Lau Jick Ing v 1. Lim Heng Sean @ Eddie Lim (24NCC-632-11/2019)

LIM HENG SEAN @ EDDIE LIM

CEMERLANG UTARA SDN BHD (CO REG NO.: 1138741-V) … DEFENDANTS BEFORE YA KHADIJAH BINTI IDRIS JUDGE 2 Grounds of Judgment (enclosure 9) Introduction [1] The plaintiff’s originating summons is for leave to commence derivative proceedings on behalf of the second defendant against the first defendant. After filing the originating summons the plaintiff filed an application in enclosure 9 for a fortuna injunction to, among others, restrain the first defendant from filing or presenting a winding up petition against the second defendant. [2] After considering the affidavit evidence and the parties’ submissions, this court allowed the plaintiff’s application for a fortuna injunction. The first defendant appealed. [3] It is stated at the outset that this judgment relate to the plaintiff’s application for fortuna injunction and that this court is not making any finding of facts in respect of the plaintiff’s originating summons for leave which is pending before this court. 3 Salient Facts [4] One Lau Jick Ing (“Plaintiff”) filed an originating summons (“Originating Summons”) for leave to commence a derivative proceeding in the name of Cemerlang Utara (“2nd Defendant”) against one Lim Heng Sean (“1st Defendant”) for the benefit of the 2nd Defendant and to recover sums of money owing by a company known as Sutera Matra Sdn Bhd (“Sutera Matra”) as at 18 November 2019. The Plaintiff attached a draft statement of claim in his affidavit supporting the Originating Summons. [5] Prior to the commencement of the Originating Summons, the Plaintiff through his solicitor had on 26 September 2019 issue a notice pursuant to section 348 of the Companies Act 2016. Through his solicitors’ letter dated 24 October 2019, the 1st Defendant informed he had only received the Notice on 16 October 2019. Through his solicitors’ letter dated 13 November 2019 the 2nd Defendant raised issues against the Plaintiff which will be discussed below. [6] The Plaintiff and the 1st Defendant are shareholder and director of the 2nd Defendant. The Plaintiff holds 100,000 ordinary shares which is fully paid-up. The 1st Defendant holds 100,000 ordinary shares which 4 according to the Plaintiff has yet to be paid. Thus both the Plaintiff and 1st Defendant holds equal number of shares in the 2nd Defendant. [7] The 2nd Defendant, a locally incorporated company, is engage in the business of servicing, maintenance, commissioner for petrol station and related services, construction and renovation. [8] Sutera Matra a locally incorporated company carries on the business of, amongst others, appointing retail operators for the sale of petroleum products including but not limited to petrol, diesel, lubricants and other lubricant products, under the ‘Caltex’ brand. Sutera Matra is the Brand Marketer for a company known As Chevron Malaysia Limited (Co Reg No.992309-U) (“Chevron”). Chevron is supplier of petroleum products in Malaysia in particular Caltex products. Sutera Matra appoints Retail Operator for sale of petroleum product ie Caltex product. [9] The 1st Defendant is also a member, director and shareholder of Sutera Matra and said to be the controlling mind of Sutera Matra. This is not disputed by the 1st Defendant. [10] Through the Plaintiff’s efforts, the 2nd Defendant had procured almost all the service stations for the purposes of appointing retail 5 operators for the sale of petroleum products including but not limited to petrol, diesel, lubricant and other lubricant products. [11] The 2nd Defendant for the past several years had been paid commissions by Sutera Matra for the procurement of the service stations for Sutera Matra. It is the Plaintiff’s case that it has been the usual conduct, custom and trade between the parties that every month and / or periodically Sutera Matra would send the commission statements to the 2nd Defendant and 2nd Defendant would then invoice Sutera Matra, in order for the 2nd Defendant to receive its payments from Sutera Matra. The 2nd Defendant had earned healthy profits in the fianancial year ended 2016 to 2018. [12] The list of the service stations procured (“Service Stations”), had been briefly listed in paragraphs 13.1 and 13.2 in the Plaintiff’s affidavit in support of this Originating Summons (see enclosure 7 Exhibit PI-1 pages 50 – 51). [13] It is the Plaintiff’s case that the aforesaid arrangement shall subsist and be valid and binding on both Sutera Matra and the 2nd Defendant for the entire tenure and subsistence of the respective Retail Trading Agreement and or Fuel Supply Agreements made between each of the 6 Service Stations (procured by the 2nd Defendant for Sutera Matra) with Sutera Matra and Chevron (see enclosure 7 Exhibit PI-1 pages 396 – 436 for a copy of the Retail Trading Agreement, pages 437 – 454 and pages 455 – 472 copies of the Fuel Supply Agreements). [14] The 2nd Defendant had also spent colossal amounts of money to upgrade some of the Service Stations, of which up until to date a total of RM 1,466,417.88 had been spent by the 2nd Defendant. [15] Sutera Matra had failed to pay the commission fees and as at March 2019 an amount of RM 169,374.73 still outstanding and there are further amounts that are continuously outstanding. [16] The Plaintiff claims there has been breach of fiduciary duty on the part of the 1st Defendant and also conflicting interest. Amongst the alleged breach and conflict of interest is as follows –

