Introduction
Chief executives are, by commercial reality, given operational latitude to drive commercial growth. But how far does that managerial autonomy extend before it becomes a blank cheque to act unilaterally?
Many C-suite executives operate under the assumption that the Companies Act 2016’s (“CA 2016”) statutory duties are a director’s concern, not theirs. Recently, the Court of Appeal in Badlisyah bin Abdul Ghani v MARA Corporation Sdn Bhd[1], affirming the High Court’s decision[2], shows why that assumption is risky. The Court of Appeal ruled that a former Group Chief Executive Officer (“GCEO”) was personally liable for breaching his contractual duties, fiduciary duties and statutory duties under Section 213 of the CA 2016, arising from a series of unapproved hirings and unauthorized changes made during his appointment.
Background Facts
Badlisyah bin Abdul Ghani (“Appellant“) was appointed GCEO of MARA Corporation Sdn. Bhd. (“Respondent“) in September 2020, at a time when the Respondent was under financial strain and its board had called for a turnaround plan and cost-cutting measures. His authority as GCEO was governed by the Group Limits of Authority Policy Document (“LOA“), which reserved C-suite appointments and any changes to the Respondent’s human resources policy (“Human Capital Policy”) to the Board of Directors (“BOD”), upon recommendation of the Board Nomination and Remuneration Committee (“BNRC“). The GCEO may approve only lower-level appointments (i.e., Head of Department, Director and Vice President) and temporary changes to the Human Capital Policy.
Within two months of taking office, the Appellant hired 24 new employees and extended one existing contract, of which 12 were, in substance, Senior Director or C-suite appointments. These were later found to have been made without the BNRC’s recommendation or BOD’s approval, as required by the LOA. In addition, he was later found to have unilaterally approved the issuance of an internal memorandum (“Internal Memo”) which had the effect of extending his own hiring authority, which he relied on to support the appointments, and also represented to the BNRC that 4 proposed appointees were “ready to join” when they had, in fact, already been engaged and had commenced employment.
The BOD subsequently suspended the Appellant, followed by a show cause process that eventually led to the termination of his employment. The Respondent sued him for breach of his contractual, fiduciary and statutory duties, claiming damages of approximately RM21 million. The Appellant maintained that he had acted within his authority and in the Respondent’s best interest.
The Court’s Decision
The Court of Appeal, in affirming the High Court’s decision, has held that each of these actions: the unauthorized Senior Director/C-suite appointments, the unapproved payroll commitments, the unilateral amendment to the Human Capital Policy, and the misrepresentation to the BNRC, amounted to a breach of the Appellant’s contractual and fiduciary duties. The Court of Appeal accordingly dismissed the appeal with costs of RM50,000 and affirmed the High Court’s orders that the Appellant pay the Respondent damages of RM2,728,673.82 and RM739,541.60, with interest and costs, and indemnify the Respondent for all expenses incurred and to be incurred arising from any industrial action brought by the new employees, should liability be imposed on the Respondent.
In arriving at its decision, the Court of Appeal considered, among others, the following:
- • Although the letters of employment stated that those 12 individuals were appointed at grades purportedly within the Appellant’s authority, their actual salaries, job scopes and positions within the organisational hierarchy showed that they were, in substance, Senior Director/C-Suite appointments. The Court of Appeal also noted that “Director” and “Senior Director” were clearly distinct grades, each carrying different benefits, and could not therefore be treated as equivalent.
- • The evidence showed that the hiring spree had caused significant financial impact on the Respondent, at an aggregate annual cost of RM9.4 million against a total approved emolument budget of only RM1.799 million for 2020. The Appellant also admitted at trial that this affected the Respondent’s planning and budget for 2021 and 2022, which had yet to be approved at the time. The Respondent subsequently reported losses for the financial years ended 2020 and 2021.
- • The Vice President of the Respondent’s Group Human Capital Management testified that the Appellant had been informed that he lacked authority to appoint a Senior Director but insisted otherwise and that the limits of his authority could be changed later. The Internal Memo also did not follow the usual referencing format used by the human resources division, was not filed in the memorandum archive, and was neither known nor prepared by her. Further, it was only brought to the BOD’s attention when the Appellant requested a copy after he was placed on garden leave.
- • While the Appellant contended to have kept the then Chairman informally abreast of the hiring progress, the Court of Appeal rejected this, finding that the updates were not minuted until the special BOD meeting in November 2020. The Appellant also admitted at trial that informing the Chairman verbally was not equivalent to informing the BOD.
