Ga Yee Furniture Sdn Bhd v Dato' Khor Wooi Chen (P-02(IM)(NCC)-1099-06/2017)

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1 IN THE COURT OF APPEAL, MALAYSIA (APPELLATE CIVIL JURISDICTION) CIVIL APPEAL NO.: P-02(IM)(NCC)-1099-06/2017

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(1)(f) and (h) of the Companies Act 2016; And In the matter of the Companies (Winding-Up) Rules 1972; And In the matter of Ga Yee Furniture Sdn. Bhd. (Company No.: 253243-X) BETWEEN DATO’ KHOR WOOI CHEN … PETITIONER (NRIC NO: 730608-08-5175) AND

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(2) The interim liquidator shall have and may exercise all the functions and powers of a liquidator subject to such limitations and restrictions as may be prescribed by the rules or as the Court may specify in the order appointing him.” [5] Rule 35(1) of the Companies (Winding-up) Rules, 1972 on the other hand provides: 5 “(1) At any time after the presentation of a petition, the Court may, upon the application of any creditor or contributory of the company and upon proof by affidavit of sufficient ground for the appointment of a provisional liquidator make the appointment upon such terms as the Court shall think just or necessary.” [6] Section 476 of the Act is identical with the former section 231 of the Companies Act 1965 save for the word “interim”, which is as follows: “The Court may appoint the Official Receiver or an approved liquidator provisionally at any time after the presentation of a winding up petition and before the making of a winding up order and the provisional liquidator shall have and may exercise all the functions and powers of a liquidator subject to such limitations and restrictions as may be prescribed by the rules or as the Court may specify in the order appointing him.” [7] The court will appoint an interim liquidator upon presentation of a winding-up petition if there is good prima facie evidence that-i. the company will be wound up because the company is obviously insolvent, or ii. the company’s assets are in jeopardy, or iii. there are other circumstances which makes it imperative for the court to intervene. [8] It was the respondent’s contention that the learned High Court judge made the correct decision in allowing Enclosure 4 as there was compelling evidence of dissipation of assets, misfeasance and/or misappropriation of funds from the first appellant by the second appellant in that: i. the second appellant had been making monthly payment of RM30,000.00 to himself since joining the company in May 6 2016 without any approval or sanction from the shareholders at the Annual General Meeting contrary to Article 75 of the memorandum and Articles of Association; ii. the second appellant had misappropriated proceeds from the sale of scrap items belonging to the company and channeling into his personal bank account with Alliance Bank. Previously, all proceeds from the sale of the scrap items were paid into the company’s bank accounts; iii. the second appellant approved payments to his own personal lawyers using company funds. It is not disputed that the first appellant never retained or appointed the law firm of ‘Norliza & Associates’ or En. Abd Fareed B. Abd. Gafoo (“Fareed”). They were in fact the second appellant’s personal lawyers; iv. the second appellant misappropriated company funds by issuing cheques for the amount of RM40,000.00 in the name of Richmond Leow Heng Thian, who was at the material time the CEO of the company. Richmond was then instructed by the second appellant to cash the cheque and to deliver the cash to Fareed. This is notwithstanding the fact that the payment voucher was made in the name of ‘Norliza & Associates’ and not Fareed. [9] The above transactions were not denied by the second appellant but justified the dissipation and/or misappropriation, which the respondent submitted was illogical and without basis, for the reason that the remuneration of the directors shall from time to time be determined by the 7 company at the General Meeting. This is stipulated by Article 75 of the Memorandum and Articles of Association, which provides: “75. The remuneration of the Directors shall from time to time be determine by the Company in General Meeting. The Directors shall also be paid such travelling, hotel and other expenses as may reasonably be incurred by them