Summit Hotels Management Sdn. Bhd. v Dato' Sivakumaran A/L Balan Nair (WA-22NCC-307-05/2025)

DATO' SIVAKUMARAN A/L BALAN NAIR (No. K/P: 690328-10-6417)

DATIN ALMA ZAMORANO SIVAKUMARAN NAIR (No. Pasport: P8819225A)

MAHENDRAN A/L BALAN (No. K/P: 670128-10-5251)

RABINDER SINGH A/L INDERJIT SINGH (Ahli Badan Peguam Malaysia)

RABINDER BUDIMAN & ASSOCIATES (Sebuah Firma Guaman berdaftar dengan Badan Peguam Malaysia)

RAJESWERI A/P PARAMASEVAM (Ahli Badan Peguam Malaysia)

SALVAN RAJES & ASSOCIATES (Sebuah Firma Guaman berdaftar dengan Badan Peguam Malaysia) …DEFENDAN-DEFENDAN GROUNDS OF JUDGMENT (Enclosures 8, 9 and 10)

Enclosures 8, 9 and 10 were filed by the 4th and 5th Defendants (“Law firm 1”), the 6th and 7th Defendants (“Law firm 2”) and the 1st to 3rd Defendants (“Directors”) respectively, to strike out the Plaintiff’s action against them or alternatively, to transfer the action to the subordinate Court.

The Plaintiff claimed that the Defendants had conspired to deprive it of a Judgment sum for RM91,059.33 with interest and costs (“Judgment”), obtained against one Leisurepoint Sdn Bhd (“Leisurepoint”) through fraudulent trading under section 540 of the Companies Act 2016 (“CA”).

The actions complained of were essentially that Leisurepoint was wound up through a petition filed by one Show Pro Entertainment Sdn Bhd (“Show Pro”) while Judgment Debtor Summons (“JDS”) proceedings were pending against Leisurepoint’s Directors to enforce the Judgment.

The key allegations were that the Directors controlled both Leisurepoint and Show Pro and had conspired with lawyers to delay the JDS proceedings while they acted in conflict of interest by representing Show Pro to wind up Leisurepoint on a sham debt.

Section 540(1) of the CA provides as follows: “If in the course of the winding up of a company or in any proceedings against a company it appears that any business of the company has been carried on with intent to defraud the creditors of the company or creditors of any other person or for any fraudulent purpose, the Court on the application of the liquidator or any creditor or contributory of the company, may, if the Court thinks proper so to do, declare that any person who was knowingly a party to the carrying on of the business in that manner shall be personally responsible, without any limitation of liability, for all or any of the debts or other liabilities of the company as the Court directs.”

Recently, in Tay Keong Kok & Ors v Eastmont Sdn Bhd & Another Appeal [2025] 1 CLJ 583 (“Tay Keong Kok”), the Court of Appeal confirmed the position made clear in Chin Chee Keong v Toling Corporation (M) Sdn Bhd [2016] 4 MLRA 180 that a section 540 CA fraudulent trading action may be taken against the alleged wrongdoers as a separate in personam claim like the present.

The applicable principles when invoking section 540 of the CA have been set out by the Federal Court in Lai Fee & Anor v Wong Yu Vee & Ors [2023] 3 MLJ 503 (“Lai Fee”) and need not be reproduced here. It is a civil cause of action and a statutory offence that stands as an exception to the corporate personality doctrine. Its ingredients are: a) That the business of the company has been carried out with the intent to defraud creditors or for any fraudulent purpose; and b) The defendants were knowingly a party to the carrying on of the business in that manner.

The burden of proof in civil cases is on the Plaintiff to establish fraudulent trading on a balance of probabilities. Fraud here must mean actual fraud i.e. dishonesty of some sort. It is useful to highlight the summary of principles from Lai Fee on this point: “(vii) in order to establish dishonesty under s 304 of the Companies Act 1965 [now s 540 of the CA], it must be shown firstly that what was done was dishonest according to the ordinary standard of reasonable and honest people, and secondly that the actor himself must have realized that the act was by those standards dishonest (Tradewinds)”

A classic formulation of fraudulent trading is when the company carries on business and incurs debts with the knowledge that there is no reasonable prospect of the creditors ever receiving payment for those debts. As highlighted in Lai Fee, it has also been interpreted to include an intent to deprive creditors of an economic advantage or inflict upon them some economic loss. Here, ‘intent’ is used in the sense that it is the natural or foreseen consequences of actions taken.

