What happens when a company fails to meet its Employees Provident Fund (“EPF”) obligations and yet the directors are sued instead of the company? How far can the law go in holding its directors personally accountable for such defaults and what does this mean for company directors navigating financial distress or corporate collapse? The Federal Court in Mohd Abdul Karim Abdullah & Ors v Lembaga Kumpulan Wang Simpanan Pekerja [2025] 4 MLJ 878 has provided an answer every company director needs to understand, particularly within the context of the Employees Provident Fund Act 1991 (“EPF Act”).
Background Facts
1. The case began with a writ filed by the respondent, the Employees Provident Fund Board (“EPF Board”), in December 2022 against the applicants, who were the directors of Serba Dinamik Group Berhad at the material time, for the company’s failure to remit outstanding EPF contributions, totaling over RM3 million, from September 2021 to July 2022.
2. Crucially, the company itself was neither named nor made a party to this suit, with the claim brought directly against the directors in their personal capacities instead.
3. This action was taken amid substantial financial distress for the company. Prior to the respondent’s claim, a petition for the winding up of the company had been jointly filed by its banks in April 2022. An interim liquidator was appointed in August 2022, and the company was formally wound up in January 2023, with the interim liquidator continuing in the role of liquidator.
4. Against this backdrop, the appellants thus contended that the outstanding EPF contributions should have been pursued as preferential debts through the appointed liquidator, rather than directly against them as directors. They further claimed that the interim liquidator, who had been appointed, was the party that had allegedly failed to take action to settle the unpaid EPF contributions.
5. They also contended that the company, as the employer, was the primary party liable for the EPF contributions and should have been included as a co-defendant in the suit, which would have required obtaining leave from the court given the company’s liquidation status.
6. A core legal issue raised by the appellants was that, under Section 46 of the EPF Act, the respondent could not proceed against the directors alone without also suing the company.
7. The respondent, however, maintained that the writ was filed before the company was formally wound up and, in any event, that the outstanding EPF contributions it claimed were for the period of default where the applicants were the directors of the company.
8. More fundamentally, it asserted that its right to pursue the appellants was valid under Section 46 of the EPF Act 1991, which imposes a separate and independent liability on the directors, making them jointly and severally liable for the unpaid EPF contributions.
9. The High Court, satisfied that there was no triable issue, granted summary judgment in favour of the respondents. The applicants then appealed to the Court of Appeal but failed.
Federal Court’s Findings
In dismissing the application for leave to appeal, the Federal Court reinforced the decisions of both the High Court and the Court of Appeal. It held that even if a company is not sued or taken action against together with the directors, the joint and several liability under Section 46 of the EPF Act is effective and capable of being enforced against the directors alone, without having to name the company as a defendant, for the company’s failure to remit EPF contributions.
Central to this is the interpretation of Section 46 of the EPF Act, which provides that:
“(1) Where any contributions remaining unpaid by a company, a firm or an association of persons, then, notwithstanding anything to the contrary in this Act or any other written law, the directors of such company including any persons who were directors of such company during such period in which contributions were liable to be paid… shall together with the company, firm or association of persons liable to pay the said contributions, be jointly and severally liable for the contributions due and payable to the Fund.”
In arriving at its decision, the Federal Court considered, among others, the following:
- • Interpretation of “shall together with the company”
The Federal Court clarified that the phrase does not give rise to a procedural requirement that the company must be sued concurrently with the directors. Rather, it identifies the parties upon whom liability for unpaid EPF contributions is imposed, and the principle of joint and several liability permits the EPF Board to pursue any or all of them at its discretion to recover the whole debt. Accordingly, the respondent was lawfully entitled to initiate proceedings solely against the applicants, a position consistent with established precedent and for which the applicants were unable to furnish any authority to the contrary. - • Strict statutory liability
The Federal Court reaffirmed that a director’s liability for unpaid EPF contributions is direct and personal. It operates as a statutory exception to the doctrine of separate legal personality, thereby piercing the corporate veil in cases of non-compliance. This liability is neither secondary nor contingent upon the company’s financial condition or its inclusion as a party to the proceedings. It arises immediately upon the company’s default, and the directors are held liable simply by virtue of holding office during the period of default.
- • Legislative intent
The Federal Court found that the meaning and application of Section 46 of the EPF Act in respect of the proper party and the question of liability are settled law, with no novel points arising in this case, and concluded that further review would not serve the public interest. In line with the objective of the EPF Act enacted as social legislation to protect the welfare of employees, its provisions enabling the recovery of such debt must be given full effect.
Key Takeaways
The Federal Court has definitively ruled that directors cannot hide behind the corporate veil to escape personal liability for unpaid EPF contributions. This pivotal decision marks a significant shift in director accountability, serving as both a clear warning and a call to action for every director.
The notion of a “sleeping director” is no longer tenable. Legal responsibility for timely remittance of the EPF contributions rests not only on the company but extends equally to all directors, irrespective of their level of involvement in day-to-day operations or the company’s finances.
Importantly, the Federal Court confirmed that a director’s liability under Section 46 of the EPF Act is direct, personal, and enforceable, even where the company is not a party to the proceedings. It further validated the EPF Board’s authority to bypass the complexities of corporate liquidation and, instead of waiting in line with other creditors, proceed directly against any or all directors, thereby enabling it to efficiently target the most solvent or reachable directors for the recovery of outstanding EPF contributions.
It remains to be seen whether the same outcome would apply if the writ had been filed after the company was formally wound up. The strong language of the Federal Court, however, suggests that such statutory liability would likely remain unaffected by the timing of the proceedings. Ultimately, this ruling stands as a powerful deterrent, compelling directors to fulfil their duties and rigorously uphold laws designed to safeguard the retirement savings of those they employ.
Stepping into a directorship without proper due diligence now carries an immediate, personal risk. For current directors, it is imperative to take proactive steps to prevent non-compliance. A critical part of this includes putting in place robust internal controls that specifically address EPF compliance. For incoming or acquiring directors, the stakes are equally high. There is a risk of becoming involved with a company that has a history of non-compliance, which, if unresolved, could create new liabilities under their watch.
About the authors
Yap Cheng Yah
Partner
Corporate & Capital Markets
Halim Hong & Quek
cy.yap@hhq.com.my
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Carmen Lee Kar Mun
Associate
Corporate & Capital Markets
Halim Hong & Quek
carmen.lee@hhq.com.my
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