Lai Thiam Sin v Lits Solutions Sdn Bhd (PA-28NCC-1-01/2021)

LAI THIAM SIN

LEADING INNOVATIVE TECHNOLOGIES & SYSTEMS SDN. BHD. (NO. Syarikat: 1212539-X) … DEFENDAN-DEFENDAN DIDENGAR BERSAMA DENGAN DALAM MAHKAMAH TINGGI MALAYA DI GEORGETOWN (BAHAGIAN KOMERSIL) PENGGULUNGAN SYARIKAT NO: PA-28NCC-1-01/2021 ANTARA LAI THIAM SIN (NO. K.P: 780919-08-5281 … PEMPETISYEN DAN LITS SOLUTIONS SDN. BHD (NO. SYARIKAT: 201401019193) (1095280-A) … RESPONDEN JUDGEMENT A. INTRODUCTION [1] This Suit PA-22NCVC-252-12/2019 (Suit 252) was initiated pursuant to the Leave granted to file the Derivative Action obtained on 20.11.2019. On 6.1.2021, the Defendants filed the Winding Up Petition No. PA-28NCC-1-01/2021 (WUP) against the Plaintiff. [2] The WUP was then transferred to the High Court at Penang wherein Suit 252 filed by Plaintiff and the WUP filed by the 1st Defendant was heard and tried together. Meanwhile, an order was granted that all proceedings in the WUP be stayed pending the hearing and determination Suit 252. Suit 252 and WUP were initially heard before YA Dato Sri Tun Abd Majid and later were taken over by me at late stage. Based on the cause papers, the notes of proceedings and the evidences tendered, herein is my ground of judgement. B. BACKGROUND FACTS [3] The Plaintiff is a company incorporated on 27.5.2014 and the nature of business is “To provide internet program and internet solutions for on-line transaction of all types”. The 1st Defendant and one Lau Kean Leong (SP1) are the directors with equal shareholding of the Plaintiff. The 1st Defendant also is the director and shareholder of the 2nd Defendant, a company established by the 1st Defendant. [4] In and around April-May 2014, the 1st Defendant developed and named the app “Flexi Parking” and later together with SP 1 decided to set up a company to market the Flexi Parking app under the name “LITS Solution Sdn Bhd”. Later the 1st Defendant resigned from the Plaintiff and incorporated the 2nd Defendant on the 15.12.2016 with the business nature “Development and Design of Mobile Application and Software”. [5] In a nutshell, the Plaintiff’s case is that the 1st Defendant had breached his fiduciary duties owing to the Plaintiff, in that, the 1st Defendant had used the information in relation to Flexi Parking System acquired by him by virtue of his position as the director of the Plaintiff. According to the Plaintiff, the 1st Defendant had used the opportunity and wrongfully diverted the Plaintiff’s business and engaged in the business which is in competition with the Plaintiff by incorporating the 2nd Defendant on 15.12.2016 and eventually channelling or diverted the business/projects to the 2nd DefendantThus, the Plaintiff alleged that the 1st Defendant had not acted bona fide in the interest of the Plaintiff but for his own interest. [6] The relief sought by the Plaintiff against the 1st and 2nd Defendant are in paragraph 21 of the Statement of Claim. In summary the Plaintiff seeks for a declaration, damages and an injunction from marketing, promoting and/or taking any projects using the “Flexi Parking” system. The Plaintiff alleged that the Defendants are accountable for profit derived from the breach of fiduciary duties including all profit obtained from projects using the “Flexi Parking” app or its related apps and liable to pay to the Plaintiff the sum of monies that found to be due to the Plaintiff on taking of account the breach. [7] As to the WUP, the 1st Defendant alleged that SP1 being the director and shareholder of the Plaintiff has failed in his duty as the Managing Director and the director of Marketing and Finance of the Plaintiff to salvage the Flexi Parking app and eventually led to the failure of the corporate sub-stratum. The 1st Defendant sought that the Plaintiff be wound up and an Official Receiver be appointed as the Liquidator of the Company. C. PLAINTIFF’S SUBMISSION [8] Plaintiff submitted that the 1st Defendant had committed breach of fiduciary duties by doing what he is prevented in his capacity as a director of the Plaintiff, in that, he had used the information acquired by him by virtue of his position as the director of the Plaintiff; used the opportunity of the Plaintiff which he became aware of in the performance of his duties as the director, wrongfully diverted that business and engaged in the business which is in competition with the Plaintiff by incorporating the 2nd Defendant. The 1st Defendant at all material times has a duty to