Geodis Malaysia Sdn Bhd v Kang Beng Koon (BA-22NCC-13-01/2022)

Kang Beng Koon 2. Poh Fei Fen 3. Tandem Malaysia Holdings Sdn. Bhd. …Defendants GROUNDS OF JUDGMENT Introduction [1] Plaintiff's cause of action against the Defendants was pursuant to section 540 of the Companies Act 2016 for fraudulent trading. [2] After hearing two witnesses, one from each party, on the balance of probabilities, I have allowed Plaintiff's claim and declared that the 1st Defendant (D1) had carried out the business with intent to defraud Plaintiff. [3] Consequently, D1 was held personally liable to pay the sum of RM174,136.54 with 5% interest until final realization. [4] With regard to the 2nd Defendant (D2), she was not present, nor did she give evidence or called as a witness, but it was not refuted that she was merely an employee at the material time, as explained by D1. Hence, I find that dishonesty on her part was not proven. [5] As for liability on the 3rd Defendant (D3), I find that the word 'person' in s. 540(1) of the Companies Act 2016 (the Act) does not include a company. It therefore follows that the Plaintiff did not have a cause of action against D3, which is a company. [6] D1 has now appealed to the Court of Appeal, and my reasons are below. Salient Facts [7] D1 is a Singaporean citizen and was one of the directors of Tandem Global Logistics (M) Sdn. Bhd. (TGL). He held the post of Director and General Manager of TGL while D2 was the Senior Manager. [8] Sometime between November 2017 and July 2018, Plaintiff engaged TGL for its freight and forwarding services. [9] When reviewing the Plaintiff's accounts for audit purposes, Plaintiff discovered that TGL had issued duplicate invoices in which TGL had charged the Plaintiff twice for services rendered. As a result, Plaintiff had overpaid an amount of RM155,166.46 to TGL (the overpaid sum). [10] On 27.9.2019, the Plaintiff's representative attended a meeting with D1 and D2 to discuss the repayment of the overpaid sum. According to Plaintiff, D1 had made an unreasonable repayment proposal, which Plaintiff rejected. [11] The Plaintiff then brought an action to recover the overpaid sum at the Shah Alam Sessions Court (SASC). This action was filed on 20.11.2019. [12] However, two (2) months later, on 16.1.2020, D1 had, without the Plaintiff's knowledge, incorporated Tandem Malaysia Holdings Sdn. Bhd. (D3). In the meantime, the Plaintiff's case was decided at SASC, and the Court allowed Plaintiff's claim on 4.2.2020. [13] Aggrieved by the SASC's decision, TGL filed an appeal to the High Court on 17.2.2020. On 9.7.2020, the Shah Alam High Court dismissed TGL's appeal but allowed the variation of default interest to 5% per annum from 25.6.2019 until the date of full settlement with costs of RM3,000.00 to be paid by TGL to the Plaintiff. [14] Meanwhile, since TGL failed to comply with the SASC order, Plaintiff presented a winding-up petition against TGL on 5.5.2020. [15] On 1.7.2020, TGL had applied pursuant to s. 28 of the Companies Act to change its name to TGL Malaysia Sdn. Bhd. The Plaintiff was unaware of this change. [16] The winding-up petition was scheduled for hearing on 14.8.2020, but D2 requested an adjournment pending settlement between Plaintiff and TGL. D1 then submitted a settlement proposal on 19.9.2020, which the Plaintiff did not agree with. As no amicable agreement could be reached, the winding up of TGL was ordered on 21.9.2020, and a liquidator was appointed. [17] Consequently, a proof of debt was filed for a total sum of RM174,136.54. [18] Following the winding-up order, Plaintiff believed that TGL was still trading at its business address; therefore, Plaintiff's solicitors had written to the liquidator for confirmation. The liquidator confirmed that TGL was operating at the same business address as TGL's signboard was still in use. [19] Due to the above, Plaintiff filed this suit claiming that D1 and D2 had incorporated D3 with a similar business nature with TGL, intending to defraud Plaintiff and to avoid repayment of the overpaid sum. [20] It was submitted that the corporate veil of D3 should be lifted to impose responsibilities and personal liabilities, with D1 being the alter ego and mind of TGL and both D2 and D3 conspiring with D1 to commit fraudulent trading against Plaintiff. [21] Plaintiff is claiming a sum of RM234,070.87 against the Defendants, which includes RM174,136.54 together with RM59,924.33 for legal costs incurred. [22] The Defendant's submissions and Defence were as follows:

Though admitted to the overpayment, Defendants aver that it was not a fraud. No fraudulent elements were mentioned in all letters of demand exhibited by Plaintiff in their case against Defendants at the

Plaintiff failed to prove the intention to defraud in the manner in which the business of TGL was being conducted.

