Tan Kim Choo Holdings Sdn Bhd & 4 Lagi v Tan Poh Lee (28NCC-173-03/2016)

TAN KIM CHOO HOLDINGS SDN BHD (Company No. 183398-H)

TAN BOON THIEN (NRIC No.: 710417-10-5681) … RESPONDENTS BEFORE YA KHADIJAH BINTI IDRIS JUDICIAL COMMISSIONER 2 GROUNDS OF JUDGMENT Introduction [1] This grounds of judgment is in respect of the following applications –

the Petitioner’s notice of application Enclosure 117 for injunction (Application for Injunction); and

Tan Kim Choo’s notice application Enclosure 129 for an order that this winding up proceedings be stayed (Application for Stay). Tan Kim Choo is one of the contributories of the first respondent company. [2] Having considered the affidavits and submissions of the parties, this court allowed both the Application for Injunction and Application for Stay. The parties appealed against the said decision –

the Petitioner’s appeal against the decision allowing the Application for Stay is registered as Mahkamah Rayuan No. W-02(IM)(NCC)-9-01/2018; 3

while the 2nd Respondent’s appeal against the decision allowing the Application for Injunction is registered as Mahkamah Rayuan No. W-02(IM)(NCC)-13-01/2018, Parties [3] The Petitioner, Tan Poh Lee, filed a winding up petition (Winding Up Petition) pursuant to s. 218 of the Companies Act 1965 (CA 1965) against Tan Kim Choo Holdings Sdn Bhd (1st Respondent). The Petitioner is a shareholder and director of the 1st Respondent company. [4] The 1st Respondent, a private company incorporated in Malaysia, is an investment and property holding company. The 1st Respondent was founded by Tan Kim Choo (TKC) on 21 June 1989. [5] The 2nd Respondent is one Tan Boon Thien, another shareholder and director of the 1st Respondent company. [6] The 1st Respondent was initially managed by TKC and his wife the late Madam Chang Ying. TKC and the late madam Chang Yin are the parents of the Petitioner and 2nd Respondent. 4 [7] The current registered shareholders of the 1st Respondent company are as follows – Name of Shareholders Number of Shares Held Tan Kim Choo @ Tan Kim Choon (TKC) 466,785 (40%) Tan Poh Lee (the Petitioner) 175,045 (15%) Tan Poh Hui 175,045 (15%) Tan Poh Yee 175,045 (15%) Tan Boon Thien (the 2nd Respondent) 175,045 (15%) [8] Tan Poh Hui and Tan Poh Yee are the other two daughters of TKC and the late Madam Chang Ying. [9] The particulars of the current board of directors of the 1st Respondent company consist of the following –

Tan Kim Choo @ Tan Kim Choon (TKC)

06.1989

Tan Poh Lee (the Petitioner)

09.1994

Tan Boon Thien (the 2nd Respondent) 07/2013 [10] The Petitioner averred, amongst others, there is failure of the substratum and deadlock in the management of 1st Respondent 5 company, loss of confidence and irretrievable breakdown of mutual trust and confidence between the shareholders. By virtue thereof, the 1st Respondent company ought to be wound up and in the interim ought to be left in the hands of the liquidator. [11] Tan Poh Hui and Tan Poh Yee filed their respective Notice of Intention To Appear on the Petition, in support of the Petition. At the other end TKC also filed his Intention to Appear on the Petition objecting strenuously to the Petition. For the purpose of this Winding Up Petition TKC, Tan Poh Hui (TPH) and Tan Poh Yee (TPY) are contributories of the 1st Respondent. Factual Background [12] At all material times both TKC and the Petitioner are the Executive Directors of the 1st Respondent company and handle the operations and/or management of the same. At all material times both TKC and the Petitioner are the assigned signatories of the 1st Respondent company. The 2nd Respondent was not involve in the daily operations and/or management of the 1st Respondent company and nor did he sign any document as a director for any trade transaction and/or management of the same. However the 2nd Respondent was made as a co-signatory to 6 the bank accounts of the 1st Respondent company for the purposes of having an additional signatory available in the event that one of the two Executive Directors, namely TKC and the Petitioner being away or unable to sign the requisite cheques. [13] The 1st Respondent company owns real estate property and collect rentals from its assets which are rented out. One of the said property is a 3-star hotel building located at Lot 478, Batu 3 ½ Jalan Sultan Azlan Shah 51200 Kuala Lumpur (Wisma TKC). The construction of Wisma TKC was part financed by a RM10 million loan facility obtained by 1st Respondent company from United Overseas Bank (UOB) in the form of a Fixed Loan Facility of RM5 million and an Overdraft Facility of RM5 million (both collectively referred to as the “UOB Loan”). Both TKC and the Petitioner stood as guarantor to the UOB Loan. Wisma TKC was let by the 1st Respondent company to Cairnhill Hotel (M) Sdn Bhd (Cairnhill Hotel) for a monthly rental of RM100,000.00 (Hotel Rental) commencing 1 April 2014. The Hotel Rental is the single largest income for 1st Respondent company. TKC and the 2nd Respondent are the directors and registered shareholders of Cairnhill Hotel, each holds 50% of the issued capital. 7 Suit 383 [14] Prior to this Winding Up Petition being filed, the 2nd Respondent had filed a writ action in the Kuala Lumpur High Court 22NCC-383- 11/2015 (Suit 383) against the Petitioner, TPH, TPY and TKC. Via Suit 383 the 2nd Respondent sought, inter alia, declaration that –

