Agtrade Sdn. Bhd. v Ee Chong Kok (B-02(NCC)(A)-2021-10/2017)

The Appellant and the other three shareholders opposed the petition. On 8.9.2017 the High Court allowed the petition in terms of the prayers in the petition. The Appellant has filed an appeal against the decision of the High Court whereas the other shareholders did not file any appeal against the winding-up. Background facts [3] Ee Chong Pang (Chong Pang) and his friend Cheong Kai Yong @ Chong Kai Yong (Kai Yong) were shareholders and directors of the Appellant. In 1987 Chong Pang offered his brother, the Respondent, who agreed to purchase shares from retiring shareholders in the Appellant with the understanding that the sole business of the Appellant was that of holding investment properties to collect rental incomes, that they would become the three shareholders and directors of the Appellant, with Chong Pang holding 38%, the Respondent 37% and Kai Yong 25% in the shares of the Appellant and that Chong Pang would manage the business and affairs of the Appellant. Page 3 of 12 [4] The Appellant owned two intermediate shop-offices described as No. 32 & 34, Jalan SS 22/25, Damansara Jaya, 47400 Petaling Jaya, Selangor Darul Ehsan.

Since 2006 there was a substantial drop in the rental incomes when the two properties were tenanted to Expo Holdings Sdn. Bhd., Deliblossom Sdn. Bhd. and Great Premium Resources Sdn. Bhd. in which Chong Pang had direct or indirect interest. Over the years the Respondent had privately raised his concerns with Chong Pang hoping he would take some remedial actions but nothing was done.

In 2016 Chong Pang transferred 1000 shares to Yim Yoke Yee

(Yoke Yee), Chong Pang’s friend, and appointed Yoke Yee as an additional director. The Respondent objected on the grounds that it would distort the proportionate representation of the shareholders and breached the understanding that the three of them should remain the only three shareholders and directors of the company. [7] The Respondent’s complaints in the petition were that the Respondent has lost confidence in the probity of Chong Pang in the conduct and management of the affairs of the Appellant in renting out the properties below market rent or occupying the properties through himself or his companies for free in disregard of the Appellant’s interest and that the relationship of trust and confidence between the shareholders of the Appellant, particularly between the Respondent and Chong Pang, has irretrievably broken down and the substantial cause of the breakdown was the conduct of Chong Pang as such. Page 4 of 12 The Appellant’s submission [8] Counsel submitted that the Appellant was a solvent company and has been run as a corporation and therefore the High Court has erred in winding up the Appellant. [9] It was submitted that the Respondent's motive to wind up the Appellant was not bona fide but founded on mala fide and personal greed because there was no record that there was any shareholders dispute and the Respondent has not raised any issue of winding up the Appellant in the board of directors meeting and or at the Annual General Meetings (AGM) and that the Respondent has not produced any evidence of a deadlock situation between the directors and shareholders in the management of the Appellant. [10] It was submitted that the Respondent had acquiesced to the Appellant's ordinary business from the time he was appointed as a director on 15.01.1987 until the Respondent had afterthoughts on how best to cash out his shares in the Appellant. It was submitted that the Respondent slept on his rights and there was inordinate delay in presenting the petition, citing the case of Re Senso Auto Supplies Sdn Bhd [1988] 1 MLJ 326. [11] The Appellant submitted that from the very outset of the case, the Respondent was not candid with the Court and has filed the petition with unclean hands because the Respondent wanted to wind up the Appellant so that he could "cash out through the backdoor" when the Respondent has not produced any evidence that he wanted to sell the properties at the board of directors meetings or the AGM although the Respondent in his own volition has stated that he was Page 5 of 12 willing to sell his shares in the Appellant. It was submitted that hence, the Respondent had identified an exit avenue from the Appellant without having to use the winding up of the Appellant as a "ruse" to sell the Appellant's properties. [12] It was submitted that the Respondent in his own admission has clearly stated that the winding-up action was in substance a dispute between the shareholders but in actual fact the Appellant has no records of any disputes between the shareholders and that the petition to wind up the company was all about his personal grouses and differences with his brother. It was submitted that the Appellant could not be wound up at the whims and fancy of the Respondent without any regards given to the interest of the Appellant and the interests of the other shareholders whose interests must be protected. [13] The Appellant submitted that there was no just and equitable justification to wind up the Appellant from the facts of the case, citing several cases in support including Dato’ Ting Chek Sii v Datuk Haji Mohamad Tufail bin Mahmud & Anor [2007] 7 MLJ 630. It was submitted that the winding up action is a serious matter and can only be initiated as the last resort where there are no other avenues available and in this instant case the Respondent has clearly stated that he was willing to sell his shares in the Appellant. It was submitted that the Respondent's petition was a sly manipulation of the Court to help the Respondent get what he wanted from the Appellant. [14] Finally, if the Appellant was wound up, this case may be seen as the catalyst for the floodgates to be opened to every director or shareholder who is personally dissatisfied or having personal grouses Page 6 of 12 and differences in the management of a company to file a winding up petition against the company. The Respondent’s submission [15] The Respondent submitted that before a contributory can petition successfully for a winding up of the company, he must show either there will be a surplus of assets available for distribution among the shareholders or that the affairs of the company require investigation in respects which are likely to produce such a surplus. At the material time the two properties were valued at RM9.6 million. It was submitted that the Respondent has complied with the requirement to file the petition. [16] The Respondent contended that a company is no more than a nominee party to a winding-up petition premised on just and equitable grounds: see Re a company (No. 004502 of 1988), ex-parte Johnson [1992] BCLC 701. [17] It was submitted that although the other shareholders intervened and opposed the winding up petition, they did not appeal against the decision of the High Court and therefore the Appellant is a mere nominal party in this appeal which has become academic and ought to be dismissed. It was submitted that it is not open for a nominal party to re-litigate the issues because the company’s monies should not be expended on disputes between shareholders, citing the case of Dato’ Tan Toh Hua v Tan Toh Hong [2001] 1 MLJ 369. [18] The Respondent contended that there was no dispute until 6.10.2016 when the association of parties in the Appellant was based Page 7 of 12 on a personal relationship involving mutual confidence. It was submitted that this was evident from the undisputed facts that (a) Chong Pang, being the brother of the Respondent, had invited the Respondent to invest in the Appellant; (b) despite the Respondent being a substantial shareholder of the Appellant, the Respondent agreed for Chong Pang to be the principal director; (c) the Respondent, Chong Pang and Kai Yong are friends of long-standing; and (d) there were only 3 shareholders and directors in the Appellant until Chong Pang brought in Yoke Yee as a shareholder and director. [19] The Respondent contended that the sole business of the Appellant was to hold the properties and the only source of income was the rentals generated from the properties and it was not in dispute that there was a substantial drop in the rental income of the Appellant since year 2006. The total rental income was RM126,000.00 in year

