Koay Peng Soon v 1. ) Lee Seik Fun (WA-24NCC-329-07/2024)

Before the court is an originating summons filed by the Plaintiff under Section 346 of the Companies Act 2016 seeking a declaration that the 1st and 2nd Defendants have conducted the affairs of the 3rd Defendant in an oppressive manner and in disregard of the Plaintiff’s interests as a minority shareholder of the 3rd Defendant. The Plaintiff also seeks a buy-out order directing the 1st and 2nd Defendants to purchase his 30% shareholding in the 3rd Defendant company at a fair value to be determined by an independent valuer.

The 3rd Defendant, Enpro Solutions Sdn Bhd (“ESSB”), is a company that provides lightning protection systems to ensure safety of structures against lightning strikes. The 1st Defendant, Lee Seik Fun (“D1”), and the 2nd Defendant, Lim Leong Chuan (“D2”), are directors and majority shareholders of ESSB, holding 40% and 30% of shares respectively. The Plaintiff, Koay Peng Soon, is also a director and holds the remaining 30% of shares in ESSB.

The shareholding structure of ESSB is as follows: a) D1: 40% b) D2: 30% c) Plaintiff: 30%

The Plaintiff joined ESSB as a director and shareholder on 5.5.2022. Prior to joining, the Plaintiff, D1, and D2 were business associates within the lightning protection services industry. The Plaintiff’s expertise was primarily in the northern region of Malaysia (Penang, Kedah, and Perlis).

According to the Plaintiff, it was the common understanding between all three shareholders that: 4 a) While D1 and D2 would be the “maker” and “approval” for financial transactions of ESSB, the Plaintiff would be allowed to examine financial transactions and have access to ESSB’s financial accounts; b) The business and affairs of ESSB would be managed based on mutual trust, confidence, and good faith among the shareholders; and c) Profits of ESSB would be enjoyed and distributed equally through dividends without any prejudice or discrimination between the three shareholders.

D1 and D2 contend that there was a business arrangement where ESSB would collaborate with the 5th Defendant, Enpro Teknologi Sdn Bhd (“ETSB”), and the 6th Defendant, Enpro Engineering Sdn Bhd (“EESB”). Under this arrangement, the Plaintiff would source customers for ESSB, EESB would handle engineering aspects, and ETSB would supply and deliver lightning protection system materials. Payments received by ESSB from customers would be distributed to ETSB and EESB according to agreed distribution rates for each project.

The 4th Defendant, Abre Engineering Sdn Bhd (“AESB”), is also involved in this matter concerning a specific transaction of RM250,000.00 transferred from ESSB’s accounts to AESB on 9.2.2024.

It is undisputed that D1 and D2 are the sole shareholders and directors of ETSB, EESB, and AESB.

This Originating Summons is filed by the Plaintiff as a minority shareholder oppression action against D1, D2, ESSB, AESB, ETSB, and EESB. The Plaintiff seeks: a) a declaration that D1 and D2 are conducting the affairs of ESSB in an oppressive manner and in disregard of his interests as a member; b) a declaration that transactions totaling RM2,036,673.60 transferred to ETSB and EESB and RM250,000.00 transferred to AESB are illegal, null and void; c) an order that D1 and D2 buy out his entire 30% shareholding in ESSB at fair value as determined by an independent valuer; d) specific valuation criteria including clawback of the allegedly illegal transactions, valuation as a going concern with no minority discount; e) payment of the determined value within 14 days; and 6 f) costs to be borne by D1 and D2 with liberty to apply.

The Plaintiff’s case is founded on two main limbs of oppressive conduct under Section 346 of the Companies Act 2016.

First, beginning in August/September 2023, D1 and D2 systematically denied the Plaintiff access to ESSB’s accounts and financial information, with D2 explicitly stating “I’m now the commander” and “no further story to tell” when questioned about dubious transactions. This denial of access kept the Plaintiff in the dark about ESSB’s financial affairs despite his rights as a director and 30% shareholder.

Second, having gained complete control over ESSB’s accounts, D1 and D2 proceeded to divert substantial company funds to related entities in which they were the sole shareholders, specifically transferring RM250,000.00 to AESB and at least 59 dubious transactions totaling RM2,036,673.63 to ETSB and EESB between November 2022 and March 2024.

These diversions were made without the Plaintiff’s knowledge or consent and directly benefited D1 and D2 at the expense of the Plaintiff, reducing ESSB’s bank balance to a mere RM38.02. The Plaintiff contends that this pattern of conduct constitutes a visible departure from standards of fair dealing and violates the conditions of fair play, 7 amounting to oppression that justifies relief under Section 346.

The Plaintiff contends that D1 and D2 have conducted the affairs of ESSB in a manner that is oppressive and in disregard of his interests as a minority shareholder in the following ways: a) By denying him access to ESSB’s accounts and financial records; b) By diverting funds from ESSB to ETSB and EESB, which are companies solely owned by D1 and D2, thereby depriving the Plaintiff of his right to share in the profits of ESSB; c) By transferring RM250,000.00 from ESSB to AESB, another company solely owned by D1 and D2, without proper authorisation or justification; and d) By treating ESSB as if it were their own, with blatant disregard for the Plaintiff’s rights and interests as a shareholder.

The Plaintiff submits that these actions constitute oppression under Section 346 of the Companies Act 2016, and that a buy-out of his shares in ESSB at a fair value is the appropriate remedy.

The Defendants deny the Plaintiff’s allegations and contend that: a) The Plaintiff was never denied access to ESSB’s accounts and financial records. In fact, the Plaintiff had admitted in paragraph 11(a) of his affidavit that he was allowed to examine the financial transactions and have access to ESSB’s financial account at all material times; b) There was an arrangement between the parties whereby ESSB would collaborate with ETSB and EESB in conducting its business. Under this arrangement, the Plaintiff was responsible for sourcing customers for ESSB, EESB was responsible for the engineering aspects of ESSB’s business, and ETSB was responsible for supplying and delivering lightning protection system materials; c) Payments received by ESSB from customers were to be distributed to ETSB and EESB based on agreed 9 distribution rates for each project, reflecting their respective involvement and profit-sharing terms; d) The Plaintiff was aware of and had consented to this arrangement, as evidenced by his signature on a Summary List for eight projects, which detailed the profit-sharing arrangements between ESSB, ETSB, and EESB; e) The payment of RM250,000.00 to AESB was a legitimate business transaction. It was a direct counter-payment where ESSB owed money to ETSB, and ETSB owed money to AESB. To streamline the process and minimise multiple transactions, ESSB made a direct payment of RM250,000.00 to AESB, which was then deducted from the amount owed by ESSB to ETSB; and f) The Plaintiff’s claim was an attempt to misuse the oppression remedy to secure an undue advantage, rather than being a genuine grievance arising from oppressive conduct.