The overpayment was due to the mistake made by the Plaintiff's employee and not due to any fraudulent acts or representation made by TGL, D1 or D2.

The overpayment is not due to any fraudulent trading; any subsequent events, i.e. the establishment and operation of D3 by the D1 dan D2, are therefore not relevant.

The elements of s. 540(1) of the Act are not fulfilled, the Plaintiff's claim in this suit must fail.

In the year of 2018, TGL experienced business decline and financial difficulties and suffered business losses but did attempt to settle the judgment sum; however, Plaintiff refused to have an effective discussion and did not accept TGL's proposal.

In the following year (2020), TGL suffered more financial crisis due to the COVID-19 pandemic, and the shareholders refused to inject more capital into TGL, resulting in the company facing cash flow problems.

After the winding up, TGL is now under liquidation, and this action by Plaintiff is premature and an abuse of the court process.

This is an unjust enrichment by Plaintiff to take advantage and frustrate the Defendants.

D3 is a corporation with a different business nature from TGL.

The Plaintiff failed to prove the intention to defraud by D1 as director of TGL.

D2 was merely an employee of TGL and was doing her job.

No mention of any fraudulent element by Plaintiff in their affidavit in support of the suit in SASC.

This cause of action against TGL is premised on unjust enrichment and not fraud.

Plaintiff failed to prove that D1 and D2 were "knowingly a party" to the carrying on of the business in a fraudulent manner. [23] The issues to be tried are as follows:

Whether the Defendants had carried its business with intention to defraud the Plaintiff pursuant to Section 540(1) of the Companies Act 2016.

Whether D3 was incorporated by D1 and D2 as a mere facade to avoid its responsibility to pay the Overpaid Sum to the Plaintiff.

Whether D1 and D2 had knowledge and/or engaged in fraudulent trading in this present suit and 4. Whether the doctrine of corporate veil should be lifted to impose responsibilities and personal liabilities towards D1 and D2. Law on Fraudulent Trading [24] Fraudulent trading happens when an officer of the company or any person knowingly carries on any business of the company with intent to defraud the company's creditor (see Essential Company Law in Malaysia, Navigating the Companies Act 2016, Second Edition by Chan Wai Meng at Chapter 4). [25] Fraudulent trading is governed by s. 540 of the Act, which covers both civil and criminal liabilities. This section is in pari materia with previous s. 304 of the Companies Act 1965 (CA 1965); therefore, reference to s. 304 in decided cases is relevant and useful in supplementing cases under the new provision. [26] Section 540 of the Act reads:

Responsibility for fraudulent trading

If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud the creditors of the company or creditors of any other person of for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if the Court thinks proper to do so, declare that any person who was knowingly a party to the carrying on of the business in that matter shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs. [27] Mary Lim JCA in Chin Chee Keong v Toling Corporation (M) Sdn Bhd [2016] 4 MLRA 180 described the objective of s. 304(1) of the CA 1965 as follows: "The primary object behind subsection 304(1) of the Companies Act 1965 is to statutorily provide for the lifting of the veil of incorporation in the specific circumstances of fraudulent trading with a view to ultimately pinning personal accountability and liability on the directing minds behind such trading of the company. Subsection 304(1) affords the creditor of the company aa civil remedy personally against such persons." [28] It was also held in Chin Chee Keong that the requirements of s.304(1) were as follows: • The business of the company has been carried out "with intent to defraud creditors or for any fraudulent purposes" – the dishonestly was in the form of incurring debts; • The Defendants were knowingly a party to the carrying on the business in that manner; and • The fraudulent trading was discovered when the company was being wound up or in proceedings taken against the company. [29] Following the Court of Appeal's decision in Aneka Melor Sdn Bhd v Seri Sabco (M) Sdn Bhd & Anor (2016) 2 CLJ 563, the directing minds behind the company's trading would be the company's officers. They will include the company's directors (see Dato' Prem Krishna Sahgai v Muniandy a/l Nadasan & Ors (2017) 6 MLRA 1). It was also held in Dato' Prem Krishna Sahgai that a single act of conducting the business with the intent to defraud a creditor would be sufficient to be held liable for fraudulent trading. It is not necessary to establish a scheme to defraud. [30] To impute liability on them, it is important to prove that these persons took some positive steps in carrying on the company's business in a fraudulent manner. They must have actual knowledge (see page 113 of Essential Company Law in Malaysia, Navigating the Companies Act 2016, Second Edition by Chan Wai Meng at Chapter 4) [31] The Court of Appeal has discussed and explained at length the position of s.504(1) of the Act in the words of Hasnah Mohammed Hashim JCA in the case of Tradewinds Properties Sdn Bhd v Zulhkiple A Bakar & Ors [2019] 1 MLRA 238 and I quote as follows: What Constitutes An "Intent To Defraud" [18] Fraudulent trading is dealt with in sub-s. 304(1) of CA 1965. The subsection provides:

If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if it thinks proper so to do declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs. [19] In the case of Chin Chee Keong v. Toling Corporation (M) Sdn. Bhd. [2016] 6 CLJ 666; [2016] 4 MLRA 180, this Court stated: [16] The primary object behind subsection 304(1) of the Companies Act 1965 is to statutorily provide for the lifting of the veil of incorporation in the specific circumstances of fraudulent trading with a view to ultimately pinning personal accountability and liability on the directing minds behind such trading of the company. Subsection 304(1) affords the creditor of the company a civil remedy personally against such persons. [17] This Court recently had opportunity to consider the operation and ambit of sub-s. 304(1) of the Companies Act 1965 in the case of Aneka Melor Sdn Bhd v. Seri Sabco (M) Sdn Bhd & Another Appeal [2016] 2 CLJ 563. His Lordship, Justice Mohd Zawawi Salleh JCA, writing for the Court succinctly observed that: [37] Section 304 of the Companies Act 1965 is aimed principally at curbing the possibility on the part of the officers of a company to act opportunistically and take advantage of the principle of the separate legal personality of a company and the principle of limited liability. As an exception to these principles, there are circumstances when the law duly acknowledges, and for which it accordingly provides the possibility, in very specific situations, for the corporate veil to be pierced. Once the corporate veil has been pierced the creditors of the company whose veil has been pierced may satisfy their claims from the personal assets of the company's shareholders. [18] In another recent decision of Lama Tile (Timur) Sdn Bhd v. Lim Meng Kwang & Anor [2015] 3 CLJ 763, the Court of Appeal said: [23] Section 304 is a specific statutory provision which allows the corporate veil to be lifted in the limited situations specified. Earlier in this judgment we have underlined that it is applicable in a situation where in the course of proceedings against a company, it appears that the business of the company has been carried on with intent to defraud creditors, a creditor can make an application to Court to request that the Court declare that any person who was knowingly a party to such carrying on of the business of the company, to be personally responsible. The evidence in this appeal shows precisely that. The directors and shareholders of LMK Edaran proposedly and knowingly engaged in a course of conduct to mislead the appellant (by adding the 'S' to the signboard), and but by the same token transferred the business of LMK Edaran to SLMK Edaran (previously Southern Taipan Sdn Bhd) to render LMK Edaran a dormant company.". [20] In broad terms, there are two elements to establishing an application under sub-s. 304(2) of CA 1965. These are:

that the business of the company has been carried out "with intent to defraud creditors..." or for any fraudulent purpose; and

that the Defendant who was knowingly a party to the carrying on of the business in that manner. [21] The central element of fraudulent trading is "an intent to defraud" or "fraudulent purpose". The first reported decision to address this issue was Re William C. Leitch Bros Ltd. (No. 1) [1932] Ch 71 (Ch D). The Court of Appeal in R v. Grantham [1984] BCLC 270 provided clarification by citing Maugham J in Re Leitch (William C) Bros Ltd [1932] Ch 71: "In my opinion I must hold with regard to the meaning of the phrase "carrying on business with intent to defraud creditors" that if a company continues to carry on business to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts, it is in general a proper inference that the company is carrying on business with intent to defraud,...". [22] The Court also considered R v. Sinclair[1968] 1 WLR 1246 in which the jury was directed with the following instructions to find "intent to defraud": "It is fraud if it is proved that there was the taking of a risk, which there was no right to take, which would cause detriment or prejudice to another. You have to be sure that it was deliberate dishonesty". The Court rejected that the Defendant had to prove that he knew at the time when debts were incurred that there was no reasonable prospect of creditors ever receiving payment of their debts. It was enough if the Defendant realized at the time when the debts were incurred that there was no reason for thinking that funds would be available to pay the debt when it would become due or shortly thereafter. These words import a criterion that is partly subjective and partly objective. Thus, in order to establish dishonesty under sub-s. 304(1) of CA 1965 the Court must find that:

According to the ordinary standard of reasonable and honest people what was done was dishonest; and

(ii) That the actor himself must have realized that the Act was by those standards dishonest. [23] In the textbook, Chan & Koh On Malaysia Company Law, Principles & Practice, 2nd edn, Thomson Sweet & Maxwell Asia, the learned author stated at p. 102:

3.099. The expressions "intent to defraud" and "fraudulent purpose" were considered by KL Rekhraj JC (as he then was) in H Rosen Engineering BV v. Siow Yoon Keong and the learned Judicial Commissioner applied the "reasonable expectations of an honest business man" test. It was held in Eng Iron Works Ltd v. Ting Lin Kiew & Anor t hat section 304(1) could apply even prior to the winding-up of a company. "Fraud" for the purposes of this section is "actual dishonesty involving, according to current notions of fair trading among commercial men, real moral blame.". [24] With regard to "knowingly", it appears that the scope of personal liability in sub-s. 304(1) of CA 1965 is not restricted just to directors but anyone who is knowingly party to fraudulent trading. (See: Re Gerald Cooper Chemical Ltd [1978] 2 All ER 49). [25] The standard of proof in sub-s. 304(1) of CA 1965 is on balance of probabilities. The term "it appears" is deployed in the subsection. This clearly denotes that a lower standard of proof is required to establish liability under this provision, ie, on a balance of probabilities. (See: Sinnaiyah & Sons Sdn Bhd v. Damai Setia Sdn Bhd [2015] 7 CLJ 584; Aneka Melor Sdn Bhd v. Seri Sabco (M) Sdn Bhd (supra) ). [26] We must emphasize that liability depends on the facts of each particular case and that the Court has not sought to limit or particularise the different ways and means of dishonest conduct which could fall within the ambit of sub-s. 304(1) of CA 1965. Each case would depend on its facts. [32] A recent Federal Court case of Lai Fee & Anor v Wong Yu Vee & Anor [2023] 4 CLJ 1 was referred to by Plaintiff, and I find it helpful for ease of reference to refer to the same for guidance on the current position of the law on s. 540 of the Act. The relevant excerpts are as follows: [22] An action under s. 540 of the CA 2016 underpins the existence of the statutory exception to the common law doctrine of corporate personality, also known as the separate legal entity principle: that the company is treated as an entity separate from its members.. [23] The application of the statutory exception to the corporate personality principle has been also described as the lifting of the corporate veil - the effect of which is to render the members or officers of the company personally liable for the debts and liabilities of the company under certain circumstances.. [24] That responsibility for fraudulent trading under s. 540 of the CA 2016 is the statutory exception to the corporate personality doctrine has been the subject of extensive discussion in a line of cases. Accordingly, it might be useful and desirable to set out a synopsis of the well-established principles which govern the application of this statutory exception which are:

The words 'with intent to defraud creditors... or for any fraudulent purpose' in s. 304 of the Companies Act 1965 should be read disjunctively even though on the facts of the case both limbs are relevant and applicable (Siow Yoon Keong v. H Rosen Engineering BV [2003] 4 CLJ 68 CA);

(ii) In the context of carrying on business, the phrase 'with intent to defraud creditors' it is in general a proper inference that the company is carrying on business with intent to defraud the creditors of the company if the company continues to carry on business to incur debts at a time when there is to the knowledge of the directors no reasonable prospect of the creditors ever receiving payment of those debts. (R v. Grantham [1984] BCLC 270). It has also been interpreted to include an intent to deprive creditors, of an economic advantage or inflict upon them some economic loss (Coleman v. The Queen [1987] 5 ACLC 766). The word 'intent' is being used in the sense that a man must be taken to intend the natural or foreseen consequences of his Act (Re Cooper, supra at 267);

(iii) The word 'fraud' is also defined under s. 17 of the Contracts Act 1950. According to Sinnadurai, Law of Contract, 4th edn 2011 at para. [5.07], fraud is defined 'to include certain acts which are committed with intent to induce another party to enter into a contract.' Section 17 sets out five types of different acts which constitute fraud. These include 'a promise made without any intention of performing it' and 'any other act fitted to deceive': s. 17(c) and (d), Contracts Act 1950.