It dropped to RM108,000.00 in year 2005 and it further dropped to RM60,000.00 in year 2006. It remained stagnant at RM65,000.00 from year 2007 until year 2014. [20] The Respondent submitted that despite these glaring inefficiencies and impropriety, Chong Pang had adopted a dismissive attitude by ignoring or disregarding his legitimate queries and repeated efforts to discuss his concerns. The Respondent referred to the following events:-

during the board of directors' meeting on 16.10.2015, when queried on the drastic drop in rental income from RM126,000.00 in 2004 to RM60,000.00 in 2006, Chong Pang merely stated that it was "the rental rates at that time" and no other explanation or justification on the substantial drop has been furnished;

during the same board of directors' meeting, the Respondent requested for the tenancy agreements for the period from year 2004 until year 2006 but none was provided except the tenancy agreements for the year 2015;

despite being the principal director of the Appellant, Chong Pang did not attend the board of directors' meeting on 17.12.2015 and his concerns were merely "noted" by Yoke

by a letter dated 7.3.2016, the Respondent wrote to Chong Pang and Kai Yang highlighting his concerns about the management of the Appellant but never received any answer at all; and

during the board of directors' meeting on 6.10.2016, Chong Pang merely "noted" the disappointment of the Respondent on the management's failure to provide him the satisfactory explanation to his queries that have been raised in the previous meetings. [21] It was submitted that the learned High Court Judge has rightly observed that the Respondent had lost his confidence in the probity of the Appellant’s principal director Chong Pang in the conduct and management of the affairs of the company and that the relationship of mutual trust and confidence between the shareholders of the Appellant had irretrievably broken down. The Court’s decision [22] The Respondent has filed a petition to wind up the Appellant pursuant to s.218(1)(i) of the Companies Act 1965 namely, that the Court is of the opinion that it is just and equitable that the company be wound up. [23] Counsel for the Appellant contended that there was no shareholders’ dispute but only personal grouses and differences of Page 9 of 12 opinion between the Respondent and his brother Chong Pang. It was contended that based on the shareholdings, the Respondent being the minority, the company being a going business concern and solvent, and there was no deadlock situation, which would justify the court to wind up the Appellant. [24] A derivative action is not the only remedy available to a shareholder of a company. The availability of winding up on the just and equitable ground as an alternative remedy is provided for in s.218(1)(i) of the Act : see Perak Integrated Networks Services Sdn Bhd v Urban Domain Sdn Bhd (on behalf of themselves and Pins OSC & Maintenance Services Sdn Bhd through derivative action) & Anor [2018] 4 MLJ 1. [25] The meaning of “just and equitable” has been explained in the case of Ebrahimi v Westbourne Galleries Ltd and Others [1973] A.C.