Additionally, the Defendants have filed a counterclaim, alleging that: a) The Plaintiff had borrowed sums of RM19,625.48, RM10,279.25, and RM30,000.00 from ESSB, 10 totalling RM59,904.73, which he had failed to repay despite repeated demands; and b) The Plaintiff had acted in conflict of interest by diverting projects from ESSB to Jupiter Control Sdn Bhd, a company controlled by him.

The Plaintiff submits that the evidence clearly demonstrates that D1 and D2 have conducted the affairs of ESSB in a manner that is oppressive and in disregard of his interests as a minority shareholder. He argues that their actions amount to a clear case of “classic oppression” where the majority shareholders have used their position to the detriment of the minority.

The Plaintiff contends that D1 and D2’s denial of his access to ESSB’s financial records, along with their failure to provide a satisfactory explanation for the RM2,036,673.63 transferred to ETSB and EESB, as well as the RM250,000.00 transferred to AESB, constitute oppressive conduct under Section 346 of the Companies Act 2016.

As for the Defendants’ counterclaim, the Plaintiff denies that the sums of RM19,625.48, RM10,279.25, and RM30,000.00 were loans. He asserts that the first two sums were his 5% share of the total project sums for his operational costs, as 11 agreed between the parties, while the RM30,000.00 was his remuneration as a director of ESSB.

The Plaintiff also denies diverting projects from ESSB to Jupiter Control Sdn Bhd, stating that Jupiter Control Sdn Bhd was incorporated prior to ESSB, and that the clients in question had not intended to engage ESSB in the first place.

The Defendants submit that the Plaintiff’s claim for oppression is without merit. They argue that the Plaintiff was never denied access to ESSB’s financial records and had full knowledge of the payments made to ETSB, EESB, and AESB.

The Defendants contend that these payments were made pursuant to a legitimate business arrangement between ESSB, ETSB, and EESB, which the Plaintiff was aware of and had consented to, as evidenced by his signature on the Summary List for eight projects.

Regarding the payment of RM250,000.00 to AESB, the Defendants maintain that it was a legitimate counter-payment to settle a debt owed by ETSB to AESB, which was then deducted from the amount owed by ESSB to ETSB.

The Defendants also submit that the Plaintiff’s application under Section 346 of the Companies Act 2016 is an attempt to secure an undue advantage, rather than a genuine grievance arising from oppressive conduct.

The Plaintiff submits that Section 346 of the Companies Act 2016 provides a remedy where the affairs of a company are conducted in a manner oppressive to the minority or in disregard of their interests. Section 346(1) reads: “Any member or debenture holder of a company may apply to the Court for an order under this section on the ground-

The Plaintiff argues that the term “oppression” encompasses a wide range of conduct, including conduct that is unfairly prejudicial or discriminatory towards the minority shareholder.

The Plaintiff relies on the Privy Council decision in Re Kong Thai Sawmill (Miri) Sdn. Bhd.; Kong Thai Sawmill (Miri) Sdn. Bhd. & Ors v Ling Beng Sung [1978] 2 MLJ 227, where it was held that for oppression to be established, there must be a “visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect.”

The Defendants submit that for an oppression claim to succeed under Section 346 of the Companies Act 2016, the Plaintiff must establish that the conduct complained of is oppressive, in disregard of his interests, unfairly discriminatory, or prejudicial. They argue that mere disagreement with management decisions is not sufficient.

The Defendants rely on the Federal Court decision in Looh Siong Chee v Numix Engineering Sdn Bhd & Ors and Other Appeals [2015] 4 MLJ 561, where the court, referring to the earlier Federal Court decision in Pan-Pacific Construction Holdings Sdn Bhd v Ngiu-Kee Corp (M) Bhd & Anor [2010] 6 CLJ 721, stated: “It may also be noted from the wording of s 181 its basic theme is ‘unfairness’. However, unfairness does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given must be based upon rational principles.”

Having considered the submissions of both parties and the relevant authorities, I am of the view that the law on oppression under Section 346 of the Companies Act 2016 (which replaces the former Section 181 of the Companies Act 1965) is clear.

In Jaya Medical Consultants Sdn Bhd v Island & Peninsular Bhd & Ors [1994] 1 MLJ 520, Siti Norma Yaakob J (as she then was) held: “The essence of the wrong done to the minority member under s 181(1)(b) is the ‘unfairness’ of the discrimination or prejudice suffered by the member resulting from some act of the company in the advancement of its objectives.”

I also note the Federal Court’s decision in Pan-Pacific Construction Holdings Sdn Bhd v Ngiu-Kee Corporation (M) Sdn Bhd & Anor [supra], which held: “In other words s. 181 permits judicial remedy on four categories of conduct, namely, oppressive conduct, conduct in disregard of interests, unfairly discriminatory conduct or prejudicial conduct.”

While it is true that a court should not interfere with the legitimate exercise of majority rule in a company, as observed by the Privy Council in Re Kong Thai Sawmill, the provision on oppression represents a statutory intrusion into that rule, providing a remedy where the majority’s conduct crosses the line into oppression or unfair prejudice.

It is against this legal backdrop that I will now consider the specific allegations of oppression in this case.

The first issue to be determined is whether the Plaintiff was denied access to the accounts of ESSB. This issue is crucial as it forms the first limb of the Plaintiff’s claim of oppression under Section 346 of the Companies Act 2016.

