A director diverted company business to his own firm. What can the company do?

A director sets up a company in his wife's name, then quietly sends the firm's best customers there. Or he resigns and takes a contract he was negotiating for the company. The Companies Act 2016 and the general law on directors' duties give the company remedies.

The duties involved

• Section 213(1): a director must exercise powers in accordance with the Act, for a proper purpose and in good faith in the best interest of the company.
• Section 213(2): a director must exercise reasonable care, skill and diligence.
• Section 218(1): a director or officer must not, without the consent or ratification of a general meeting, use the company's property, information acquired as director, position, or opportunities learned of in their role, or engage in competing business, to gain a benefit for themselves or another person, or cause detriment to the company.
• Section 221: a director interested in a contract with the company must declare the nature of the interest to the board.

Breaches of sections 213 and 218 are also offences, but the civil claim is what recovers value for the company.

What the company can claim

• Compensation for loss caused.
• An account of profits made by the director or the diverting firm.
• In some cases, a declaration that profits or assets are held on trust for the company.
• Injunctions to stop further use of confidential information, customers or contracts.
• Claims against third parties, such as the diverting firm, who knowingly received or assisted.

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Who brings the claim?

The company itself, through its board. If the wrongdoing director controls the board, a member or another director may seek the court's leave to bring a derivative action in the company's name; see derivative actions. In a winding up, the liquidator can pursue the claim. A minority shareholder may also have an oppression claim.

Defences directors raise

• The opportunity was rejected by the company.
• The general meeting consented or ratified.
• The information was public, not confidential.
• They had resigned before the opportunity arose.

Each turns on the evidence and timing.

Evidence to gather

• Emails, messages and calendars showing the director's dealings.
• Company searches on the diverting firm and its shareholders.
• Customer and supplier records showing switched accounts.
• Bank records of payments.
• Board minutes and declarations of interest, or the lack of them.

Act quickly to preserve evidence; the court can grant preservation and disclosure orders in suitable cases.

Example

The operations director of a Penang electronics company forms a new firm, and within months four major customers move their orders there. Company emails show he quoted those customers from his personal account. The company sues him and the new firm for an account of profits and an injunction restraining use of its customer lists.

Common mistakes

• Delaying while the business is moved.
• Wiping the director's company laptop before preserving it.
• Suing only the director and not the firm that received the business.
• Treating it as a shareholder dispute when the loss is the company's.

When to speak to a lawyer

As soon as you suspect diversion of business. See civil litigation or contact us.

Frequently asked questions

Do these duties apply after a director resigns?

Section 218 covers directors and officers, and the general law can extend to opportunities obtained through the position before resignation. The facts and timing matter.

Can an employee who is not a director be sued?

Section 218 applies to officers. Employees also owe duties under their contracts and the law of confidence.

Will the director go to jail?

Breaches can be offences, but prosecution is a decision for the authorities. A civil claim is separate.

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