HSL Plastics Sdn Bhd v TNL Plastic Manufacturer Sdn Bhd (BA-22NCC-96-07/2020)

HSL Plastic Sdn Bhd (No. Syarikat: 1070128-W)

Lim Shen Lee (No. K/P: 650530-05-5135)

Lim Kai Meng (No. K/P: 700805-10-5019 …Plaintif-Plaintif

TNL Plastic Manufacturer Sdn. Bhd. (No. Syarikat: 636656-A)

No Shen Lee (M) Sdn. Bhd. (No. Syarikat: 594315-M)

Tan Ken Meng (No. K/P: 750610-01-6177) …Defendan-Defendan (Tindakan Asal)

TNL Plastic Manufacturer Sdn. Bhd. (No. Syarikat: 636656-A)

No Shen Lee (M) Sdn. Bhd. (No. Syarikat: 594315-M) …Plaintif-Plaintif

HSL Plastic Sdn Bhd (No. Syarikat: 1070128-W)

Lim Shen Lee (No. K/P: 650530-05-5135)

Seah Chin Thieng (No. K/P: 661230-10-5827 …Defendan-Defendan (Tindakan Melalui Tuntutan Balas) GROUNDS OF JUDGMENT Introduction [1] The Plaintiffs’ present action was triggered by the 3rd Defendant’s suit, filed in the Shah Alam High Court vide Originating Summons No.: BA-24NCC-1-01/2019 on 7.1.2019. The said suit was a minority oppression suit brought by 3rd Defendant against the Plaintiffs under Sections 198, 199, 213 and 346 of the Companies Act 2016. In an affidavit affirmed by the 3rd Defendant, he stated that the remaining assets of the 1st Plaintiff had been sold and disposed to the 1st and 2nd Defendants. [2] Premised upon this disclosure by the 3rd Defendant, the Plaintiffs commenced this action by way of an Originating Summons seeking for various reliefs, which are principally against the 3rd Defendant, alleging inter alia, breach of fiduciary duties as the disposal of the assets took place whilst he was a director of the 1st Plaintiff. The disposal was allegedly without the requisite consent and approval of the 1st Plaintiff. The Originating Summons was subsequently converted into the present Writ action. [3] At the outset, it needs to be mentioned that the 2nd Defendant has been wound up by an order of the Seremban High Court on 26.4.2023. This was informed by counsel for the Plaintiffs on the first day of the trial, stating also that the Plaintiff wished to withdraw the suit against the 2nd Defendant as they failed to obtain the requisite sanction to proceed against it. Thereupon, I made an order that the suit against the 2nd Defendant be struck out. [4] The 2nd Defendant has also filed a counterclaim in this action. As it is now in liquidation, defence counsel was not in position to defend the 2nd Defendant, and stated that the office of the Director-General of Insolvency (“DGI”) will be duly informed. Unfortunately as the trial progressed, no representatives from the office of the DGI appeared to represent the 2nd Defendant. Material facts [5] The 1st Plaintiff (“HSL Plastics”) is a private limited company established under the Companies Act 1965. The individuals who are parties in this action have at some point, held directorships in HSL Plastics. [6] The 2nd Plaintiff (“Lim Shen Lee”) is a current director of HSL Plastics, whilst the 3rd Plaintiff (“Lim Kai Meng”) and the 3rd Defendant (“Tan Ken Meng”) were its former directors. The 3rd Defendant in the counterclaim action (“Seah Chin Thieng”) is a current director of HLS Plastics. [7] The 1st Defendant (“TNL Plastic”) is a private limited company incorporated under the Companies Act 1965. Tan Ken Meng is a director of TNL Plastic. [8] Notwithstanding the fact that the 2nd Defendant (“Ho Shen Lee Co.Ltd”) has now been struck out as a party in the original action nonetheless, it will still be mentioned for the sake of a complete factual matrix. [9] The businesses of HSL Plastic, Ho Shen Lee Co.Ltd and TNL Plastic are similar in that all three companies were involved in production, manufacturing and sales of construction plastic materials. [10] TNL Plastic and Ho Shen Lee Co.Ltd were incorporated much earlier, in 2003 and 2002 respectively. HSL Plastic was incorporated only on 13.11.2013. [11] After HSL Plastics was incorporated, the company through Lim Kai Meng who was the director, was commissioned by TNL Plastics and Ho Shen Lee Co.Ltd to produce plastic extrusion products to be sold to these two companies. [12] It was established at the trial that Lim Kai Meng had the requisite expertise in the production of plastic extrusion products. He was skilled in the design of the computer aided drawings for the plastic products. [13] However, in 2015, Lim Kai Meng left HSL Plastics, and without its consent, set up his own company, KM Plastics Technology Sdn Bhd. As the survival of HSL Plastics was largely dependent on Lim Kai Meng, his departure caused HSL Plastics to become a dormant company. Tan Ken Meng then decided to dispose of the assets of HSL Plastics. [14] The Plaintiffs allege that the sale was only known when it was disclosed by Tan Ken Meng in the affidavit affirmed by him on 4.3.2019 in support of the minority oppression suit filed in the Shah Alam High Court. The assets in question and its value are as follows:- No. Item Tax Invoice No. Amount