act in the best interests of the Plaintiff. [9] The Plaintiff claimed that it is the Developer and Owner of Flexi Parking System. The Flexi Parking System is the asset of the Plaintiff and it cannot be diverted to another company without the approval and ratification of the Plaintiff in a general meeting. The Flexi Parking System was developed, completed and perfected during the 1st Defendant’s time as a director and shareholder of the Plaintiff and for the benefit of the Plaintiff. [10] There is no shred of evidence from the Defendants that the Flexi Parking system is owned by 1st Defendant as alleged or that the Flexi Parking system was lent or licensed to the Plaintiff to use for a certain period only. All the projects such as MP Sepang Project and MB Shah Alam Project with Suasa Efektif were secured for the Plaintiff. The 1st Defendant had been using the Plaintiff’ resources to secure projects for Sepang and Shah Alam and also for the patent of Flexi Parking. When a claim is made against the Plaintiff, that claim must be in connection and business and for the benefit of the Plaintiff of which the 1st Defendant agreed to this proposition. This is also consistent with Article 70 of the Memorandum and Article of Association of the Plaintiff. During cross examination SP1 admitted that all these claims were made because he carried out the obligation as director on behalf of the Plaintiff. Therefore, all the projects secured and intellectual property of Flexi Parking system are for the benefit of the Plaintiff and belonging to and owned by the Plaintiff. [11] In the WUP filed by the 1st Defendant, Plaintiff submitted that the WUP is mala fide and clearly an afterthought. It was filed with the object to cover 1st Defendant’s misdeeds and tactical manoeuvre by him to escape from liability for his breach of fiduciary duties to the Plaintiff. There is no reason to wind up the Plaintiff as it did not involve in any illegal activities and the 1st Defendant had not been unjustly deprived any of his legitimate expectations in the Plaintiff. As for the assertion regarding total breakdown of alleged mutual trust, the Plaintiff submitted that any such instance would have been caused by 1st Defendant’s own breach of his fiduciary duties towards the Plaintiff. All the allegations were merely an afterthought that were fabricated by 1st Defendant to mount the WUP against the Plaintiff. Not only that, the Plaintiff further submitted that the 1st Defendant did not seek to convene an AGM or EGM for voluntary winding up of the Plaintiff pursuant to Article 112 of the M&A of the Plaintiff. In such as case the 1st Defendant did not come with clean hands and therefore could not rely on just and equitable grounds to wind up the Plaintiff. D. DEFENDANT’S SUBMISSION [12] The 1st Defendant submitted that due to SP1’s failure in his duty as Managing Director & Director of Marketing and Finance in that the failures to pay the salaries of employees including the 1st Defendant for almost 2 years, the 1st Defendant was forced to come up with a new strategy to market the Flexi Parking app without the involvement of SP1. The 1st Defendant sent proposals to a number of municipal councils to offer them to use the Flexi Parking App for free, where the revenue of the Flexi Parking App, would be generated via advertising. As a result of such efforts, the 1st Defendant was introduced to a concession holding company that is Suasa Efektif (M) Sdn Bhd and able to introduce the Flexi Parking app in Sepang in August 2016. Despite the continuous efforts of the 1st Defendant, his salary between September 2015 and December 2016 was only paid in 2 months which later led the 1st Defendant to resign from the Plaintiff. [13] The Plaintiff failed to file tax returns and its audited accounts since incorporation and was facing a penalty of RM37,000 thus was not to obtain the MOF License. Hence on 15.12.2016 the 1st Defendant set up the 2nd Defendant with the knowledge of SP1. On 1.1.2017 and 7.2.2017, the 2nd Defendant was appointed by Suasa Efektif to supply the Flexi Parking app for MP Sepang and Majlis Bandaraya Shah Alam (“MBSA”) respectively. Thereafter on 23.2.2017, the 2nd Defendant obtained the MOF License and approvals from the State Planning Unit (“UPEN”). On 6.2.2017, the 1st Defendant resigned as CEO of the Plaintiff for the reasons stated in his resignation letter, particularly SP1’s failures to carry out his role as Managing Director and Director of