The courts have rejected the contention that the words” just and equitable” must be confined to such circumstances as affect an applicant or petitioner in his capacity as shareholder. The words “just and equitable” as a ground for dissolution of a partnership has formed part of the common law of partnership which has been adopted by the courts in the winding up order in a case as this the members of the company are in substance partners, or quasi-partners, and that a winding up may be ordered if such facts as shown as could justify a dissolution of partnership between them. Elements which give rise to the superimposition of equitable considerations may include one, or more, of the following : (i) an association formed or continued on the basis of a personal relationship involving mutual confidence; (ii) an agreement, or understanding, that all, or some of the shareholders, Page 10 of 12 shall participate in the conduct of the business; (iii) restriction on the transfer of the members’ interest in the company-so that if confidence is lost, he cannot take out his stake and go elsewhere : see Ebrahimi (supra). [26] In an application for winding up on the “just and equitable” rule, there must lie a justifiable lack of confidence in the conduct and management of the company’s affairs. This lack of confidence must be grounded on the conduct of the directors in regard to the company’s business: Loch & Anor v John Blackwood, Ltd [1924] A.C. 783. [27] The common law has come to recognise that the just and equitable provision is capable of application in diverse circumstances: see Chong Choon Chain & Anor v Tan Ghee Cheng & Anor [1993] 3 SLR 1. On the facts, which were not in dispute, the Respondent and Chong Pang are brothers and long-time friends of Kai Yong. In 1987, on the invitation of his brother, and the trust in his brother, the Respondent agreed to join them to become a shareholder and director of the Appellant and on the understanding that the Appelant’s business was in property investment and that they remained the only three shareholders and directors of the Appellant with Chong Pang in the management of the business and affairs of the Appellant. [28] In 2004 the annual rental income was RM126,000.00. In 2006 it dropped to RM60,000.00 when the two properties were leased to the three companies controlled by Chong Pang, below the market price and without regard to the interest of the Appellant. The Respondent had spoken to his brother about it hoping for remedial actions to be taken but nothing was done over the years. It was the last straw for Page 11 of 12 the Respondent when Chong Pang in 2016 brought in Yoke Yee as a shareholder and director in breach of their understanding which led to the loss of confidence in his brother in the management of the affairs of the Appellant. [29] Where it appears that a petitioner has lost confidence in the persons who control the company and this loss of confidence is caused and justified by the fact that they have shown a lack of probity in the conduct of the company’s affairs, in the absence of special circumstances, the court may properly take the view that it is just and equitable to order a winding up: see In re Wondoflex Textiles Pty Ltd [1951] V.L.R. 458. In his grounds of judgment, the learned High Court Judge has made a finding that Chong Pang was treating the Appellant as his own business in such a way that the Respondent has lost confidence in the conduct of the business of the Appellant: see Jesner v Jarrad Properties Ltd [1993] BCLC 1032. After pursuing the record of appeal, we were of the view that the learned High Court Judge was not plainly wrong in the decision which he made. [30] Based on the record of appeal, although the Appellant submitted that it was a ploy of the Respondent to cash out, there was no evidence of bad faith or ulterior motive on the part of the Respondent in filing this petition. The Respondent did no wrong and did not come with unclean hands in filing this petition as the Appellant had suggested, see the judgment of Lord Cross of Chelsea in Ebrahimi (supra). [31] Mere delay without acquiescence was not a defence in equity. The Appellant never averred that there was acquiescence or that the conduct of the Respondent tantamount to a waiver : see Rinota Page 12 of 12 Construction Sdn Bhd v Mascon Rinota Sdn Bhd & Ors [2018] 1 MLJ

[32] On the issue that the Respondent had an alternative remedy because he could sell his shares and there was no justification to wind up the company, it has been held that it is not obligatory for the court to consider the availability of alternative remedies before making a winding up order under s.218(1)(i) of the Act: Tien Ik Enterprises Sdn Bhd & Ors v Woodville Sdn Bhd [1995] 1 MLJ 769. [33] On the facts and the law, we were unanimous in our decision that the learned High Court Judge had not erred and we agreed that it was just and equitable to wind up the Appellant in the circumstances of the case. Therefore we had dismissed the appeal with costs of RM5,000.00 to the Respondent subject to allocatur and the deposit to be refunded. Dated : 1st October 2018 sgd STEPHEN CHUNG HIAN GUAN (delivering judgment of the court) Court of Appeal Judge Putrajaya For Appellant : Y. T. Ong Messrs. T.K. Wong, Tan & Associates