Suryani Ahmad Sarji & 1 Lg v Studytracks Group Sdn Bhd & 3 Lg (24NCC-360-09/2017)

SURYANI BINTI AHMAD SARJI (NRIC No.: 670905-10-5708)

ZAINAL AMANSHAH BIN ZAINAL ARSHAD (NRIC No.: 661115-07-5693) … PLAINTIFFS

STUDYTRACKS GROUP SDN BHD (Company No.: 776168-V)

FELICIAN TEO WEI (NRIC No.: 640605-13-5289)

WENDY TEO (NRIC No.: 661122-87-5058)

CHRISTOPHER SCOTT SIEN TEO (NRIC No.: 891127-87-5069) … DEFENDANTS 2

This is an application by the Plaintiffs against the Defendants pursuant to section 346(1) of the Companies Act 2016 which is in pari material with section 181 of the Companies Act 1965. Section 346(1) of the Companies Act 2016 provides as follows: “346. Remedy in case of Oppression

Any member or debenture holder of a company may apply to the Court for an order under this section on the ground-

that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or debenture holders including himself or in disregard of his or their interests as members, shareholders or debenture holders of the company; or

that some act of the company has been done or is threatened or that some resolution of the members, debenture holders or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or debenture holders, including himself.” 3

I dismissed the Plaintiffs’ application. These are the full reasons for my decision.

The 2nd Defendant knew the 1st Plaintiff from their time in University together. Sometime in 2010, the 2nd Defendant had approached the 1st Plaintiff to ask her to assist in tendering for English Language training programmes from the Ministry of Education (MOE) on behalf of the 1st Defendant (“the Company”). On 22.3.2010, 45,000 shares in the Company were allotted to the 1st Plaintiff. In addition, the 2nd Defendant transferred 30,000 shares in the Company, which were held by his nominees, to the 1st Plaintiff. No consideration was paid by the 1st Plaintiff for these shares which were simply transferred to her.

Subsequently, the bank account of the Company was opened on 19.10.2009 and operated at Maybank Sri Damansara branch. The 2nd Defendant had in 2010 on his own volition included the 1st Plaintiff as a member of the board of directors and as joint signatory to the Company’s Maybank account. 4

The Company was not successful in procuring the said English Language training programmes and consequently this intended venture was unsuccessful and eventually aborted.

The 2nd and 3rd Defendants explored other possible projects such as setting up kindergartens with PKNS and Asia Pacific Schools and looked at potential international school sites around Kuala Lumpur. The 2nd Defendant also revisited an earlier proposal to set up an international school in Jade Hills with Jade Homes Sdn Bhd, a subsidiary of Gamuda Berhad, which proposal he came to know when he was undertaking another international school project in 2009.

Subsequently, the 2nd Plaintiff, the husband of the 1st Plaintiff also wanted to hold a stake in the Company and the 2nd Defendant transferred 25,000 shares from his nominee to the 2nd Plaintiff. No consideration was paid by the 2nd Plaintiff for this transfer of shares.

Subsequent to the transfer of shares, the 2nd Plaintiff was nominated as a director of the Company on 31/12/2010 and as a joint signatory to the Company’s Maybank account. 5

The 2nd Defendant subsequently decided to pursue the Jade Hills international school project, which was located at Jade Hills, Kajang. Subsequently, in March 2013, the Company had obtained the approval of the school license for the setting up of Eaton International School (“EIS”). EIS was set up and started operating in September 2013 at the rented interim premises in 8 commercial shop lots in Kajang. The 2nd Defendant holds the position of Chief Executive Officer in EIS whereas the 3rd Defendant is the principal of EIS.

At present, EIS is located at its permanent premises at Persiaran Puncak Utama, 43000 Kajang.

The various grievances alleged by the Plaintiffs against the Defendants which allegedly constitute conduct oppressive or unfair to them as shareholders are as follows:

The act of the 2nd and 3rd Defendants in allowing the usage of EIS trademark and copyright for the benefit of Eaton School House (“ESH”) a kindergarten operated by the 2nd and 3rd Defendants, without the Board’s approval; 6

(ii) The act of the 2nd and 3rd Defendants in appointing the 4th Defendant as a recruitment officer of the Company (the 4th Defendant is the son of the 2nd and 3rd Defendants) without the Board’s approval;

(iii) The act of the 2nd and 3rd Defendants in passing a resolution for a cash call which diluted the Plaintiffs’ shareholding proportion from 40% to 26.8%; according to the Defendants, this is the crux of the Plaintiffs’ complaint out of which arose all the other trivial and frivolous complaints;