Finance & Marketing of the Plaintiff. The 2nd Defendant filed fresh trade mark applications in May 2020 for “FP Flexi Parking” and “LiTS Leading Innovative Technologies & Systems” and there was no objection by any party to the same which was granted on 4.8.2021. [14] The 1st Defendant claimed that the Plaintiff has no ownership over the Flexi Parking application. The Plaintiff basis for claiming such ownership is “…by drawing salary from the Plaintiff for developing the said application, he had waived any rights over the said flexi parking application…”. is untenable. It was not disputed that the 1st Defendant was not paid his salary in 22 out of 31 months by the Plaintiff and on this ground alone, the Plaintiff’s entire claim of ownership of the Flexi Parking Application falls. [15] On the WUP, the 1st Defendant submitted that Section 465(1)(h) of the Companies Act 2016 allows a shareholder to seek a winding up order of the company on the just and equitable ground. Just and Equitable provision may be applied in cases of breakdown of mutual trust and confidence. In this regard, SP1 has confirmed in his evidence that there is a total breakdown of mutual trust and confidence between him and the 1st Defendant. The reason for the said breakdown of mutual trust and confidence is solely on SP1, who has: - [a] Failed to cause the Plaintiff to pay salaries to the First Defendant for almost 2 years (and failed to pay the engineers of the Plaintiff). [b] Failed to pay EPF despite deducting the same from the few months in which salaries were paid by the Plaintiff. [c] Failed to cause the Plaintiff to file its audited accounts (even as of to date). [d] Failed to accept the resignation of the First Defendant as director despite there being no requirement in law for the same. [e] Somehow engineered the appointment of Michael Ong as 3rd Director of the Plaintiff absent any Court Order in respect of the same. [f] Failed to give effect to the express agreement/confirmation that LKL had no objection for the 1st Defendant to resign and set up a fresh company on his own. [16] The 1st Defendant in leaving the Plaintiff was to pursue his business via the 2nd Defendant was simply acting as per the understanding that SP1 had recognised that the Flexi Parking App belonged to the 1st Defendant and the Plaintiff could not force the 1st Defendant to stay on with the Plaintiff. [17] The Defendants submitted that there is a failure of the substratum of the Plaintiff justifying the winding up as there is no record of the Plaintiff doing any business in 2017 onwards. Indeed, the Plaintiff has not filed audited accounts since its incorporation some 10 years ago in

Without the Winding up of the Plaintiff, the warring parties of SP1 and the 1st Defendant to continue in partnership, when they can no longer work together, would merely be an exercise in futility. Therefore, it is just and equitable for this Court to wind up the Plaintiff. B. THE ISSUES [18] The issues advanced by the parties for determination are as follows:- [a] Whether the 1st Defendant had breached his fiduciary duties to the Plaintiff in incorporating the 2nd Defendant to compete with the Plaintiff; [b] Whether the 1st Defendant had made claims from the Plaintiff as reimbursement for marketing expenses and for preparatory works done by him while continuing as an officer of the Plaintiff in respect of the projects of the Plaintiff; [c] Whether the Plaintiff has ownership over the Flexi Parking application. [d] Whether it is just and equitable that the Plaintiff be wound up. E. ANALYSIS AND FINDINGS [19] Having read the submissions by the parties, I am of the view that the core issues that need to be addressed is whether the Plaintiff has the ownership over the Flexi Parking application, if the answer in the affirmative, whether the 1st Defendant had breached his fiduciary duties to the Plaintiff in incorporating the 2nd Defendant to compete with the Plaintiff. Following this, whether it is just and equitable that the Plaintiff be wound up. Whether the Plaintiff has the ownership over the Flexi Parking application [20] On or around March-April 2014, the 1st Defendant started development related to methods of managing car park spaces via SMS but later decided to develop an application named “Flexi Parking” together with his engineers, Jack Lee and Danny Ng. On 1.5.2014, the 1st Defendant via email to SP1 proposed to develop and market Flexi Parking System. The 1st Defendant met with