failure to recover the outstanding sums from Sutera Matra, thereby not acting in good faith and in blatant disregard of the interest of the 2nd Defendant; 7

the 1st Defendant had diverted a contract job to another contractor despite purchase orders via the 1st Defendant was issued by Fea Holdings Sdn Bhd (Co Reg No. 12547-D) (a shareholder of Sutera Matra) (“FEA Holdings”) to the 2nd Defendant. The 1st Defendant is a director and shareholder of FEA Holdings;

the 1st Defendant had caused Sutera Matra to, without account, silently keep all commissions / benefits derived from Syarikat Usahawan Palong Station (hereinafter referred to as the “Palong Station”), a station which is introduced by Ample Value Sdn Bhd service station (at Yong Peng) (hereinafter referred to as “Ample Value”) but which commissions / benefits were supposed to be earned and due to the 2nd

the 1st Defendant had used money belonging to the 2nd Defendant to purchase a car in Singapore under his wife’s name and had been claiming all expenses for the aforesaid car from the 2nd Defendant; 8

the 1st Defendant had controlled the Plaintiff payment from Sutera Matra to the 2nd Defendant thereby causing the non-payment of expenses which had led the 2nd Defendant to face serious consequences including, amongst others, breach of statutory obligations, non-payment of staff salaries, contributions to EPF, SOCSO and income tax; and

the 1st Defendant through Sutera Matra diverted the maintaining and upkeep of the Service Stations to another company known as FlowFuel Sdn Bhd (“FlowFuel”). Thus it is the Plaintiff’s case that the 1st Defendant has acted to the detriment of the 2nd Defendant’s interest as the 1st Defendant failed to act in good faith and in the best interest of the 2nd Defendant. [17] The Plaintiff, through his solicitors’ letter dated 18 November 2019, served a notice dated 15 November 2019 demanding the 1st Defendant to fully settle a total of RM 100,000.00 for the unpaid shares. Through his solicitors’ letter dated 2 December 2019 the Defendant, among others denied the demand made by the Plaintiff. 9 Winding up notice to wind up the 2nd Defendant [18] The 1st Defendant through his solicitor then sent to the Plaintiff’s solicitor a letter dated 2 December 2019 (see enclosure 7 Exhibit PI-2) a notice of intention to wind up the 2nd Defendant (“Winding Up Notice”) on the ground that it is just and equitable to do so. It is the 1st Defendant’s position that there is a complete and irretrievable breakdown of mutual trust and confidence between the parties that the parties can no longer work together to manage the 2nd Defendant. [19] The grounds advanced by the 1st Defendant to support his intention to wind-up the 2nd Defendant includes, among others, as follows –

the objective of the Second Defendant and the agreement between the Plaintiff and the First Defendant was that all service stations procured shall be exclusively Caltex service stations and shall only distribute and sell petroleum products supplied by Chevron Malaysia Limited during for the entire tenure of their respective agreements with Sutera Matra and / or Chevron Malaysia Limited. However the Plaintiff had breached the agreement between the parties by taking 10 active steps to persuade some Caltex service stations to breach their existing agreements with Chevron Malaysia Limited in order to be service stations under the Petronas brand in the following manner –