3150 kg of PVC Compound MC 5500 00020204 13,689.90 2.

1.5 HP Acson air-cond Emas Espro A/C + Stock System Canon E480 Printer CCTV Computer 00020206 8,854.12 3. Extruder Screw Dia 85 1HP Mikasa Vacuum Autoloader 5HP Air-Cond Two-wheel winder for PVC tube Screw & Barrel 00020207 52,071.68 4. Talka Denko Turbine Ventilator Iron Work 00020208 5,234.69

Baoli CPCD25 Forklift 00020209 40,704.00 Total 120,554.35 [15] On 15.07.2019, the Shah Alam High Court dismissed the minority oppression suit with costs of RM20,000.00. [16] The Plaintiffs allege that in disposing of the said assets, Tan Ken Meng had misused his position as the director of HSL Plastics, which act was intended to benefit Tan Ken Meng, causing detriment to HSL Plastics. This is in contravention of sections 213, 218 and 223 of the Companies Act 2016 for which it seeks the following prayers in its Statement of Claim:-

A declaration that Tan Ken Meng has misused his position as the director of HSL Plastics for his own benefit;

(ii) A declaration that Tan Ken Meng has misused his position as the director of HSL Plastics to gain profit for the indirect benefit of TNL Plastic;

(iii) A declaration that Tan Ken Meng has contravened section 218 of the Companies Act 2016;

(iv) A declaration that the disposal of the assets from HSL Plastics to TNL Plastic was done without any valuable consideration;

A declaration that TNL Plastic possessed actual notice of the contravention of section 223(1) of the Companies Act 2016;

(vi) A declaration that the disposal of the assets from HSL Plastics to TNL Plastic is void pursuant to section 223(5) of the Companies Act 2016;

(vii) A declaration that Tan Ken Meng has contravened section 223 of the Companies Act 2016;

(viii) An order that TNL Plastics return the said assets of HSL Plastics to the Plaintiffs; and

