The directors harmed the company but will not sue. Can I bring a derivative action in Malaysia?

When directors take company money or opportunities, the wrong is usually done to the company, not to individual shareholders. Normally only the company can sue. But if those same directors control the board, the company will not sue itself. A derivative action solves that problem.

Who can bring it?

A "complainant" under section 345 means:

• a member of the company, or a person entitled to be registered as a member;
• a former member, if the application relates to the circumstances in which they ceased to be a member;
• any director of the company; or
• the Registrar, in a limited case.

The common law right to bring such proceedings is abolished (section 347(3)), so the statutory route must be followed.

The steps

1. Notice: give the directors 30 days' written notice of your intention to apply for leave (section 348(2)).
2. Leave application: apply to court; no appearance needs to be entered (section 348(1)).
3. The test: the court considers whether you are acting in good faith, and whether it appears prima facie in the best interest of the company that leave be granted (section 348(4)).
4. Start the action: if leave is granted, start proceedings within 30 days (section 348(3)), in the company's name (section 347(2)).

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Ratification does not end it

If the members ratify or approve the conduct complained of, that does not prevent proceedings with leave, and the action is not stayed or dismissed only because of it, although the court may take it into account (section 349).

Court orders that help

When granting leave, the court may (section 350):

• authorise the complainant or another person to control the proceedings;
• give directions;
• order any person to provide information and allow inspection of the company's books;
• require the company to pay reasonable legal costs and disbursements of the complainant; and
• make orders on costs, including indemnity.

Settlement or discontinuance needs the court's leave (section 348(5)).

Derivative action or oppression?

A derivative action recovers for the company a loss done to it, for example by a director's breach of duty under section 213 or improper use of position under section 218; see diverted business. An oppression petition protects your interests as a member; see oppression. Some cases involve both.

Example

A 20% shareholder of a Klang furniture company finds that the managing director has been paying company money to his own trading firm. The board refuses to act. She gives 30 days' notice, applies for leave with evidence of the payments, and obtains leave and an order that the company fund the reasonable costs of the action.

Common mistakes

• Suing personally for loss suffered by the company.
• Skipping the 30-day notice.
• Missing the 30-day deadline after leave.
• Settling privately without the court's leave.

When to speak to a lawyer

When those in control refuse to pursue a wrong done to the company. See civil litigation or contact us.

Frequently asked questions

Does any recovery go to me?

No. A derivative action is brought for the company, so the money or property recovered goes to the company.

Can a director bring one?

Yes. A director is a complainant under section 345.

What if the company is in liquidation?

The liquidator usually controls claims of the company. Take advice on the position in your case.

Sources & fact check

Legal points in this article were checked against the primary sources below. The law can change; this is general information, not legal advice.

1. Companies Act 2016 (Act 777), AGC Laws of Malaysia
2. Rules of Court 2012 (P.U.(A) 205/2012), text published by the Malaysian Bar, including Orders 12, 13, 18, 19 and 93

Fact-checked on 17 Oct 2026