(iv) The act of the 2nd to 4th Defendants in allowing the usage of EIS’s resources for the benefit of ESH without the Board’s approval;

The act of the 2nd Defendant in refusing the 1st Plaintiff from looking into financial matters of EIS and the act of the 2nd to 4th Defendants in refusing to provide detailed financial information to the Plaintiffs;

(vi) The 2nd to 4th Defendant’s retrospective approval of Nice-Style Refurbishment Sdn Bhd and its charges;

(vii) Change of cheque signatory mandate;

(viii) The 2nd Defendant’s act in dismissing the Plaintiffs legitimate queries on Mr Narayanan’s appointment; and

(ix) Exclusion from the 12th Board of Directors’ Meeting. 7 Findings Of The Court

There are numerous disputes of fact in this case between the parties. It is trite and an established principle of law in civil proceedings, that if allegations are made by a party in an affidavit and those allegations are credibility denied by the other party, then in the absence of oral evidence or cross-examination, the Judge must ignore the disputed allegations. The Judge must then decide the fate of the application before the Court by consideration of the undisputed facts. This principle was enunciated by the Privy Council in the case of Tay Bok Choon v Tahansan Sdn Bhd [1987] 1 MLJ 433.

The above said principles have been referred and applied, amongst others, in the following cases:

Serac Asia Sdn Bhd v Sepakat Insurance Brokers Sdn

Sean O’ Casey Patterson v Chan Hoong Poh & Ors [2011] 4 MLJ 137. 8

In this case, the Plaintiffs have elected to continue these proceedings by way of the Originating Summons procedure without calling witnesses and further elected not to cross examine the deponent of the Defendant’s Affidavits. Hence, this case is to be decided purely on the Affidavits filed by the respective parties.

Accordingly, this Court is required to determine the allegations of oppression advanced by the Plaintiffs on the basis of the undisputed assertions to be distilled from the affidavits filed by the respective parties in these proceedings.

Since section 346(1) of the Companies Act 2016 is worded similarly to section 181 of the Companies Act 1965, the judicial pronouncements and legal principles that have been applied to section 181 of the Companies Act 1965 are equally applicable to section 346(1) of the Companies Act 2016.

The principles applicable under section 181 of the CA 1965 have been succinctly analyzed and set out in the Federal Court’s decision in Pan Pacific Construction Holdings Sdn Bhd vs Ngiu-Kee Corporation (M) Sdn Bhd [2010] 6 CLJ 721. The Federal Court in that case analyzed the authorities that had dealt with the judicial remedy for 9 oppression under section 181 of the CA 1965. The Federal Court in dealing with the requirements to be established under section 181 of CA 1965 held as follows: “[25] Therefore in order to succeed in its petition pursuant to s. 181 the petitioner has to establish and ‘must eminently be determined according to the facts’ of this case that the affairs of the company are being conducted or that the powers of the directors are being exercised in an oppressive manner or in disregard of its interests, or to its prejudice some unfairly discriminatory or prejudicial act of the company has been done or threatened, or that some resolutions of the members, debenture holders or any class of them has been passed or is proposed to be passed. [26] In other words s 181 permits judicial remedy on four categories of conduct, namely, oppressive conduct, conduct in disregard of interests, unfairly discriminatory conduct or prejudicial conduct. [27] It may also be noted that from the wordings of s. 181 its basic theme is ‘unfairness’. However, unfairness does not mean that the court can do whatever the individual judge happens to think fair. The concept of fairness must be applied judicially and the content which it is given by the courts must be based upon rational principles. “The court... has a very wide discretion, but it does no sit under a palm tree.” (See: O’Neil v Philips [1999] 2 All ER 961).” 10

Further, in explaining the term ‘unfairness’, the Federal Court agreed with the concept of fairness which was explained and expounded in the case of Re Saul D Harrison & Son Plc [1995] 1 BCLC as follows: “[28] In Re Saul D Harrison & Sons plc [1995] 1 BCLC it was explained (Hoffmann LJ (as he then was) that in ‘deciding what is fair or unfair for the purposes of s 459, it is important to have in mind that fairness is being used in the context of a commercial relationship. The articles of association are just what their name implies: the contractual terms which govern the relationships of the shareholders with the company and each other. They determine the powers of the board and the company in general meeting and everyone who becomes a member of a company is taken to have agreed to them. Since keeping promises and honouring agreements is probably the most important element of commercial fairness, the starting point in any case under s 459 will be to ask whether the conduct of which the shareholder complains was in accordance with the articles of association... The answer to this question often turns on the fact that the powers which the shareholders have entrusted to the board are fiduciary powers, which must be exercised for the benefit of the company as a whole... But the fact that the board are protected by the principle of majority rule does not necessarily prevent their conduct from being unfair within the meaning of s 459.” 11