(iv) The words 'if... it appears' in s. 304 of the Companied Act 1965 is indicative of a lower threshold in order to trigger the operation of s.

It does not matter whether s. 304 contains in it both civil and a criminal provision - the civil provision in sub-s(1) and the criminal sanction in sub-s.

are properly carved out and they do not interfere in each other's operation (Siow Yoon Keong v. H Rosen Engineering BV [2003] 4 CLJ 68; JCT Ltd v. Muniandy Nadasan & Ors And Anor Appeal [2016] 3 CLJ 692; [2016] 6 MLJ 635);

The burden of proof is on the plaintiffs to establish fraudulent trading within the meaning of s. 304 of the Companies Act 1965. The standard of proof in civil cases involving proof of fraud or fraudulent conduct is on the balance of probabilities (Sinnaiyah & Sons Sdn Bhd v. Damai Setia Sdn

(vi) The existence of fraud is a question of fact. It is dependent on the circumstances of each particular case. Fraud must mean actual fraud, ie, dishonesty of some sort (PJTV Denson (M) Sdn Bhd & Ors v. Roxy (Malaysia) Sdn Bhd [1980] CLJU 55; [1980] 1 LNS 55 FC);

(vii) In order to establish dishonesty under s. 304 of the Companies Act 1965, it must be shown that firstly, what was done was dishonest according to the ordinary standard of reasonable and honest people, and secondly that the actor himself must have realized that the Act was by those standards dishonest (Tradewinds, supra);

(viii) It is fraud if it is proved that there was the taking of a risk which there was no right to take which would cause detriment or prejudice to another. It need not be proved that the Defendant knew at the time when debts were incurred that there was no reasonable prospect of creditors ever receiving payment of their debts. It was enough if the Defendant realized at the time when the debts were incurred that there was no reason for thinking that funds would be available to pay the debt when it would become due or shortly thereafter. These words import a criterion that is partly subjective and partly objective (Regina v. Sinclair[1968] 1 WLR 1246);

(ix) Whether there was any intention on the part of the defendants to defraud or to carry on any fraudulent purpose is a question of fact to be inferred from the surrounding circumstances and the subsequent conduct of the defendants, especially the concealment of material facts (Rahj Kamal Abdullah v. PP [1998] 1 SLR 447; LMW Electronics Pte, supra);

Actual knowledge was required before a person could be said to be knowingly a party to the fraudulent transaction carried out by a company within the meaning of s. 304 of the Companies Act 1965 -- it must be shown that the person has participated, concurred or taken some positive steps in the carrying on of the company's business in a fraudulent manner - however, it is not necessary to show proof of his having assumed a controlling or managerial role over the company's business before he could be said to be a party to the carrying on of it (Tan Hung Yeoh v. Public Prosecutor [1999] 2 SLR(R) 262 HC);

(xi) It is not necessary to establish a scheme to defraud to trigger the invocation of s. 304 of the Companies Act 1965. The wordings of s. 304 do not lend itself to be read in such a manner - a single act of doing business to defraud a creditor would be sufficient to trigger an action for compensation against the errant person in his personal capacity. A business may be found to have been carried out with intent to defraud creditors notwithstanding that only one creditor is shown to have been defrauded, and by a single transaction (Re Gerald Cooper supra; Morphitis v. Bernasconi & Ors [2003] BCLC 53; Prem Krishna Sahgal, supra). -emphasis added Analysis and Findings [33] The standard of proof for fraudulent trading under s. 540(1) of the Act is on the balance of probabilities – see the case of Chin Chee Kong. [34] In order to establish an "intent to defraud", the Federal Court in Dato Prem Krishna Sahgal has held that the element of dishonesty is an essential ingredient, and this is a question of fact which must be ascertained from a consideration of the entirety of the relevant circumstances. [35] In determining the current issues, it is important to bear in mind the following undisputed facts:

D1 was the director and General Manager of TGL.

The overpayment sum was not disputed.