(ix) An order for assessment of damages to be made and paid to the Plaintiffs together with interests and costs of this action. [17] In defence to the suit filed, the Defendants contend that the sale of the assets of HSL Plastics was consented to and approved by Lim Shen Lee, the other director of HSL Plastics. He had in fact signed, approved and issued the relevant Purchase Orders dated 30.9.2015 on behalf of TNL Plastics. Lim Shen Lee was also the director and shareholder of TNL Plastics at the material time. [18] Further, the sum of RM 120,554.40 being the purchase price of the assets was received by HSL Plastics. There was valuable consideration and hence, no loss occasioned to HSL Plastics, which had in any event, become dormant after Lim Kai Meng left. [19] The Defendants also questioned Lim Shen Lee’s lack of bona fides in commencing the present suit. The Defendants claim that after he was removed as a director of TNL Plastics in 2018, he filed various winding up petitions against TNL Plastics and other related companies in an attempt to stifle and shut down the businesses of. The present suit is pursuant to his agenda to disrupt the operation of these companies. [20] Apart from defending the suit filed by the Plaintiffs, TNL Plastics has also filed a counterclaim for costs which arose from a suit filed in the Kuala Lumpur High Court No. 221P-45-11/2017 (“IP Suit”). The IP Suit was commenced by HSL Plastics, TNL Plastics and Ho Shen Lee Co.Ltd against Lim Kai Meng when he left HSL Plastics, taking with him the computer aided drawings and data. [21] The IP Suit concluded with judgment against Lim Kai Meng. The Kuala Lumpur High Court awarded costs of RM 112,045.80 and interest at 5% on costs to be paid by Lim Kai Meng to HSL Plastics, TNL Plastic and Ho Shen Lee Co.Ltd. [22] Costs of RM 123,435.12 (inclusive of interest) was eventually paid by Lim Kai Meng. Although costs was awarded to the three plaintiffs in the IP Suit, Lim Kai Meng paid the costs to the account of HSL Plastics. TNL Plastic now claims its portion of the costs amounting to RM 41,145.04 in the counterclaim action. In addition to HSL Plastics as the defendant in the counterclaim action, Lim Shen Lee and Seoh Chin Thieng, the 2 current directors of HSL Plastics, are also named as they were allegedly the controlling mind and will of the company at the material time. [23] In defence to the counterclaim, it was contended that the costs claim is a non sequiter issue and bears no relation to the main claim. In short, it ought not to be raised in this court. Issues for determination by this court [24] From the pleaded case of the Plaintiffs and the reliefs sought, it would appear their case is principally against Tan Ken Meng. Premised on the competing contention of parties, the issues for determination are fairly narrow and can be stated thus:-

whether Tan Ken Meng had breached his fiduciary duties by misusing his position as the director of HSL Plastics to dispose of the assets of the company to TNL Plastics for his own benefit;

(ii) whether the act of Tan Ken Meng in disposing of the assets to TNL Plastics amounted to a contravention of sections 218 and 223 of the Companies Act 2016, and whether an order for the return of the assets to HSL Plastics ought to be made; and

(iii) whether the counterclaim for costs which arose from the IP Suit in the KL High Court is correctly brought in this action. Analysis and findings of this court Whether Tan Ken Meng breached his fiduciary duties [25] In the written submission of the Plaintiffs, the complaint of breach of fiduciary duties was raised for the first time. The Statement of Claim made no such express allegation of Tan Ken Meng’s breach of fiduciary duty as a director. Section 213 of the Companies Act 2016 was cited in support. The section provides, Duties and responsibilities of directors

(1) A director of a company shall at all times exercise his powers in accordance with this Act, for a proper purpose and in good faith in the best interest of the company.

A director of a company shall exercise reasonable care, skill and diligence with—

the knowledge, skill and experience which may reasonably be expected of a director having the same responsibilities; and

any additional knowledge, skill and experience which the director in fact has.