Chevron Malaysia Limited had discovered that the Plaintiff had entered into discussion and / or negotiations with Caltex retailers for the operation of Petronas service station on their premises. This has led to Chevron Malaysia Limited to issue a letter dated 27 December 2018 to Erasama Synergy Sdn Bhd (“Erasama”) in which the Plaintiff is the director and shareholder holding 90% of the shares in the Defendant, to cease any and all discussions and/or negotiations with Caltex retailers for the operation of Petronas branded service stations on their premises;

(ii) the Plaintiff who is the shareholder of Mesra Plus Enterprise Sdn Bhd (“Mesra Plus”) had directed Mesra Plus to wrongfully terminated the agreement with Sutera Matra and Chevron Malaysia Limited to operate Caltex service station with an intention to operate a Petronas service station on their premises. Mesra Plus 11 is currently embroiled in an ongoing litigation with Sutera Matra and Chevron Malaysia Limited. However the director and shareholder holding 50% of the shares in Mesra Plus Enterprise had given the Plaintiff’s solicitors a written notice dated 24 September 2019 informing the Plaintiff’s solicitors that he is not agreeable for Mesra Plus to commence the action against Sutera Matra and Chevron Malaysia Limited and had requested the Plaintiff’s solicitors to withdraw the action by Mesra Plus Enterprise against Sutera Matra and Chevron Malaysia Limited.

the Plaintiff had managed the Second Defendant to the detriment of the Second Defendant and had prejudiced the First Defendant’s interests which includes, among others, the following – (aa) the 2nd Defendant is operating from an address known as Lot 2489/2490, Jalan Raja Uda, 12300 Butterworth, Penang without the knowledge of the 1st Defendant. The said address is also used as a Petronas service 12 station where its business is in direct conflict with the business interest of the 2nd Defendant; (bb) renting a premise which belongs to a company known as Commerce Plus Sdn Bhd for RM 3,200.00 per month be used as the 2nd Defendant’s office. The Plaintiff is the director and shareholder holding 46.6668% of the shares in Commerce Plus Sdn Bhd. Plaintiff continued to use the address of the said premises as the business address of the Second Defendant and leaving Lot 19 vacant despite paying monthly rentals to Commerce Plus Sdn Bhd;

(cc) appointing the Plaintiff’s wife to do clerical and banking related work on a full time basis paid on consultancy basis and not the usual salary with contribution to EPF and SOCSO despite being a full time staff of the Second Defendant exposing the Second Defendant to statutory liabilities;

(dd) the Plaintiff has caused the 2nd Defendant to terminate the employment of Teoh Song Lim and Lim Cheng 13 Chua without the 1st Defendant’s knowledge ad consent. [20] The Plaintiff threatened to forfeit the 1st Defendant’s duly registered shares in the 2nd Defendant without any basis whatsoever. The Plaintiff’s allegation that the Plaintiff had purportedly advanced the sum of RM 100,000.00 on behalf of the 1st Defendant clearly contradicted the Defendant ’s Resolution dated 31 March 2016 which was signed by both the Plaintiff and the 1st Defendant that shows the shares allotted to the 1st Defendant and the 1st Defendant has been fully paid in cash. The Plaintiff’s allegation which was raised for the first time and after more than 4 years of the incorporation of the Second Defendant and unsupported by any evidence whatsoever of the advancement of payments on behalf of the 1st Defendant is clearly done in bad faith and an afterthought. Enclosure 9 [21] On 10 January 2020, the Plaintiff filed enclosure 9 seeking the following reliefs – 14

an order for interim injunction and / or order that the First Defendant be restrained, whether by himself and / or by his servants and/or agents and / or otherwise, howsoever from filing and / or presenting any petition and/or any proceedings for any winding up order against the Second Defendant as threatened by the First Defendant, pending the final disposal of this Originating Summons (hereinafter referred to “this Originating

