Elin Hong Pei Shang v 1. ) Tbh Wellness Sdn. Bhd. (WA-24NCC-424-09/2024)

TBH WELLNESS SDN. BHD. [Company No.: 202201045344 (1491041-W)]

TBH WELLNESS (ECO SANCTUARY) SDN. BHD. [Company No.: 202301028581 (1522504-V)] …DEFENDANTS JUDGMENT Introduction [1] Section 314 of the Companies Act 2016 provides the Court with the powers, either on its own motion or on the application of a director or a member of a company who would be entitled to vote at the meeting of the company to order for a meeting to be called, held and conducted in any manner the Court thinks fit. S/N XBiJuFnfUSkuMmRvsvlzQ [2] The section applies if for any reason it is impracticable to call for a meeting of members of a company in any manner in which meetings of that company may be called. [3] Enclosure 1 is an application made pursuant to Section 314 of the Companies Act. The primary contention was that the Court ought not to order the meeting which includes a proposal to remove a director when the said director has commenced a separate and pending action to restrain the company from convening the very meeting and to remove him as a director. [4] Further, it was contended that this Court should take cognizance of the fact that the 1st Defendant, as a member of the company, has filed a winding up petition against the company, being the 2nd Defendant herein, on the ‘just and equitable” ground and as such, this Court ought not to order the proposed meeting as it would prejudice the 1st Defendant’s interests in the company if the director, who is the representative of the 1st Defendant on the board of directors of the company, is removed. [5] On 26.9.2024, after hearing submissions from counsel, I allowed the Plaintiff’s application under Enclosure

I now render my full grounds. Background Facts [6] The 2nd Defendant is a company incorporated on 23.7.2023. The shareholders since its inception, are the Plaintiff and the 1st S/N XBiJuFnfUSkuMmRvsvlzQ Defendant. The Plaintiff holds 55% and the 1st Defendant holds 45% of the shareholdings of the 2nd Defendant. [7] On the board level, the Plaintiff and one Chew Kit Seng (who is a director and shareholder in the 1st Defendant) (“CKS”) were and are the directors since the inception of the 2nd Defendant. It is not in dispute that CKS is the 1st Defendant’s representative on the board of directors of the 2nd Defendant. [8] The 2nd Defendant is in the business of massage and wellness centre which is the same nature with the 1st Defendant. Between the 1st and 2nd Defendants, there is a licensing agreement dated 1.8.2023 executed between them (“Licensing Agreement”). [9] The Plaintiff’s and the 1st Defendant’s rights as shareholders were governed by the Licensing Agreement cum shareholder agreement until the termination on 23.8.2024. [10] Uncontrovertibly, dispute arose between the parties in the course of conduct of the 2nd Defendant’s affairs. On 28.5.2024, the Plaintiff requisitioned for a members’ meeting to be convened on 25.6.2024 for the following agendas: -

an ordinary resolution be passed that Chew Kit Seng (NRIC No.:930114-14-5015) (CKS) be and is hereby removed as the director of the 2nd Defendant with immediate effect;

(ii) To fix the first financial year ended of the 2nd Defendant for the lodgement of the financial statements; S/N XBiJuFnfUSkuMmRvsvlzQ