SP1, and according to SPI, the 1st Defendant seeks for assistance to procure funding and marketing for the Flexi Parking App where SP1 managed to secure a funding of RM865,5000.00. Both of them agreed to set up a company named “LITS Solutions Sdn Bhd” which later led to the incorporation of the Plaintiff on 27.5.2014 and each of them held 50% of shares and Jack and Danny as employees of the Plaintiff. It is not in dispute that the main object of the incorporation of the Plaintiff was for the Flexi Parking System. [21] It is clear from the evidences including WhatsApp’s communication, letters and emails between 1st Defendant and SP1 that both of them incorporated the Plaintiff for the purpose to develop and market the Flexi Parking System and have proven that the system belongs to the Plaintiff. Although the 1st Defendant claimed that the Flexi Parking System was invented by him but the system was developed, completed and perfected during the 1st Defendant’s time as the director and shareholder of the Plaintiff and for the benefit of the Plaintiff. This notion was also supported by the timeline prepared by the 1st Defendant which clearly shows that the “setup of software environment and begin development” started somewhere in June 2014 and the “prototype creation” would only begin somewhere in July 2014. [22] From the letter dated 25.1.2015 by Kayangan Parking to SP1, it shows that the Plaintiff was appointed to undertake the Flexi Parking project. The said letter clearly mentioned that the Plaintiff is to “menjalankan kerja-kerja membina aplikasi dan menjalankan operasi aplikasi system “Flexi Parking” sepertimana yang dibentangkan di sesi pembentangan bersama Datuk Bandar Majlis Bandaraya Alor Setar bertarikh 29.9.2014 yang lepas”. [23] Following the unsuccessful project in Alor Setar, the Plaintiff however successfully secured projects for Majlis Perbandaran Sepang and Shah Alam for the usage of Flexi Parking System. As late as March 2017, Majlis Perbandaran Sepang was still recognising the Plaintiff as the rightful party for the Sepang project in relation to the Flexi Parking system. [24] Taking from the above events, I am of the view that the appointment of Plaintiff by Kayangan Parking and Suasa Efektif to develop, manage and implement the Flexi Parking System has indicated that the Plaintiff is the company recognized and accepted for the deployment of the Flexi Parking system including Sepang and Shah Alam and all those projects later secured for the Plaintiff. Having this in mind, I find that Flexi Parking System was developed by the Plaintiff and therefore the Plaintiff as the Developer is the owner of Flexi Parking System and to all intellectual property related to the Flexi Parking System. There is no evidence to show that the Flexi Parking system is owned by the Defendants or that the Flexi Parking system was lent or licensed to the Plaintiff to use for a certain period only as alleged by the 1st Defendant. [25] Having answer the 1st issue in the affirmative, the next issue to be determined is whether the 1st Defendant had breached his fiduciary duties to the Plaintiff by incorporating the 2nd Defendant to compete with the Plaintiff. Here, the Plaintiff alleged that the 1st Defendant has breached his fiduciary duties to the Plaintiff when:- [a] He failed to exercise his power as director of the Plaintiff for a proper purpose and in good faith in the best interest of the Plaintiff; [b] He formed the 2nd Defendant to compete with the Plaintiff and utilised the Plaintiff’s projects, intellectual property and contract to the 2nd Defendant; [c] He used the Plaintiff’s resources to develop the Flexi Parking system and to secure projects for his personal unlawful gain through the 2nd Defendant; [d] He failed to carry out his duty properly to preserve the patent, intellectual property, trademark, contract and business of the Plaintiff thereby has deliberately caused harm and loss to the Plaintiff by diverting the Plaintiff’s contract, business, trademark, patent and intellectual property away to the 2nd Defendant; [e] He misused the information and opportunity obtained as the officer of the Plaintiff for his personal unlawful gain through the 2nd Defendant. [26] To successfully bring a claim for breach of fiduciary duty against the 1st Defendant, the Plaintiff must prove that the 1st Defendant owed a fiduciary duty to the Plaintiff and that he had breach that duty whilst he is still the director of the Plaintiff. [27] The