There was an initiative by D1 to repay the same; however, the proposed repayment was rejected by Plaintiff.

D3 was established/incorporated two (2) months after the filing of the claim in the SASC.

D1 is the director in D3.

TGL was wound up.

TGL nature of business is "Freight Forwarder Services".

D3's nature of business is stated (in the SSM) as follows: "Activities of Consultant other than Architecture, Engineering and Management Consultants, Forwarding of Freight, other retail sale in non-specialized stores N.E.C."

D3 business address is the same as that of TGL. [36] For the purpose of establishing an intention to defraud, dishonesty is an essential ingredient. I reiterated the principles stated in the case of Tradewinds Properties Sdn referred to earlier, where it was held that the Court must follow the guidance below to establish dishonesty, that is: - i.According to the ordinary standard of reasonable and honest people, what was done was dishonest; and ii.That the actor himself must have realized that the Act was by those standards dishonest. [37] The Plaintiff refers to the following facts to prove dishonestly on the part of D1. Plaintiff tabulated the chronology of acts and instances in their submission, and I summarized it as follows:

In 2018, a sum of RM238,419.00 was undisputedly credited to TGL, which now includes the overpaid sum of RM155,166.46 claimed by Plaintiff in the SC action.

The suit at SASC was filed on 20.11.2019, and two (2) months later, D1 incorporated D3 without the Plaintiff's knowledge.

One (1) month after the presentation of the winding up petition, before the first hearing of the same, TGL was still operating at the business address and had also executed a tenancy agreement on 2.6.2020 to continue with the tenancy at the exact location in the name of the newly incorporated D3.

On 1.7.2020, TGL changed its name to TGL Malaysia, but this was not conveyed to Plaintiff on 14.8.2020 when they were before the Court for the first hearing of the winding up petition.

Two (2) days before the winding up petition hearing (on 19.9.2020), D1 emailed Plaintiff alleging having a separate entity between TGL and TGL Malaysia.

TGL's signboard was maintained at the business premises even after the order of winding up was made until the inspection by the insolvency officer in around December.

D3 shares the same business address and phone numbers at all material times as TGL, and D1 confirmed this in his testimony.