The said Federal Court also referred to the Privy Council case of Re Kong Thai Sawmill (Miri) Sdn Bhd & Ors v Ling Beng Sung [1978] 1 LNS 170. The Federal Court adopted the Privy Council’s explanation as to the terms in the relevant provision as set out below: [29] Thus, in Re Kong Thai Sawmill (Miri) Sdn Bhd; Kong Thai Sawmill (Miri) Sdn Bhd & Ors v Ling Beng Sung [1978] 1 LN 170 the term ‘disregard of interests’ is to be understood to mean ‘unfair disregard’ while ‘oppression’ denotes an ‘unfairly prejudicial conduct’ which means a conduct ‘departing from standards of fair dealing and a violation of conditions of fair play’. But ‘a member of a company will not ordinarily be entitled to complain of unfairness unless there has been some breach of the terms on which he agreed that the affairs of the company should be conducted’. And ‘trivial or technical infringements of the articles were not intended to give rise to petitions under s 459’. (See: Re Saul D Harrison & Sons Plc (supra).”

In the case of Owen Sim Liang Khui v Piasau Jaya Sdn Bhd & Anor [1996] 4 CLJ 716, the Federal Court expressed the view that in considering whether there was oppression or disregard or unfair discrimination or whether the conduct complained of was “otherwise prejudicial” is one that must eminently be determined according to the facts of each particular case. Further, in dealing with the question of 12 oppression, the nature of the product complained of and the effect of such conduct need to be evaluated by the Court.

In relation to the 1st grievance, the Plaintiffs allege that the 2nd and 3rd Defendants have allowed ESH, which has nothing to do with EIS, to use the trademark and copyright of EIS without the approval of the Board of EIS.

In reply, the Defendants say that the operations of Brighton School House (“BSH”) had at all material times contributed to the establishment, growth and operations of EIS with students leaving pre-school from BSH subsequently enrolling as students in EIS. Further, at all material times, the track record, resources and good will of BSH was used a leverage in the applications to establish EIS and in the negotiations with Jade Homes Sdn Bhd, the proprietors of the land where EIS current permanent school is now located. This fact is said to be known to the Plaintiffs.

I find that it is true that the 2nd and 3rd Defendants have used the trademark and copyright of EIS for their kindergarten without the prior approval of the Board of Directors of the Company. However, at the 1st Board Meeting of the Company on 30.1.2016, this issue had been 13 discussed and it was unanimously resolved by all the directors including the Plaintiffs that the use of the “Eaton” name be permitted for BSH. It was resolved that in future, any other school/entity using the “Eaten” name would have to get prior approval from the Board. It was agreed that the current use of Eaten School House should be ring fenced for the kindy in Bukit Damansara only. The 3rd Defendant also declared that as the principal of EIS she spends most of her time there and will only go to ESH on a minimal, when needed basis. Given that the Plaintiffs had agreed to BSH using the Eaton name on 30.1.2016, I find that there is no unfair prejudice to the Plaintiffs as the Plaintiffs had acquiesced in the Defendants’ use of the “Eaton” name. The Plaintiffs cannot approbate and reprobate.

As regards the 2nd grievance which is the appointment of the 4th Defendant as a recruitment officer of the Company, the Defendants’ reply is that prior to the 4th Defendant’s employment, the 2nd Defendant had explained to the Plaintiffs that the 4th Defendant was fluent in the Mandarin language and this would greatly assist in the operations of EIS in dealing with the large number of Mandarin speaking students and parents. Further, the 2nd Defendant also explained to the Plaintiffs that it was not easy to employ good stuff for a new school set up. Accordingly, the 4th Defendant was employed for valid reasons. More importantly, the 14 Plaintiffs being joint signatories of the Company’s bank account had been approving the payroll and statutory payments for the 4th Defendant including signing his salary cheques since September 2013. It is too late in the day now for the Plaintiffs to complain about the employment of the 4th Defendant. I find that the Plaintiffs had also acquiesced in the appointment of the 4th Defendant’s employment as recruitment officer. The Plaintiffs had also agreed to the appointment of the 4th Defendant as a director of the Company by signing the relevant resolution.

The 3rd grievance related to the cash call of RM1,500,000.00 made and this is what the Defendants allege is the main grievance of the Plaintiffs.