The Plaintiff alleges that commencing in August/September 2023, D1 and D2 denied him access to ESSB’s accounts and financial information, effectively keeping him in the dark regarding the company’s financial status. The Plaintiff contends that when he requested to inspect the financial records of ESSB, his request was denied by D1 and D2. Consequently, the Plaintiff had no choice but to request statements of account directly from Maybank.

The Plaintiff relies on the WhatsApp message from D2 stating “I’m now the commander” and that he had “no further story to tell” when the Plaintiff sought information about the company’s accounts. The Plaintiff argues that this message reflects D1 and D2’s mindset – that they viewed themselves as having complete control over the company with no obligation to be transparent with the Plaintiff as a fellow director and shareholder.

In support of his position, the Plaintiff relies on Commerceone Property Sdn Bhd & Anor v Lee Seng Khoon & Ors [2022] MLJU 2130 (HC), where Liza Chan Sow Kheng JC (as she then was) held that denial of access to company records constitutes oppressive conduct. The Plaintiff also cites Gue See Sew & Ors v Heng Tang Hai & Ors [2020] MLJU 46 (HC) and Agro-Industrial Supplies (M) Sdn Bhd & Ors v Ipma Industry Sdn. Bhd. & Ors [2011] 1 LNS 413 (HC) to support the proposition that denying a director access to company documents amounts to oppressive conduct.

Additionally, the Plaintiff relies on case of Fowler v Gruber [2010] 1 BCLC 563 (Court of Session in Scotland), where the court found oppression as the respondent treated the company as his own by unilaterally determining his salary and providing the petitioner with incomplete accounts that concealed the company’s true profitability.

In response, the Defendants argue that the Plaintiff was never denied access to ESSB’s accounts. They point to the Plaintiff’s own evidence, specifically the bank statements of ESSB exhibited in the Plaintiff’s affidavit, as proof that the Plaintiff had access to this information. The Defendants also refer to screenshots from a board meeting held on 4.10.2023, contained in Enclosure 4, pages 24-54, which they claim shows that all financial details and transactions were discussed in detail during that meeting.

The Defendants further rely on the Plaintiff’s admission in paragraph 11(a) of Enclosure 2, where the Plaintiff stated: “With regard to ESSB’s account management, 1st and 2nd Defendants are the ‘maker’ and ‘approval’ for the financial transaction made by ESSB. Whilst I shall be allowed to examine the financial transactions and have access to the financial account of ESSB at Maybank (Account No. 514389613411) at all material times to ensure there is a check-and-balance system in place.”

The Defendants also contend that the “commander” statement must be viewed in its proper context, arguing that it was made in relation to a specific situation involving a client called “Wong Electrical” and was an emotional outburst rather than a declaration of intent to oppress the Plaintiff.

Having carefully considered the evidence and submissions of both parties, I find that the Plaintiff has established, on a balance of probabilities, that he was denied access to ESSB’s accounts and financial information.

While it is correct that directors have a statutory right of access to company accounts and documents, there is a critical distinction between the theoretical right of access and the practical reality. In Commerceone Property Sdn Bhd & Anor v Lee Seng Khoon & Ors [supra], the High Court dealt with a minority oppression claim where a director (Mei) was denied access to company documents and subsequently removed as a director. The court found 18 that the real motive behind Mei’s removal was to deny her inspection rights and held: “As only directors have the statutory and common law rights to inspection of all company documents, in my respectful view, it can inescapably be inferred that shorn of a valid excuse not to let her have access, Mei’s removal as a director is to put paid her inspection rights - this I find is the real motive to remove her; to ensure that she has no access to the documents and records of the companies which is redolent of commercial unfairness to Mei by disregarding her interest as a shareholder or otherwise discriminating her unfairly and prejudicing her as a shareholder. In denying her access to the documents and records, the powers of the directors ‘are being exercised’ in a manner prejudicial to her. Denial of access to company documents may fall within the general rubric of oppressive conduct.”

The evidence shows that the Plaintiff had to resort to obtaining bank statements directly from Maybank after his requests to inspect the financial records were denied by D1 and D2. This is consistent with his testimony that he was denied access to the company’s financial information.

The Defendants’ reliance on the board meeting of 4.10.2023 is not persuasive. The screenshots provided are selective and do not constitute a complete record of the meeting. Moreover, without a transcript of the conversation, it is difficult to ascertain what financial information, if any, was actually disclosed to the Plaintiff during this meeting. The Plaintiff has stated that during this meeting, D1 and D2 failed to explain the state of affairs of ESSB’s accounts.

The Plaintiff’s admission in paragraph 11(a) of Enclosure 2 must be understood in its proper context. I accept that the statement “Whilst I shall be allowed to examine the financial transactions and have access to the financial account of ESSB at Maybank... at all material times” reflects the Plaintiff’s legitimate expectation as a director, not the actual state of affairs after August/September 2023 when the relationship deteriorated.

I also do not accept the Defendants’ explanation regarding the “commander” statement. Even if it was made in relation to a specific situation, it reflects the general attitude of D2 towards the management of the company and the treatment of the Plaintiff as a fellow director and shareholder.

Furthermore, I note that as a direct consequence of being denied access to ESSB’s accounts, the Plaintiff was unable to monitor and question the significant transfers of funds from ESSB to companies solely owned by D1 and D2. The current bank balance of ESSB is merely RM38.02, which is a dramatic depletion of funds that coincided with the period when the Plaintiff was denied access to the accounts.

The cases of Gue See Sew and Agro-Industrial Supplies both support the position that denying a director access to company documents constitutes oppressive conduct. In Gue See Sew, the defendants had systematically excluded the plaintiffs from the company’s management by surreptitiously changing the company secretary, registered 20 address, and bank signatories without the plaintiffs’ knowledge, and failing to notify them of management meetings since December 2018. Justice Ong Chee Kwan found that “The Plaintiffs have been kept in the dark about the affairs of the company” and held that “The aforesaid conduct by the 1st. and 2nd. Defendants are clearly a breach of the Plaintiffs’ legitimate expectation that they have the right to participate in the management of the company and in disregard of the Plaintiffs’ interests as the beneficial owners of the shares.”

Similarly, in Agro-Industrial Supplies, the Second Petitioner as director and Chairman was denied access to the company’s accounting books despite his legal right to inspect them, with his agent Ms Seow Mong See being turned away after spotting irregularities. The High Court held: “Preventing the Second Petitioner from having accessed to the accounting books of the Company could be construed as running the affairs of the Company in the manner oppressive manner.”