principle that a director owes fiduciary duties to a company is well settled. Section 213 of the Companies Act 2016 Act 77 underlines the duties and responsibilities of directors in that a director shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the company. A director of a company shall exercise reasonable care, skill and diligence. [See: Pioneer Haven Sdn Bhd v. Ho Hup Construction Co Bhd & Anor and other appeals [2012] 5 CLJ 169; [2012] 3 MLJ 616, CA]. [28] The approach to the phrase 'best interest of the company' was explained by the Federal Court in Tengku Dato' Ibrahim Petra bin Tengku Indra Petra v. Petra Perdana Bhd and another appeal [2018] 2 CLJ 641; [2018] 2 MLJ 177. [29] The law is clear that a director of a company is in fiduciary relationship with his company and as such he is precluded from acting in a manner which will bring his personal interest into conflict with that of his company - per Salleh Abas LP in Avel Consultants Sdn Bhd & Anor v. Mohamed Zain Yusof & Ors [1985] CLJ Rep 37; [1985] 2 CLJ 11; [1985] 2 MLJ 209 SC. [30] The underlying fiduciary principle against the abuse of office is well established. It is trite law that a person in a fiduciary position is not entitled to make a profit and he is not allowed to put himself in a position where his interest and duty are in conflict as held by the Federal Court in Gurbachan Singh s/o Bagawan Singh & Ors v. Vellasamy s/o Pennusamy & Ors (on their behalf and for the 213 sub-purchasers of plots of land known as PN35553, Lot 9108, Mukim Hutan Melintang, Hilir Perak) and other appeals, [2015] 1 CLJ 719; [2015] 1 MLJ 773. [31] Bearing in mind of the issue at hand and guided by the authorities mentioned above, I am ultimately tasked with the responsibility of determining whether the 1st Defendant acted in the best interest of the Plaintiff upon an objective assessment of the evidence. The 1st Defendant does not deny that the 2nd Defendant was incorporated whilst he was still a director of the Plaintiff. It was also not disputed that the business of the 2nd Defendant is similar to that of the Plaintiff. In fact, the 1st Defendant was actively involved with the nature of business of the Plaintiff. [32] On the face of it, the 1st Defendant appears to have acted contrary to the best interest of the Plaintiff by incorporating the 2nd Defendant a company in direct competition to the Plaintiff whilst he was a director of the Plaintiff. His actions will however have to be viewed in the context of the situation he found himself in, at the material time. The 1st Defendant contended that the incorporation of the 2nd Defendant was a business judgment he made in view of the compelling situation. [33] There are sufficient evidences to show that the 1st Defendant has presented himself in the capacity as “Ketua Pegawai Eksekutif” and the director of the Plaintiff. The 1st Defendant has actively involved in securing projects for the interest and benefits of the Plaintiff and using the Plaintiff’s logo. To my mind, it is as clear here that the 1st Defendant was making the presentation of Flexi Parking system on behalf of the Plaintiff and not for himself. The evidence also revealed that the 1st Defendant had been using the Plaintiff’s names and resources to secure projects for Sepang and Shah Alam and also for the patent of Flexi Parking with Adastra (the IP agent). It is undisputed fact that Suasa Efektif has agreed to appoint the Plaintiff to develop, manage and implement Flexi Parking system and has issued a letter dated 22.7.2015 to appoint the Plaintiff as vendor to develop Flexi Parking system. In fact Suasa Efektif had been making payment to Plaintiff based on invoices issued. The 1st Defendant also promoted Flexi Parking system to other local authorities i.e. Ampang Jaya and Subang Jaya for the Plaintiff but the Flexi Parking system for all these municipalities were subsequently diverted to the 2nd Defendant. [34] The 1st Defendant was fully aware about the amount of RM865,000.00 was bank in the Plaintiff’s account. The amount secured by SP1 was issued by the investor Chow Cheng Juen by the letter dated 5.4.2017 was for the purposes of investment for the Plaintiff. It is my considered view, the amount invested was directly related to the Plaintiff’s projects for Flexi Parking System and not for personal loan to SP1 as alleged by the 1st Defendant. Thus, I find that even though the 1st Defendant is the applicant for the patent of Flexi Parking