in the execution of their duties, including any such expenses incurred in connection with their attendance at the meetings of Directors. If by arrangement with the other Directors any Director shall perform or render any special duties or services outside his ordinary duties as a Director, the Directors may pay him special remuneration, in addition to his ordinary remuneration, and such special remuneration may be by way of salary, commission, participation in profits otherwise or as may be arranged.” [10] It was undisputed that there was no sanction by the shareholders or members’ resolution to approve the monthly “Directors’ Fees” which the second appellant paid himself. Despite the challenge mounted on the said unlawful payments, the second appellant continued to pay himself the sum of RM30,000.00 notwithstanding the prima facie finding of “Dissipation/Misappropriation” by the learned High Court judge. We reproduce below the relevant part of the High Court’s judgment: “Tidak ada resolusi Syarikat dikemukakan untuk membuktikan bahawa bayaran tersebut adalah dibuat secara sah untuk pembayaran Responden Kedua. Dengan keadaan itu, adalah tidak wajar bahawa asset-aset Syarikat Responden Pertama telah dikeluar dan dilepaskan oleh Responden Kedua tanpa persetujuan atau sanksi dari pemegang-pemegang saham dan ianya bercanggah dengan Article 75, MMA, kerana Responden Kedua bertindak untuk kepentingannya sendiri. 8 Selanjutnya, Pihak Responden Kedua juga menyatakan yang beliau telah menghentikan pembayaran RM30,000-00 ini kepada beliau. Walau bagaimanapun,saya dapati tidak terdapat bukti-bukti yang dikemukakan bagi membuktikan yang bayaran kepada Responden Kedua telah dihentikan. Tanpa adanya sebarang pembuktian daripada pihak Responden Kedua, saya dapati pengataan Responden Kedua yang bayaran RM30,000-00 kepada beliau telah diberhentikan adalah tidak berasas.” [11] We were referred by learned counsel for the respondent to the case of Re George Newman and Co [1895] 1 Ch 674 where the liquidator of the plaintiff’s company commenced an action against its former director to recover monies which were purportedly paid as director’s remuneration without the shareholders’ approval. It was held by Lindley J as follows: “Directors have no right to be paid for their services, and cannot pay themselves or each other, or make presents to themselves out of the company’s assets unless authorised so to do by the instrument which regulates the company or by the shareholders at a properly convened meeting.” [12] The principle has been adopted by our courts: see Tengku Dato’ Ibrahim Petra bin Tengku Indra Petra & Ors v Perdana Petroleum Bhd (formerly known as Petra Perdana Bhd) [2013] 4 CLJ 600; [2013] 8 MLJ 280; Shanmugam Paramsothy v Thiagarajah Pooinpatarsan & Ors [2001] 8 CLJ 683; [2004] 5 MLJ 31. [13] We were also referred to Wong See Yaw v Bright Packaging Industry Bhd [2016] 6 CLJ 465 where it was held: “It was the first appellant himself who signed and approved the relevant payment vouchers as director’s fees. The first appellant’s act of getting his own signature 9 and approval for payments intended to be made for his own direct benefit did not reflect a good sound control and governance system is place at the institution of the respondent. Surely an exception can be made where, for the first appellant, the signature could instead be arranged to be given by the Chairman, subject to confirmation that the papers were in order. As such, the contention that the payments of RM108,000 and RM9,000 to the first and second appellants, respectively, was for travelling allowances and not for director’s fees, despite the description on the vouchers, was therefore untenable and could not be accepted. Being director’s fees, the sums should have been tabled to the shareholders at a general meeting for approval.” [14] To date, no shareholders meeting has been called and monies continue to be taken out of the first appellant to pay the second appellant. [15] As for the sale of the scrap items, the second appellant did not deny giving instruction for all the proceeds from the sale of scrap items belonging to the first appellant to be channeled and paid into his personal account in Alliance Bank. He however claimed that the proceeds were paid into his personal account because of the fear of burglary and that the monies were actually held on trust by him for the first appellant. [16] The learned High Court judge dealt with the issue in the following manner: “Daripada keterangan-keterangan affidavit yang difailkan dan hujah-hujah dari kedua-dua pihak, saya dapati Responden Kedua telah melakukan penyalahgunaan hasil jualan dari barang-barang skrap Syarikat. Ini adalah kerana tidak ada sebab yang wajar untuk Reponden Kedua bertindak demikian kerana hasil jualan adalah dari barang-barang kepunyaan Syarikat dan Responden Pertama sendiri mempunyai empat akaun (lihat muka surat 144-147, Petisyen) untuk dimasukkan hasil-hasil jualan tersebut. 