a purported oral agreement in 2004 between TKC, Madam Chang Ying and the Petitioner, TPH and TPY was valid and binding. Via the said oral agreement the Petitioner, TPH and TPY were to transfer their shares (a total of 525,135 shares) to the 1st Respondent company to TKC and the late Madam Chang Ying. The 2nd Respondent claims TKC and the late Madam Chang were to hold the shares transferred by the Petitioner, TPH and TPY as trustee for the 2nd Respondent. After the death of TKC and Madam Chang Ying the shares would be bequeathed and transferred to the 2nd Respondent;

the defendants ceased to be shareholders of 525,135 shares in the 1st Respondent company and that the said shares belong to TKC; and

the Petitioner, TPH and TPY do transfer the said shares to TKC. 8 [15] The Petitioner, TPH and TPY then filed an application to strike out the 2nd Respondent’s statement of claim. The said application was dismissed by the High Court and as night follows day, appeals was lodged against the dismissal. The Court of Appeal allowed the said appeals, set aside the High Court order and granted order in terms of the Petitioner, TPH and TPY applications. Thus the 2nd Respondent’s statement of claim was struck out. The 2nd Respondent filed motion for leave to appeal against the Court of Appeal decision. [16] In light of his pending motion for leave to appeal, the 2nd Respondent filed, in this Winding Up Petition, an application via Enclosure 83, seeking a stay of this Winding Up Petition pending the hearing and disposal of the 2nd Respondent’s application for leave to appeal to the Federal Court. [17] While hearing of enclosure 83 was pending, the Petitioner filed an application Enclosure 103 to amend the Petition to reflect the Petitioner as the beneficial owner of 233,393 shares in the 1st Respondent pursuant to an agreement dated 9 October 2009 executed between TKC as transferor and Petitioner as transferee in consideration of the Petitioner agreeing to stand as guarantor in respect of the UOB Loan. 9 [18] On 22 February 2017, on the hearing date of Enclosure 83 the court was informed that there were attempts made by the 2nd Respondent to remove the Petitioner as director and the company secretary by requisition of meeting for such purpose was issued by the 2nd Respondent. Copies of the requisition and Notice of EGM was exhibited in the Petitioner’s affidavit Enclosure 109. Upon the oral application by the Petitioner, the court granted an interim preservation order (Interim Preservation Order) for the purpose of maintaining the status quo of the management of the 1st Respondent until the disposal of the 2nd Respondent’s application Enclosure 83 and the Petitioner’s application Enclosure 103. The Interim Preservation Order states –

the composition of the board of directors of the 1st Respondent company comprising the Petitioner, the 2nd Respondent and TKC as well as the position of company secretary, being one Mr Heng Chiang Pooh shall be maintained; and

