COMPANY LAW

HANDSKAR (M) SDN BHD v. QUBE MEDICAL PRODUCTS SDN BHD & ANOR [2024] 3 CLJ 865 [high Court]

Brief Facts

The plaintiff, Handskar (M) Sdn Bhd (‘Handskar’) entered into an agreement to purchase gloves from the first defendant company, Qube Medical Products Sdn Bhd (‘Qube’) at the contract sum of USD7.44 million (‘supply contract’). The second defendant is and was the director of Qube (‘director’). Handskar made an upfront payment of 35% of the total contract sum to Qube, with the remaining 65% to be paid upon delivery of the gloves. In mid-December 2020, Handskar agreed to the price increase on the balance of the undelivered gloves so that Qube could complete the deliveries by the end of February 2021. Handskar claimed that the delivery terms in the revised proforma invoice were altered from “December 2020” to “December 2021” without its consent and agreement.

Upon failing to complete deliveries by the end of February 2021 as initially agreed, Handskar gave Qube a new deadline of 31 July 2021 and notified them that any delivery beyond the deadline would be refused and the order would be cancelled. Qube yet again failed to complete deliveries by the new deadline, so Handskar terminated the supply contract and commenced proceedings in the High Court against Qube for breach of contract and against the director in tort for an unlawful interference with the supply contract, consequently causing losses to Hanskar’s economic interest.

The director applied to strike out Handskar’s claim.

High Court’s Decision (Justice Ong Chee Kwan)

The court struck out Handskar’s claim against Qube’s director and granted an order with costs on the grounds that:

[1] It is a trite principle of law that a director acting on the company’s behalf does not incur tortious liability if he has acted honestly within the scope of his authority. The court applied the principle in the case of Said v. Butt [1920] 3 KB 497 where it was established that a director would ordinarily be exempted from personal liability for authorizing or procuring his company’s breach of contract in his capacity as a director, unless his decision is made in breach of any of his fiduciary or other personal legal duties to the company. He who steps outside his authority, or has otherwise breached his duties to the company, ceases to act in the company’s best interests and should be treated as any other stranger who has procured a breach of contract by a company. A person who is a stranger to the contract would prima facie (on the face of it) be liable for causing or procuring a breach of contract, even if he may have acted honestly. On the contrary, a person acting honestly within the scope of his authority, on behalf of his company, would not. His acts are in law the acts of the company. To hold each director or other authorized agent liable for knowingly procuring a breach of his employer’s contract would not only be unfair but troublesome as it would widely open the flood-gates of litigation.

[2] It was for Hanskar to prove that Qube’s director was in breach of his personal legal duties to Qube. However, nowhere in its claim did Handskar allege that the director’s decisions or actions were (i) not made in the course of his duties as Qube’s director (ii) made outside the scope of his authority (iii) were in breach of his fiduciary duties or other duties owed to Qube or (iv) not made in the best interests of Qube. Qube’s director could not be held liable for the mere fact of being a director, involved in making the decisions on the supply contract as granted by Qube.

LOW CHENG TEIK & ORS v. LOW EAN NEE [2024] 9 CLJ 171 (Federal Court)

Case Digest:

[1] The central distinction between the oppression action and the derivative action lies in the nature of the claim. Where the nature of the act, omission or misconduct is oppressive or unfairly prejudicial to a shareholder, and the resulting injury and loss may be classified as having been suffered directly and specially or separately and distinctly by the shareholder in such capacity, as opposed to loss or injury suffered by the company or all the other shareholders, then oppression is made out and the cause of action vests in the shareholder. In such an instance, s. 346 of the Companies Act 2016 provides the remedies available.

[2] If, however, the act, omission or misconduct is an injury done to the company, resulting in a loss to the company, then the cause of action vests in the company and s. 347 is the proper remedy to be utilised.

KATHRYN MA WAI FONG v. WONG KIE CHIE & ANOR AND OTHER APPEALS [2025] 1 CLJ 187 (Court of Appeal)

Case Digest:

In a dispute regarding the issuance of shares, under the Duomatic principle (which laid down the proposition that matters which were to be done formally may be done informally), formalities can be disregarded if shareholders had, by conduct, waived the requirements provided that they were assented to by the members of the company. This is particularly applicable to family-run companies as it is a distinctive hallmark of family-run companies where the affairs are frequently conducted informally and often without adhering to the formal requirements of statutes or the company's Articles of Association. The Duomatic principle also clearly applies whether the approval is given in advance or prior to the event. Approval can take many forms, such as agreement, ratification, waiver or estoppel.