an order for interim injunction and / or order that the First Defendant be restrained, whether by himself and / or by his servants and / or agents and / or otherwise, howsoever from advertising any petition and / or any proceedings for winding up against the Second Defendant in any newspaper and / or in the Gazette. Plaintiff’s contentions [22] The Plaintiff main contentions seeking for the fortuna injunction is that the facts that transpired clearly shows the 2nd Defendant’s threat to wind up the 2nd Defendant is an afterthought and issued in bad faith with a collateral purpose to side-lined the 2nd Defendant. Thus the 1st Defendant’s petition would have no chance of success and / or bound to fail. 15 Defendant’s opposition [23] The Plaintiff’s contentions that since the Plaintiff had filed Enclosure 1 for leave to file a derivate action the 1st Defendant is not entitled to file a winding up petition against the Second Defendant is completely without merit. [24] It is argued by the 1st Defendant has strong grounds to justify the proposed winding-up petition Defendant because the Plaintiff and the 1st Defendant clearly can no longer work together to manage the 2nd Defendant. Thus the proposed winding up petition has a good chance of success. The grounds are as stated in paragraph 19 above. [25] The granting of a fortuna injunction is highly prejudicial to the 1st Defendant as it will deprive the 1st Defendant of a defence to the leave application for derivative action. It is argued that the existence of an alternative remedy is a factor for the court to consider in whether to grant the said leave and the 1st Defendant should be given the proper opportunity to canvass the argument on the existence of an alternative remedy in winding up instead of being deprived of raising such a legal point by way of a draconian remedy such as a fortuna injunction. 16 [26] The 1st Defendant should not be deprived of the statutory right to present winding up petition on just and equitable grounds the Court should not prejudge the issue at this stage of the proceedings. The parties should be given the opportunity to argue before the winding up court. If the grounds of winding up are indeed weak as asserted by the Plaintiff, the winding up court will dismiss the winding up petition and there will be no prejudice to the Plaintiff or the Second Defendant. [27] In the event that the 2nd Defendant is wound up, the liquidator of the 2nd Defendant will step in and carry out the liquidator’s statutory duties including claiming the alleged sum from the 1st Defendant and Sutera Matra in the event that the liquidator deems that the claim is valid and proper. The Plaintiff will not suffer any prejudice if fortuna injunction is not granted. The law [28] In Pacific & Orient Insurance Co Bhd v. Muniammah Muniandy the Court of Appeal held an injunction to restrain an intended winding-up petition against a company ie fortuna injunction may be granted by court where the presentation of the petition might produce irreparable damage to the company and where the proposed petition has no chance of 17 success. Where the intended winding-up petition has a good chance of success, whether or not the intended winding-up petition causes irreparable damage is of no consequence (RHB Bank Bhd v. Malaysia Pacific Corporation Bhd & Another Appeal [2018] 6 CLJ 55; [2018] 1 LNS 127). Whether the proposed winding-up petition has a good chance of success [29] In Mobikom Sdn Bhd v. Inmiss Communications Sdn Bhd [2007] 3 CLJ 295 the Court of Appeal held the presentation of a winding up petition may be restrained by injunction where its presentation would amount to an abuse of the process of the court. A petitioner who relies on the "just and equitable" clause must come to court with clean hands (Ebrahimi v Westbourne Galleries Ltd And Others [1973] A.C. 360). [30] Having considered the affidavit evidence in totality, this court is of the view the winding-up of the 2nd Defendant as proposed by the 1st Defendant is an abuse of the court process. As such the proposed winding-up petition does not has a good chance of success. The reasons are stated below. 18 [31] Based on the affidavit evidence the 2nd Defendant has, for the past 5 years, being paid monthly commission fees for each Service Station procured by the 2nd Defendant to Sutera Matra at an agreed rate corresponding with the net amount of petrol and / or diesel purchased each of the Service Stations. For the purpose of payment of the monthly commission fees, the arrangement between the parties is for Sutera Matra to issue monthly statement (“Monthly Commission Statement”) to the 2nd Defendant which reflects the quantity of petrol / diesel purchased by the Service Stations. After receiving the monthly statement, the 2nd Defendant will subsequently issue the monthly invoices to Sutera Matra for payment of the commission fees (see in particular paragraph 15 of the 1st Defendant’s affidavit enclosure 14). [32] However there is an outstanding payment of the commission fees for the month of March 2019 in the sum of RM 169,374.73 (“March Commission Fees”). The details of the March Commission Fees is as shown at enclosure 7 Exhibit PI-1 pages 187 – 197. Besides the overdue March Commission Fees, Sutera Matra has also not furnished to the 2nd Defendant the Monthly Commission Statement for the month of April 2019 and May 2019. As a consequence, the 2nd Defendant is prevented from issuing its invoice to Sutera Matra, thus depriving the 2nd Defendant from its monthly commission fees. 19 [33] It is not disputed that the 1st Defendant, besides holding 50% shares in the 2nd Defendant, is also a director and shareholder of Sutera Matra. The 2nd Defendant is said to be the controlling mind of Sutera Matra and is alleged to have put on hold the payment of the commission fees to the 2nd Defendant. It is contended by the Plaintiff by such conduct the 1st Defendant is acting in conflicting interest and to the detrimental of the 2nd Defendant. [34] It would appear that such allegations is not without basis. The 1st Defendant in opposing the Plaintiff’s application for an injunction affirmed an affidavit enclosure 14. In the said affidavit the 1st Defendant avers that he is a director and a 50% shareholder of shares in the 2nd Defendant. However, upon a careful perusal of the said affidavit, the 1st Defendant appears to be putting across Sutera Matra’s position and interest rather than that of the 2nd Defendant. This can be clearly seen from the following instances –