A director who contravenes this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or to a fine not exceeding three million ringgit or to both. [26] Section 213 of the Companies Act 2016 codifies the common law duties of a company director to act in good faith and in the company’s best interests when performing their duties. [Pioneer Haven Sdn Bhd v Ho Hup Construction Co Bhd & Anor and other appeals [2012] 3 MLJ 616, CA]. [27] The alleged of breach of fiduciary duty is premised on the disposal of the assets of HSL Plastics to TNL Plastic whilst he was a director. [28] The fact of disposal is not in dispute. Tan Ken Meng admitted as much in his oral evidence. However, he explained that the decision to sell the assets was made when he learnt through the auditor of HSL Plastics sometime in August 2015, that Lim Kai Meng wanted to leave his employment with the company, which he eventually did, in September 2015. [29] Neither Tan Ken Meng nor Lim Shen Lee had any expertise in making the drawings. This was stated by Lim Kai Meng in cross examination. He said he was the only person in HSL Plastics with the knowledge and expertise in manufacturing plastic mould and plastic extrusion products. Lim Shen Lee admitted as much in cross examination. I accept the defence story that the company could not continue its operations to produce the plastic extrusion products without the expertise of Lim Kai Meng. [30] Tan Ken Meng then decided that it was in the best interest of HSL Plastics to have its assets disposed of to TNL Plastics for RM 120,554.40. Having considered the evidence for the defence particularly that of Tan Ken Meng, the reason proffered for the sale of the assets of HSL Plastics, I find his explanation to be plausible. His credibility was not shaken in cross examination of his evidence. [31] His decision was informed to Lim Shen Lee who agreed with his proposal. The decision to sell the assets of HSL Plastics was a collective decision by both of them. [32] To substantiate the Defendants’ assertion that Lim Shen Lee approved the sale, five Purchase Orders bearing the signatures of Lim Shen Lee were adduced in evidence. These Purchase Orders were in respect of the assets listed in paragraph 14 above. The Purchase Orders were signed by Lim Shen Lee on behalf of TNL Plastic. [33] As proof that Lim Shen Lee signed the Purchase Orders, the services of a document examiner Mr William Pang Chan Kok (DW2), was commissioned to examine the documents. I have examined his curriculum vitae and find his experience and expertise to be considerable, having given evidence in numerous court proceedings in Malaysia and Singapore. His expert opinion is relevant evidence. (See: section 45 of the Evidence Act 1950). [34] DW2 explained the methodology adopted in examining the questioned signatures on the Purchase Orders and the specimen signatures of Lim Shen Lee. He then concluded that both bear a close resemblance in size, proportion, placement, construction and movement. Whilst the evidence of an expert is relevant evidence, the court is not bound to wholly accept his evidence. His findings and his basis in arriving at this conclusion must still be evaluated to determine its probative value. Ultimately the court is to come to its own opinion (See: Wong Swee Chin v Public Prosecutor [1981] 1 MLJ 212, Dr Shanmuganathan v Periasamy s/o Sithambaram Pillai [1997] 3 MLJ 61). [35] Having heard DW2 and considered his report, I find his findings to be well reasoned and convincing. I am convinced that the handwriting on the Purchase Orders is that of Lim Shen Lee’s. [36] The Plaintiffs on the other hand, did not produce any expert evidence to rebut the findings of DW2. His evidence remains unchallenged. Lim Shen Lee’s position with regard to the signatures on the Purchase Orders, was that they were not his. That being so, I consider him to be effectively contending his signatures were forged. In Sinnayah & Sons Sdn. Bhd. v Damai Setia Sdn Bhd. [2015] 5 MLJ 1, the Federal Court held that the standard of proof of forgery in a civil case is on a balance of probabilities. [37] With no rebuttal evidence, the balance is tilted in favour of the Defendants. The signatures of Lim Shen Lee on the Purchase Orders clearly demolish his contention that he had no knowledge of the sale of the assets of HSL Plastics. [38] As Lim Shen Lee was the other director of HSL Plastics apart from Tan Ken Meng, the contention of the Plaintiffs that the assets were sold without the consent of the company does not hold water. [39] The Plaintiffs also contend that the sale of the assets was for the benefit of Tan Ken Meng. There is not a jot of evidence to substantiate this claim. [40] It is also significant that apart from being a director of HSL Plastics, Lim Shen Lee was also a director of TNL Plastic at the material time. If the purchase of the assets was to benefit TNL Plastics as alleged, then he is equally responsible. It is incongruous for him to complain about the sale of the assets to TNL Plastics. [41] Finally, to succeed in a complaint of breach of fiduciary duty, it is trite law that an essential ingredient is loss to the party complaining of the breach. [42] The receipt of the sum of RM 120,554.40 by HSL Plastics is not in dispute. There is documentary proof of receipt in the form of the RHB account of HSL Plastics and its Audited Financial Statement for the year 2016. Lim Shen Lee also confirmed the fact of receipt of the monies in his oral evidence. [43] Premised on the fact that HSL Plastics received payment for the sale of its assets, the Defendants contend that no loss was occasioned to HSL Plastics. [44] I agree with the submission of the defence counsel. As payment was received for the sale, no detriment was caused to the company. [45] On the totality of the evidence adduced by the Plaintiffs in support of their allegation that Tan Ken Meng breached his fiduciary duties as director of HSL Plastics, I am not convinced such has been proven. whether the disposal of the assets amounts to a contravention of sections 218 and 223 of the Companies Act 2016 [46] The Plaintiffs further alleged that the disposal of the assets was not done in compliance with sections 218 and 223 of the Companies Act 2016. No general meeting nor company resolution was passed for that purpose. [47] To appreciate the argument advanced, the provisions are set out below, Prohibition against improper use of property, position, etc.

