Directors & Officers Insurance in Malaysia: Essential Protection in 2025

In July 2025, Bursa Malaysia reprimanded Zetrix AI (formerly MyEG) and fined seven of its directors RM150,000 each for issuing “misleading announcements” and failing to comply with regulatory directives. This high-profile case is more than just a headline, it’s a wake-up call for directors in Malaysia. The reality is that board members now operate in a high-risk environment where personal liability, regulatory scrutiny, and litigation exposure are growing.

Enter Directors & Officers (D&O) Insurance, a vital layer of protection that helps boards navigate regulatory complexity and defend against legal claims. In today’s high-stakes corporate landscape, D&O cover has become an essential checklist for companies.

What Is D&O Insurance?

Directors & Officers Insurance provides financial protection to directors, officers, and in some cases senior managers, against personal loss arising from alleged wrongful acts committed in their role.

A wrongful act may include:

• Breach of fiduciary duty
• Misrepresentation
• Negligence
• Mismanagement
• Failure to comply with regulations

Who can bring claims:

• Regulators – e.g., Bursa Malaysia, Bank Negara Malaysia, Securities Commission Malaysia
• Shareholders & Investors – alleging mismanagement, misleading disclosures, or loss of value
• Employees – wrongful dismissal, harassment, or discrimination claims
• Third Parties or Contractual Counterparties – alleging breach of obligations or negligence

Typical D&O coverage includes:

• Defence costs – legal fees, expert witnesses, court costs
• Damages & settlements – compensation awarded or negotiated
• Regulatory fines & penalties – where legally insurable
• Crisis management & PR costs – to manage reputational damage
• Investigation costs – responding to regulatory probes

Why Malaysian Companies Need D&O Insurance

1. Regulatory Scrutiny Is Rising

Cases like Zetrix AI (July 2025) show how board errors, intentional or otherwise, can lead to substantial fines from Bursa Malaysia. Regulators are now more proactive in pursuing individuals, not just the company.

2. Personal Liability Is Not Theoretical

Under Malaysia’s Companies Act 2016, directors can be held personally liable for breaches of duty especially Section 213 (duty of care) and S289 (indemnity rules). Breach of these duties can lead to personal liability, meaning directors’ own assets could be at risk.

3. Lawsuits Are Growing in Volume

From employee-related suits to shareholder class actions, litigation is rising. Even when claims are baseless, legal defence costs can easily reach six figures, draining personal resources without D&O coverage.

4. Investor & Stakeholder Expectations

VCs, banks, and partners increasingly require businesses to have D&O cover. It signals good corporate governance and mitigates risk.

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Core Coverage in a D&O Policy

A well-structured Directors & Officers (D&O) Insurance policy protects company leaders from a range of management-related claims, whether brought by regulators, shareholders, employees, or third parties. While coverage varies by insurer, most Malaysian D&O policies follow a similar framework, often divided into Side A, B, and C protections.

1. Side A Coverage – Individual Protection

What it covers:
Protects directors and officers when the company cannot indemnify them (e.g., due to legal restrictions or company insolvency). Pays defence costs and settlements directly to the individual.

Example:

• A private company enters liquidation. Creditors allege mismanagement of funds by the directors. Since the company is insolvent and cannot reimburse them, Side A coverage pays the directors’ legal defence costs.

2. Side B Coverage – Company Reimbursement

What it covers:
Reimburses the company when it has indemnified its directors/officers for legal costs, settlements, or judgments.

Example:

• A tech company’s CFO is sued by a vendor for alleged breach of contract. The board approves covering his legal defence. Side B reimburses the company for these costs.

3. Side C Coverage – Entity Securities Coverage

What it covers:
Applies mainly to publicly listed companies. Covers the company itself for claims related to securities transactions, such as IPO misstatements or misleading shareholder communications.

Example:

• A listed retail chain faces a class action alleging its IPO prospectus contained false revenue forecasts. Side C responds to both the company’s and directors’ defence costs.

4. Investigation & Inquiry Costs

What it covers:
Pays legal and advisory costs for responding to formal investigations, regulatory notices, or compliance audits — even before a formal claim is filed.