10 Kenapa perlu hasil-hasil ini dimasukkan ke dalam akaun peribadi Responden Kedua, melainkan ianya telah disalahgunakan oleh Responden Kedua dengan memasukkan ke akaun peribadi beliau.” [17] What the second appellant had done was in clear breach of section 132(1) of the Act which provides that a director shall at all times act honestly and use reasonable diligence in the discharge of the duties of his office. He was treating the company funds as if, in counsel for the respondent’s words “it is his own ATM machine”. He even had the audacity to say that he is entitled to use the company funds as he sees fit simply because the company owes him money. The Supreme Court in Avel Consultants Sdn Bhd & Anor v Mohd. Zain Yusuff & Ors [1985] 1 CLJ 37; [1985] 2 CLJ 11 held as follows: “The law is clear that a director of a company is in a fiduciary relationship with his company and as such he is precluded from acting in a manner which will bring his personal interest into conflict with that of his company.” [18] On the evidence and having regard to the findings of the High Court, we agree that there was an elaborate web of deceit by the second appellant to deceive the company and its members for his own personal use. We were referred to page 171 of the appeal record which shows that the appellants themselves did not even know how to explain themselves when caught red handed with the misappropriation of the company funds. [19] This is what the learned High Court judge said in relation to issuance of the payment voucher to the legal firm of “Norliza & Associates” by the second appellant: 11 “Saya dapati daripada keterangan yang dikemukakan, Responden Kedua tidak menafikan bahawa beliau telah luluskan baucer bayaran firma kepada firma Norliza untuk perkara peribadi beliau. Mahkamah dapati tidak terdapat resolusi dari Lembaga Pengarah atau resolusi daripada pemegang-pemegang saham yang membenarkan ‘arrangement’ di antara Responden Kedua dan Responden Pertama. Juga hutang yang dikatakan itu tidak terdapat di dalam akaun-akaun kewangan Responden Pertama. ……………. Responden kedua juga akui bahawa wang berjumlah RM40,000-00 tidak dibayar kepada firma Norliza walaupun diserahkan dalam bentuk baucer bayaran. Sebaliknya Responden Kedua akui wang-wang tersebut dikemukakan secara tunai di bawah nama ‘Richmond’ atas arahan Responden Kedua dan kemudiannya terus diberikan kepada Fareed. Ini jelas menunjukkan penyalahgunaan dana Responden Pertama sedang dilakukan oleh Responden Kedua.” [20] Police reports had also been lodged against the second appellant for the dissipation of the assets, misappropriation, embezzlement and/or criminal breach of trust. [21] Our attention was also drawn to the fact that previously two signatures were required to sign the bank accounts and cheques and the respondent was one of the signatories. However, this check and balance mechanism was removed as soon as the 2nd and third appellants joined the company. Presently, the second appellant is the sole signatory to all the company’s bank accounts. He therefore had full access to the assets of the company without any form of control. 12 [22] The learned judge was therefore right to rule that in the circumstances, the appointment of an Interim Liquidator is necessary to preserve and to protect the assets of the company from further dissipation pending the hearing of the Winding-up Petition. [23] It was for the reasons aforesaid that we dismissed the appeal with costs to the respondent. -signed-ABDUL RAHMAN SEBLI Judge Court of Appeal Malaysia Dated: Counsel/Solicitors: For the Appellants: Ranjit Singh, Karin Lim and P.Suppiah Messrs. Presgrave & Mathwes For the Respondent: Wong Rhen Yen and Goik Kenwayne Messrs. Dennis Nik & Wong.