At all material times, D3 is conducting the same business nature as TGL and again admitted by D1 in his evidence in Court. [38] To prove payment from Plaintiff total of RM238,419.00 to TGL, Plaintiff raised the issue of "Advanced Sum" paid to the directors of TGL as reflected in its financial statement for 2018, amounting to RM238,419.00. D1, however, denied this in his testimony. [39] In view of the above, I consider D1's denial that the amount of RM238,419.00 received from TGL did not originate from the transaction with the Plaintiff to be unjustified, as he has not provided any evidence to the contrary. D1 merely refers to his lack of memory, as this had already happened some time ago. This is lame as the total amount was similar to the amount paid by Plaintiff, and he further agreed that the amount was paid in stages based on the invoices. [40] I agree with the Plaintiff that D1's inability to explain how the overpayment forms part of the Advanced Sum, which resulted in TGL subsequently being liquidated, gives the impression that he conducted the business with the intention to defraud the Plaintiff. I am of the opinion that D1's demeanour in evading answering the question, despite having documentary evidence to support the exact amount shown in TGL's financial report, indicates that D1 deliberately intended to deceive or withhold repayment of the amount. [41] Prior to the incorporation of D3, D1 had applied for a name change from TGL to TGL Malaysia. This was in the midst of the impending winding up petition against TGL. Having considered all the evidence, I find it difficult to accept D1's explanation that this (the incorporation and change of name) had nothing to do with him trying to evade liability or avoid responsibility for the debts due to TGL. [42] Moreover, D1 admitted in his evidence that he had incorporated D3 after learning that the Plaintiff had sued TGL. At that time, he was still the managing director, running the day-to-day operations of the company, had the same business address/location and telephone number, and furthermore had a similar type of business, namely freight and forwarding services. In my view, this suggests D1's intention to manipulate the principle of separate legal entities in order to defraud his creditors. [43] D1 has stated that the formation of D3 was an alternative step taken by D1 in case TGL shareholders fail to make additional investments in TGL to solve their financial problems. According to D1, these steps cannot be construed as fraud on the Plaintiff as they were necessary to ensure the survival of the company. Logically, D1 might have an argument to justify its actions; unfortunately, I believe that by the ordinary standards of reasonable and honest people, D1 should have recognized that its actions, the creation of a separate entity, were dishonest by those standards (see Tradewinds Properties). [44] Therefore, upon lifting the corporate veil, I find that D1, as director of TGL and who was actively involved in the company's daily decisions, was the alter ego and mind of TGL and had actual knowledge of the company's business and that D1 shall be personally responsible for the debt of TGL. [45] In addition, D1 was asked whether the setting up of D3 was an alternative plan in case TGL would be wound up to continue its business, and he answered in the affirmative. [46] In the case of Tradewinds Properties, the Court of Appeal had come to a similar conclusion on a factual scenario such as this; I refer to the excerpt below: [27] We have carefully scrutinized the whole evidence and we are satisfied that the learned Judge erred in concluding that the Plaintiff failed to prove fraudulent trading. In our view, the fact that the incorporation of the third Defendant was due to the Suit 93 can be equated to fraudulent trading as defined under sub-s. 304(2) of CA 1965. The contemporaneous evidence clearly shows that the third Defendant was incorporated prior to CJ, making it possible for the first Defendant to have incorporated a company in contemplation of evading payments about one and half year prior to the CJ. [28] We have noted the oral evidence to support such a conclusion. DW2, Raymond Tan, had explained the idea of incorporation of the third Defendant was not mooted by the first Defendant but rather that the third Defendant was incorporated in order for the first Defendant to be able to salvage the first Defendant's licence which in turn would allow the first Defendant to collect payment as the first Defendant would be unable to do without a licence. [29] Looking at the foregoing facts with unprejudiced eye, it clearly showed that the third Defendant was incorporated as part of a plan to defraud the Plaintiff vis-à-vis the CJ. - emphasis added [47] D1 attempted to explain the necessity of incorporating D3, that is, to secure foreign investments. However, this was not specifically stated in his Statement of Defence; therefore, I agree with Plaintiff's contention that this was an afterthought. [48] D1 details in his defence and in his witness statements that TGL was facing financial constrained, the impact of the Covid-19 pandemic on his overall business, and difficulties in obtaining new investment from investors to justify that he was indeed struggling to pay the debt, which he claims was a contractual obligation to the Plaintiff and therefore does not give rise to a claim for fraud. [49] However, D1 agreed in his cross-examination that none of this was mentioned in his affidavit in opposition to the application before the SASC. The Plaintiff therefore contended that the defence filed herein and all the allegations made by D1 in this suit were mere denials to evade responsibility for the payment of the overpayment. This is a valid argument and I had no reason to disagree with the Plaintiff's assertions. [50] As to the signing of the tenancy agreement for TGL's premises, which was issued in the name of D3 one (1) month after the filing of the winding up petition, I find that this simply confirms that TGL and D3, though separate companies, were operated by the same person, namely D1, who was in charge in order to continue the business and avoid TGL's liability. Therefore, I am of the opinion that the formation of D3 was merely a mere façade to defraud the Plaintiff and avoid TGL's obligation to pay the overpaid sum. [51] D1 has sought to draw the court's attention to the Plaintiff's failure to call the Department of Insolvency as a