Bentayan Properties Sdn Bhd & 4 Lg v Extrogold Sdn Bhd (WA-28NCC-561-08/2018)

BENTAYAN PROPERTIES SDN BHD (Company No.: 49342-A)

KURNIA HARUMAN SDN BHD (Company No.: 1119531-A)

DATO’ KOH FOONG SOON (NRIC No.: 650303-10-6529)

CHIN YOKE FONG (NRIC No.: 761121-08-5546)

MUJUR ZAMAN SDN BHD (Company No.: 495108-T) … RESPONDENTS 2

This is an Amended winding up petition filed by the petitioner to wind up the 1st Respondent Bentayan Properties Sdn Bhd (“the Company”) pursuant to section 465(1)(f) and/or (h) of the Companies Act 1965. I allowed the Amended petition and these are the full reasons for my decision.

The Petitioner and the 2nd Respondent are the only two shareholders in the Company. The Petitioner holds 49.75% of the shares in the Company and the 2nd Respondent holds the balance 50.25% of the shares in the Company.

The directors of the Company are the 3rd Respondent and one Chin Yoke Sin. The 4th Respondent is also a director of the Company after being appointed in the Extraordinary General Meeting held on 31.7.2017. The 4th Respondent is the wife of the 3rd Respondent.

The 5th Respondent Mujur Zaman Sdn Bhd (“MZ”) is a wholly owned subsidiary of the Company. 3

The Company is an investment holding company and all its business activities are being carried out by and through MZ.

All the shares in the 2nd Respondent are held by a company known as K&A Management Sdn Bhd (“K&A”). All the shares in K&A are held by the 3rd and 4th Respondents who are also the directors of K&A. Accordingly, the 3rd and 4th Respondents are directors in the Company, the 2nd Respondent, the 5th Respondent and K&A.

At all material times, MZ was the registered proprietor of lands located in the Mukim of Ijok, Daerah Kuala Selangor, Negeri Selangor Darul Ehsan (“the Lands”).

In September 2015, MZ sold all the fifteen pieces of the Lands for a total cash consideration of RM758,050,275.18. There were three sale and purchase agreements entered into with Paragon Pinnacle Sdn Bhd (“PPSB”) and 1BL Synergy Sdn Bhd (“1BL”).

By an agreement dated 17.3.2015 entered into between the Company, Ascot Heights Sdn Bhd, K&A, MZ and Liputan Canggih Sdn Bhd (“LCSB”), LCSB and MZ agreed to pay K&A a sum of 4 RM108,032,937.00 in consideration of K&A having provided necessary financial support to LCSB and MZ to meet some of their pressing financial obligations.

Out of the sum of RM108,032,937.00, a sum of RM100,000,000.00 to K&A was payable by MZ out of the proceeds of the sale of some of its lands.

On or about 22.9.2015, MZ entered into a settlement agreement with the following parties: i) Ringgit Exotika Sdn Bhd; ii) LCSB; iii) LBCN Development Sdn Bhd; iv) Abraham Ooi & Partners; and v) Hadrons Consulting Sdn Bhd.

12.

K&A also received certain payments pursuant to the settlement agreement. All in all, K&A was paid a sum of RM138,817,074.74.

It is not in dispute that not a single cent of the sale proceeds of RM758,050,275.18 was paid to MZ.

On or around 28.3.2016 the 3rd Respondent was detained and subject to investigation in his capacity as director of K&A, the Company and the 2nd Respondent and MZ pursuant to section 23 of the Malaysian Anti-Corruption Commission Act. Section 23 of the Malaysian Anti-Corruption Commission Act concerns the offence of any officer of a public body who uses his office or position for any gratification, whether for himself, his relative or associate, commits an offence. The bank accounts of the 1st, 2nd, 3rd Respondents, MZ and K&A were frozen as a result of the investigations. 6

The Petitioner presented the winding up petition on the grounds that the directors of the Company have acted in the affairs of the company in the directors’ own interests rather than in the interests of the members as a whole or acted in any other manner which appears to be unfair or unjust to the members and that it is just and equitable to wind up the Company. The Petitioner alleges that the payments to K&A were without consideration. The Petitioner also questioned the propriety of the payments to the various third parties.

The Respondents’ reply is simply that the various payments to the payees including K&A were made pursuant to the agreement dated 17.3.2015 and the settlement agreement dated 22.9.2015.

The Respondents have not shown who approved the entering into of the two agreements by MZ. The directors of MZ could not have approved the entering into of the agreements by MZ. Since the 3rd and 4th Respondents are directors of MZ and also directors and shareholders of K&A, they are interested in the agreements entered into by MZ pursuant to which monies are payable to K&A. Pursuant to section 7 222(1) of the Companies Act 2016, a director of a company who is in any way, whether directly or indirectly, interested in a contract entered into or proposed to be entered into by the company, shall be counted only to make the quorum at the meeting of the Board but shall not participate in any discussion while the contract or proposed contract is being considered during the meeting and shall not vote on the contract or proposed contract.