Example:

• Bank Negara issues a show-cause notice to a fintech’s board regarding alleged breaches of licensing conditions. The costs for lawyers and compliance experts to prepare the board’s response are covered.

5. Employment Practices Liability (EPL)

What it covers:
Protects directors and officers from claims by employees for wrongful acts in employment matters — such as wrongful dismissal, harassment, discrimination, or failure to promote.

Example:

• A senior manager sues the CEO for gender discrimination, naming the HR Director as a co-defendant. EPL coverage pays defence costs and settlement negotiations.

6. Crisis Management & PR Costs

What it covers:
Funds for hiring PR consultants or crisis management firms to handle reputational fallout after a claim.

Example:

• Following a corruption investigation, media coverage damages public trust in a listed property developer. The board uses PR crisis funds to run a public clarification campaign.

7. Regulatory Fines & Penalties (Where Legally Permissible)

What it covers:
Certain regulatory fines/penalties may be insurable under Malaysian law, especially if not criminal in nature.

Example:

• Bursa Malaysia imposes a civil penalty on directors for delayed financial reporting. If legally insurable, the policy covers the penalty and related defence costs.

8. Advancement of Defence Costs

What it covers:
Ensures legal fees are paid as incurred during proceedings, rather than reimbursed only after a final judgment.

Example:

• A shareholder lawsuit drags on for 18 months. The insurer pays ongoing lawyer invoices monthly so directors are not out of pocket during the case.

9. Outside Directorship Coverage

What it covers:
Covers directors serving (with company approval) on outside boards, such as joint ventures, non-profits, or subsidiary companies.

Example:

• A director sits on the board of a JV partner at the request of their main employer. When the JV faces a shareholder dispute, the D&O policy covers their defence.

10. Extended Reporting Period (ERP)

What it covers:
Provides extra time to report claims after the policy expires, useful during mergers, acquisitions, or winding down a business.

Example:

• A start-up shuts down in 2025. In 2026, a former investor files a misrepresentation claim. The ERP ensures the old policy still responds.

Common Exclusions

Most D&O policies will not cover:

• Fraud, dishonesty, or criminal acts (once proven in court)
• Prior known circumstances before policy inception
• Bodily injury and property damage (covered under other policies)
• Pollution-related claims (unless endorsed)
• Personal profit or gain obtained illegally

Case Scenarios – How D&O Insurance Works in Practice

Case 1: Misleading Statement to Bursa

Incident:
A public-listed company issues a market announcement overstating its revenue forecast. Bursa Malaysia investigates and fines both the company and its directors.

Coverage Response:

• Defence Costs – Lawyers engaged to defend directors in regulatory hearings
• Fines & Penalties – Where legally allowed, paid under the policy
• Crisis PR – Engaged to manage shareholder communications

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Case 2: Shareholder Derivative Action

Incident:
Minority shareholders sue the board for approving a high-risk acquisition that led to significant financial loss.

Coverage Response:

• Side A/B Coverage – Pays for defence costs and any settlement
• Investigation Costs – Covers expenses for forensic accounting review

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Case 3: Employee Discrimination Claim

Incident:
A senior employee sues for wrongful termination and gender discrimination, naming the CEO and HR Director personally.

Coverage Response:

• Employment Practices Liability – Covers defence costs and potential settlement
• Reputation Management – Funds used for public image repair

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Who Should Buy D&O Insurance in Malaysia?

• Public-listed companies – Higher exposure to shareholder and regulatory claims
• Private companies – Increasing investor oversight and contractual obligations
• Non-profits & Associations – Board members can still be sued for mismanagement
• Start-ups with external investors – To meet due diligence requirements

If you’re keen to explore how Directors & Officers (D&O) Insurance can safeguard your board members and senior executives — or want to understand how coverage works in real-world Malaysian cases, reach out to us. We can walk you through available options, explain policy differences, and help you choose protection that fits your organisation’s risk profile.

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Disclaimer: This guide is provided for general information purposes only and does not constitute insurance advice. Coverage, limits, terms, and exclusions vary by insurer and are subject to the specific terms and conditions of the final policy issued. Policy terms and conditions apply.