What are the legal consequences for directors if bonuses are not approved correctly?

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Legal Repercussions for Directors on Unapproved Bonus Payments

Directors who approve bonus payments without adhering to the correct legal procedures face significant consequences, including personal liability for the amounts paid and potential criminal offences. For public or listed companies and their subsidiaries, such contraventions can result in substantial fines and the repayment of the bonuses as a debt owed to the company. Even in private companies, while the board has more autonomy, failure to follow specific approval and notification protocols can still lead to penalties and the requirement for directors to return the funds.
Unapproved Payments Constitute Debts Owed by Directors

When bonus payments are made in contravention of the Companies Act 2016, particularly concerning the required approvals, these sums are legally considered debts due by the directors to the company. This applies irrespective of whether the company is public or private. For instance, the report highlighted that bonus payments made by TH Properties in 2017 and 2018 breached provisions requiring necessary approvals and shareholder resolutions. Unless proper authorisation is obtained, the onus falls on the directors to repay these amounts.
Offences Under the Companies Act 2016

Any contravention of the provisions governing directors' fees and benefits constitutes an offence under the Companies Act 2016. For public or listed companies and their subsidiaries, failure to obtain approval at a general meeting for directors' fees and benefits can lead to a fine not exceeding RM3,000,000. In the case of private companies like TH Properties, where the Board of Directors may approve such payments subject to the company's constitution, specific procedures must be followed. These include recording the approval in the directors' meeting minutes and notifying shareholders within 14 days.
Penalties for Private Companies and Shareholder Recourse

For private companies, if the Board of Directors approves fees and benefits without adhering to the company's constitution or fails to record the approval in the minutes and notify shareholders within 14 days, both the company and its officers can be liable to a fine not exceeding RM250,000. Furthermore, shareholders holding at least 10% of the total voting rights have the power to demand a resolution to approve the payment if they deem it unfair to the company, within 30 days of becoming aware of the payment. If such approval is not subsequently obtained, the payment remains a debt due from the director to the company.

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What are the legal consequences for directors if bonuses are not approved correctly?

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