Directors – can an adjudged bankrupt become a director of a company or operate a business? [s1103]

Section 125(1) of the Companies Act states that an undischarged bankrupt may not be a director of a corporation or take part in the management of the corporation directly or indirectly.

He shall be guilty of an offence if he contravenes Section 125(1).

He must obtain the leave of the court or seek sanction (approval) from the official assignee or receiver (officer of the bankruptcy office) to be a director or involve in the management of a company.

Note that this section also applies if the person is adjudicated bankrupt in a foreign court subjected to foreign judgment though it may not be that easy for the Malaysian relevant authorities to find out.

In addition, the act doesn’t disqualify the undischarged bankrupt as not being able to be a director but only penalizes him via an offence. That means whatever contractual obligations entered into on behalf of the said company by the director would still be deemed valid and effective.

Moreover, any adjudged bankrupt can be under employment and be subjected to all benefits and perks like any other employee and additionally can be a director of a company provided always sanction from the bankruptcy office has been obtained.

The primary criteria that the bankruptcy office requires are the followings:

(a) whether the bankrupt’s salary has excess to pay back the creditor’s debt via installments,

(b) to determined from circumstantial evidence (e.g employment income) to gauge the living standard of the bankrupt, and

(c) if the bankrupt is a shareholder of a company, to determine where the funds or monies derived from.