Low Cheng Teik & Ors v. Low Ean Nee [2024] 9 CLJ 171 [Federal Court]

Brief facts

The 1st to 3rd appellants, Low Cheng Teik (‘LCT’), Low Hock Book (‘LHB’) and Lau See Yoon (‘LSY’) and the respondent, Low Ean Nee (‘LEN’) were the shareholders and directors of the 4th appellant, SNE Marketing Sdn Bhd (‘the company’), with LCT also holding the position as the chairman of the company. LCT assigned the company’s trademarks (‘SNE’s trademarks’) to SNE Global Sdn Bhd (‘SNE Global’), a company co-founded by LCT, for a nominal consideration of RM10. No resolution was passed by the Board of Directors of the company to authorise the said assignment.

LEN issued a statutory notice to seek leave to initiate a derivative action on behalf of the company, pursuant to s. 348(2) of the Companies Act 2016 (‘Act’), against, inter alia, LCT, LHB, LSY, SNE Global and one Low Poh Ling (‘LPL’) who owned 50% of the shares in SNE Global and was one of its directors. LEN, however, did not file a derivative action on behalf of the company but, instead, commenced an oppression action at the High Court against the appellants (‘LEN’s oppression action’).

Separately, the company initiated an action at the High Court against, inter alia, SNE Global and LPL and the parties entered into a consent order, following which the assignment of the SNE trademarks from the company to SNE Global was cancelled and the company was reinstated as the proprietor of the SNE trademarks.

High Court’s Decision

The High Court concluded that LEN had failed to prove, on a balance of probabilities, that the actions and conduct of LCT, LHB and LSY as alleged by LEN amounted to oppression pursuant to s.346 of the Act. The High Court thus rejected all eight complaints of oppression and dismissed LEN’s oppression action.

Court of Appeal’s Decision

On appeal, the Court of Appeal upheld the rejection of seven of eight of the grounds but reversed the High Court’s decision on one complaint of oppression, concluding that LCT, LHB and LSY had, by such assignment of the trademarks, acted so as to benefit themselves indirectly, via other corporate entities that were controlled by or related to them, to the prejudice of LEN. LCT, LHB and LEN were accordingly found liable for oppression.

Federal Court’s Decision

Dissatisfied with the decision of the Court of Appeal, LCT, LHB and LSY sought leave and obtained the same in respect of the following questions of law:

1. what is the legal test to determine whether a shareholder’s complaint is actionable by way of oppression action or a derivative action?;

2. whether the court’s determination of the merits of the complaints of oppression under s. 346 of the Act is to be assessed at the date of filing of the oppression action or at the date of hearing of the oppression action; and

3. whether the court in exercising its discretion to order the purchase of shares in the company under s. 346(2)(c) of the Act ought to consider reasonableness of the asking price of the plaintiff-shareholder, financial capacity of the defendant shareholder(s), and proportionality of the value of the share purchase in relation to the gravity of the matters complained.

The Federal Court allowed LCT, LHB, LSY’s appeal against the decision of the Court of Appeal and found it unnecessary to answer the last two questions as the Court’s answer to 1st question was sufficient to dispose of the appeal.

Question 1

The following criteria were proposed as the basis for the formulation of a legal test to ascertain whether a shareholder’s complaint is actionable under s. 346 of the Act or more properly on behalf of the company under s. 347 of the Act:

(i) what was the act or omission that one or more of the shareholders complained of – in short, identify the act, series of acts or omissions;

(ii) can the act(s) or omission(s) be characterised as being,

(a) oppressive to;

(b) in disregard of the interests of;

(c) unfairly discriminatory against; or

(d) otherwise prejudicial to, one or more of the shareholders;

(iii) does the cause of action vest in the shareholder or in the company;

(iv) who suffered loss or damage from the wrong done – the shareholder in his capacity as a shareholder or the company; and

(v) is the loss suffered by the shareholder, as the plaintiff, separate and distinct to the plaintiff in his capacity as a shareholder or is it a loss suffered by all the shareholders.