the 1st Defendant repeatedly states that he and Sutera Matra owes a duty of fidelity to Chevron and the 2nd Defendant is bound by such duty and therefore the 2nd Defendant is obliged not to act against the interest of Chevron. This position taken by the 1st Defendant is diametrically contrary 20 to his own averment that the 2nd Defendant is not a party to the agreement executed between Chevron and Sutera

the 1st Defendant defended Sutera Matra’s refusal to pay the monthly commission fees to the 2nd Defendant on the ground that there is no agreement in writing between Sutera Matra and the 2nd Defendant that Sutera Matra will pay the 2nd Defendant for any definite period. Despite this, the 1st Defendant states payment of the commission fees by Sutera Matra to the 2nd Defendant is subject to the 2nd Defendant and the Plaintiff’s duty of fidelity towards Sutera Matra; and

importantly, the 1st Defendant states Sutra Matra is justified in not paying the commission fees to the 2nd Defendant on the ground that the Plaintiff has breached the fidelity duty towards Sutera Matra and Chevron by persuading individual retailers of Caltex service stations to move to Petronas. [35] Considering the1st Defendant’s conduct as stated above, there appears to be a conflict of interest on the part of the 1st Defendant which is detrimental to the interest of the 2nd Defendant. This is especially so 21 when the 2nd Defendant is all along a going concern and making good pre-tax net profits of RM 255,393 for the financial period ended at 30 April 2016, RM 727,287 for the financial year ended at 30 April 2017 and RM 639,821 for the financial year ended at 30 April 2018(see the annual audited reports reflecting the financial statement of the 2nd Defendant at enclosure 7 Exhibit PI-1 pages 124 – 185). The 1st Defendant himself admitted that since 2015 to February 2019, the 2nd Defendant had been receiving huge profits in the sum of RM 6,817,866.28 from Sutera Matra. The Plaintiff may have persuaded retailers of Caltex service stations to move to Petronas and the Plaintiff ought to be taken to task but it cannot be attributed to the 2nd Defendant. [36] By winding-up the 2nd Defendant, the 2nd Defendant would be deprived of the commission fees from Sutera Matra. Based on the affidavits, the commission fees from March 2019 till the date of the filing of this originating summons has yet to be paid to the 2nd Defendant by Sutera Matra. The presentation of the proposed winding-up petition will prevent the 2nd Defendant from pursuing its claim against Sutera Matra. The 1st Defendant’s argument that the 2nd Defendant will not be prejudice as the liquidator of the 2nd Defendant will pursue the claim against Sutera Matra is untenable. 22 [37] Firstly, as a going concern company it is unjust and inequitable to wind up the 2nd Defendant. Secondly winding up is a drastic action not only to the 2nd Defendant as a going concern but also to the creditors of the 2nd Defendant. Thirdly the remedy sought in winding up and derivative action are different. The Court of Appeal in Perak Integrated Networks Services Sdn Bhd v. Urban Domain Sdn Bhd & Anor [2018] 5 CLJ 513; [2018] 1 LNS 486 explained the difference between the 2 actions as follows – [47] … Derivative action is a procedural convenience for enabling the court to do justice and for the benefit of a company which is controlled by miscreant director and shareholder and persons associated to them. A winding up action, on the other hand, provides a separate remedy to a shareholder to seek redress for his grievance and for his benefit. We wish to emphasise that the court should not shut its door to any person who comes forward to start the proceedings for the benefit of a company and not for some other purpose (Nurcombe v. Nurcombe, supra). Thus the winding up of the 2nd Defendant will serve the 1st Defendant’s interest as a shareholder but will cause irreparable damage to the 2nd Defendant which is a going concern. This is especially so in light of the future fees commission it is expected to continue to receive from Sutera Matra for the Service Stations procured by the Plaintiff for the next 20 to 25 years. 23 [38] Clearly the 1st Defendant’s intended winding-up proceeding is not bona fide. It is made for a collateral purpose, ie to thwart the 2nd Defendant’s claim against Sutera Matra where the 1st Defendant has direct proprietary and pecuniary interest. [39] The 1st Defendant proposed to wind-up the 2nd Defendant on just and equitable ground. In view of the 1st Defendant’s conduct as stated above, the 1st Defendant himself does not come with clean hand for him to seek the equitable jurisdiction of the winding-up court to wind-up the 2nd Defendant on equitable grounds. [40] It is argued by the 1st Defendant that he has valid grounds to wind up the Second Defendant and as such he has a good chance of success of winding up the 2nd Defendant. The grounds which the 1st Defendant relies on as causing the breakdown relationship between the parties are summarized in paragraph 19 above. This court’s view is discussed below –