The Defendants say that 2016 was a critical year for EIS as it was the year that EIS moved from its Temporary Premises to its permanent premises at Persiaran Puncak Utama, 43000 Kajang. The Company was facing another crucial start-up year both financially and operationally with the impending move at the material time to the permanent school premises. As members of the Board of Directors, the Plaintiff was fully aware of this fact at least since 2015. In particular, the following events were taking place in 2016: 15

The company had entered into a written contract dated 8.7.2015 with Jade Homes Sdn Bhd, a subsidiary of Gamuda Berhad, for the construction of the permanent school premises. Pursuant to the terms of the written contract, the permanent school premise was to be constructed and rented back to the Company. The proposed date on which the tenancy was to commence was on 1.9.2016, which coincides with the start of EIS’s academic year in 2016;

The Company was to commence the renovation and fitting-out for the EIS permanent school premises 2 months prior to 1.9.2016; and

For the purpose of financing the renovation and the fitting-out of the permanent school premises, the Company had applied to the SME Bank for financing facilities. In this regard, SME Bank had offered the Company a total financing limit of RM4,953,000.00.

Based on the SME Bank financing and the initial forecast of the number of new students expected to enrol at the EIS permanent school 16 premises, the Company was confident that there would be sufficient funds to bear the financing cost, renovation cost, the fitting-out cost and the operating cost of EIS for the start-up years in 2016 and 2017.

However, during the year 2016, it became clear that the Company would be facing a cash flow deficit. This the Defendants say was primarily caused by several factors, which amongst others, include the following:

There was a delay in the construction of the permanent school premises for EIS. This created uncertainties among parents and students which resulted in the withdrawal of 54 students in 2016 and further adversely impacted the enrolment of new students for the academic year commencing in September 2016; and

There was a significant increase in expenditure as a result of renovation and expansion costs, and the reinstatement cost of the Temporary Premises together with expenditure relating to the move to the new premises of the School.

In this regard, it is undisputable that the withdrawal of the 54 students before the academic year in September 2016 alone translated 17 into a negative cash flow of RM540,000.00 in the terms of the refund of the student deposits and a further loss of revenue to EIS in the sum of RM1,350,000.00 for the new academic year commencing in September 2016.

The cash flow deficits of the Company in 2016 were identified and discussed as early as October 2016 during the 3rd Board Meeting. In fact, the management accounts and cash flow forecast circulated to all members of the Board for the 3rd Board Meeting indicated that in November 2016 and December 2016, the cash flow deficit was projected at RM740,974.42 and RM109,749.03 respectively. Further, the cash flow deficit anticipated as at June 2017 was RM1,108,918.33.

Even prior to the 3rd Board Meeting on 22.10.2016, the 2nd Defendant was informed on 25.7.2016 by the Company’s Finance and Administration Manager, Ms May Ang, that there was a cash flow deficit of RM300,000.00 to cover for the refund of students’ deposits amounting to RM660,000.00, at the rate of RM10,000.00 refund per student for the month of July 2016. The Plaintiffs were fully aware of this fact. This can be seen from the 2nd Defendant’s email to the 2nd Plaintiff dated 25.7.2016. 18

At the material time, the Company was optimistic that this was merely a temporary “set-back” and it anticipated a higher enrolment of students in EIS for January 2017. The 2nd Defendant on his part had advanced his personal monies of a total sum of RM2,368,931.40 to the Company to meet the Company cash flow deficit for the months from October 2016 to December 2016 as he had agreed to handle this when the deficit was identified at the 3rd Board Meeting in October 2016. There is indeed no dispute that the Defendants had advanced these monies to the Company to meet the then cash flow deficits. The Plaintiffs acknowledge the fact that these advances were indeed made but now complain that there was no formal Board approval.

Whilst the Defendants did expect some contribution from the Plaintiffs, to their disappointment, the Plaintiffs had during the 4th and 5th Board Meetings on 21.1.2017 and 14.2.2017 made it clear that the Plaintiffs were not prepared to share the responsibility to contribute the past advances made by the 2nd Defendant or to make any future advances to the Company.

At the 5th Board Meeting, in view of the cash flow deficits and the urgency of the Company’s financial needs, the 2nd Defendant proposed 19 that a ‘cash call’ be made by the Company to its existing shareholders as there were no other viable options.

During the 5th Board Meeting on 14.2.2017, it was evident that the Company would require approximately an additional RM3,000,000.00 to meet operating expenses and cash flow requirements until June 2017. Apart from that, the dire and urgent financial situation of the Company was also reflected by the fact that additional funds were needed urgently to meet staff salary payments and operating expenses which were due before the end of February 2017. The 2nd Defendant once again was compelled to make a director’s advance of RM235,000.00 to the Company to meet the overheads of the month. In this regard, the Plaintiffs once again refused to contribute. Based on the facts, there clearly was a genuine and real need for the cash call exercise to address the urgent financial situation of the Company.