(iii) To deliberate on the proposal of directors’ fees; and

(iv) To structure the 2nd Defendant’s business progress and future plan. (“the proposed EGM”) [11] Consequential to the proposed EGM, there were two proceedings commenced by the 1st Defendant and CKS. [12] Firstly, there is a winding up petition moved on a just and equitable ground, taken out by the 1st Defendant predicated on an alleged breakdown of mutual trust and confidence and deadlock between the shareholders who the 1st Defendant claimed are quasi partners (which the Plaintiff denies). This petition is registered as Shah Alam High Court Civil Suit No.: BA-28NCC-354-06/2024 (“WUP 354”). WUP 354 is currently fixed for hearing on 18.10.2024. [13] Secondly, is the Originating Summons No. BA-24NCC-71-06/2024 (“OS 71”), which is an application for an injunction filed by CKS in his capacity as a director of the 2nd Defendant, seeking an order to prohibit the convening of a members' meeting that includes a proposed ordinary resolution to remove him as a director, pending the disposal of WUP 354. OS 71 is currently fixed for hearing on 2.10.2024. [14] On 25.6.2024, the 1st Defendant did not attend the proposed EGM. The 1st Defendant took the position that CKS had already taken out OS 71 and therefore, the proposed EGM was not required to proceed with. S/N XBiJuFnfUSkuMmRvsvlzQ [15] It was highlighted to this Court that sometime on 2.7.2024, OS 71 was called up where CKS’s counsel had moved for an ad interim injunction for the proposed EGM to be restrained pending the hearing of the OS 71. It is not in dispute that the said ad interim application was refused by the Court. This means that the Plaintiff is at liberty to proceed with the proposed EGM. [16] Consequential thereto, the Plaintiff called for the 2nd and 3rd rescheduled dates for the proposed EGM. It is also not in dispute that the 1st Defendant had refused to attend the said sessions, citing the same reason that OS 71 was still pending disposal and that the proceeding of the proposed EGM would frustrate the substratum of OS 71. [17] Given the lack of quorum caused by the 1st Defendant, the Plaintiff’s shareholder’s rights to call for a meeting were effectively frustrated. [18] Significantly, whilst refusing to attend the proposed EGM, the 1st Defendant issued a termination cum demand letter to the 2nd Defendant, which inter alia terminated the Licensing Agreement and threatened to sue the 2nd Defendant if its demand for money was not met within the stipulated time. [19] To compound matters, simultaneously, the 1st Defendant issued letters to challenge the 2nd Defendant’s mandate to appoint legal representation to defend the 1st Defendant’s claim. S/N XBiJuFnfUSkuMmRvsvlzQ [20] The above events, cumulatively, give rise to the filing of present summons to seek this Court’s intervention pursuant to Section 314 of the Companies Act 2016. Court’s Deliberations [21] Before I deal with the facts of this case, it is instructive to set out the law with regards to section 314 of the Companies Act, 2016. [22] The law on Section 314 Companies Act 2016 is trite. The plaintiff as the applicant shoulders the burden to prove that it is “impracticable” to conduct a meeting in the matter prescribed by the constitution or Companies Act 2016, which in this case, is the latter. In Tamabina Sdn. Bhd. & Anor v. Nakamichi Corporation Bhd [2016] 10 CLJ 148 (“Tamabina”), the Court of Appeal held: “The law is clear: The onus is on the applicant to show that it is impracticable to call for a meeting of the company in any manner whatsoever or even to conduct the meeting in the manner prescribed by the articles of association of the company. And impracticable does not mean impossible - see Low Son Siang v. Lee Kim Yong [1999] 1CLJ 529”. [23] To show impracticability, it entails demonstrating the futility of attempting to call and hold a meeting due to circumstances that make it impracticable to do so. In Tamabina, it was observed: “[22] In our view, to show impracticability, it is necessary to show evidence of attempts or efforts to call and hold a meeting and such attempts or efforts had been futile. The reason for the futility S/N XBiJuFnfUSkuMmRvsvlzQ in calling or holding a meeting must be attributed to some circumstances that made it almost impossible to hold the meeting. These circumstances could be due to a deadlock situation, an intentional un-cooperative attitude of the directors, a persistent effort to derail the meeting or deliberate non-attendance at the meeting after proper and valid notice had been issued so as to force the meeting to be called off for want of quorum. The categories of such reasons are never closed. This evidence must be in the affidavit supporting the application under s.150 of the Companies Act 1965... [23] In Chuah Sean Kin & Ors (supra), the court said that to succeed under s. 150 two situations must be present. First, it is impracticable to call for a meeting and second, it is impracticable to conduct a meeting in accordance with the company’s articles or the Act. We agree with this statement of the law. In the present appeal, the respondent has not shown in the affidavit the presence of these two situations.” [24] In Corporate Power Accountability, 3rd Edition at p. 1170, the learned author Dato’ Loh Siew Cheang gave a detailed definition of “impracticable” which is reproduced as follows: “24-87 There is judicial consensus in all jurisdictions having provisions similar or equivalent to s 314 as to what is meant by the word 'impracticable'. It means impracticable to call for any meeting in any manner and to conduct the same as required under the articles: Tamabina Sdn Bhd. It is not within the meaning of 'impractical' if before the date of a scheduled general meeting the directors exercised their rights under the articles of the company to frustrate the known intention of the requisitionists to remove them from office by resigning and appointing new directors: Monnington v Easier Plc...” S/N XBiJuFnfUSkuMmRvsvlzQ [25] It is apposite to note further passages by the learned author which expands on a breakdown in the quorum provisions. The relevant passage is reproduced as follows: “24-94 Section 328(2) provides that two or more members present in person or proxy shall constitute a quorum. Where a clear majority of the shares of the company is held by a member, the law forbids the other member or members from using the quorum provision to paralyse the operations of the company, or to frustrate the legitimate intentions of the majority. The quorum provision is a requirement in law for the proper constitution of a meeting. It is not a proprietary right such as to confer upon a member a form of entitlement to veto the democratic machinery of a company in its decision-making process...” [emphasis added] [26] An English authority cited by the learned author at paragraph 24-96 is on point which bears similar factual matrix to the present summons. [27] In Re Opera Photographic Ltd [1989] BCLC 763 (“Re Opera Photographic”), the applicant held 51% of the shares of the company while