19.

The Respondents have not dealt with the issue as to who actually approved the entering into of the two agreements by MZ. They ought to have shown that the holding company of MZ had approved the two agreements but they did not do so. Accordingly, the presumption can be drawn that the two agreements were approved by the 3rd and 4th Respondents as directors of MZ in contravention of section 222 of the Companies Act 2016 and also in breach of their fiduciary duties as directors of MZ. 8

On the face of the agreements, the beneficiary of the contracts was K&A which is owned by the 3rd and 4th Respondents. The Respondents have also not disclosed any documents to show that K&A had in fact given financial assistance to MZ to the extent of the payment made to K&A.

It is also not in dispute that out of the sale proceeds of RM758,050,275.18, not a single cent was paid back to MZ.

The Supreme Court of New South Wales in the case of Re Dernacourt Investments Pty Ltd [1990] 2 ACSR 553 held at page 556 that the conduct of the affairs of a parent company includes refraining from procuring a subsidiary to do something or condoning by inaction an act of a subsidiary, particularly when the directors of the parent and the subsidiary are the same.

It was further held that the proposition that the business or affairs of a parent company include the business of its wholly owned subsidiary is consistent with a general tendency in modern cases for the courts to ignore, where justice and common sense so require, the separate legal 9 identifies of various companies within a group and look instead at the economic entity of the whole group.

In this case, accordingly, since the Company has not done anything to restrain the entering into of the two agreements by MZ, pursuant to which MZ had paid out such substantial sums of money to K&A and various other parties, it can be said that the directors of the Company have acted in the affairs of the Company in the directors’ own interests rather than in the interests of the members as a whole or acted in any other manner which appears to be unfair and unjust to the members.

The Petitioner has also asserted that the sale of the Lands to PPSB was carried out by the 3rd and 4th Respondents without the proper approval from the shareholders of the Company including the Petitioner in breach of section 132C of the Companies Act 1965. In actual fact, the approval is required from the holding company of MZ which is the Company and not the shareholders of the Company. In any event, the Respondent has not shown that the sale of the Lands was with the approval of the Company.

Section 132C(1)(b) provides: 10 … Notwithstanding anything in a company’s memorandum or articles, the directors shall not carry into effect any proposal or execute any transaction for-

(a)…

the disposal of a substantial portion of the company’s undertaking or property which would materially and adversely affect the performance or financial position of the company, unless the proposal or transaction has been approved by the company in general meeting. …

any director who contravenes the provisions of this section shall be guilty of an offence against this Act. Penalty: imprisonment for five years or thirty thousand ringgit or both.”

The Federal Court in Tan Chee Hoe & Sdn Bhd v Code Focus Sdn Bhd [2014] 3 MLJ 301 held (at page 323[58]) that non-compliance or contravention of the mandatory statutory requirement under section 132C rendered the sale and purchase agreement void and not enforceable by law.

The Respondents have also not shown in what way the various payees under the settlement agreement are entitled to the payments by 11 MZ. Merely because MZ had entered into a settlement agreement, which the directors were not authorised to enter into on behalf of the company, is not a sufficient answer to the Petitioner’s allegation of improper payments being made by MZ.

There appear to be various breaches of the Companies Act and breaches of their fiduciary duties on the part of the 3rd and 4th Respondents as directors of MZ. The condoning of their acts by inaction on the part of the Company can constitute conduct in the affairs of the Company. I accordingly find that the directors of the Company have acted in the affairs of the Company in their own interests rather than in the interests of the members as a whole or acted in any other manner which appears to be unfair or unjust to the members, including the Petitioner.

I also find that there is a justifiable lack of confidence on the part of the Petitioner in the conduct and management of the Company’s affairs. Lord Shaw in the Privy Council decision in Loch v John Blackwood Ltd [1924] A C 783 at page 788 said: “It is undoubtedly true that at the foundation of applications for winding up on the ‘just and equitable’ rule, there must lie a justifiable lack of confidence in 12 the conduct and management of the company’s affairs. But this lack of confidence must be grounded on conduct of the directors’ not in regard to their private life or affairs, but in regard to the company’s business. Furthermore, the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs, or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company’s affairs, then the former is justified by the latter, and it is, under the statute, just and equitable that the company be wound up.”