(1) A director or officer of a company shall not, without the consent or ratification of a general meeting—

use the property of the company;

use any information acquired by virtue of his position as a director or officer of the company;

use his position as such director or officer;

use any opportunity of the company which he became aware of, in the performance of his functions as the director or officer of the company; or

engage in business which is in competition with the company, to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company.

Any person who contravenes this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or a fine not exceeding three million ringgit or to both. Approval of company required for disposal by directors of company’s undertaking or property

(1) Notwithstanding anything in the constitution, the directors shall not enter or carry into effect any arrangement or transaction for—

the acquisition of an undertaking or property of a substantial value; or

the disposal of a substantial portion of the company’s undertaking or property unless—

the entering into the arrangement or transaction is made subject to the approval of the company by way of a resolution; or

(ii) the carrying into effect of the arrangement or transaction has been approved by the company by way of a resolution. ….

An arrangement or transaction which is in contravention of subsection (1) shall be void except in favour of any person dealing with the company for valuable consideration and without actual notice of the contravention. ….

Any director who contravenes this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or to a fine not exceeding three million ringgit or to both. [48] The allegation was not denied by Tan Ken Meng. In fact, he even went so far as to admit that the assets were disposed to TNL Plastic without a general meeting convened for that purpose. He said it was not the practice to have a general meeting. This was confirmed by Lim Shen Lee who admitted that since the incorporation of HSL Plastics, it was not the practice of the company to have the minutes of meetings recorded nor the passing of company resolutions as the company’s operations were not considered large scale. [49] Whilst on the face of it there appeared to be a non-compliance of the requirements of the above stated provisions, defence counsel submitted that firstly, the issue of non-compliance does not arise as these sections were not in operation at the material time. Secondly, these provisions do not give rise to a private law cause of action. I find merit in these submissions. [50] Taking the disposal dates as the date of the Purchase Orders i.e 30.9.2015, the provisions of section 218 and 223 were not yet in operation. These provisions were enacted under the Companies Act, 2016. The operation of these provisions in relation to acts prior to the coming into force is clarified by section 620 as follows, Repeal and savings

(1) The Companies Act 1965 is repealed. ….

Nothing in the Companies Act 1965 or this Act shall affect any person’s liability to be prosecuted or punished for offences or breaches committed before the commencement of this Act or any proceeding brought, sentence imposed or action taken before that day in respect of such offence or breach.

Any right, privilege, obligation or liability acquired, accrued or incurred before the effective date or any legal proceedings, remedy or investigation in respect of such right, privilege, obligation or liability shall not be affected by this Act and shall continue to remain in force as if this Act had not been enacted. [51] The Plaintiffs have not cited any corresponding provisions to sections 218 and 223, in the precursor law, namely the Companies Act 1965. The declarations prayed for by the Plaintiffs are in relation to provisions in the Companies Act, 2016. The Plaintiffs’ reliance on these provisions in relation to acts which took place prior, is therefore wholly misconceived. [52] In addition, these provisions are penal provisions, the enforcement of which lies with the Companies Commission of Malaysia. The provisions do not give rise to a private remedy. I am in entire agreement with the decision of Justice Lim Hock Leng in Xin Fuyuan Ocean Sdn Bhd v Adrian Lau [2021] MLJU 1658 and I reproduce as follows, [12]…The plaintiff did not plead but also submitted on section 218 of the Companies Act 2016 which generally prohibits a director from self-dealings unless he obtains the consent or ratification of the shareholders at a general meeting. For completeness, it may be added that a director of a company who has an interest in a contract with the company shall declare the nature of his interest before the board of directors by way of a notice to the board which is deemed to be a sufficient declaration if it specifies the nature and extent of the director’s interest. The company secretary is bound to record such declaration in the minutes of the meeting at which the declaration was made. See section 221 of the Companies Act 2016. These provisions require compliance on pain of a term of imprisonment not exceeding 5 years or a fine up to RM3 million or both. They impose statutory duties which codify the duties of a director, on pain of criminal sanctions, but do not however create a private cause of action. [13] The general rule is that where a statute imposes obligations and enforces their obligations in a specified manner, those statutory rights can only be enforced in that manner, and do not give rise to a private right of action. See the decisions of the House of Lords in Lonrho Ltd v Shell Petroleum Co Ltd (No 2) (1982) AC 173, and X (Minors) v. Bedfordshire County Council [1995] 3 WLR 152. See also Loh Siew Cheang, “Self-Dealing and No-Profit Rules: Companies Act 2016 Past to Present” (July 2019) JMJ 165, paragraph 13, where the learned author expressed his view thus: “The current no-profit rule is housed in section 218 of the CA

