(TAX UPDATE) Director's Personal Liability for Outstanding Company Taxes: Key Lessons from a Recent Malaysian High Court Decision

(TAX UPDATE) Director's Personal Liability for Outstanding Company Taxes: Key Lessons from a Recent Malaysian High Court Decision

Issued: KTP Tax Alert | 29 May 2026

Dato' Hj Sheikh Mohamad Shalahuddin Ayubi SM Amin v Ketua Pengarah Jabatan Imegresen & Ors [2022] MLRHU 627

Introduction

A recent High Court decision serves as a timely reminder that a director's exposure to a company's tax liabilities is not extinguished by resignation. Where the liability arose during the period of directorship, both the company and the director may be pursued by the tax authorities on a joint and several basis, and travel restrictions may lawfully be imposed pending settlement.

Background

The applicant was formerly a director of Naza Kia Sdn Bhd. He resigned from the board in 2013. However, the company's unpaid customs duty and sales tax related to the period from January 2001 to September 2002, a period during which he was a director.

The Royal Malaysian Customs Department subsequently pursued him personally for the outstanding amounts and requested that the Immigration Department impose a travel restriction.

The applicant sought to challenge both actions by way of judicial review, contending that, having ceased to be a director, he ought not to remain exposed to liabilities of the company.

The Court's decision

The High Court dismissed the application.

The Court's reasoning turned on a simple but important distinction. The relevant question is not whether the individual is a director at the time enforcement is taken, but whether he was a director at the time the liability arose.

As the unpaid duties and taxes accrued during the applicant's tenure on the board, his subsequent resignation did not displace the statutory liability that had already attached to him.

The Court relied on Section 22C of the Customs Act 1967 and Section 26 of the Sales Tax Act 1972, both of which impose joint and several liability on directors for the company's unpaid customs duty and sales tax in respect of the period during which they held office.

Joint and several liability, what it means in practice

Joint and several liability is often misunderstood. It does not require the tax authority to exhaust recovery action against the company before pursuing the director. The authority is entitled to recover the full amount from the company, from the director, or from both, and may choose where to direct enforcement.

For a director, this means it is not a defence to say that the debt belongs to the company. Under the relevant indirect tax legislation, a company's outstanding liability becomes the director's own liability by operation of law.

Travel restrictions are a legitimate enforcement tool

The Court also upheld the validity of the travel restriction imposed against the applicant. Section 17A of the Customs Act 1967 and Section 27A of the Sales Tax Act 1972 empower the Customs authority to request the Director-General of Immigration to prevent a person from leaving Malaysia where there are outstanding tax liabilities.

The restriction remains in force until the amounts due are settled, or until security acceptable to the authority is furnished. On the facts before it, the Court was satisfied that the restriction had been validly imposed and was therefore enforceable.

Implications for directors and businesses

The decision crystallises several important principles for directors of Malaysian companies.

First, directorship carries substantive statutory exposure that extends well beyond the corporate veil. Liability for indirect taxes is one of several areas in which Parliament has expressly imposed personal accountability on directors. Comparable provisions exist in respect of income tax, employee statutory contributions, and service tax.

Second, resignation does not operate retrospectively. A director who steps down remains exposed in respect of liabilities that crystallised during his or her tenure. Pre-resignation due diligence on the company's tax position is therefore at least as important as any post-resignation actions.

Third, tax non-compliance carries consequences beyond financial penalties and interest. The ability of the authorities to restrict movement out of the country can have material personal and commercial implications, particularly for directors who travel frequently for business.

Practical considerations

Directors and prospective directors should, in our view, take the following steps to manage their personal exposure.

Conduct periodic reviews of the company's indirect tax compliance position, including customs duty, sales tax, service tax, and e-Invoicing obligations, alongside direct tax and statutory contributions.

Ensure that board minutes properly reflect discussions on tax compliance matters, particularly where concerns have been raised or remedial action authorised.

On resignation, obtain a clear position on outstanding liabilities and retain documentation of the company's tax status at the date of departure.

Where a director has expressed dissent or raised concerns, ensure that this is contemporaneously documented. In the event of subsequent enforcement action, records will be considerably more persuasive than recollection.

KTP's view

The decision is a useful reaffirmation of a position that, while well established in the legislation, is often overlooked in practice. Directorship in Malaysia is not a ceremonial role, and the protection ordinarily afforded by separate corporate personality has clear statutory exceptions in the area of taxation.

For SMEs in particular, where directors are often closely involved in the day to day management of the business, the practical takeaway is straightforward. Tax compliance is not solely a finance department concern. It is a board level matter, and the consequences of inattention may extend well beyond the company itself.

This article is intended for general information only and does not constitute legal or tax advice. Directors faced with specific enforcement action or seeking to manage their personal exposure should obtain professional advice tailored to their circumstances.

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