In Tay Keong Kok, the Court of Appeal held that “carrying on business with intent to defraud” is not limited to its classic formulation, finding that the deliberate orchestration of the company’s winding up in that case met the criteria: “[85] This is also because the word "business" in s. 540 of the CA 2016 must be given a broad interpretation. It is by no means limited to the business actually undertaken by the company in the ordinary course of its commercial existence or in the usual nature of its business operations, such as, in this case, on the part of Mega Planner, property development and construction. It is also not wrong to say that a case under s. 540 can be made out even if the company has ceased its business operations at the time of the commission of fraudulent trading. … [87] Whilst carrying on the company's business would involve the operations necessary for the functioning of the company, it would also extend to the collection of assets acquired in the course of business and distribution of the proceeds in reduction of business labilities (see Re Sarflax Ltd [1979] 1 All ER 529). Regardless of the status of a company's business operations, the statutory phrase "the business of the company has been carried on with intent to defraud the creditors" would thus be readily engaged whenever the persons in question, with intent to defraud any creditor, deal with the assets and liabilities of the company, inclusive of the company's contractual rights over its assets and liabilities.” [Emphasis added]

Based on the above authorities, the essence of section 540 of the CA is the prohibition against any person from carrying on business to defraud the company’s creditors or for any fraudulent purpose, and it includes actions that have the natural and foreseen consequences of avoiding payment of debts incurred, as the dishonest actor must know to be the case.

In this case, Law Firm 2 were solicitors on record for Leisurepoint in the JDS proceedings, but Law Firm 1 and lawyers under this firm appeared as counsel while also representing Show Pro in the winding up of Leisurepoint. The Plaintiff complained that this is an undisclosed conflict of interest by Law Firm

1.

First, it has to be said that Law Firm 1’s conflict of interest is a matter between the firm and the client concerned, which in this case is Leisurepoint and the Directors. They could have waived Law Firm 1’s conflict of interest. In any case, it was not something that a third party had any standing to complain about.

Second, we have in this country, an adversarial system of litigation. Accordingly, there is no duty or obligation on the part of solicitors representing opposing parties to accept or facilitate personal service of process in place of formal procedures for such service.

Thus, the Plaintiff’s complaint that Law Firm 1 deliberately delayed the JDS proceedings by refusing to accept service of process on behalf of the Directors without instructions was misplaced. Nothing turned on further delays encountered when appointments for personal service were arranged through Law Firm 1.

Finally, this Court also found nothing inherently insidious or objectionable when the Directors conveyed to the Magistrate in the JDS proceedings through its solicitors that Leisurepoint had ceased operations since 2020, documents were scarce and that Leisurepoint intended to discuss a potential settlement.

In any case, taking the Plaintiff’s case of conspiracy and intention to defraud the Plaintiff at its highest, there was no demonstrable nexus between the overt acts of the Defendants as pleaded and the Plaintiff’s prospect of recovering the Judgment sum, either as an unpaid debt under section 540 of the CA or as damages in tort.

This case is distinguished from the facts in Tay Kok Keong where the subject company (Mega Planner)’s financial records showed it was in a strong position, with over RM12.5 million in current assets and RM7 million in post-tax profits in 2018 when it was wound up, despite contingent liabilities of about RM6 million. Mega Planner had not recorded any financial difficulties, but was profitable and capable of meeting its obligations.

In this case, it was not the Plaintiff’s pleaded case that the Defendants conspired to hive off assets of Leisurepoint sufficient to satisfy the Judgment or any assets of Leisurepoint during any material period of time before or after the winding up of Leisurepoint on 9-10-2024.

Judgment was entered against Leisurepoint by default on 1- 10-2021 due to its non-attendance at the trial and there was no averment of available assets or any dealing with such assets of Leisurepoint at any material time. The omission of this key material fact is fatal, as without it the allegation of fraudulent trading had no properly pleaded foundation.

Taking the Plaintiff’s case at its highest i.e. Leisurepoint and their solicitors deliberately delayed the JDS proceedings to engineer a sham winding up of Leisurepoint, this still says nothing about any dealing with the assets of Leisurepoint, much less the dishonest collusion of the Directors and the lawyers in such exercise.

Ultimately, the winding up of Leisurepoint does not extinguish its assets and liabilities, and the Plaintiff was not prevented from pursuing the JDS proceedings with leave of the insolvency court and/or employing other procedures under the insolvency regime to examine the Directors.

In the circumstances, this Court found that the action was wholly speculative and obviously unsustainable. Accordingly, the prayer to strike out the action in Enclosures 8, 9 and 10 was allowed with costs of RM10,000 for each application. Bertarikh: 09 JANUARI 2026 ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA KUALA LUMPUR Peguam Untuk Plaintif: Ang Joo Koon (Goh Jing-Wen bersamanya) Tetuan Kennie Ang & Co Untuk Defendan Pertama, Kedua dan Ketiga: Rabinder Singh (Wong Chee Wing bersamanya) Tetuan Rabinder Budiman & Associates Untuk Defendan Keempat dan Kelima: Abd Shukor bin Ahmad (Aaron Aiman Thangarajoo bersamanya) Tetuan Shukor Baljit & Partners Untuk Defendan Keenam dan Ketujuh: Rajesweri a/p Paramasevam