The statutory private cause of action provision in section 132(3)(a) was deleted, including the provision relating to the preservation of existing laws in section 123(5) contained in the repealed CA 1965. Further, section 218 is not strung together with the general statement of directors’ duties and the duty of care and skill, which are now housed in section 213 of the CA

Section 218, like sections 221 and 213, is intended only to impose a criminal sanction against a defaulting director.” [14] By contrast, section 228(5) of the Companies Act 2016 expressly allows for a private remedy against a director or substantial shareholder to account for any gain (and any other person, jointly and severally, for an indemnity for any loss) arising out of any acquisition or disposal of shares or non-cash assets, from or to the company – unless the arrangement or transaction is made subject to or has been approved by the shareholders at a general meeting. Notably, sections 213, 219 and 223 are not drafted in that manner. [53] Upon considering the provisions referred to, I find the Plaintiffs’ declaratory relief that sections 218 and 223 of the Companies Act 2016 have been contravened to be baseless. [54] The Defendants allege that Lim Shen Lee had an ulterior motive in commencing the present action. His conduct is but a collateral attack on TNL Plastics and Tan Ken Meng evidenced by the various suits filed after his removal as a director from TNL Plastics. The suits were winding up petitions against TNL Plastics, Ho Shen Lee Co.Ltd and HSL Auto, all of which were partly owned by Tan Ken Meng. There were a total of 8 winding up petitions, all of which were subsequently dismissed either by the court of first instance or on appeal. [55] Whilst there is some merit in the complaint that the petitions appear to be motivated by some ulterior motive on the part of Lim Shen Lee, I do not find it necessary to consider this defence to decide if this suit is similarly motivated. The Plaintiffs have not discharged their burden to establish their case on a balance of probabilities. Defendants’ Counterclaim [56] The counterclaim for costs arose in the IP Suit. Defence counsel’s reason for such a course taken is because HSL Plastics is now a dormant company with no ongoing business. The evidence showed that the costs were withdrawn by Lim Shen Lee and Seoh Chin Thieng, allegedly to evade paying the amounts them. As directors, they are the controlling minds of HLS Plastics, there are also special circumstances to pierce the corporate veil and to order them to pay over the costs portion belonging of TNL Plastics. [57] I note from the court documents in relation to the IP Suit that there was no specific order as to apportionment of costs at the time costs was ordered. If TNL Plastic is claiming its portion, I am of the view that the issue of apportionment of costs is a matter more appropriated resolved in the IP Suit. [58] That being the case, the merits of the counterclaim which turns on the question of whether it is appropriate to sue the current directors for the portion claimed, is not an issue to be decided at this juncture. [59] Something needs to be said about Ho Shen Lee Co.Ltd in the counterclaim as it is the party suing. No representative appeared from the office of the Director General of Insolvency to represent Ho Shen Lee Co. Ltd. at the trial. In view of my finding that the counterclaim ought not to be determined in this action, but the IP Suit, the claim of Ho Shen Lee Co. Ltd., like that of TNL Plastics, ought to be similarly dismissed. Conclusion [60] Premised on my findings as afore stated, I make the following orders:-

Plaintiffs’ claim against 1st and 3rd Defendants is dismissed;

(ii) The counterclaim of the 1st Defendant and 2nd Defendant is dismissed;

(iii) Costs of RM 20,000 is to be paid by the Plaintiffs to 1st and 3rd Defendants subject to allocator. Dated : 20th March 2024 -sgd- ....………………..….... Alice Loke Yee Ching Judge High Court in Malaya at Shah Alam Counsel for the Plaintiffs : Mr. Lim Kien Huat (Ms. Kathy Wong with him) Messrs. Lee & Lim Counsel for 1st and 3rd Defendants : Mr. Annou Xavier (Mr. Yong Jia Wei and Miss Christina Dass with him) Messrs. Azri, Lee Swee Seng & Co