As such, the notice dated 14.2.2017 calling for an Extraordinary General Meeting (“EGM”) was issued and was fixed to convene on 3.3.2017 to address the cash flow deficits in the Company to meet monthly operating expenses. The agenda of the EGM was solely to discuss and approve the cash call for the sum of RM3,000,000.00 and 20 the allotment of new shares pursuant to the cash call to the existing shareholders in proportion to their existing shareholding.

However, the proposed EGM was initially adjourned to 20.3.2017 upon the Plaintiffs’ request to discuss the matter further and to seek or explore other avenues of financing. This is reflected in the minutes of the adjourned EGM on 3.3.2017 and the minutes of the 6th Board Meeting.

Whilst, the date for the adjourned EGM was fixed at the EGM on 20.3.2017, once again upon the 2nd Plaintiff’s request, the adjourned EGM was rescheduled to 25.3.2017 to accommodate the Plaintiffs. Even though the need to resolve this issue was urgent as the Company had outgoings due in the month of march 2017 in the sum of approximately RM900,000.00, which was a need well-known to the Plaintiffs, the 2nd Plaintiff’s request was nevertheless met to afford him the opportunity to attend the Adjourned EGM.

Further, despite efforts to obtain alternative financing, such efforts were unsuccessful and no form of financing could be obtained at that time. As such, on 25.3.2017, the adjourned EGM was held. Prior to the EGM, the 2nd Plaintiff continued to oppose the cash call and first started 21 making accusations and allegations against the 2nd Defendant as seen in this letter dated 22.3.2017. The 2nd Defendant did reply to these accusations in terms of a letter dated 24.3.2017. These letters exchanged by the parties are the first and initial responses and have great probative value in determining and assessing the allegations and counter allegations now presented before this Court.

As it transpired thereafter, the 2nd Plaintiff did attend the said EGM in person whereas the 1st was represented by her proxy, Datuk Francis Tan of Messrs Azman Davidson & Co. After discussing the matter, the majority of shareholders proposed a resolution to make an initial cash call for a reduced sum of RM1,500,000.00 with the proposed allotment of 1,500,000 new shares to the existing shareholders, which was half the amount that was originally proposed. The said resolution was carried by the majority of the members present.

With respect to the cash call, there can be no dispute that the Company is in dire need of cash and this is not due to mismanagement on the part of the Defendants but due to circumstances beyond the control of the Defendants. The Plaintiffs allege that the Defendant never made any genuine effort to seek alternative financing. It is true that the Defendants did not disclose what efforts they made to secure alternative 22 financing save to aver that they could not secure alternative financing. However, it was equally open to the Plaintiffs to seek alternative financing if such was viable and the Plaintiffs also were not able to seek alternative financing. It seems more probable than not that alternative financing was not available and there is no evidence that the Defendants could seek alternative financing if they had made more of an effort. The other important point is that the Plaintiffs could have subscribed to the new shares. They were financially able to subscribe to the new shares but they decided not to do so of their own free will. It is not a case of the Defendants forcing a cash call knowing that the Company did not need any cash or knowing that the Plaintiffs had no money to subscribe for the new shares. I find that there has been no unfair prejudice caused to the Plaintiffs as a result of the cash call.

The next grievance alleged by the Plaintiffs is that the Defendants have used EIS’s resources for the benefit of ESH without Board’s approval.

The Plaintiffs pointed out that certain amounts of EIS’s money had been used for the benefit of ESH and then the accounts were rectified. The amounts alleged are relatively trivial. The Plaintiffs also allege that certain employees of ESH were on the payroll of EIS and their names 23 were removed from the payroll after the Plaintiffs made inquiries about the matter.

The Defendants simply denied any wrongdoing in this respect. The Defendants also referred to these issues as minor clerical errors which were corrected before any payment was made by the Company. Since the errors were corrected before any payment was made by the Company, I find that there has been no unfair prejudice caused to the Plaintiffs. In any event, the allegations relate to a breach of fiduciary duties on the part of the Defendants as directors of the Company and are not oppressive of the Plaintiffs qua shareholders. Breaches of fiduciary and statutory duties owed by the directors adversely affect the Company but do not adversely affect the Plaintiffs as members of the Company.