The case of Fowler v Gruber is particularly instructive, as it deals with a situation involving unfair prejudice where the respondent was a majority shareholder who acted to the detriment of minority shareholders. In that case, Lord Menzie held that the respondent “had apparently lost sight of the distinction in law between the company and himself and was not aware of his duty to avoid a conflict of interest 21 between his own interest and that of the company” and that “He conducted the affairs of the company as if they were his own affairs and not only decided how much he should be paid by way of salary (including contributions to his pension fund) without any regard to the interests of the other shareholders but also decided that the petitioner would only receive abbreviated and incomplete accounts which did not give the full picture of the company’s profitability, that the other shareholders would not receive copies of the accounts at all.” This closely mirrors the present case, where the Plaintiff was effectively kept in the dark about the true financial state of ESSB.

The Defendants have relied on Choy Yuk Kong & Ors v Landyork Farming Sdn Bhd & Ors [2020] 10 MLJ 806 (HC) to argue that a director is deemed to have full access to the books of accounts and documents of the company. However, this case can be distinguished on the facts. In Choy Yuk Kong, the first plaintiff was himself a director of the first defendant company and had actually exhibited the company’s financial statements for 2016 in his own affidavit, undermining his claim of denial of access. The court found: “Even if there were obstacles placed by the defendants to the plaintiffs’ access to documents of the first defendant company, in my view such conduct per se and without more, does not amount to oppression or other objectionable conduct to justify relief under s 346 of the Companies Act. It is to be borne in mind that although a single act or omission on the part of the wrongdoers may constitute oppression that justifies relief, it is only actionable where by its very nature such act or 22 omission has so devastating or far reaching a consequence upon the rights of a member.”

In the present case, there is more than just denial of access to documents – there is a pattern of conduct showing disregard for the Plaintiff’s interests as a minority shareholder, including: (i) the unilateral transfer of RM250,000.00 from ESSB to AESB (Abre Engineering Sdn Bhd) on 9.2.2024, which is wholly owned by D1 and D2, made without board approval or consultation with the Plaintiff; (ii) approximately 59 dubious transactions totaling RM2,036,673.63 transferred from ESSB to ETSB and EESB between November 2022 and March 2024, both companies being solely owned by D1 and D2 with the Plaintiff having no stake; (iii) the depletion of ESSB’s bank account to a mere RM38.02 despite the supposedly profitable business arrangements; and (iv) D1 and D2’s treatment of ESSB as their personal “piggy bank” by channeling profits exclusively to companies they own, thereby depriving the Plaintiff of his right to share in dividends as a shareholder.

Although the Defendants cite Teoh Soo Beng v Golden Castle City Sdn Bhd & Ors [2017] MLJU 2041 (HC), its relevance is limited given the materially different context. In that case, the plaintiff Todd complained of being denied access to company accounts and financial records by Gary, the majority shareholder, after their relationship deteriorated in late 2007. However, the court found that the documents sought by Todd were available and that Todd was never actually denied access to them as a director, subject to 23 proper arrangements being made at the company secretary’s office. The court held: “As to the alleged Gary’s withholding of company accounts and other financial records of GHC from Todd, I find from the evidence that was adduced as simply an unwarranted complaint by Todd due to his impatience and desire to get back at Gary after his relationship with Gary turned sour in end 2007... Nonetheless it plain to me that all the documents sought by Todd were available and Todd was never denied access to them as director of GHC by Gary subject to a proper date to see and make copies of them having been prior arranged at the company secretary’s office.”

In the present case, the evidence shows a genuine denial of access rather than mere impatience on the part of the Plaintiff. Here, the Plaintiff had to resort to obtaining bank statements directly from Maybank after his requests to inspect the financial records were denied by D1 and D2. Unlike the Teoh Soo Beng case where documents were available subject to proper arrangements, in this case D2 explicitly told the Plaintiff “I’m now the commander” and that he had “no further story to tell” when the Plaintiff sought information about the company’s accounts. Moreover, the Plaintiff had requested access to the financial records as early as October 2023, but the Defendants only attempted to provide documentation after the Plaintiff had initiated legal proceedings in July 2024 – a period of 9 months. This belated attempt to provide documentation does not negate the earlier denial of access and demonstrates that the denial was genuine rather than a mere procedural issue that 24 could have been resolved through proper scheduling arrangements.

The Defendants have argued that financial documents had been sent to auditors for preparation of financial statements and would be provided once ready. However, I find this explanation unconvincing. The Plaintiff had requested access to the financial records as early as October 2023, but the Defendants only attempted to provide documentation after the Plaintiff had initiated legal proceedings. This belated attempt to provide documentation does not negate the earlier denial of access.

Having weighed the evidence and submissions of both parties, I am satisfied that the Plaintiff has established that he was denied access to ESSB’s accounts and financial information, which constitutes oppressive conduct within the meaning of Section 346 of the Companies Act 2016.

The second limb of the Plaintiff’s oppression claim relates to the alleged diversion of funds from ESSB to companies owned solely by D1 and D2. The Plaintiff contends that these transfers constitute oppressive conduct within the ambit of section 346 of the Companies Act 2016. The allegations center on two specific instances: first, a transfer of RM250,000.00 to AESB on 9.2.2024; and second, approximately 59 transactions totaling RM2,036,673.63 25 made to ETSB and EESB between November 2022 and March 2024.

The Plaintiff’s position is straightforward. He contends that D1 and D2, who collectively hold 70% of ESSB’s shares, have misused their majority position to divert funds from ESSB to companies in which they alone hold shares, with the Plaintiff having no stake. This conduct, the Plaintiff argues, unfairly prejudices his position as a minority shareholder.

The Defendants, on the other hand, maintain that all the transactions were legitimate business arrangements. With respect to the RM250,000.00 payment to AESB, they argue that this was a contra payment to settle debts between related companies – specifically, that ESSB owed money to ETSB, and ETSB in turn owed money to AESB. Regarding the 59 transactions to ETSB and EESB, the Defendants claim these were part of an agreed business arrangement whereby profits from projects were distributed according to pre-determined percentages based on each company’s contribution.

