Pang Sui Jin v Cellpro Consultancy Sdn Bhd (WA-24NCC-581-12/2024)

This is an application by the Plaintiff under Section 347 of the Companies Act 2016 (“CA 2016”) for leave to commence derivative proceedings on behalf of the Defendant, Cellpro Consultancy Sdn Bhd (“the Company”) against Chua Meng Hua, Siaw Mun Sin, Tan Eng Shin and Yew Chak Hua (collectively “the Proposed Defendants”) (“this Application”).

The Company was incorporated on 24.2.2022 with five equal shareholders, each holding 20% of the shares: the Plaintiff, Chua Meng Hua, Siaw Mun Sin, Tan Eng Shin, and Yew Chak Hua.

The Plaintiff resigned as director on 6.10.2023, leaving Chua Meng Hua as the sole registered director.

The Plaintiff alleges that between March and July 2024, he discovered that the Proposed Defendants had: i) Incorporated Rejuv Premium Sdn Bhd (“Rejuv Premium”) on 5.3.2024, using the Company’s brand, premises, and equipment; ii) Directed customer payments that should have gone to the Company to Rejuv Premium instead; iii) Transferred RM70,000 from the Company to Green Matrix Technologies Sdn Bhd (“Green Matrix”) as “capital injection”; and iv) Established and/or participated in another competing entity, Revine Sdn Bhd.

The Plaintiff served the requisite 30-day notice under Section 348(2) CA 2016 dated 30.9.2024 and a supplementary notice dated 16.10.2024. The Proposed Defendants, through their solicitors, responded with letters dated 28.10.2024 and 29.10.2024, essentially denying the allegations without taking any remedial action.

The Company, under the control of the Proposed Defendants, contends that the Plaintiff’s application is motivated by vengeance after the Company filed a counterclaim for RM5.95 million against the Plaintiff in Writ Summons No: WA-22NCC-298-05/2024.

Section 347 CA 2016 provides that a complainant may, with leave of the Court, initiate proceedings on behalf of a company. The requirements for granting leave are set out in Section 348(4) CA 2016, which requires the Court to consider: i) whether the complainant is acting in good faith; and ii) whether it appears prima facie to be in the best interest of the company that the application for leave be granted.

As highlighted in the Federal Court decision in Dato’ Seri Timor Shah Rafiq v. Nautilus Tug & Towage Sdn Bhd [2024] 3 MLJ 433, leave is “not intended to be given lightly” and requires “strict compliance with the statutory requirements.” However, the court should not delve into the merits of the substantive issues at this stage or turn the application into a mini trial.

The Court of Appeal decision in Celcom (M) Bhd v. Mohd Shuaib Ishak [2011] 3 MLJ 636 (applied in Dato’ Seri Timor (supra)) explains the good faith test as two-fold: i) an honest belief that a viable cause of action exists with reasonable prospect of success (subjective limb); and ii) absence of collateral purpose (objective limb).

The issues for determination in this Application are as follows: i) Whether the Plaintiff has locus standi and has complied with the procedural requirements; ii) Whether the Plaintiff is acting in good faith; iii) Whether there is a prima facie cause of action with reasonable prospects of success; and Page 4 of 11 iv) Whether it appears prima facie to be in the best interest of the Company that leave be granted.

It is not disputed that the Plaintiff is a member of the Company holding 20% of its shares, and therefore has locus standi as a “complainant” under Section 345 CA 2016.

The Plaintiff has complied with Section 348(2) CA 2016 by serving the 30-day notice dated 30.9.2024 and a supplementary notice dated 16.10.2024 on the Company, informing of his intention to apply for leave. The receipt of these notices was confirmed by the Company through reply letters dated 28.10.2024 and 29.10.2024.

Following the Court of Appeal’s decision in Celcom (supra) the test of good faith is two-fold: i) an honest belief that a good cause of action exists with reasonable prospects of success; and ii) the application is not brought for a collateral purpose.

The Company contends that the Plaintiff’s application is not made in good faith for three main reasons: i) The application is a vengeful retribution following the Company’s counterclaim for RM5.95 million against the Plaintiff; ii) The Plaintiff had previously indicated via WhatsApp messages his intention to resign and transfer his shares; and iii) The Plaintiff has “unclean hands” due to the allegations in the counterclaim and because he operates his own clinic opposite the Company’s premises.

