(TAX UPDATE) Directors Can Be Sued Personally for Unpaid EPF: Key Lessons from a Recent Malaysian Federal Court Decision

Issued: KTP Tax Alert | 10 June 2026

Mohd Abdul Karim Abdullah & Ors v Lembaga Kumpulan Wang Simpanan Pekerja

Introduction

You, the director of sdn bhd, signed off on the financials. You assumed the company would settle its statutory dues like every other creditor in the queue. Then the company is wound up, the liquidator takes over, and you think the file is closed.

It is not.

In Mohd Abdul Karim Abdullah & Ors v Lembaga Kumpulan Wang Simpanan Pekerja [2025] 4 ILR 1, the Federal Court confirmed a position that every SME director in Malaysia should now treat as settled law. The Employees Provident Fund (EPF) can pursue you personally for the company's unpaid contributions. It does not need to name the company. It does not matter that the company has since been wound up. The liability sits on you, jointly and severally, by operation of statute.

This is not a technicality. For owner-managers who treat the Sdn Bhd as a shield, it is a direct line of exposure to personal assets.

What happened

The facts are familiar to anyone who has watched a struggling business run out of road.

The company defaulted on its EPF contributions for the period September 2021 to July 2022. In December 2022, the EPF filed suit. It sued the directors. It did not name the company as a defendant.

The timing matters. The suit was filed before the Interim Liquidator was appointed on 23 August 2022, and before the company was wound up on 10 January 2023. The default period fell squarely within the directors' tenure.

The directors fought it on a point of principle. If the company is the employer and the contracting party, how can the directors be sued without the company in the action?

Both the High Court and the Court of Appeal rejected that argument. The High Court entered summary judgment against the directors under Order 14 of the Rules of Court 2012, finding no triable issue. The Court of Appeal affirmed.

The directors then sought leave to appeal to the Federal Court under Section 96(a) of the Courts of Judicature Act 1964.

The statutory machinery

The whole case turns on the wording of Section 46(1) of the EPF Act 1991. It provides that where contributions remain unpaid by a company, then, notwithstanding anything to the contrary in this Act or any other written law, the directors of the company, including any persons who were directors during the period in which contributions were liable to be paid, shall together with the company be jointly and severally liable for the contributions due and payable to the Fund.

Three features of that provision do the heavy lifting.

First, the non obstante clause. The phrase "notwithstanding anything to the contrary in this Act or any other written law" is deliberate. It is Parliament's instruction that this liability overrides competing principles, including the doctrine of separate legal personality that ordinarily insulates directors from company debts. The corporate veil does not assist here because the statute says so.

Second, the words "shall together with the company". The directors argued this created a procedural requirement that the company must be sued at the same time. The Federal Court rejected that reading. The phrase describes the nature of the liability, joint and several, not a precondition that the company must be a co-defendant. Joint and several liability means the creditor may proceed against any one liable party, all of them, or any combination, for the full sum.

Third, the supporting provisions. Section 65(1) of the EPF Act allows the Fund to recover contributions summarily as a civil debt. Section 44 of the Contracts Act 1950 reinforces the point that where two or more persons make a joint promise, the promisee may compel any one or more of them to perform. The EPF is therefore at liberty to go after the directors alone.

The Federal Court's reasoning sits comfortably within an established line of authority, including Ong Kim Chuan & Anor v Lembaga Kumpulan Wang Simpanan Pekerja and Lembaga Kumpulan Wang Simpanan Pekerja v Edwin Cassian Nagappan, both of which gave full statutory effect to the joint and several liability under Section 46.

The decision

The Federal Court dismissed the application for leave to appeal.

In doing so, it reinforced three principles that directors cannot now argue around:

The directors can be sued independently of the company. Section 46 imposes a separate and independent liability on directors. Naming the company is not a condition of the claim.

The company's status is irrelevant to that liability. Whether the company is still trading, in liquidation, or already wound up, the directors' exposure for the default period stands.

The liability attaches to the period of default. Persons who held office as directors during the period in which contributions were liable to be paid carry the liability, even if they have since resigned.

What this means for SME directors

The practical reading is uncomfortable but clear.

If you are a director of a company that falls behind on EPF contributions, you are not a passive bystander to a company debt. You are a co-debtor by statute, and the EPF can choose to collect from you alone.

Resigning before the suit does not erase liability for defaults that occurred on your watch. Winding up the company does not extinguish the claim against you. Pointing to the company as the "real" employer does not work, because the statute has already decided that you are liable together with it.

For directors of family-run Sdn Bhds, where EPF arrears often build up quietly during a cash crunch, this is the scenario that turns a company problem into a personal one. The contributions, the dividends on those contributions, and the costs of recovery can all land on the director personally.

The defensive position is not complicated, but it has to be active rather than assumed:

Monitor EPF remittances every month rather than at year end. Arrears compound, and the liability tracks the period, not the discovery of the problem.

Keep clean, dated records of contributions made and of any change in directorship, so that the period of personal exposure is properly defined.

Treat EPF the way you treat the most senior secured creditor, because in substance, for the director, that is what it is.

Where the company is heading into distress, take advice early. The window to manage exposure narrows considerably once a liquidator is appointed.

KTP's View

Most directors we speak to still believe that a Sdn Bhd draws a clean line between the company's liabilities and their own. For ordinary trade debts, that line largely holds. For EPF, it does not.

Section 46 was always there. What this case does is remove the last few arguments directors used to soften it. You cannot hide behind the corporate veil, you cannot rely on the company being absent from the suit, and you cannot wait for the company to be wound up and assume the matter dies with it.

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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