the balance was held by the second respondent who was also a director of the company. The quorum requirement for both board and members’ meeting was two members. The applicant had wanted to remove the second respondent as a director but his efforts had been frustrated on two occasions by the second respondent who (i) refused to attend a board meeting to convene a requisitioned member’s meeting; (ii) refused to attend the general S/N XBiJuFnfUSkuMmRvsvlzQ meeting convened by the applicant himself. In granting the order convening a members’ meeting at which one member shall constitute a quorum, Morritt J (as he then was) held that quorum provisions could not be taken advantage of as if it were some kind of a veto entitlement: The plain fact of this matter is that deadlock exists between the two individuals which has to be resolved one way or another. It is either capable of being resolved by ordering a meeting, at which no doubt Mr Martin will be removed, and which will then no doubt result either in him exercising the pre-emption rights under the articles of selling his shares, or presenting a petition for the winding up of the company, or presenting a petition under s 459 based on unfair prejudice to him. If no order is made the deadlock will continue because no meetings can be conducted which are going effectively to manage or procure the management of this company, and if that persists for any length of time then no doubt one or other of the individuals will again be presenting a petition based on that deadlock in order to provide some form of resolution. …The point still remains that the applicant, as the 51% shareholder, has the statutory right under the Companies Act 1985 to remove Mr Martin as a director. As Brightman J's decision in Re H & R Paul shows, the quorum provisions cannot be regarded as conferring on the second respondent some form of veto as being his entitlement. If he is, as no doubt he will be, removed if I make the order sought it may then well be that further proceedings will have to be undertaken by one side or another to procure the purchase of the other shares, but that seems to me to be inevitable in any event. It would be in those proceedings that the wrongfulness or otherwise of the conduct of either of the S/N XBiJuFnfUSkuMmRvsvlzQ individuals would have to be determined in order to decide what order to make and what form the relief should be. [emphasis added] [28] On the facts of this case, there were 3 occasions where attempts were made to convene the proposed EGM. The 1st Defendant through its representative, i.e. CKS had refused to attend the proposed EGM on the said 3 occasions as evidenced through the 1st Defendant and or CKS’s letters. [29] The 1st Defendant’s reasons for not attending the proposed EGM were two-fold: a) the 1st Defendant claimed that there was a pending application for an injunction vide OS 71 to restrain the proposed EGM. To attend the meeting and to pass any of the ordinary resolutions, in particular, the removal of CKS as a director would frustrate the substratum of OS 71; b) the 1st Defendant contended that the EGM notice is defective as it does not disclose the reasons for the removal of CKS as a director. [30] With respect to learned counsel for the 1st Defendant, both the reasons are misconceived and untenable. [31] To my mind, the fact that there is an application for an injunction pending at the High Court at Shah Alam vide OS 71 is not a good reason to dismiss the Plaintiff’s application herein. As correctly held S/N XBiJuFnfUSkuMmRvsvlzQ in Re Opera Photographic, the 1st Defendant’s remedy, if any, in the event that CKS is removed pursuant to the proposed EGM, is to challenge the same in other proceedings, be it in the OS 71 or in a fresh proceeding. It is not right for the 1st Defendant to use the quorum provisions as a form of a veto right to frustrate a general meeting of the company from being convened. [32] In fact, I also agree with the submission of learned counsel for the Plaintiff that by refusing the ad interim injunction applied by CKS in OS 71, the Court had already decided that the balance of convenience lies in favour of the Plaintiff to proceed with the proposed EGM. This is in line with the settled law that the Court will not interfere with the internal management of the 2nd Defendant. For this Court to refuse the Plaintiff’s application herein would be inconsistent with the aforesaid Court’s decision. [33] In any event, the 1st Defendant can still write to the Court hearing the OS 71 to seek an expedited hearing date as special notice will have to be given for the proposed EGM and at least 27 days’ notice must be given prior to the date of the proposed EGM. This will mean that the 1st Defendant or CKS can still canvas the position that the Plaintiff has no right to remove CKS as a director before the proposed EGM. [34] Learned counsel for the 1st Defendant, however, urged this Court to exercise its discretion not to order for the proposed EGM to be held. He cited authorities in Singapore, Hong Kong and Australia propounding that there is a 2-stage inquiry in applying Section 314 of the Companies Act 2016. More specifically, the Court must first S/N XBiJuFnfUSkuMmRvsvlzQ satisfy that there is “impracticability”, and the matter ends there if the “impracticality” is not established. However, even when “impracticality” is established, there are no automatic rights to an order. The Court then has discretion to grant or refuse the order. He referred to the following passages from case authorities: “There are two components to this section. First, the applicant must show that it is ‘impracticable’ to call the meeting in any other way, and second, if this is established, the court has a discretion whether or not to order a meeting to be called” See Sheref v UFC Trading Enterprise Pty Ltd [2024] WASC 344 at paragraph 49 “[21] Every application for relief under s 182 proceeds in two stages (see Re Success Plan Ltd [2002] 3 HKC 610 at [42]). The court first has to be satisfied under s 182 that it is “impracticable to call a meeting … or to conduct the meeting in the manner prescribed” [emphasis added] before it proceeds to consider whether it should exercise its discretion in favour of the grant of relief. These stages are sequential: the requirement of impracticability is a condition precedent for the exercise of the court’s power. If it is not satisfied, the s 182 application fails in limine and the question of the court’s discretion does not arise for consideration. As in every application for relief, the burden of proof falls on the applicant. He has to show that the requirement of impracticability has been met and that the court should exercise its discretion in his favour (see Leong Ah Hong v Hup Seng Co Ltd [1963] MLJ 164 at 165A (“Leong Ah Hong”)” See: Naseer Ahmad Akhtar v Suresh Agarwal and Another [2015] 5 SLR 1032. S/N XBiJuFnfUSkuMmRvsvlzQ “[14] There is little dispute as to the relevant law in this case. The parties are in essence agreed as to the principles to be applied. The main principles are as follows:

Section 371 gives the court a discretion. An applicant for an order is not entitled to an order as of right; nor is the respondent entitled to resist the order as of right. Re El Sombrero Ltd [1958] 3 All ER 1, [1958] Ch 900; Re H R Paul & Son Ltd (1973) 118 Sol Jo 166.

The effect of s 303 of the Companies Act 1985 is to give a majority shareholder a right to remove and appoint directors. That has to be borne in mind in considering the exercise of the discretion in this case. Re Opera Photographic Ltd [1989] BCLC 763, [1989] 1 WLR 634.” See: In Re Woven Rugs Ltd [2002] 1 BCLC 324 at 328. [35] Learned counsel for the 1st Defendant contended that it is not ‘impracticable’ to convene a meeting because the 1st Defendant will attend if the proposed EGM does not contain a resolution to remove CKS as a director. With respect, it is not for the 1st Defendant to pick and choose which resolutions that ought to be put before the members at the proposed EGM. By the 1st Defendant’s stated position, it is clear that the proposed EGM is not practicable as the 1st Defendant has chosen to frustrate the quorum requirement for a meeting to consider, inter alia, the removal of CKS as a director. [36] As regard the exercise of discretion, the 1st Defendant’s contention was that the proposed EGM would result in the substantive rights of the 1st Defendant being interfered with. This is because the proposed removal of CKS would be in breach of the terms of the S/N XBiJuFnfUSkuMmRvsvlzQ Licensing Agreement entered into between the 1st Defendant and the 2nd Defendant. The Court’s attention was drawn to the following terms in the Licensing Agreement: “The parties agree that the board of the Company shall not exceed two (2) directors. Ms. Elin Hong Pei Shang and Mr. Chew Kit Seng shall be the first set of directors. Any appointment of a 3rd director shall be agreed between the shareholders”. [37] Learned counsel for the 1st Defendant then referred to the learned Justice Cheung’s decision in Manfield Coating Co. Ltd v Springfiled Coatings Co. Ltd & Anor [1995] 1 HKC 74 (“Manfield Coating”) at pages 78D-F and 79A-B where the facts are substantially similar to the present case. He had held, thus: “I accept that the general right to have a quorum could not be regarded as a class right attached to the shares of the minority shareholders. However, in the present case, the second defendant is saying that he and Mr Yuen, when they formed the first defendant, agreed to do so on the basis of a partnership and they had the joint control and management of the company and they agreed that, without the prior consent of the other party, there would not be any change in the directorship and the ownership of the shares of the company. This was also the agreement between them when Mr Yeung joined the company in 1992 and remained to be so when the second defendant signed the resolution consenting to Mr Yuen and Mr Yeung transferring their shares to the plaintiff. While the partnership factor was disputed by Mr Yuen and Mr Yeung in the correspondence, this is one of the issues that the court has to adjudicate in the winding up petition. S/N XBiJuFnfUSkuMmRvsvlzQ To install an additional director at this stage would override the agreement reached between the second defendant and Mr Yuen regarding the control and management of the company. … In the present case, there is of course no written shareholder’s agreement. However, the contended agreement regarding the management and control of the first defendant is a matter I should take into account in the exercise of my discretion. I consider that my discretion should not be exercised in favour of the plaintiff. To do otherwise would override the agreement reached between the second defendant and Mr Yuen on the management and control of the company. In this connection it is observed that apart from the issue of appointing an additional director, there is no allegation that the first defendant could not otherwise function properly.” [38] To my mind, although the facts in the case of Mansfield Coating are analogous to the present case, what is omitted by counsel for the 1st Defendant is that the Licensing Agreement in this case has been terminated by the 1st Defendant. As such, any argument that this Court should exercise its discretion not to order a meeting to be convened for interfering with the Licensing Agreement is no longer relevant. [39] Learned counsel for the 1st Defendant also contended that this Court should take cognisance of the winding up proceedings in WUP 