the Plaintiff has breached the fidelity duty towards Sutera Matra and Chevron by persuading individual retailers of Caltex service stations to move to Petronas. As stated above this is a complaint against the Plaintiff and ought not 24 to be attributed to the 2nd Defendant. The Plaintiff may have wronged the 1st Defendant and Sutera Matra, but to use it as a ground to wind-up the 2nd Defendant is just not equitable;

the Plaintiff directed Mesra Plus (where Plaintiff is a shareholder) to terminate the agreement with Sutera Matra to operate Caltex service station with an intention to operate a Petronas service station on Mesra Plus premises. Again this is a matter between the Plaintiff and 1st Defendant. It does not involve the 2nd Defendant;

it is to be noted although the above issues concerning Sutera Matra and Mesra Plus has been going on since December 2018, it appears that winding-up the 2nd Defendant was never in the mind of the 1st Defendant. The facts shows the intention to wind-up the 2nd Defendant only became an issue after the Plaintiff filed the Originating Summons, that is the Winding Up Notice was issued almost 2 wks after the filing of the same. In fact, the Winding Up Notice was issued almost 2 months after the Section 348 (2) Notice was served on the 1st Defendant. In his affidavit (enclosure 6) objecting to the Plaintiff’s Originating Summons, the 1st Defendant did not 25 complain the relationship between the parties has irretrievably broken down despite the numerous and various complaints levelled by the 1st Defendant against Plaintiff. The 1st Defendant’s conduct compelled this court to conclude that the 1st Defendant’s intention to wind up the 2nd Defendant is not bona fide and an afterthought;

the 1st Defendant also raised issues about the manner the Plaintiff manages the 2nd Defendant including –

the 2nd Defendant is operating from an address which is also used as a Petronas service station where its business is in direct conflict with the business interest of the 2nd Defendant. According to the 1st Defendant this is done without his knowledge. However there are contemporaneous documents produced which shows that the 2nd Defendant has been using the said address since 2016 and Sutera Matra has since 2016 been using the said address to the 2nd Defendant has been sending letters to the 2nd Defendant at the said address (see enclosure 16 Exhibit P-49). Being in control of Sutera Matra and at the same time a director of the 2nd 26 Defendant, it is not likely the 1st Defendant is not aware of this. Assuming the 1st Defendant was not aware, the facts does not indicate that the 1st Defendant has raised this issue with the Plaintiff to voice his concern back then and prior to the Plaintiff raising the issue of overdue payment from Sutera Matra to the 2nd Defendant. In any event, there is a resolution passed by the Board of Directors of the 2nd Defendant on 2 May 2019 to change the business address of the company from the said address to another address. It is pertinent to note that the resolution was signed by both the Plaintiff and 2nd Defendant in their capacity as directors;