A distinction has to be drawn between a loss to the Company and a loss to the shareholder. In Prudential Assurance Co Ltd v Newman Industries Ltd (N0. 2) [1982] 1 ALL ER 354 it was held that as a general principle, a shareholder cannot recover damages merely because the company in which he is a shareholder has suffered loss: 24 ‘In our judgment the personal claim is misconceived. It is of course correct, as the judge found… that [the directors] in advising the shareholders to support the resolution approving the agreement, owed the shareholders a duty to give such advice in good faith and not fraudulently… But [a shareholder] cannot recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a ‘loss’ is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only ‘loss’ is through the company, in the diminution in the value of the net assets of the company, in which he has (say) a 3% shareholding. The plaintiff’s shares are merely a right of participation in the company on the terms of the articles of association. The shares themselves, his right of participation, are not directly affected by the wrongdoing. The plaintiff still holds all the shares as his own absolutely unencumbered property. The deceit practised upon the plaintiff does not affect the shares; it merely enables the defendant to rob the company.”

“ Reflective loss” is defined in the case of Idaman Matrik Sdn Bhd v Xylem Water Solutions Malaysia Sdn Bhd [2016] 1 LNS 1763 as loss suffered by individual shareholders which is inseparable from the loss of the company: 25 “Reflective loss refers to a loss suffered by a shareholder in a situation where there is breach of a duty owed to the shareholder, as well as a breach of a duty owed to the company; but crucially, the shareholder’s loss would be made good if the company enforced its rights against the wrongdoer in respect of its loss. Common examples of reflective loss include diminution in value of shares and loss of dividends on shares. In other words, reflective loss is the loss suffered by individual shareholders that is inseparable from the loss of the company.”

The above said principle was also echoed in the case of Johnson v Gore Wood & Co [2002] 2 AC 1. It was held that the proper plaintiff to sue for reflective loss is the company and not its shareholders: “Where a company suffers loss caused by a breach of duty owed to it, only the company may sue in respect of that loss. No action lies at the suit of a shareholder suing in that capacity and no other to make good a diminution in the value of the shareholder’s shareholding where that merely reflects the loss suffered by the company. A claim will not lie by a shareholder to make good a loss which would be made good if the company’s assets were replenished through action against the party responsible for the loss, even if the company, acting through its constitutional organs has declined, or failed to make good that loss.” 26

Next, as regards the complaint of the 2nd Defendant in refusing the 1st Plaintiff from looking into financial matters of EIS and the act of the 2nd and 3rd Defendant in refusing to provide detailed financial information to the Plaintiffs, the Defendants reply was that the Plaintiffs being directors of the Company had access to the cash flow forecast and management accounts before each board meeting. From the cash flow that was submitted for the 3rd Board Meeting, there is already an indication that there would be a cash flow deficit. This fact of cash flow deficit was also raised and discussed at the 3rd Board Meeting where the Plaintiff was present. At that meeting, the 2nd Defendant had informed the 2nd Plaintiff that he would deal with the cash flow deficit first and had started to advance his personal funds to the Company to meet the cash flow deficit. At the material time, the 2nd Defendant was apparently optimistic that the new student enrolment in January 2017 would improve the cash flow of the Company but this did not materialise.

For the next Board Meeting which was held on 21.1.2017, once again the cash flow projection together with the management account were forwarded to the Plaintiffs. The Plaintiffs were also given summary of all the directors’ advances paid to the Company. 27

During the 4th Board Meeting, cash flow slides for 2017 were presented, which indicated a cash flow deficit. Further, the advances by the directors of the Company to that date were also discussed. In addition, the Plaintiffs were also informed of the cash flow deficit and also the directors’ advances through email exchange between the Plaintiffs and the Defendants. It was only the Defendants who made advances to the Company. The Plaintiffs flatly refused to make any advances to the Company.

I find that the Plaintiffs have not proved that they had been unduly denied access to the financial information concerning the Company. As directors, the Plaintiffs always have access to the books and records of the Company and there is no evidence of the Defendants denying the Plaintiffs access to the books and records of the Company.

The next grievance of the Plaintiffs related to the appointment of Nice-Style Furbishment Sdn Bhd (“Nice-Style”) and its charges of RM803,914.44 for the renovation works for EIS. The Plaintiffs claim that the appointment of Nice-Style and approval retrospectively was contrary to the agreed procedures of presenting 3 quotes for consideration prior to appointing such contractors in the 1st Board of Directors meeting. 28

The Defendants’ reply is that Nice-Style is not an unknown or new party to the Company. Since the inception of EIS in 2013, Nice-Style has been the contractor appointed to carry out renovation works and fitting out works at EIS for its temporary school premises.

