Malaysia Federal Court holds corporation sole does not need to be governed by board of directors

29 July 2021

Faekah HJ Husin & Ors v Menteri Besar Selangor (Pemerbadanan) [2021] 5 CLJ 733

The respondent in Faekah HJ Husin & Ors v Menteri Besar Selangor (Pemerbadanan) was an entity incorporated under the Menteri Besar Selangor (Incorporation) Enactment Act 1994 (“MBI Enactment”). The appellants were the respondent’s former employees. Following a Voluntary Separation Scheme (“VSS”) that both parties entered into in 2014, the Menteri Besar of Selangor at that material time (“TSKI”) approved a sum of about RM2.7 million to be paid to the former employees under the scheme (“VSS Payment”). Upon TSKI’s retirement, the respondent claimed that the VSS Payment was unlawfully paid out and filed for a suit at the High Court for a refund. It argued that the VSS Payment was made by TSKI without the approval of the respondent’s Board of Directors (“BOD”), and the former employees were guilty of breach of fiduciary duties and conspiracy to injure.

The High Court dismissed the claim and ruled that the respondent, as a corporation sole, was never governed by a BOD, and that it was within the powers of TSKI to approve the VSS Payment pursuant to section 4 of the MBI Enactment. The Court of Appeal overruled the High Court decision.

In allowing the appeal, the Federal Court held as follows:

  • The respondent was, in law, a corporation sole and not a corporate aggregate. A corporation sole is a body politic constituted in one member that can sue and be sued, and exists in perpetuity. 
  • The MBI Enactment did not provide as to how the respondent was to be managed or any requirement to set up a BOD. The BOD, in the circumstances, may only be assumed as an administratively created body with no legal identity or legal power or authority.
  • The intent to establish a BOD or an advisory committee for the respondent would have been expressly legislated in the MBI Enactment. The absence of such provisions suggested that the State Legislature had no intention to establish such Board or committee.
  • There was nothing to link to suggest that the former employees were guilty of breach of trust or fiduciary duties to the respondent.