On the first point, while it is true that the Company’s counterclaim (May 2024) preceded the Plaintiff’s statutory notices (September/October 2024), this chronology alone does not establish bad faith. The Plaintiff contends that he only discovered the full extent of the alleged wrongdoings in July 2024 when he obtained access to certain bank statements and other information. This explanation is plausible and not contradicted by specific evidence.

Regarding the WhatsApp messages, they show at most a conditional intention to exit the Company, subject to terms and conditions that were never finalised or agreed upon. Such conditional expressions cannot extinguish the Plaintiff’s statutory rights to protect the Company’s interests upon discovery of apparent wrongdoing. The WhatsApp messages should also be considered within their proper context.

As for the “unclean hands” argument, the RM5.95 million counterclaim remains unproven allegations at this stage. An applicant cannot be barred from pursuing legitimate derivative action merely because of unproven counter-allegations from the very persons accused of wrongdoing.

The Plaintiff has presented substantial documentary evidence supporting his allegations, including: i) SSM searches confirming the incorporation of the competing entities; ii) Bank statements showing the RM70,000 transfer to Green Matrix; iii) Evidence that Rejuv Premium operates from the Company’s premises; and iv) Documentation showing customer payments being directed to Rejuv Premium.

Based on the evidence presented, I am satisfied that the Plaintiff has demonstrated good faith in bringing this Application. The allegations are supported by documentary evidence, and the relief sought is for the benefit of the Company, not personal gain.

The Plaintiff alleges that: i) Chua Meng Hua, as the sole director, breached his fiduciary duties by diverting corporate opportunities and assets to competing entities; ii) Siaw Mun Sin, Tan Eng Shin, and Yew Chak Hua acted as de facto directors who participated in and benefited from these breaches; and iii) The Proposed Defendants collectively misappropriated the Company’s funds and opportunities.

The Company contends that these claims are “obviously unsustainable” because: i) Shareholders (Siaw Mun Sin, Tan Eng Shin, and Yew Chak Hua) owe no fiduciary duties to the Company; ii) Chua Meng Hua acted with 80% shareholder approval; iii) The Plaintiff has not identified which statutory provisions were allegedly breached; and iv) The alleged losses are unquantified except for the RM70,000 transfer.

On the first point, while shareholders generally do not owe fiduciary duties to a company (as noted in Multinational Gas and Petrochemical Co v. Multinational Gas and Petrochemical Services Ltd [1983] Ch 258), the Plaintiff’s characterisation of Siaw Mun Sin, Tan Eng Shin, and Yew Chak Hua as “de facto directors” raises a triable issue. The evidence indicates they participated in management decisions and exercised control over the Company’s affairs. The following passages from Multinational Gas (supra) (at pages 280E and 281B) are instructive and relevant to the present case: Page 7 of 11 “The fact that all the members of the company knew of the acts constituting such breaches, and indeed knew that those acts were in breach of that duty, does not of itself in my opinion prevent them from constituting the tort of negligence against the company nor by itself release the directors from liability for it.” ……….. “That a shareholder knows that a director has been negligent and yet does nothing about it, or that an act is done by a director with his approval which is later shown to have been negligent, does not preclude the company from then suing in respect of it provided that properly authorised and constituted proceedings can be started in respect of it.” (own emphasis added)

Regarding shareholder ratification, approval by interested shareholders cannot legitimise breaches of fiduciary duty involving self-dealing or diversion of corporate opportunities (Multinational Gas (supra)). Furthermore, as noted in Petra Perdana Berhad v. Tengku Dato’ Ibrahim Petra Bin Tengku Indra Petra & Ors [2014] MLJU 267, directors must act “bona fide in the interests of the company as a whole.”

The Company’s argument about the lack of specificity in identifying statutory provisions is not fatal at the leave stage. The Court of Appeal decisions in CTOS Data Systems Sdn Bhd v. Suriati bt Mohd Yusof [2024] 5 MLJ 811 and Tenaga Nasional Bhd v. Big Man Management Sdn Bhd [2024] 2 MLJ 652 emphasise the importance of pleadings, but these were decided after full trials. At the leave stage, it is sufficient that the Plaintiff has identified arguable breaches of fiduciary duties.