Subsequently, in 2016, Nice-style was the contractor appointed to carry out all the renovations works and fitting-out works for EIS permanent school premises. Further, Nice-style was also the contractor appointed to reinstate EIS temporary school premises to its original condition prior to the redelivery of possession of the said premises to the respective landlords.

The Renovation Costs which was due to Nice-style, which the Plaintiffs contend does not have the Board approval, was for the works which were initially to be carried out in 2016. These works include the construction of the Black-Box Theatre which is an essential component of the EIS permanent school premises. The Renovation Costs was previously already budgeted for and approved. However, the works relating to the said sum which includes the construction of the Black-Box Theatre was postponed and only carried out in the year 2017. This Renovation Costs are also reflected in the cash flow forecast and 29 management accounts which were presented at the 7th Board Meeting on 15.7.2017. Therefore, the Plaintiffs were aware of this Renovation Costs well before 24.8.2017 contrary to that which is asserted by the 1st Plaintiff.

In addition, during the academic year of 2016 and 2017, the Plaintiffs’ son was the student at EIS before they removed him sometime in July 2017. Throughout that academic year of 2016 and 2017, the parents of all students were informed of the construction of the Black-Box Theatre. Therefore, the Plaintiffs would have the full knowledge that the Black-Box Theatre facilities would have to be constructed. The Plaintiff were also well aware that the Black-Box Theatre was one of the feature facilities on which the EIS permanent school premises was promoted to parents and to attract new students for EIS in year 2016.

We submit that the Plaintiffs refused to sign the cheques for the Renovation Costs on a wrong premise that there was a requirement for a purported “3 Quotes Policy”. The “3 Quotes Policy”, if any, was initially mooted at the 1st formal Board Meeting on 30.1.2016 for new renovations. At that material time, Nice-style was already the contractor appointed to carry out the relevant renovation works for EIS permanent school premises which included the Black-Box Theatre. These 30 renovation works and Renovation Costs were already previously budgeted for and approved. Hence, the Defendants submitted that the “3 Quote Policy” which was decided at the 1st formal Board Meeting could not apply retrospectively to the renovation works or Renovation Costs payments due to Nice-style.

Further, the Plaintiffs were fully aware of the costs of the renovation works to be carried out as it was an item set out in the cash flow projection for the month of July and August 2017. A copy of the said cash flow projection was sent to the 2nd Plaintiff through an email on 14.6.2017. Further, the said cash flow projection was also presented at the 7th Board Meeting on 15.7.2017. ,

At any rate, to afford an opportunity for the Plaintiffs to clear their doubts relating to Renovation Costs payable to Nice-style, the Company called for the 8th Board Meeting to discuss and ratify this matter. During the Board Meeting, 3 comparative quotes were also obtained for the perusal of the Board of Directors, including the Plaintiffs. However, the Plaintiffs choose not to attend the Board Meeting. During the said Board Meeting, the payment of Renovation Costs was approved or affirmed. 31

I find that the appointment of Nice-Style to carry out the renovation works was not unduly prejudicial or oppressive to the Plaintiffs. It was not unreasonable on the part of the Defendants to think that the 3 quote policy did not apply to Nice-Style as Nice-Style was at the material time already a contractor of EIS. In any event, for formality sake, the Defendants had obtained 3 quotations but they had to proceed with Nice-Style as Nice-Style had already started the works. There is no allegation that the works were not properly carried out by Nice-Style or that the Defendants had any interest in that company or that the Defendants had derived a secret profit from the engagement of Nice-Style.

As regards the complaint that the Defendants had changed the co-signatories for the Company’s bank account by making the Plaintiffs no longer compulsory signatories to the Company’s cheques, the Defendants replied that that happened because the Plaintiffs had refused to sign the cheque for the payment to Nice-Style despite the board of directors approving the payment. So the Defendants had no option but to change the cheque signatories to enable others to sign the cheques so as not to hold up the payment to Nice-Style. The Plaintiffs still remained signatories of the Company’s cheques and had not been 32 removed as cheque signatories. In fact, subsequent to the change of mandate for co-signatories for the Company’s bank account, the Plaintiffs continued to sign cheques as co-signatories for the Company’s bank account.

I find that the Plaintiffs are not entitled to hold the Company to ransom by refusing to sign the cheque for Nice-Style despite its appointment having been approved by the board of directors and the Defendants did not do anything wrong or improper in changing the co-signatories to the Company’s bank account, whilst retaining the Plaintiffs as co-signatories.

The next grievance relates to the 2nd Defendant’s act in dismissing the Plaintiffs’ legitimate queries on Mr Narayanan’s appointment.