(ii) the employment and termination of the 2nd Defendant’s staff without the 1st Defendant knowledge and consent. The 1st Defendant complained the Plaintiff appointed his wife to do clerical and banking related work and paid on consultancy basis and that the Plaintiff terminated the employment of 2 of the 2nd Defendant staff without his knowledge. While the Defendant may not be happy with such appointment and termination, it 27 is not unusual for a company like the 2nd Defendant to carry out such domestic managerial exercise. [41] It is to be noted the Plaintiff, besides complaining about the 1st Defendant directing Sutera Matra not to pay the commission fees to the 2nd Defendant, has also raised other issues with regards to the 1st Defendant conduct including the allegations that the 1st Defendant has used the 2nd Defendant’s money to purchase a car in Singapore for the 1st Defendant’s wife. [42] This court is of the view the above grounds does not appear to be legitimate grounds to have caused the relationship between Plaintiff and the 1st Defendant to have been completely irretrievably broken down, as claim by the 1st Defendant. The issues may have caused the relationship between the parties soured and the parties at loggerheads but, on the facts, to say that it is completely impossible to mend the relationship between the parties for the sake of the 2nd Defendant is pre-mature. [43] In fact the 1st Defendant has suggested and the Plaintiff agreed for a board of directors meeting to be convened to discuss the complaints the Plaintiff and 1st Defendant made against each other. A notice dated 28 17 June 2019 was issued by the company secretary for the board of directors’ meeting (“BoD Meeting”) of the 2nd Defendant to be held on 26 June 2019 (see enclosure 7 Exhibit PI-1 pages 249 – 252 and followed by a general meeting immediately thereafter. As can be seen from the agenda of the BoD Meeting, the parties has agreed to discuss all the issues raised by them against each other. However the said meeting was aborted because the 1st Defendant did not turn up. The reason given for his failure to attend the BoD Meeting is that the Plaintiff did not provide him documents (namely the 2nd Defendant’s bank statements since 2015 and the signed resolution on the bank signatories) he had requested earlier for him to prepare for the BoD Meeting. [44] It is to be noted the documents requested by the 1st Defendant are merely bank statements and resolution which ought not to be a ground for the 1st Defendant not to attend the BoD Meeting which proposed to discuss numerous other pressing issues especially the payment of the commission fees by Sutera Matra to the 2nd Defendant. This court view the 1st Defendant failed to act in the best interest of the 2nd Defendant when he refused to attend the BoD Meeting on such flimsiest ground. [45] Both parties cited the Federal Court case Perak Integrated Networks Services Sdn Bhd v. Urban Domain Sdn Bhd & Anor [2018] 5 29 CLJ 513 to support their position, albeit for different reason. According to Plaintiff based on the said case, since the Plaintiff has filed an action for leave to commence derivative action, it is therefore not open to the 1st Defendant to file a winding-up petition against the 2nd Defendant. On the contrary it is argued by the 1st Defendant that a defendant in a derivative action may present a winding up petition even after the plaintiff had commenced the derivative suit. It is further argued that the derivative action and winding up proceeding can be filed separately and the existence of a derivative action does not preclude a defendant from filing a winding up petition. However, if a defendant fails to file a winding up petition either before or after the filing of the derivative action, then the defendant cannot raise the theoretical availability of the winding up remedy in the derivative action. [46] The Perak Integrated Networks Services case involved a derivative action filed by the plaintiff who held 50% shares in the first defendant company against the second defendant company who held equal shares in the first defendant company and the third defendant who is a director of the first defendant company. The third defendant is also a director of the second defendant company. It was argued on behalf of the second defendant that in a derivative action it is an essential requirement that the complainant must be a minority shareholder. It was 30 further argued that to allow a derivative action in the case of a deadlock would bypass the just and equitable winding-up remedy specifically provided for under the law. Thus, in a deadlock situation, the only remedy is to petition for a winding-up. [47] The plaintiff argued that a derivative action and a winding-up petition provide for separate remedies open to a shareholder: the former is brought for the benefit of the company, whereas the latter is brought for the shareholder's own benefit. A shareholder in a 50/50 deadlocked company is not precluded from bringing a derivative action for the benefit of the company. As a matter of law the shareholder in such a situation is entitled to bring a derivative action. [48] The question of law before the Federal Court was whether a derivative action may in law be brought for the benefit of a company, the management and control of which are deadlocked. It was held (see the headnotes) – …

