ 529 CA has famously noted, “sunlight is the best disinfectant”.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified lawyer for your specific legal needs.