System but the Flexi Parking System was developed and perfected using the Plaintiff’s resources and funding where in the 1st Defendant has acted in his capacity as officer of the Plaintiff. From the evidence, the Plaintiff had been using the following logo and trademark for Flexi Parking System. All these logos and trademarks had been used by the Plaintiff before the incorporation of 2nd Defendant when the 1st Defendant makes an application for the trademark. [35] From the instances above and since the Flexi Parking System is the asset of the Plaintiff, the 1st Defendant cannot divert the system to another company without the approval and ratification of the Plaintiff. As the director of the Plaintiff at that material time, 1st Defendant has a duty to act in the best interests of the Plaintiff and cannot engage in 'self-dealings' or enter into transactions with a company in which they are directly or indirectly interested or make improper use of the Plaintiff’s property or information to make profits for himself directly or indirectly. [36] I took note the 1st Defendant contention that he had diverted Shah Alam project to the 2nd Defendant on the basis that the agreement was not signed, the Plaintiff is a failed company, no cooperation by SP1, no audited report, non-paying of EPF, salary and the Plaintiff was not able to carry on with the projects. Having evaluated the reasons advanced by the 1st Defendant, I am of the view that those grounds to justify the diversion of contract or projects secured for Plaintiff to 2nd Defendant are unacceptable especially when it was executed when the 1st Defendant is still the director of the Plaintiff. There were no agreement or resolution passed by the Plaintiff to allow the 1st Defendant to divert the Plaintiff projects or contracts in relation to Flexi Parking system to the 2nd Defendant. Thus, there are no cogent reasons not to come to a conclusion that by diverting the contracts and Flexi Parking system away from the Plaintiff to the 2nd Defendant, 1st Defendant was not in breach of his fiduciary duties to the Plaintiff. Therefore, I find that there is a clear breach of 1st Defendant’s fiduciary duties owed to the Plaintiff. The Plaintiff claim against the 1st and 2nd Defendants is allowed as follows as per paragraph 21 Statement of Claim: [a] As to 1st Defendant Paragraph 21.1 (a) (b) (c) (d) and (i) are allowed. Paragraph 21.1 (e) (f) (g) and (h) are disallowed. [b] As to 2nd Defendant Paragraph 21.2 (a) (b) (c) and (d) are allowed. [c] Global cost for RM50,000.00. THE WINDING UP PETITION - PA 28NCC-1-01/2021 [37] The WUP is predicated on Section 465(1)(h) of the Companies Act 2016 that provides the Court with the power to wind up a company on just and equitable grounds. It is possible to wind up a company on just and equitable grounds if there are satisfactory reasons for the Court to exercise its discretion and form an opinion that it is just and equitable to order a winding up. [38] The 1st Defendant being the Petitioner has filed this WUP in January 2021 after leave was granted to the Plaintiff to file a derivative action. The 1st Defendant submitted that the WUP was based on: - a. the failure of the Plaintiff to file its tax return and to complete its audit thus not able to obtain the Ministry of Finance licence. b. there is a deadlock in the Plaintiff because of protracted litigation c. Plaintiff’s corporate substratum has failed and has led to the incorporation of the 2nd Defendant. [39] The Plaintiff contended that that the WUP was filed with the objective to cover the 1st Defendant misdeeds and tactical manoeuvre to escape from liability for his breach of fiduciary duties to the Plaintiff. There is no reason to wind up the Plaintiff as it did not involve in any illegal activities and the 1st Defendant had not been unjustly deprived any of his legitimate expectations in the Plaintiff. Clearly, the WUP is filed to cover up the 1st Defendant’s fraudulent acts and breach committed against the Plaintiff and the WUP amounts to an abuse of the process of court and a collateral attack on the Suit 252. [40] I took note that the 1st Defendant, (the Petitioner in this WUP) and SP1 are the only persons involved in incorporating the Plaintiff and the WUP was filed by the 1st Defendant in his capacity as the shareholder of the Plaintiff. I observed that the WUP was substantially filed based on the same set of facts and issues as pleaded in the 1st Defendant’s defence in Suit 252. [41] In Gulf Business Construction (M) Sdn Bhd v. Israq Holding Sdn Bhd [2010] 8 CLJ 775; [2010]5 MLJ 34 the Court of Appeal said that a myriad of circumstances including deadlock in management can be considered in winding up a company under the "just and equitable" ground and that the list of illustrations given in that case is not exhaustive. The lists are: -