As for quantification of loss, the RM70,000 transfer to Green Matrix is documented. Additional potential losses resulting from diverted customer payments and misappropriated business opportunities have yet to be quantified, though documentary evidence appears to support the allegation.

Based on the affidavit evidence, I find that the Plaintiff has established a prima facie case with reasonable prospects of success, sufficient to satisfy the threshold required at the leave stage (Dato’ Seri Timor (supra); Discovery Enterprise Inc v. Ebco Industries Ltd [1997] BCTC LEXIS 5338).

The Proposed Defendants collectively control 80% of the Company’s voting power. Without the grant of leave for derivative action, the Company will not pursue these claims against them. The potential recovery (at minimum the RM70,000 transfer plus diverted profits and misappropriated opportunities) appears substantial enough to justify litigation costs.

The Company argues that litigation costs could outweigh any potential recovery, but this argument fails to account for: i) The diverted revenue beyond the RM70,000 transfer; ii) The value of protecting the Company’s brand and assets from unauthorised use; and iii) The deterrent effect against future breaches.

Moreover, under Section 350 CA 2016, the Court may order the Company to pay reasonable legal fees incurred by the complainant, mitigating the concern about litigation costs.

On balance, I find it prima facie in the best interest of the Company that leave be granted to pursue these claims.

In the circumstances, I am satisfied that: i) The Plaintiff has locus standi and has complied with the procedural requirements for leave to initiate derivative action; ii) The Plaintiff is acting in good faith; iii) There is a prima facie cause of action with reasonable prospects of success; and Page 9 of 11 iv) It appears prima facie to be in the best interest of the Company that leave be granted.

For the sake of clarity, I make no determination as to the merits of the Plaintiff’s intended derivative action on behalf of the Company. In arriving at my decision, in addition to considering the requirements under Section 348(4) CA 2016, my primary task is to determine whether this application for leave is frivolous, as held by the Court of Appeal in Tang Kwor Ham & Ors v. Pengurusan Danaharta Nasional Bhd & Ors [2006] 5 MLJ 60.

Upon consideration, I find that this Application is not frivolous and that the proposed action is legitimate and arguable (Dato’ Seri Timor (supra)).

For the reasons set out above, I allow this Application with costs in the cause. Dated this 30th day of May, 2025 -SGD- (WAN MUHAMMAD AMIN BIN WAN YAHYA) Judge High Court of Malaya, Kuala Lumpur (Commercial Division (NCC 3)) Page 10 of 11 COUNSEL FOR THE PLAINTIFF Tom Lim Messrs Tiong Woon & Khusyri B-1-5, Block Bellamy, Plaza Arkadia, No. 3, Jalan Intisari Perdana, Desa Park City, 52200 Kuala Lumpur Tel: 03-27035983/014-3213143 Emel: enquiry@tiongwoon.my COUNSEL FOR THE DEFENDANT Wong Xian Zheng (Emily Tan Shir Lay together with him) Messrs Emily Shirlay 15-05, 15th Floor, Tower 2, Faber Towers, Taman Desa, 58100 Kuala Lumpur Tel: 019-2121006 Emel: emilyshirlay.legal@gmail.com LEGISLATION / RULES CITED Companies Act 2016 ▪ Section 345 ▪ Section 347 ▪ Section 348(2) and (4) ▪ Section 350 CASES CITED

Celcom (M) Bhd v. Mohd Shuaib Ishak [2011] 3 MLJ 636 Page 11 of 11 2. CTOS Data Systems Sdn Bhd v. Suriati bt Mohd Yusof [2024] 5 MLJ 811

Dato’ Seri Timor Shah Rafiq v. Nautilus Tug & Towage Sdn Bhd [2024] 3 MLJ 433

Discovery Enterprise Inc v. Ebco Industries Ltd [1997] BCTC LEXIS 5338

Multinational Gas and Petrochemical Co v. Multinational Gas and

Petra Perdana Berhad v. Tengku Dato’ Ibrahim Petra Bin Tengku

Tenaga Nasional Bhd v. Big Man Management Sdn Bhd [2024] 2 MLJ 652

Tang Kwor Ham & Ors v. Pengurusan Danaharta Nasional Bhd & Ors [2006] 5 MLJ 60