Applying the elements of the legal test above,

(i) the wrong or infraction complained of was the wrongful assignment to a 3rd party of the SNE trademarks which belonged to the company; 

(ii) the wrongful act could not be said to be oppressive or unfairly discriminatory or otherwise prejudicial to LEN alone in her capacity as a shareholder. Rather, it was a wrong that affected all the shareholders;

(iii) the cause of action vested in the company and not LEN;

(iv) the loss or damage arising as a consequence of the wrongful assignment of the SNE trademarks to a third party was suffered by the company and not by LEN alone in her capacity as a shareholder; and

(v) the loss was suffered by all the shareholders and not by LEN alone.

LEN was entitled to seek leave to commence a derivative action on behalf of the company against the wrongdoer(s), under s. 347 of the Act, as was initially intended by her. This meant that LEN’s claim, in respect of the assignment of the SNE trademarks could not be properly pursued by way of an oppression action.

The proper plaintiff in this case was the company. Any loss suffered by LEN, as a result of the assignment of the SNE trademarks, would be a loss in either the capital value of her shareholding or a loss in the dividends distributable to her. This was reflective loss, in that, it reflected the loss sustained by the company to the extent of her shareholding in the company.

It could not constitute a separate and distinct injury resulting in a loss to the her in her capacity as a shareholder. As the wrongful act was found to be that of LCT, it could not also be said that LEN had been unfairly prejudiced by the conduct of the majority shareholders.

The rule against reflective loss bolstered the determination that LEN ought not to bring an action in her capacity as a shareholder. The principle against recovery by a shareholder for “reflective loss” in the English case Prudential Assurance Co Ltd v. Newman Industries Ltd (No 2) [1982] Ch 2024 was confirmed by the House of Lords in Johnson v Gore Wood & Co [2000] UKHL 65 where a shareholder cannot recover a loss that simply “reflects” the company’s loss, namely, a reduction in the capital value of the shareholding or a diminution in the dividends he earns by reason of a loss suffered by the company in respect of which the company has its own cause of action.

The Federal Court concluded that the cause of action vested in the company and not LEN. This claim should not have been brought by way of an oppression action under s. 346 of the Act. This was not to say that there was no wrongdoing, as indeed there was, but such wrongdoing was done to the company and should have been pursued under s. 347 of the Act as a derivative action.

SABAH DEVELOPMENT BANK BHD v. TYL LAND & DEVELOPMENT SDN BHD [2025] 1 CLJ 413 (Court of Appeal)

Case Digest:

[1] It is necessarily implied in s. 524(2) of the Companies Act 2016 that for the purpose of an effective exercise of the secured creditor's power to sell security, a secured creditor may revalue the security subsequent to the secured creditor's previous valuation.

[2] The previous valuation of the security by the secured creditor and/or the unsecured sum claimed by the secured creditor in the company's liquidation could not bar the secured creditor's power to sell security. For the purpose of an effective exercise of the secured creditor's power to sell security, a secured creditor may revalue the security subsequent to the secured creditor's previous valuation. A secured creditor's power to revalue security ensures that the security is not sold at a gross undervalue. A secured creditor may withdraw or amend the secured creditor's claimed sum.

DATO' SRI ANDREW KAM TAI YEOW v. GRANDFOODS SDN BHD & ANOR AND OTHER APPEALS [2025] 6 CLJ 681 (Court of Appeal)

Case Digest:

[1] It is trite that the interpretation of contractual documents, of which Articles of Association are an example, is a question of law.

[2] If the directorship of a director is merely deemed terminated by retirement (even if properly due, pursuant to the retirement by rotation provision) upon the expiry of a time period without a general meeting of the shareholders being convened, that director is deprived of his right to stand for re-election and the shareholders are likewise denied the opportunity to vote on the re-election proposal and the continued service of that individual as a director of the company.

[3] A company director, who is due to retire under the Articles of Association of a company in an impending general meeting of the shareholders, cannot be deemed to have retired upon the completion of the period the meeting ought to have been convened if the meeting could not be held for some reason. He should not be deprived of his right to stand for re-election and the shareholders, likewise, should not be denied the opportunity to vote on the re-election proposal and the continued service of that individual as a director of the company.

WOON KIM CHOY v. ACEXIDE TECHNOLOGY SDN BHD & ANOR AND ANOTHER APPEAL [2025] 2 CLJ 57 (Court of Appeal)

Case Digest:

There is nothing incompatible between a person exercising his role as an executive director of the company and, at the same time, having a contract of employment with the company. The two positions and their respective roles and responsibilities may co-exist. It is not uncommon for a director to have a contract of employment with the company, whereby their removal as a director would mean they cease to hold that position but continue in their designated role as a high-ranking senior employee. Whilst he may be removable as an executive director by current or new shareholders, his status as an employee would remain intact unless he is dismissed on misconduct. In such situation, pursuing remedy under a minority oppression action as a shareholder should not prejudice his claim for unlawful dismissal under a contract of employment with the company in the Industrial Court.

