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Directors’ or Employees’ Misuse of Company Information in Malaysia

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INTRODUCTION

In the course of the day-to-day operation of a company, the directors and employees will be tasked to handle confidential information relating to the business of the company. In Malaysia, there are existing statutory provisions and case laws precedent which set out the legal framework on this crucial topic.

The Companies Act 2016 (“CA”) set out the duty not to misuse company’s information by the directors and employees, while the Capital Market and Service Act 2007 (“CMSA”) specifically prohibits insider trading. It is also common for companies to enter into contractual arrangement to prevent the misuse of company information by the directors and employees.

As for business enterprises and partnerships that are not governed by the CA, the contractual arrangement or the principles of common law and equity would govern the employees’ duty of confidentiality.

(II) The Companies Act 2016 and the Capital Market and Service Act 2007

Section 218(1) of the CA states that:

A directors or officer of a company shall not, without the consent or ratification of a general meeting-

(b) use any information acquired by virtue of his position as a director or officer of the company; to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company”.

Section 153 of the CMSA imposes a blanket duty to maintain secrecy:

“A member, employee or agent of the Corporation shall not give, divulge, reveal or otherwise disclose any information or document which has been obtained by him in the course of his duties”

Section 188 of the CMSA specifically prohibits insider trading.

(III) Contractual Arrangement

In general, the contractual arrangement governs the duties and obligations of the employees of a company. Even in the absence of express contractual terms, the employee’s general obligations to not misuse company’s information is implied and the employee has a general duty of good faith and fidelity on the employer.

(IV) Breach of Confidence

The Malaysian case laws have also established the cause of action of breach of confidence by an employee based on these elements, (1) the information in question is of a confidential nature; (2) the confidential nature of the information in question was communicated which creates an obligation of confidence; and (3) the unauthorized use of that information to the detriment of the company.

 

The Malaysian courts have recognized several information (non-exhaustive) to be of confidential nature such as trade secrets of companies which entails details of suppliers, customers and technological developments and also professional secrets of a professional firm. 

 

In addition to duty of confidentiality, employees of a company or business enterprises are also bound by equitable duties of good faith and fidelity and they are liable to compensation in the event of breach.

 

CONCLUSION

As a prudent practice, all employers should include a confidentiality clause in their employment contract. In the event of breach, the employer must take immediate action to prevent the defaulting parties from further abusing the company’s confidential information to the detriment of the company.   

Disclaimer: The contents of this write-up is intended for general informational purposes only and
does not constitute legal advice.

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