After careful consideration of the evidence and submissions, I find that the diversions of funds constitute oppressive conduct within the meaning of section 346 of the Companies Act 2016. My reasons follow.

Firstly, in relation to the RM250,000.00 transfer to AESB on 9.2.2024, I find several troubling aspects. The transfer was made unilaterally by D1 and D2 without consulting the Plaintiff or seeking board approval. This is evident from paragraph 15(b) of D1 and D2’s affidavit (Enclosure 4), wherein D2 admits that “pembayaran tersebut telah diluluskan oleh D1 dan saya terus daripada akaun D3 kepada D4 berdasarkan kapasiti pemegang majoriti saya dalam D3...” (translation: “the payment was approved by D1 and me directly from D3’s account to D4 based on my capacity as majority shareholder in D3...”).

Such conduct clearly demonstrates that D1 and D2 were treating ESSB as their personal vehicle rather than a company with three shareholders, one of whom (the Plaintiff) was entitled to be consulted on significant financial decisions. D1 and D2 appear to have conflated their majority shareholding with an entitlement to make unilateral decisions regarding substantial company funds. This is precisely the type of conduct cautioned against in Re Kong Thai Sawmill, where the Privy Council stated: “It is only when majority rule passes over into rule oppressive of the minority, or in disregard of their interests, that the section can be invoked. [...] there must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect before a case of oppression can be made.”

The explanation provided by the Defendants that this transfer was a “contra payment” to settle debts between 27 related companies lacks contemporaneous documentary support. The statement of account from ETSB purporting to show the contra arrangement was only produced after the Plaintiff filed this action, as pointed out in paragraph 8 of the Plaintiff’s reply submissions. No invoices, purchase orders, or contemporaneous board resolutions were produced to substantiate the alleged business necessity of this transaction. As such, I find the explanation to be an afterthought rather than a reflection of proper corporate decision-making at the time of the transfer.

Secondly, regarding the 59 transactions totaling RM2,036,673.63 made to ETSB and EESB, I find the Defendants’ explanation equally unsatisfactory. While the Defendants have produced what they describe as profit-sharing arrangements for various projects, they have failed to produce comprehensive documentation to show that the profit distributions were actually made in accordance with these arrangements, or that the distributions themselves were properly accounted for in ESSB’s books.

A particularly telling piece of evidence is the bank balance of ESSB as of 30.4.2024, which stood at a mere RM38.02 (as shown in Exhibit “KPS-11” of Enclosure 10). This depletion of funds coincided with the period when the Plaintiff alleges he was denied access to the company’s accounts. If the transfers to ETSB and EESB were legitimate business expenses or profit distributions, one would expect to see a reasonable operating balance in ESSB’s account or evidence of proportionate distributions to the Plaintiff. The absence of both strongly suggests that the transactions were not conducted with proper regard to the Plaintiff’s interests as a minority shareholder.

The case of Ho Yaw Ming v Ho Yau Hong & Ors [2022] MLJU 588 is particularly instructive here. In that case, the plaintiff and defendants were siblings who had incorporated several companies together. The 3rd defendant was a company engaged in consultation and computer software development, in which the plaintiff was a shareholder. The 4th and 5th defendants were separate companies in which the plaintiff was not a shareholder. The plaintiff alleged that the 3rd defendant had made pay-outs to the 4th and 5th defendants for purposes unrelated to the 3rd defendant’s business, and that these transfers were made without his consent or approval. The 1st defendant, who controlled the 3rd defendant, admitted that funds were commonly transferred between the entities as they were family-owned businesses, and that his focus had been on the 5th defendant’s business, with dividends declared for the 5th defendant but never for the 3rd defendant despite funds from the 3rd defendant being applied to benefit the 5th defendant. In finding for the plaintiff, Adlin Abdul Majid JC (as she then was) held: “Having considered the actions of the defendants and cases above which are of guidance to this court, I find that the pay outs made by the 3rd defendant (where the plaintiff is a shareholder) to the 4th and 5th defendants (where the plaintiff is 29 not a shareholder) for purposes unrelated to the business of the 3rd defendant to be acts that unfairly discriminate against or is otherwise prejudicial to the plaintiff, within the meaning of section 346(1)(b) of the CA.”

The present case presents a similar scenario, where funds have been transferred from a company in which the Plaintiff has a stake to companies in which he has none. Specifically, the Plaintiff alleges that D1 and D2 have diverted funds from ESSB (in which the Plaintiff holds a 30% shareholding) to companies where they are the sole shareholders and the Plaintiff has no stake whatsoever. The most prominent example is the transfer of RM250,000.00 from ESSB to AESB on 9 February 2024, where AESB is solely owned and directed by D1 and D2. Additionally, there were at least 59 dubious transactions totaling RM2,036,673.63 transferred from ESSB to ETSB and EESB between November 2022 and March 2024, both of which are companies solely owned by D1 and D2. These substantial diversions have resulted in ESSB’s bank account being depleted to a mere RM38.02, rendering it virtually insolvent. The timing is particularly telling – this dramatic depletion of funds coincided with the period when the Plaintiff was denied access to the company’s accounts. Like in Ho Yaw Ming, the transfers were made without proper board approval, adequate documentation, or regard for the minority shareholder’s interests, and were ostensibly justified only after legal proceedings commenced with belated explanations such as “contra payments” to settle 30 alleged inter-company debts that lacked contemporaneous documentation.

The Defendants rely on Dato’ Azizan bin Abd Rahman & Ors v Concrete Parade Sdn Bhd & Ors [2024] 3 MLJ 223, where the Federal Court emphasised the importance of majority rule in corporate governance. However, as rightly pointed out by the Plaintiff, citing Re Saul D Harrison & Sons plc [1995] 1 BCLC 14, where the Court of Appeal considered a case involving a family textile company whose minority shareholder (a granddaughter of the founder) challenged the directors’ decision to purchase new premises after selling their old factory under a compulsory purchase arrangement, contending that the directors should have ceased trading and distributed assets instead. While the Court of Appeal ultimately struck out the unfair prejudice petition, finding no evidence that the board had acted in bad faith, Hoffmann LJ established the important principle that “But the fact that the board are protected by the principle of majority rule does not necessarily prevent their conduct from being unfair within the meaning of s. 459 [equivalent to Section 346 in Malaysia]. Enabling the court in an appropriate case to outflank the rule in Foss v Harbottle was one of the purposes of the section.” Section 346 represents a statutory limitation on majority rule, designed to prevent it from being exercised in a manner that unfairly prejudices minority shareholders.