TAY KEONG KOK & ORS v. EASTMONT SDN BHD & ANOTHER APPEAL [2025] 1 CLJ 583 (Court of Appeal)

Case Digest:

[1] Fraudulent trading can be discovered in the course of the winding-up process or in any proceedings against the company. The winding-up of a company can, in fact, be considered as carrying on the business of the company with the intent to defraud creditors. The intent to defraud does not necessarily require incurring new debt.

[2] The individuals involved in fraudulent trading need not hold managerial positions in the company to be liable for fraudulent trading.

[3] An agreement to injure another person can be inferred from overt acts and need not be express. In certain circumstances, courts may disregard the separate legal personality of a company to hold its directors or shareholders personally liable.

[4] An action based on fraudulent trading, under s. 540 of the Companies Act 2016 , can be brought in a separate suit and not necessarily in the winding-up proceedings or the proceedings against the company.

WONG WENG FOO & CO v. LONDON BISCUITS BHD (IN LIQUIDATION) [2025] 3 CLJ 384 (Court of Appeal)

Case Digest:

Joint-liquidators must act jointly. It is not within the power of any one co-liquidator to unilaterally and disjointedly represent the will of the company in liquidation to file an application to remove the other co-liquidator. If co-liquidators are clothed with the capacity to unilaterally represent a company as a defiant sole liquidator to remove one another, the entire legal mechanism of having joint liquidators shall be doomed to fail as the nature of check and balance in and of itself deals with conflicts and opposing views.

V MEDICAL SERVICES M SDN BHD v. SWISSRAY ASIA HEALTHCARE CO LTD [2025] 4 CLJ 282 (Federal Court)

Case Digest:

[1] Where a party to an arbitration agreement issues a notice under s. 466(1)(a) of the Companies Act 2016 against the other party in respect of a debt that is disputed, such dispute falling within the ambit of the said arbitration agreement, in seeking to restrain the filing or continuing of winding-up proceedings grounded on such notice, the other party is required to show the debt is bona fide disputed on substantial grounds.

[2] Where two Acts are composite and distinct, they ought to be construed and applied within their respective contexts. The importation of statutory provisions from one statute unrelated to, or distinct from another, is not tenable. Save for specific situations, an Act is meant to be construed in light of its own terms and not by the terms of another statute. Where statutory provisions are not to be applied interchangeably in separate and distinct statutes, then legislative intent too cannot be incorporated from one statute to another. A balance ought to be achieved in each case, by allowing the prevailing laws to apply respectively.

CLASSIC MARITIME INC v. LION DIVERSIFIED HOLDINGS BHD & ANOR [2025] 6 CLJ 210 (Court of Appeal)

Case Digest:

[1] A court ought to be slow in interfering with the act or decision of liquidators in discharging their roles in a company's liquidation particularly in matters involving sales of company's assets, which involves commercial considerations. A liquidator must take reasonable care to obtain the best price for the assets of the company in liquidation, as the circumstances of the case may permit. The balancing of the competing considerations must properly be a matter of the discretion of the liquidator.

[2] A court ought to be slow to interfere with the act or decision of liquidators in discharging their roles in the company’s liquidation particularly in matters involving sales of the company’s assets, which involve commercial considerations. However, such decisions of the liquidators are not beyond reproach. On the authority of Koh Huat Kwan v. Pegawai Penerima; (Selaku Pelikuidasi Bagi Poh Mah Housing Development Sdn Bhd) & Ors [2015] 7 CLJ 16, a court will interfere with the exercise of the powers, acts or decisions of the liquidator if:

(i) the liquidator had acted fraudulently; or

(ii) the liquidator was not bona fide in his conduct; or

(iii) the conduct of the liquidator was so utterly unreasonable and absurd that no reasonable person would so act.

[3] An applicant cannot avail itself of s. 517 of the Companies Act 2016 to challenge the decision of a liquidator, when what is sought to be set aside is not merely an act or decision of the liquidator, but an order of the court. Directions contained in a court order constitute a judgment of the High Court against which an appeal can validly be mounted.

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