Where the substratum of the company has gone;

Where the company's main object for its existence has lapsed;

Where the principal object of setting up the company can no longer be achieved;

Where the company's only business is ultra vires the company;

Where the company is carrying on its business at a loss, and the remaining assets of the company are insufficient to pay its debts;

Where there is no reasonable hope of ultimate profit for the company;

Where the relationship of the parties in the company has broken down irretrievably;

Where there is a lack of confidence among the shareholders that threatens the very existence of the company; and

Where the winding up of the company would open the door to investigate the misconduct of the directors or promoters of the company. [42] In Perak Integrated Networks Services Sdn Bhd v. Urban Domain Sdn Bhd & Anor [2018] 5 CLJ 513; the Federal Court after reviewing authorities that discussed the deadlock and the "just and equitable" ground, said that a deadlock scenario is one of the circumstances to wind up a company under it. As we said earlier, in the instant case, deadlock in management was not the basis of the petition. Complete breakdown mutual trust and confidence between family members was the basis of the winding up petition presented under the "just and equitable" ground. [43] In Dato’ Ting Check Sii v Datuk Hj Mohammad Tufail Mahmud & Anor [2008] 7 CLJ 453, the Court held that certain circumstances are not capable of constituting just and equitable grounds for winding up a company. These may include allegations of mismanagement or misappropriation of funds by directors, quarrels and groupings among shareholders, general or mere allegations of oppression of minority shareholders, the substratum not wholly gone, and the company running at a loss. This decision highlights that not all circumstances can justify winding up a company under just and equitable grounds. That being said, the Court has wider roles in assessing whether winding up of a company is a just and equitable solution for the shareholders. In submitting the petition to wind up under this particular ground, the applicant is expected to submit and proof their allegations while arguing that continuous existence of the company is no longer viable and may cause significant challenges or difficulties to the shareholders. [44] The law requires the Court to first find whether there has been a breakdown of mutual trust and confidence and only consequently decide whether there are just and equitable grounds to wind up the company - see Tan Kim Hor & Ors v. Tan Heng Chew & Ors [2009] 2 CLJ 242; [2009] 4 MLJ 358. [45] Guided by the above cited authorities, it can be said that winding up a company under just and equitable grounds is a serious matter that should be approached with caution. Despite the broad and extensive nature of the provision, the facts of each case must be carefully and determine that the company has no longer able to exist and serves its purpose as intended during its incorporation and there is no other remedy available. In this aspect, the principle does not completely disregard the obligations, duties, and responsibilities of the 1st Defendant as a director of the company, as he is legally bound by what he agreed upon when he decided to form a company with SP1 and eventually decided to join the Plaintiff. This Court, however, recognizes that there will be instances where it is unreasonable, unjust, or inequitable for an individual to insist on upholding legal rights in a particular way. To allow the principal to run loose without careful examination, it will open up the floodgates where a member of a company could simply run towards the Court for a solution every time disagreement arises between members of the company to enables him to be relieved from the consequences of his own doings. The just and equitable jurisdiction must be exercised carefully and judiciously, with special regard for the irreversible and drastic nature of a winding-up as a court-ordered remedy. (see Perennial (Capitol) Pte Ltd & Anor v. Capitol Investment