354. In the English’s Court of Appeal case of Harman and another v BML Group Ltd [1994] 2 BCLC 674 at 678g, Dillon LJ held that the S/N XBiJuFnfUSkuMmRvsvlzQ existence of other proceedings seeking relief by the opposing shareholder is a relevant consideration: “There is also the question of the petition which has been presented under s 459 of the Companies Act 1985 by Mr Blumenthal and others, complaining about mis-application of funds by Mr Harman and Mr Mills. I entirely agree with Harman J in the case of Re Whitchurch Insurance Consultants Ltd [1993] BCLC 1359, that the mere fact that a petition has been presented under s 459 making serious allegations against directors does not lead to an automatic conclusion that the court's jurisdiction under s 371 is ousted. But it may be a relevant factor. [40] Further, in Re Sticky Fingers Restaurant Ltd [1992] BCLC 84 at 89 – 90, Mervyn Davies J held: “I turn to the consideration of the discretion conferred by s 371. It seems to me that discretion ought to be exercised so as to enable an effective board to be brought into being. It cannot be right that Mr Mitchell's quorum tactics should be allowed to stop the company having its accounts, VAT difficulties, etc dealt with. It may be many months before the s 459 petition is heard. On the other hand, it would not be right for Mr Wyman, by using s 371 for the purposes of constituting an effective board, to be given the opportunity of harming Mr Mitchell, eg by causing him to be dismissed as a director, or by being excluded from any participation in the affairs of the company pending the outcome of the petition proceedings.” [41] Again, in arriving at my decision in this case, I have taken note of the fact that the 1st Defendant has filed WUP 354 and that the S/N XBiJuFnfUSkuMmRvsvlzQ winding up petition is in fact fixed for hearing on 18.10.2024, hardly 3 weeks away. That the impasse between the shareholders should be fully and finally resolved by the winding up petition is clear. [42] However, it has not been demonstrated to this Court that the 1st Defendant’s position in WUP 354 will in any way be adversely affected by the proposed EGM at all. With the Licensing Agreement being already terminated and if indeed CKS is removed as a director of the 2nd Defendant, it may in fact advance the 1st Defendant’s case in the WUP 354. In any case, if the fear is that by CKS’s removal as a director, the Plaintiff may conduct the affairs and or assets of the 2nd Defendant in a manner prejudicial to the 1st Defendant’s interest as a shareholder, appropriate remedies can be obtained from the Court in WUP 354 pending its determination. [43] For completeness, the 1st Defendant has also challenged the validity of the notice issued for the proposed EGM. As regard the notice, the EGM notice dated 28.5.2024 cum the special notice dated 28.5.2024 were issued pursuant to Section 206(3) and Section 322 of the Companies Act 2016. The 1st Defendant has not demonstrated that these notices did not comply with those sections. [44] Further, the contention that the notice does not disclose reasons for removal of CKS as a director is also untenable. This is because it is not a legal requirement to do so. In Indian Corridor Sdn. Bhd. & Anor. -v-Golden Plus Holdings Bhd [2008] 3 MLJ 653 (see paragraph 20 of the judgment), the Court of Appeal held that there is no requirement to state reasons in a notice issued under s.128 of Companies Act 1965 (now s.206 of Companies Act 2016). [See S/N XBiJuFnfUSkuMmRvsvlzQ also: Low Thiam Hoe v Seri Serdang Sdn Bhd [2020] 4 CLJ 618 at paragraphs 105 and 106 of the judgment]. [45] Quite apart from the aforesaid, I also accept the contention of learned counsel for the Plaintiff that the 1st Defendant is in fact abusing the quorum requirement to achieve an unfair advantage. Whilst deliberately refusing to attend the proposed EGM, the 1st Defendant has issued a termination cum demand letter to the 2nd Defendant, threatening to sue the 2nd Defendant. Concurrently, the 1st Defendant is challenging the Plaintiff’s action to have legal representation to defend the 2nd Defendant against its demand. The 1st Defendant’s action is akin to crippling the 2nd Defendant, to render it defenceless against its claim. Conclusion [46] Premised on the above, I have no hesitation in granting the Plaintiff an order in terms of Enclosure 1. Dated the 11th day of October 2024 ONG CHEE KWAN Judge of the High Court of Malaya High Court of Kuala Lumpur, NCC2 & Admiralty S/N XBiJuFnfUSkuMmRvsvlzQ Counsel:

Dato' C. K. Lai together with Mr. Jeff Ng for Plaintiff

Messrs. Damien Chan, Hannibal & Ng Chambers (Kuala Lumpur) Mr. Yap Boon Han together with Ms. Kelly Tiew for Defendants Messrs. Gan, Lee & Tan (Kuala Lumpur)

Tamabina Sdn. Bhd. & Anor v. Nakamichi Corporation Bhd [2016] 10 CLJ 148 (“Tamabina”)

Re Opera Photographic Ltd [1989] BCLC 763 (“Re Opera

Photographic”) Manfield Coating Co. Ltd v Springfiled Coatings Co. Ltd & Anor [1995] 1 HKC 74 (“Manfield Coating”)

Harman and another v BML Group Ltd [1994] 2 BCLC 674

Re Sticky Fingers Restaurant Ltd [1992] BCLC 84

Indian Corridor Sdn. Bhd. & Anor. -v-Golden Plus Holdings Bhd [2008] 3 MLJ 653

Low Thiam Hoe v Seri Serdang Sdn Bhd [2020] 4 CLJ 618

Section 206(3); 314 and 322 of the Companies Act 2016.

Section 128 of Companies Act 1965 (now Section 206 of Companies Act 2016.

Corporate Power Accountability, 3rd Edition