This relates to the appointment of Mr Narayanan allegedly from S Thillamuthu & Co (STC) as the auditor and tax agent of the Company after the resignation of Wong Yuet Chew & Co and YCW Tax Consultant Sdn Bhd as the Company’s auditor and tax consultant respectively. The latter had resigned because of the litigation commenced by the Plaintiffs against the Defendants. 33

Mr Narayanan’s appointment was approved by all the directors including the Plaintiffs at the 10th Board of Directors’ Meeting. However, after that, the Plaintiffs started to make enquiries and the result of their investigation showed that Mr Narayanan was not actually from STC. The Plaintiffs allege that at the 11th Board of Directors’ Meeting on 2.1.2018, the Plaintiffs wanted to get more clarification from Mr Narayanan but were stopped from doing so by the 2nd Defendant. Ultimately, STC wrote a letter to the Company and the Defendants lodged a police report on the matter and appointed KPMG as the auditor and tax consultant instead.

The Defendants said that they were equally deceived by the fraudulent conduct of Mr Narayanan and did not know that he was not with STC. Furthermore, this incident happened after the filing of the oppression action. In the case of Dato Ting Check Sii v Datuk Haji Mohamad Tufail bin Mahmud & Ors [2007] 5 MLJ 339, the Court held inter alia that for the petitioner to succeed, the petitioner must make out a case on the facts transpiring on the date of the petition. Facts arising subsequent to the filing of the s 181 petition cannot be relied on. 34

I find that not only did the Defendants do nothing wrong as far as the appointment of Mr Narayanan was concerned, since this incident happened after the filing of the oppression action, it cannot be relied on by the Plaintiffs.

The last grievance complained of by the Plaintiffs is that they were precluded from participating in the 12th Board of Directors’ Meeting.

In essence, the issue here is that the Plaintiffs wanted to participate in the said meeting by way of teleconferencing whereas the Defendants disagreed and insisted on a physical meeting. The Defendants were willing to accommodate the Plaintiffs as far as the fixing of a suitable date for the Plaintiffs is concerned but they wanted to have a physical meeting.

The Defendants have their reasons for wishing to have a physical meeting whereas the Plaintiffs have their reasons why they do not wish to have a physical meeting. It is difficult to say who is right and who is wrong at the end of the day but since the Defendants have the majority in number of directors, their will was carried out and the Plaintiffs did not attend the 12th Board of Directors’ Meeting, despite the Defendants 35 adjourning the meeting on various dates to enable the Plaintiffs to attend. It is not possible to contend simply from this incident that the affairs of the Company had been carried on in a manner which was unfairly oppressive to the Plaintiffs. In any event, this incident happened after the filing of the oppression action and could not be relied on to found oppression against the Plaintiffs (see Ting Check Sii v Datuk Hj. Mohamad Tufail Mahmud & ors (supra).

The Plaintiffs allege that the Company was a quasi-partnership whereas the Defendants deny that allegation. There is only one email wherein the Defendants had referred to the Plaintiff as “our partners” to a third party. There is no other evidence that the Company was a quasi-partnership and as a matter of fact, the Plaintiffs initially were not involved in the management and operations of the Company as they both have full time jobs elsewhere. I do not find it is relevant to make a finding whether the Company is a quasi-partnership or not because there is no exclusion of the Plaintiffs from management of the Company by the Defendants and, apart from the allegation concerning the cash call, in respect of which I find that the Defendants have not done anything wrong or improper, all the complaints of the Plaintiffs are quite trivial in nature. A lot of the issues raised had already been resolved or 36 agreed upon in board meetings and yet the Plaintiffs are raising them again, which they are not entitled to do.

On balance, I am of the view that the Plaintiffs have not sufficiently proved a case under section 346(1) of the Companies Act 2016 and I accordingly dismiss the Originating Summons herein with costs of RM10,000.00 subject to allocator. Wong Chee Lin Judicial Commissioner Kuala Lumpur High Court Dated: 11th July, 2018 37 Solicitors for the Plaintiffs Lam Ken Young & Muhammad Iqram Bin Zulkupri Messrs Azman Davidson & Co Advocates & Solicitors Suite 13.03, 13th Floor Menara Tan & Tan 207 Jalan Tun Razak 50400 Kuala Lumpur Tel : 03-2164 0200 Fax: 03-2164 0280 Solicitors for the 2nd, 3rd & 4th Defendants J Vicknaraj & P X Leong Messrs Vicknaraj, R.D Ratnam, Rajesh Kumar & Associates Advocates & Solicitors No. 21, Jalan Abdullah