The Court of Appeal case of Low Ean Nee v Low Cheng Teik & Ors [2023] MLJU 37 cited by the Plaintiff to support his contention that diversion of funds to related companies constituted oppression was overturned by the Federal Court in Low Cheng Teik & Ors v Low Ean Nee [2024] 9 CLJ 171. The case involved the wrongful assignment of company trademarks to a related entity for a nominal consideration of RM10 without board authorisation. However, the Federal Court overturned the Court of Appeal’s finding of oppression on the specific basis that the wrongful conduct affected all shareholders equally, not just the complainant. The Federal Court held: “the assignment of the SNE trademarks was not unfairly discriminatory against the respondent as the sole victim because the first to third appellants were all equally affected by the said assignment in their capacity as shareholders of the company... any diminution of dividends resulting from the disposal of the SNE trademarks will not only cause the respondent to suffer loss of dividends, but will also cause the first to third appellants as shareholders of the company to suffer the same loss” and concluded that “the loss is suffered by all the shareholders and not by the respondent alone.”

In stark contrast, the present case involves discriminatory conduct that specifically and exclusively disadvantages the Plaintiff as a minority shareholder. D1 and D2 diverted RM250,000.00 from ESSB to AESB, a company solely owned by D1 and D2 in which the Plaintiff has no stake whatsoever. Additionally, at least 59 dubious transactions totaling RM2,036,673.63 were transferred from ESSB to ETSB and EESB between November 2022 and March 2024, both companies being exclusively owned by D1 and D2 with the Plaintiff having no shareholding. This systematic diversion of funds resulted in ESSB’s bank balance being reduced to a mere RM38.02 as of 30.4.2024, effectively stripping the company of its assets while channeling profits exclusively to D1 and D2 through their wholly-owned entities, thereby depriving the Plaintiff of his rightful share in ESSB’s profits and dividends as a 30% shareholder.

I am also guided by the Court of Appeal in Genisys Integrated Engineers Pte Ltd v UEM Genisys Sdn Bhd & Ors [2008] 6 MLJ 237. In that case, the High Court had dismissed an oppression petition by dealing with the case “on the basis of isolated incidents” rather than as a consecutive story. The Court of Appeal found this approach to be erroneous and allowed the appeal. Gopal Sri Ram JCA established the principle that “in arriving at his conclusions of fact a judge hearing a petition under s 181 of the Act must not consider events in isolation but as part of a consecutive story.” His Lordship emphasised that the statutory provision “invites attention, not to events considered in isolation, but to events considered as part of a consecutive story.” When viewed in this light, the pattern of conduct in the present case – denial of access to accounts followed by substantial transfers to related companies owned solely by D1 and D2 – clearly demonstrates oppressive conduct.

The case of Lee Yee Wuen v Lee Kai Wuen & Ors [2020] MLJU 1902 (CA) is also relevant. In that case, the appellant (majority shareholder) filed an oppression action under s.346 of the Companies Act 2016 against two directors of the company, alleging that they had misappropriated monies belonging to the company. The specific prayers for restitution of the misappropriated monies were initially struck out by the High Court as being contrary to “the rule against reflective loss”, but the Court of Appeal allowed the appeal. Nantha Balan JCA observed that “It is trite that misappropriation of monies can constitute an act of oppression.” While I stop short of characterising the transfers as misappropriation, I do find that they were conducted without proper regard to the Plaintiff’s interests and without adequate transparency or documentation.

In Re Coliseum Stand Car Service Ltd; Abdul Khalik v Mohamed Jee & Ors [1985] 1 LNS 164 (HC), the case involved minority shareholders (the applicant and second respondent) of Coliseum Stand Car Service Limited who sought relief against the majority shareholder (first respondent) who controlled the company entirely. The majority shareholder had appointed his own son as manager with a monthly salary of RM500, took loans for himself and his son from company funds, and received rental income from company premises without proper disclosure. Justice Abdul Hamid (as he then was) held that irregular financial transactions by majority shareholders can constitute oppressive conduct, observing: “As regards the two loans, one to himself and the other to his son, although it would appear that they had been repaid, there is nothing to show that these loans were made for the benefit of the company. To my mind it constituted an improper use of the company’s funds. It was quite improper for the company, controlled entirely by the first respondent, to authorise the use of the company’s funds for a purpose unconnected with the company’s affairs.”

Similarly, in the present case, the transfer of RM250,000.00 to AESB and the numerous transactions to ETSB and EESB without proper board approval or adequate documentation constitutes an improper use of ESSB’s funds.

The Defendants have also failed to provide a satisfactory explanation for why ESSB’s bank account has been depleted to a mere RM38.02 despite the supposedly profitable business arrangement. If the profit-sharing arrangements were legitimate and fair, one would expect to see evidence of the Plaintiff receiving his proportionate share of profits. Instead, the evidence suggests that profits have been diverted to companies in which only D1 and D2 have an interest.

For the foregoing reasons, I find that the diversion of funds from ESSB to AESB, ETSB, and EESB constitutes oppressive conduct within the meaning of section 346 of the Companies Act 2016. The conduct demonstrates a visible departure from the standards of fair dealing and a violation of the conditions of fair play that a shareholder is entitled to 35 expect, particularly in a small private company where the shareholders are also directors.

Having determined that the Defendants’ conduct constitutes oppression under Section 346 of the Companies Act 2016, I must now consider the appropriate remedy. The Plaintiff submits that a buy-out of his shares at fair value is the most appropriate remedy to address the oppressive conduct. The Plaintiff has specifically prayed for D1 and D2 to purchase his 30% shareholding in the 3rd Defendant at a fair value, with valuation to be determined by an independent valuer.

