Sections 347–350, Companies Act 2016
Derivative Action in Malaysia: Section 347–350 Explained
When a director causes loss to a company and the board will not act, a shareholder or director can step in and sue on the company's behalf. This is a strict, notice-driven process, and missing a step can cost you the 30 days you need to start.
What is a derivative action
Definition
A derivative action is a claim brought in the company's name to recover loss caused to the company itself, most often through a breach of directors' duties under Section 213, or misuse of company property or position under Section 218. Section 347(3) of the Companies Act 2016 abolished the old common law derivative action, so the statutory route under Sections 347–350 is now the only way to bring this type of claim.
This is distinct from a personal oppression claim under Section 346. A derivative action addresses harm to the company; an oppression claim addresses harm to you as a member. The two are sometimes run alongside each other where a director's conduct has damaged both.
Who can bring a derivative action
A "complainant" as defined under Section 345 can apply, with leave of court, to initiate, intervene in, or defend a proceeding in the company's name. This includes a current member, a person entitled to be registered as a member, and a director of the company.
Step-by-step process
Free assessment
We review the facts and confirm the loss is to the company, not to you personally, and that a derivative action is the correct route.
30 days' written notice
Formal notice is served on the company's directors under Section 348(2), setting out the allegations, the reasons for the proposed action, and the relief sought. This gives the board the chance to bring the action itself instead.
Application for leave of court
If the directors do not act, an originating summons is filed seeking leave under Section 347 and 348.
Leave hearing
The court decides whether the complainant is acting in good faith and whether the action is prima facie in the company's best interest. The merits of the underlying claim are not decided at this stage.
Proceedings commenced in the company's name
Once leave is granted, the claim proceeds in the name of the company. It cannot be settled, discontinued, or compromised without the court's approval.
What the court considers for leave
Under Section 348(4), the court must be satisfied of two things before granting leave:
- The complainant is acting in good faith
- It appears, on the face of it, to be in the best interest of the company for the action to proceed
Case law has added further practical factors: the action should be connected to the alleged wrongdoer, there should typically be a deadlock in the company's management, and the wrongdoer should have effective control over the company's affairs, since that control is usually why the board has not already acted.
Common mistakes
Filing before the 30-day notice period expires
The notice requirement under Section 348(2) is mandatory and cannot be shortened by the court. Filing early means starting the notice period again.
Vague notice letters
The notice should specify the allegations, the reasons for the proposed action, and the relief sought, so the board can properly consider whether to act. A vague notice invites a challenge to its validity.
Not initiating proceedings after leave is granted
Section 348(3) requires proceedings to be started within 30 days of leave being granted. Missing this window means going back to court.
Assuming the board will simply ratify the wrongdoing away
A controlling block of shareholders may try to ratify the director's conduct at a general meeting to defeat the claim. This is a real risk that should be planned for, not discovered midway through the case.
Frequently asked questions
What is a derivative action in Malaysia?
A derivative action is a claim brought by a shareholder or director on behalf of the company, to recover loss caused to the company itself, usually by a director's breach of duty. It is governed by Section 347 of the Companies Act 2016, which has replaced the old common law derivative action entirely.
Who can bring a derivative action?
A complainant as defined under Section 345 of the Companies Act 2016, which includes a current member, a person entitled to be registered as a member, and a director of the company, can apply with leave of court to bring a derivative action.
Why is the 30-day notice required before filing?
Section 348(2) requires the complainant to give the company's directors 30 days' written notice of the intention to apply for leave. This gives the board the opportunity to commence the action itself instead. The court has no power to waive this notice period.
What does the court consider before granting leave?
Under Section 348(4), the court considers whether the complainant is acting in good faith and whether it appears prima facie to be in the best interest of the company for the action to be brought or continued.
Related reading
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WhatsApp a Lawyer NowThis page is general legal information current as of July 2026 and is not legal advice. It does not create a solicitor-client relationship and no outcome is guaranteed. Malaysian advocates and solicitors are not permitted to act on a "no win no fee" basis. Your specific circumstances may change which remedy applies — speak to one of our lawyers before acting on any deadline mentioned here.