Holdings Pte Ltd [2018] 1 SLR 763. [46] The non-payment of salary does not give a free ticket or entitlement to the 1st Defendant to set up the 2nd Defendant to do the same business and then divert the contracts to 2nd Defendant especially when the costs for securing the contracts from MP Sepang and Majlis Bandaraya Shah Alam were funded by the Plaintiff. It must be borne in mind that the 1st Defendant and SP1 owned the Plaintiff and both them were the directors. In any circumstances when the Plaintiff did not have funds, it is normal for the directors not to be paid salary and when there is income, the Plaintiff will reimburse from time to time all the expenses incurred. [47] The resigning of 1st Defendant, as alleged, as director of the Plaintiff, in my view cannot undo the 1st Defendant's breach of his fiduciary duties. Despite what had been alleged by the 1st Defendant as to the status of directorship of the Plaintiff, on the contrary the evidence shows that the 1st Defendant is still the director of the Plaintiff at the material time. Evidently it shows that the 1st Defendant had continuously breaching his fiduciary duties and gained personal benefit/enrichment from his act against the Plaintiff. To make matter worst the 1st Defendant incorporated the 2nd Defendant and diverting the business and business opportunities to the 2nd Defendant. [48] As to the alleged deadlock, it was observed that there was no other company was incorporated divert the business/contracts except the incorporation of 2nd Defendant by the 1st Defendant. There are no evidences before me to show that SP1 has committed any breach of fiduciary duties and neither has he acted in any inequitable way. On the contrary it was the 1st Defendant acts which have caused the Plaintiff to be in its current state. It is unconceivable that the 1st Defendant be allowed to profit from his own breach or from the state of affairs which he had deliberately created to profit by filing the WUP. If there is any, the breakdown in mutual trust and confidence between 1st Defendant and SP1 was due to the breach of fiduciary duties by 1st Defendant in incorporating the 2nd Defendant and in diverting the business/business opportunities to the 2nd Defendant and not due to the reasons as contended by the 1st Defendant and eventually cannot claim that it is just and equitable to wind up the Plaintiff. In short, it is the wrongdoer himself who wants to rely on the just and equitable ground when he has acted unjustly and inequitably by depriving the Plaintiff of its business. Thus, it can be concluded here that the root cause of the alleged breakdown in mutual trust and confidence is from the 1st Defendant. [49] I also find that there is no failure of the substratum of the Plaintiff to justify the Plaintiff to be wound up. The object for which the Plaintiff was incorporated could have been achieved and that the making of investment fell within the scope of the Plaintiff purpose and has not come to an end and the Plaintiff had not ceased business. Even if the Plaintiff did not do well in business, the 1st Defendant could have agreed for voluntary winding up of the Plaintiff so that SP1 and him can go separate ways. The diversion of the business which had caused the Plaintiff to be without business. A company's substratum was the main object which it was formed to achieve. [50] Having examines the 1st Defendant’s conducts and the evidences before me, I am of the view that the 1st Defendant has not come to this court with clean hands. To repeat as mention above, the 1st Defendant had diverted the contracts to the 2nd Defendant which initially intended to be for the Plaintiff while he was still a director of the Plaintiff. Thus, I am inclined to conclude that the 1st Defendant has not acted bona fide with in mind to escape from the breaches of fiduciary duties committed by him against the Plaintiff. The 1st Defendant’s action amounts to the abuse of the process of the court and it is unsustainable in presenting this WUP. I find that there no unjust or inequitable circumstances exist for winding up the Plaintiff based on the grounds submitted by the 1st Defendant. Therefore, the WUP by the 1st Defendant is dismissed with costs RM30,000.00. SGD (ROZANA BINTI ALI YUSOFF) Judge High Court of Penang Dated on 17th April 2025 Counsel Karin Lim & Suppiah (Messrs Presgrave & Matthews.) for the Plaintiff. Sivaram Prasad & HK Niak (Messrs Christopher & Lee Ong) for the Defendants.