A recent Court of Appeal decision in Tan Kim Hor & 3 Ors v Tan Chong Consolidated Sdn Bhd affirmed the absolute right of a director under section 167 of the Companies Act 1965 (“CA”) to inspect company records. I believe that this is the first Malaysian appellate authority dealing with this point of law.Section 167 of the CA states:

“(1) Every company and the directors and managers thereof shall cause to be kept such accounting and other records as will sufficiently explain the transactions and financial position of the company and enable true and fair profit and loss accounts and balance sheets and any documents required to be attached thereto to be prepared from time to time, and shall cause those records to be kept in such manner as to enable them to be conveniently and properly audited.
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(3) The records referred to in subsection (1) shall be kept at the registered office of the company or at such other place in Malaysia as the directors think fit and shall at all times be open to inspection by the directors.
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(6) The Court may in any particular case order that the accounting and other records of a company be open to inspection by an approved company auditor acting for a director, but only upon an undertaking in writing given to the Court that information acquired by the auditor during his inspection shall not be disclosed by him except to that director.”

This right is an absolute right and by virtue of his office, a director cannot be called upon to furnish his reasons before being allowed to exercise this right and in the absence of clear proof to the contrary, the court must assume that he will exercise it for the benefit of the company.

The burden of proving that the right of inspection will be exercised for improper motives will be on the party who so asserts. There has to be a real ground that the right would be abused and that a great deal of harm would be caused to the company.

Any improper motive or conduct of the plaintiff in seeking to inspect the records of the company must be an improper motive against the company per se and not against the other directors or members of the company.

The Court also correctly, in my view, adopted a more purposive interpretation of section 167(6) of the CA in relation to the written undertaking. In this respect, the appellant had failed at the High Court due to an alleged defective undertaking and the Court of Appeal overturned this point. This appellate authority will be useful in guiding future cases involving the provision of such an undertaking.

Edit 3/3/2009: I have heard that leave to appeal to the Federal Court has been granted in relation to this matter. Will be useful to have the Federal Court to authoritatively lay down the principles of section 167, especially in relation to the requirements of the undertaking of sub-section (6).