The Defendants, while acknowledging that the parties are at loggerheads and cannot continue working together, maintain that if a buy-out is ordered, it should not be premised on findings of oppression that would affect the valuation of the Plaintiff’s shares. They contend that the Plaintiff should only receive the nominal value of his shares.

Section 346(2) of the Companies Act 2016 provides the court with wide discretion to “make such order as the Court thinks fit with the view to bringing to an end or remedying the matters complained of.” Subsection (d) specifically includes the power to “provide for the purchase of the shares or debentures of the company by other members or debenture holders of the company or by the company itself.”

In Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd & Ors [1994] 2 MLJ 789, a case involving oppression and winding-up petitions concerning a joint venture company where management control had been transferred between shareholders, the court recognised the wide powers conferred upon the court by Section 346(2) (then Section 181(2) of the Companies Act 1965). Anuar J observed: “In the first place, I am impressed by the wide powers that have been conferred upon the court by sub-s (2) of s 181. Once a case has been made out under either para (a) or (b) of sub-s (1) of s 181, it is clear that the court can make orders altering the memorandum or articles of a company which forms the contract between the shareholders. (See s 33(1) of the Act.) This is a serious inroad into the doctrine of freedom of contract which is one of the pillars of commercial law and it is a power which I think a court should exercise in a proper case.”

The decision in Tan Tung Kwok & Ors v Lau Kah Hing & Ors [2019] MLJU 1807 (HC) is particularly instructive. In that case, the minority shareholders in a driving school company complained of oppressive conduct including removal from directorships, failure to hold annual general meetings since 2010, non-preparation of audited financial statements since 2009, payments to defendants and their family members without proper disclosure, and dilution of shareholdings through share capital increases without offering proportional participation to minority shareholders. The High Court observed: “The effects and consequences of the litany of acts and omissions complained of are that the Plaintiffs 37 were locked in as minority shareholders with no exit as they were kept in the dark about the financial affairs of the company and the value of their shares, apart from being excluded from the management and control of the company.”

In the present case, it is evident that the relationship between the parties has irretrievably broken down. The conduct of D1 and D2 in excluding the Plaintiff from access to company accounts and diverting funds to companies in which only they have interests has created an untenable situation that cannot be remedied by mere declaratory orders or injunctions.

A buy-out of the Plaintiff’s shares represents the most equitable solution in these circumstances. Both parties agree that this is the appropriate remedy, though they differ on the basis for valuation. Given the finding of oppressive conduct, the valuation must take into account the improper diversion of funds and ensure that the Plaintiff is not further prejudiced in the process of exit.

With regard to the valuation principles, I accept the Plaintiff’s submission that the valuation should: a) Take into account the funds improperly transferred to AESB, ETSB and EESB; b) Value ESSB as a going concern; 38 c) Consider the assets, profitability, and prospects of ESSB; and d) Not apply any discount for the Plaintiff’s minority holding.

The principle of not applying a minority discount in oppression cases is consistent with the equitable nature of the remedy provided by Section 346. To apply such a discount would effectively reward the oppressive conduct of the majority shareholders and further prejudice the minority shareholder who has already suffered from unfair treatment. As prayed by the Plaintiff in paragraph 4(d) of the Originating Summons, the valuation should be on a “pro rata basis with no discount on minority holding.” This approach aligns with the purpose of Section 346, which is to provide a just and equitable remedy for oppressive conduct.

The facts in this case reveal that ESSB’s bank account has been depleted to a mere RM38.02 as of 30.4.2024, despite allegedly profitable business operations. This strongly suggests that the value of the company has been artificially diminished through the improper diversion of funds. As such, the valuation must include a consideration of these diverted funds to ensure that the Plaintiff receives fair value for his shares.

The appointment of an independent valuer is therefore necessary to determine the fair value of the Plaintiff’s shares. The valuer should specifically be directed to take into account: a) The RM250,000.00 transferred to AESB; b) The RM2,036,673.63 transferred to ETSB and EESB; c) Any other funds improperly diverted from ESSB to related companies; and d) The assets, profitability, and prospects of ESSB as a going concern.

The valuation should be conducted on a pro rata basis with no discount for the Plaintiff’s minority holding, as applying such a discount would compound the unfairness already suffered by the Plaintiff. The valuation should be as of the date of this judgment, to ensure that it captures the current fair value of the company.

Once the valuation is determined, D1 and D2 shall jointly and severally pay the determined amount to the Plaintiff within a reasonable timeframe, which I set at 14 days from the date the valuation is finalised.

For these reasons, I find that a buy-out of the Plaintiff’s shares at fair value is the appropriate remedy in this case.

I now turn to the counterclaim raised by the Defendants. The Defendants, through their Affidavits in Reply (Enclosures 4 and 5), have counterclaimed against the Plaintiff for the sum of RM59,904.73, comprising three separate amounts: RM30,000.00, RM19,625.48, and RM10,279.25. The Defendants assert that these sums represent personal loans extended by ESSB to the Plaintiff, which remain outstanding.

The Defendants’ position, as stated in paragraph 24(a) of Enclosure 4, is that “on or about 30.5.2023, the Plaintiff borrowed RM30,000.00 from D3 as a personal loan. Additionally, the Plaintiff had also borrowed RM19,625.48 and RM10,279.25 from D3.” The Defendants contend that despite repeated demands by ESSB for repayment, the Plaintiff has refused to return the money.

The Plaintiff, in his Affidavit in Reply (Enclosure 10), denies the Defendants’ characterisation of these payments. According to paragraphs 24.1 to 24.3 of Enclosure 10, the Plaintiff asserts that these amounts were not loans but represented: 41 a) reimbursement of operational costs incurred by the Plaintiff in carrying out projects for ESSB (in the case of RM19,625.48 and RM10,279.25), and b) director’s remuneration (in the case of RM30,000.00).

The Plaintiff has raised a procedural objection to the counterclaim, submitting in his oral submissions that it fails to comply with Order 28 Rule 7 of the Rules of Court 2012, which requires a party wishing to counterclaim in an originating summons to inform the court at the earliest opportunity so that directions can be given.