witness to prove fraudulent trading. I find this contention to be without merit, as the Insolvency was not required to make any findings before the matter could be decided here. Therefore, the non-calling of any Insolvency officers does not trigger the adverse inference provision under s.114(g) of the Evidence Act 1950. [52] D1 also argued that the Plaintiff's claim was premature because the liquidator would account for all TGL's assets and liabilities once the inspections and investigations were completed. On this issue, I find that s.540(1) permits the Plaintiff, as a creditor, to bring an action against any person who, subject to proof, knowingly participates in the fraudulent trading. There is no limitation or pre-condition that the liquidator was to complete his investigation before the Plaintiff commences this action. [53] On the liability of D2, it was submitted that she, being the Senior Manager who is responsible for handling all documents concerning the overpayment sum, the person liaising with Plaintiff at all material times, being the "middle person" who fixed the meeting between D1 and Plaintiff's representative and the officer represented TGL in the suit at the SASC, she was well aware or had knowledge of all essential matters or events transpired. [54] As for D2, she was not called as a witness. While a list of reasons was provided to support her non-participation in TGL (see paragraph 45 of enclosure 55), technically, this was merely an assertion without proof. However, in my view, it was not disproved that she was merely an employee of TGL at the relevant time, as explained by D1. I am, therefore of the view that dishonesty on her part has not been sufficiently proved. [55] On the consequential issue of whether there would be a double recovery of the overpaid sum as Plaintiff had submitted its proof of debt for the sum of RM174,138.54 and the sum claimed was RM234,060.87 (prayer c of the Statement of Claim), which includes legal cost incurred, I refer to the case of Golden Star & Ors v Ling Peek Hoe & Anor and Another Appeal (2024) 6 CLJ 487. The Federal Court had discussed on the issue of whether legal charges, legal fees, legal costs or litigation costs in the same proceedings between same parties recoverable as special damages and it was held that costs incurred in prosecuting a claim cannot be in itself a cause of action, whether in a separate or the same proceedings. It was also held that damages are compensatory in nature and are subject to proof, whereas costs are discretionary. Therefore, I allowed the sum of RM174,138.54 only and not the amount for legal costs. [56] As for the liability of D3, I agree with the submission of the Defendants that the word 'person' in s.540 does not include a company. Reference was made to the case of Zamzam Arabic Food Holding Sdn. Bhd. v Johanjana Corp. Sdn. Bhd. (2022) 5 MLJ 302, where the Court of Appeal held that: [27] We agree with the submission of the learned counsel for the second Defendant. We take the view that s 3 of the Interpretation Acts could not be read into s 540(1) of the Companies Act as it would give effect to inconsistent meanings to s 540(1). The underlying purpose of s 540(1) is to impose a personal responsibility and liability on the director and/or the person who controls the company and not the company itself for carrying on the business of the company with intent to defraud a creditor. The wording in s 540(1) is plain and unambiguous. The word 'person' in s 540(1) in its ordinary and natural meaning meant 'a real person'. He could be a director, managing director or person in control of the company. Therefore, to give effect to s 540(1), the Court must apply the ordinary meaning of 'person' and not the meaning assigned to it by the Plaintiff [28] To accede to the Plaintiff's contention would render s 540(1) meaningless because s 540(1) had a penal consequences. Only a real person could have an intention to defraud a creditor. Such an intention does not exist in a company. For example, the Act of purchasing goods with knowledge or intention of not paying for the goods because the company had no funds can only be made by a director of the company who carries on the business in that manner because a company does not have a mind to cheat: see Kawin Industrial Sdn Bhd (in liquidation) v Tay Tiong Soong [2009] 1 MLJ 723; LMW Electronics Pte Ltd v Ang Chuang Juay & Ors [2010] 1 MLJ 185. … [31] We, therefore, find that the learned JC had erred in law in accepting the Plaintiff's contention that the word 'person' in s 540(1) of the Companies Act include a company. For this reason, we find there is merit in the first issue raised by the second Defendant. We hold that the word 'person' in s 540(1) of the Companies Act 2016 does not includes a company. It therefore follows that the Plaintiff did not have a cause of action against the second Defendant, which is a company. - emphasis added [57] After hearing the evidence of the witnesses and upon perusing the submissions filed, I am inclined to agree with the Plaintiff that they had proved, on the balance of probability, as per the discussion above, it can be concluded that those instances were a clear indication of D1's intention, as director of TGL to defraud creditors under s.540 of the Act. Conclusion [58] On the balance of probabilities, premised on the preceding analysis and the findings, I now make the following orders:-

I declare that D1 was carrying business with the intention to defraud Plaintiff.

Upon lifting the corporate veil, only D1 is responsible and will be held liable for the overpaid sum.

As for prayer c of the Statement of Claim, I am allowing only the amount as in the proof of debt, that is RM174,136.54 with 5% interest until realization but subject to any execution done by the liquidator pursuant to the winding up of TGL.

Aggravated damages were not proven and, therefore, not allowed.

The cost of the proceeding is to be paid by the D1 to the Plaintiff, amounting to RM15,000.00 (subject to the allocator fee).

As for D2 and D3, a cost of RM5000 is allowed for both of them, which are paid by the Plaintiff (subject to the allocator fee). Dated this 1st December 2024 ~signed~ (NOOR HAYATI BINTI HAJI MAT) Judge Shah Alam High Court NVCV 9 Counsels: For the Plaintiff: John J K Yong together with Irene L K Song Messrs John Yong & Irene Song For the Defendant: W. T. Kuek together with Kelly Ha and Tan Zhi Xian Messrs Kuek, Ong & Associates