More recently, in Gulf Business Construction (M) Sdn Bhd v Israq Holding Sdn Bhd [2010] 8 CLJ 775, the Court of Appeal held: “[23] What is just and equitable would vary from case to case. Thus, a company may be wound-up where it is just and equitable that the company should be wound-up. So many reasons can be advanced to wind-up a company under the just and equitable principle, and the following illustrations would suffice:

where the substratum of the company has gone (Galbraith v Merito Shipping Co. [1947] SC 446; Re Kitson & Co., Ltd [1946] 1 All ER 435, CA; Re Mediavision Ltd [1993] 2 HKC 629; Re Sension Auto Supplies Sdn Bhd [1987] 1 LNS 110; and Goodwealth Trading Pte Ltd, Re [1991] 2 CLJ 1648; [1991] 4 CLJ (Rep) 822); 13

where the company’s main object for its existence has lapsed (In Re Haven Gold Mining Company [1882] 20 Ch D 151; CA; In re German Date Coffee Company [1882] 20 Ch D 169 CA; Re Red Rock Gold Mining Company Limited [1889] 61 LT 785; Re The Coolgardie Consolidated Gold Mines Limited [1897] 76 LT 269 CA; Palace Restaurants Ltd, Re [1914] 1 Ch. 492, CA; and Re Baku Consolidated Oilfields, Ltd [1944] 1 All ER 24);

where the principal object of setting up the company can no longer be achieved (Re Perfectair Holdings Ltd [1990] BCLC 423);

where the company’s only business is ultra vires the company (In re

where the company is carrying on its business at a loss and the remaining assets of the company are insufficient to pay its debts (In re Wey and Arun Junction Canal Company [1867] 4 LR Eq. 197; In re Diamond Fuel Company [1879] 13 Ch D 400, CA; and Re Great Northern Copper Mining Co. of South Australie, Ltd., Ex p. The Co. [1869] 20 LT 347);

where there is no reasonable hope of ultimate profit for the company (Davis & Co., Ltd., v Brunswick (Australia), Ltd., Brunswicke-Balke- 14 Collender Co. And Brunswick Radio Corporation [1936] 1 All ER 299, at p. 309, PC);

where the relationship of the parties in the company has broken down irretrievably (Re Chynchen Associates Ltd [1987] 1 HKC 311);

where there is a lack of confidence among the shareholders that threaten the very existence of the company (Re San Imperial Corp Ltd (No 2) [1980] 1 HKC 463; [24] The list is endless. It is not exhaustive.”

In the present case, due to the various breaches of the Companies Act on the part of the 3rd and 4th Respondent and also due to the involvement of the relevant authority under the Malaysian Anti-Corruption Commission Act in the affairs of the Company, K&A and MZ, I find that there is a justifiable lack of confidence on the part of the Petitioner in the conduct of the affairs of the Company which justify the winding up of the Company. I have deliberately chosen not to say much about the said investigation under the Malaysian Anti-Corruption Commission Act as I had dismissed an application by the Respondents to stay the winding up proceedings on the ground that such investigations are pending. It is my view that such investigations should 15 not affect a liquidator being appointed over the Company and that the nature of the offence said to have been committed by the Respondent and K&A has no relation whatsoever to the complaints made by the Petitioner in this Winding Up Petition.

The Respondents submitted that they did not go into the merits of the Petitioner’s allegations (they did not respond to the Court’s request for evidence to be adduced to show that the payments made to the various parties including K&A were in fact due to the payees) because it is their contention that the Petitioner had brought the Winding Up Petition in bad faith.

The Respondents allege that the directors of the Petitioner are all puppets of one Dato’ Chin Chan Leong and his wife Datin Yam Yuet Chew who are all bankrupts and who have, through the said directors, initiated inter alia Shah Alam High Court Civil Suit No. BA-22 NCVC-27- 01/2017 in the name of Citra Tani Sdn Bhd v MZ & 17 Others to claim an interest in 5 parcels of land held in the name of MZ. The same issue raised in Suit 27 had similarly been dealt with by the learned Judge Datuk Azimah binti Omar vide Shah Alam Originating Summons No. BA- 24-1299-12/2016 (“OS 1299”) and Shah Alam High Court Summons No. BA-24-220-03/2017 (“OS 220”). It had been decided that Citra Tani did 16 not have any caveatable interest over the lands claimed by it which are held in the name of MZ.

I cannot see how the fact that Citra Tani (contrary to the Petitioner’s allegation) has no interest in some of the lands held in the name of MZ can lead to the inference that the Petitioner is actuated by bad faith. All it means is that the lands belong to MZ and had been sold, together with its other lands for more than RM 700 million. The question as to what happened to the proceeds, not a single cent of which came back to MZ, is still relevant. Citra Tani has nothing to do with the Winding Up Petition.

I accordingly find that the Petitioner has shown grounds for the winding up of the Company. Accordingly, I grant an order in terms of the Amended Winding Up Petition herein with costs of RM10,000.00 to be paid by the 3rd and 4thPRespondents jointly and severally subject to allocator. Wong Chee Lin Judicial Commissioner Kuala Lumpur High Court Dated: 27th June, 2018 17 Solicitors for the Petitioner Datuk Ben Chan with Chih Yu Yen Messrs Ben Chan Advocates & Solicitors Block J, Unit 7.15, Solaris Mont Kiara No. 2, Jalan Solaris 50480 Kuala Lumpur Tel : 03-6211 9715 Fax: 03-6211 9716 Solicitors for the Respondents R K Sharma Messrs Chellam Wong Advocates & Solicitors Unit L-06-08, No. 2