Having considered the procedural objection, I am inclined to agree with the Plaintiff. The proper procedure for raising a counterclaim in originating summons proceedings would have required the Defendants to file a formal application seeking the court’s directions. The mere inclusion of the counterclaim in the Affidavits in Reply does not comply with the procedural requirements of Order 28 Rule 7. The Defendants’ contention that they had highlighted their intention regarding the counterclaim as early as June 2024in a letter by the Defendants’ solciitors dated 13.6.2024 (as evidenced in Enclosure 2, pages 90-91) does not absolve them of the obligation to follow the proper procedure prescribed by the Rules of Court.

Even if I were to consider the counterclaim on its merits, I find that the Defendants have failed to establish that the sums in question were indeed loans. The contemporaneous evidence, particularly the bank statements exhibited by the Plaintiff in Enclosures 10, 12, 13, and 15, provides compelling support for the Plaintiff’s characterisation of these payments.

With regard to the payment of RM30,000.00, the bank statement exhibited as “KPS-15” in Enclosure 10 clearly describes this transaction as “Directors Remuneration”. This contemporaneous description strongly supports the Plaintiff’s contention that this sum represented his remuneration as a director of ESSB rather than a personal loan.

Similarly, the bank statements for the other two transactions provide descriptions that contradict the Defendants’ characterisation. The payment of RM19,625.48 is described in the bank statement (Exhibit “KPS-12” in Enclosure 10) as “Project and Claim”, while the payment of RM10,279.25 is described as “Project Osram Claim” (Exhibit “KPS-13” in Enclosure 10). These descriptions align with the Plaintiff’s explanation that these payments were reimbursements for operational costs incurred in connection with specific projects.

Furthermore, the Plaintiff has produced an excel sheet of ESSB’s Project Summary (Exhibit “KPS-14” in Enclosure 10), which indicates that the sums of RM19,625.48 and RM10,279.25 represented 5% of the respective project values (RM392,509.60 for Project TFAMD Batu Kawan, Penang, and RM205,585.00 for Project Osram, Penang). This documentary evidence substantiates the Plaintiff’s claim that there was an arrangement whereby he would receive 5% of the project value as reimbursement for operational costs.

The Defendants, being the “maker” and “approval” for financial transactions of ESSB (as admitted by all parties and expressly stated in paragraph 11(a) of Enclosure 2), would have been well aware of the nature of these payments at the time they were made. If these payments were indeed loans, one would expect some form of contemporaneous documentation evidencing the loan agreement or at the very least a description in the bank statement indicating the loan nature of the transaction. No such evidence has been produced by the Defendants.

It is a well-established principle that he who asserts must prove. The Defendants, having asserted that these payments constituted loans, bear the burden of proving this assertion. In my judgment, they have failed to discharge this burden. The contemporaneous documentary evidence strongly supports the Plaintiff’s characterisation of these payments, and I accept his explanation.

Accordingly, I find that the Defendants’ counterclaim for the sum of RM59,904.73 fails both on procedural grounds and on its merits. The counterclaim is therefore dismissed with costs to be paid by the Defendants to the Plaintiff.

Having carefully considered the evidence and submissions of both parties, I find that the Plaintiff has established, on a balance of probabilities, that: a) D1 and D2 denied the Plaintiff access to ESSB’s accounts and financial information, thereby keeping him in the dark about the company’s financial status; b) D1 and D2 diverted substantial funds from ESSB to AESB, ETSB, and EESB - companies solely owned by D1 and D2 - without proper board authorisation, to the detriment of the Plaintiff as a minority shareholder; c) These actions constitute oppressive conduct within the meaning of Section 346 of the Companies Act 2016, demonstrating a visible departure from the standards of fair dealing and a violation of the conditions of fair play that a shareholder is entitled to expect.

The evidence reveals that the relationship between the parties has irretrievably broken down, making a buy-out of the Plaintiff’s shares the most appropriate remedy in the circumstances.

The Defendants’ counterclaim fails both on procedural grounds, as it does not comply with Order 28 Rule 7 of the Rules of Court 2012, and on its merits, as the contemporaneous evidence supports the Plaintiff’s characterisation of the payments as operational cost reimbursements and director’s remuneration rather than loans.

Accordingly, I make the following orders: a) It is hereby declared that D1 and D2 have conducted the affairs of ESSB in a manner that is oppressive and in disregard of the Plaintiff’s interests as a member of ESSB, within the meaning of Section 346 of the Companies Act 2016; b) It is hereby declared that the transactions totaling RM2,036,683.63 transferred to ETSB and EESB, and RM250,000.00 transferred to AESB, were conducted in a manner that unfairly discriminates against or is otherwise prejudicial to the Plaintiff; 46 c) D1 and D2 shall jointly and severally buy out the Plaintiff’s 30% shareholding in ESSB at a fair value, to be determined by an independent valuer nominated by both Plaintiff, and D1 and D2. In the event that the parties are unable to agree to the appointment of an independent valuer, the Plaintiff shall make a formal application to court; d) The independent valuer shall, within 90 days from the date of this order, value the Plaintiff’s shares in ESSB, taking into account: a. The funds that have been improperly transferred from the company’s account; b. That ESSB is a going concern; c. The assets, profitability, and prospects of ESSB; and d. No discount shall be applied for the minority holding of the Plaintiff in ESSB; e) The valuation report shall be filed in court via an affidavit pursuant to Order 40 Rule 2 of the Rules of Court 2012, and the value determined therein shall be deemed final and conclusive; f) D1 and D2 shall jointly and severally pay to the Plaintiff the determined value within fourteen (14) days from the filing of the valuation report; g) The Defendants’ counterclaim is dismissed; 47 h) Costs of RM20,000.00 to be paid jointly and severally by the Defendants to the Plaintiff subject to allocatur fees; i) Costs of the valuation report shall be borne by D1 and D2; and j) The parties have liberty to apply for further directions regarding the implementation of these orders if necessary. 9 July 2025 ATAN MUSTAFFA YUSSOF AHMAD Judge Kuala Lumpur High Court (Commercial Division) Counsel: For the Plaintiff: Ryan Chu with O Ying Xin (Messrs Lee & Poh Partnership) For the Defendants: Baskaran Aruchunan with Neoh Pei Yan (Messrs Aqielah, Baskaran & Co.)