Where there is a deadlock in the Board and the shareholders of the company which is a going concern, there is no objection in principle to a shareholder filing a petition to wind up the company on just and equitable grounds under s. 218(1)(i) of the Act [equivalent to section 465 31

(h) of Companies Act 2016]. The availability of winding up the company on just and equitable grounds under s. 218(1)(i) of the Act as an alternative remedy does not in itself disentitle a shareholder from opting instead to bring a derivative action on behalf of the company which is a going concern. (para 102)

The broad proposition that a derivative action is disallowed if winding up is available as an alternative remedy in respect of a company which is a going concern lacked support in authority and basis in principle. The option of winding up does not itself operate as an automatic bar to a shareholder bringing a derivative action on behalf of a going concern company. Additionally, winding up a company which is a going concern has generally been regarded as a drastic measure. The appropriate route for a shareholder in any case would depend on the nature of the relief sought and whether the necessary elements for the remedy could be satisfied on the facts and circumstances of the case. (para 101)

The second defendant had not adduced evidence to indicate that the option of winding up the first defendant under s. 218(1)(i) of the Act was considered as an alternative remedy at the time the present suit was filed. At the time the derivative action was instituted, the first defendant appeared to be treated as a going concern; there was no question of the first defendant being in liquidation. It was conspicuous that the second defendant themselves did not file a petition to wind up the first defendant either before or after the plaintiff commenced the present suit. It was not open for the second defendant to now raise the theoretical availability of the winding up remedy as a basis to contend that the action should not have been allowed to proceed in the first place. The grounds of objection raised by the second defendant were dismissed and the derivative action was properly instituted. (paras 106 & 107) (emphasis added) 32 [49] Thus, in a company which is of a going concern, the option of winding up does not itself operate as an automatic bar to a shareholder bringing a derivative action on behalf of the company. This is especially so as winding up a company which is a going concern is generally accepted as a drastic measure. However to argue that the derivative action should not be allowed to proceed, it must be shown that at the time the derivative action was filed the option of winding up the going concern company on just and equitable ground was considered as an alternative remedy. [50] In the instant case the facts clearly indicate the 2nd Defendant at all material time is a going concern. Prior to the filing of this action by the Plaintiff, despite the numerous complaints of irregularities and mismanagement the Plaintiff and 1st Defendant has against each other there is no evidence to show that winding up the 2nd Defendant was an issue with the 1st Defendant. This is for obvious reason – the 2nd Defendant is a going concern company and it is therefore definitely not to the interest of the 1st Defendant as shareholder and director of the 2nd Defendant to wind up the 2nd Defendant. [51] It is however undisputed that after the filing of this action the 1st Defendant had, served on the Plaintiff the Winding Up Notice to wind up 33 the 2nd Defendant on just and equitable ground. However as stated above, this court is of the view the issuance of the Winding Up Notice by the 1st Defendant is an abuse of the process of the court as it is for a collateral purpose to deprive the 2nd Defendant from being paid the commission fee due from Sutera Matra in which the 1st Defendant has a direct interest. Conclusion [52] Based on the reasons aforesaid, this court is of the considered view that the winding up petition of the 2nd Defendant by the 1st Defendant has no prospect of success. In addition, the winding up of the 2nd Defendant will cause irreparable damage to the 2nd Defendant as a going concern. The Plaintiff’s application for a fortuna injunction was accordingly allowed in terms of enclosure 9 and with costs. ( KHADIJAH BINTI IDRIS ) JUDGE HIGH COURT (COMMERCIAL DIVISION) DATED 30 AUGUST 2020 34 Counsel: Plaintiff : Yong Chee Kong and together with Chan Chew Weng of Messrs Azhar Yong & Co Defendants : Wong Fook Meng of Messrs Chee Siah Le Kee & Partners