By applying the dual subjective-objective test established in Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra v Petra Perdana Bhd.[3] (“Petra Perdana’s case”), the Court of Appeal ruled that the Appellant failed to discharge his duties. Given the severe financial implications, an honest and intelligent GCEO could not have reasonably believed the hiring spree benefited the company. Knowing the limits of his authority, he was bound to seek BOD approval; instead, the timing, haste, and surreptitious nature of the appointments demonstrated a clear failure to act in good faith or within the reasonable scope of business.
Key Takeaways
- a. Statutory Duties Reach the C-Suite too
It is easy to assume the statutory duties under the CA 2016 bind directors alone. However, the courts found that the Appellant, though not a member of the Respondent’s BOD, was nonetheless bound by the duties under Section 213 of the CA 2016 as GCEO. He was therefore statutorily required to exercise his powers for a proper purpose and in good faith in the Respondent’s best interest, and to do so with reasonable care, skill and diligence. Although neither court expressly addressed the basis for this, it is likely explained by Section 210 of the CA 2016, which extends the definition of “director” for the purposes of, among others, Sections 213 and 214 of the CA 2016 to include a chief executive officer.
If Section 210 of the CA 2016 brings a GCEO within Section 213 of the CA 2016, it would follow that the business judgment rule defence under Section 214 of the CA 2016 should equally be available to him. The High Court, however, held that the Appellant could not rely on Section 214 of the CA 2016 as it “only applies to a director as defined under the Companies Act”, without expressly considering Section 210 of the CA 2016. The Court of Appeal’s judgment does not revisit this point.
In any event, whether Section 214 of the CA 2016 applied was unlikely to have changed the outcome, as the High Court held that the Appellant could not rely on the common law business judgment rule because he had acted beyond his authority. The Appellant would likely have failed on the merits regardless, given his inability to rationally justify the decisions and his lack of candour towards the BOD.
- b. The Dual Test for “Best Interest” (Subjective vs. Objective):
While GCEOs may honestly believe they are acting in the company’s best interest (the subjective element), that belief is subject to objective review under the principle established in Petra Perdana’s case. Under this standard, the question is whether an “honest and intelligent person” in that position could reasonably have believed the transaction benefited the company (the objective element). In this case, the Appellant’s decision to rush through unbudgeted, large-scale commitments via an unauthorized hiring spree, when the company was operating under severe financial strain, failed this test.
- c. Know Your Limits
A GCEO’s executive power is strictly bound by the company’s LOA and governance framework. In this case, the Appellant’s unilateral workarounds (i.e., approving an internal memo to alter the Human Capital Policy that bypassed standard archiving and HR protocols and reclassifying senior positions outside his designated tier into lower grades to bypass required approvals) were treated as a breach of fiduciary duty. Looking at the actual salary, scope of work and position in the hierarchy rather than the title on the appointment letter, the courts found that the Appellant had, in substance, circumvented the Respondent’s oversight mechanisms.
Commentary
Two principles run through the Court of Appeal’s reasoning, and a C-suite executive (e.g., a GCEO) relying on either to justify a fast-moving decision should be wary. The first is that authority is defined by substance, not by label. Whether an appointment or a policy change falls within a GCEO’s authority turns on its real effect, the actual seniority and cost of a role or the actual permanence of a change. An authority framework that can be reinterpreted or expanded from within the executive’s own office ceases to function as a control at all.
The second is that a GCEO’s good faith under Section 213 of the CA 2016 is not satisfied by his own say-so. The test asks not only whether he honestly believed the decision served the company, but whether an honest and intelligent person in his position could reasonably have held that belief on the circumstances before him. The approval process itself carries evidentiary weight and an executive who bypasses it, however commercially pressed, leaves nothing to show that his belief was one that could reasonably have been held.
For a C-suite executive who assumed the CA 2016’s obligations stopped at the boardroom door, this case is a clear signal that they do not.
[1] [2026] MLJU 3553
[2] [2024] MLJU 1207
[3] [2018] 2 CLJ 641
About the authors
Shaun Lee Zhen Wei
Principal Associate
Corporate & Cross-Border Investment
Halim Hong & Quek
shaun.lee@hhq.com.my
.
Carmen Lee
Associate
Corporate & Cross-Border Investment
Halim Hong & Quek
carmen.lee@hhq.com.my
.
Adrian Tan
Paralegal
Corporate & Cross-Border Investment
Halim Hong & Quek
adrian.tan@hhq.com.my
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