any or all notices received from third parties, addressed to the company, either at the registered office or received by any director should be circulated immediately to all other directors. 10 [19] The 2nd Respondent’s application for leave to appeal against the Court of Appeal decision in Suit 383 was dismissed by the Federal Court. Subsequently the 2nd Respondent withdrew Enclosure 83. With regard to Enclosure 103, the court allowed the Petitioner’s application to amend the Petition. In the mean time, the Petitioner then filed the Application for Injunction. Thus the Interim Preservation Order was maintained pending disposal of the Application for Injunction. [20] This was followed by TKC’s Application for Stay seeking for an order that all proceedings of this Winding Up Petition including without limitation the advertisement and the gazette of the Petition be stayed pending the disposal of an action Kuala Lumpur High Court Suit No. WA-22NCVC-58-01/2017 (Suit 58). Suit 58 [21] TKC filed Suit 58 against, inter alia, his children the Petitioner, TPH, TPY, the 2nd Respondent and 4 family companies one of which is the 1st Respondent company herein. The brief claims made by TKC in Suit 58 may be summarized as follows – 11

(a)

The Brickfields properties were duly transferred as contemplated under the said trust arrangements. Despite the aforesaid transfer of properties, the shares in the 1st Respondent company held by the Petitioner, TPH and TPY remain in their names to date.

As such the shares in the 1st Respondent company is held by Petitioner, TPH and TPY in trust for TKC’s benefit. TKC therefore seeks for, inter alia, an order that the shares held by the Petitioner, TPH and TPY to be transferred to TKC as the principal beneficiary holding the ultimate beneficial interest to those shares under the said trust arrangements. 12 Application for Injunction (Enclosure 117) [22] The Petitioner’s Application for Injunction was made pursuant to s. 368A and Order 29 of the Rules of Court 2012 (RoC 2012). The said application sought for, inter alia, the following orders:

The Respondents be prohibited and restrained, until the final disposal of the winding up Petition, from:-

Changing and/or altering composition of the Company’s Board [1st Respondent] as constituted from the filing of this winding-up Petition on 1/3/2016 ie filing date of WU petition

Changing and/or altering all the signatories of the Company’s (1st Respondent) Bank Account R1 as constituted on 1/3/2016 ie filing date of WU petition

Changing and/or altering the Company’s (1st Respondent) Secretaries as constituted from the filing of this winding-up Petition on 1/3/2016 ie filing date of WU petition

The Respondents shall maintain the status quo of the affairs and management of the Company (1st Respondent) as at the filing of this winding-up Petition on 1-3-2016, until the final disposal of the winding-up Petition The contentions of Petitioner, TPH and TPY [23] The contentions of the Petitioner and that of TPH and TPY who supports the Application for Injunction may be summarized as follows – 13

The 2nd Respondent and TKC issued notices attempting to remove the Petitioner as director and the existing company secretary one Heng Chiang Pooh. It is contended the steps taken by the 2nd Respondents and TKC are incongruous with the existence of a pending winding-up proceeding.

The purported requisition by a notice dated 30 January 2017 is null and void as it failed to meet the statutory requirement of s. 145 and 153 CA 1965 because the Petitioner and other members of the 1st Respondent did not receive it.

The Petitioner who stood guarantor to the UOB Loan is a contingent creditor of the 1st Respondent company. The Petitioner has effectively been shut out from the true details of the operation and status of the loan account with UOB. If the Petitioner is removed as a director and/or a winding up order is made against the 1st Respondent company, the Petitioner’s rights and interest might be adversely and irreversibly affected. As such it is imperative that the status quo and the affairs of the management of the 1st Respondent company be maintained. 14

The status quo and composition of the board of directors of the 1st Respondent company must be maintained to ensure check and balance in the decision making as well as the running of the 1st Respondent company. This is due to the past history of the 2nd Respondent’s conduct in relation to the management of 1st Respondent company and Cairnhill Hotel and dissipation of assets of the former.

The Hotel Rental (RM100,000.00 every month) by Cairnhill Hotel forms the single largest monthly income of 1st Respondent company. Both TKC and the 2nd Respondent are directors of 1st Respondent company and Cairnhill Hotel. TKC and the 2nd Respondent are therefore in conflicting interest in dealing with the payment of the Hotel Rental (from Cairnhill Hotel to the 1st Respondent) in their position as directors of both the 1st Respondent company and Cairnhill Hotel. It is therefore vital that the Petitioner be maintained as one of the directors in the 1st Respondent company to provide the check and balance on the activities of the same. It is also submitted that this conflicting interest between the members of the respective board in the 1st Respondent company and Cairnhill Hotel is a compelling reason for 15 injunction to be granted as the Petitioner is the only director of the 1st Respondent company who is not also a director of Cairnhill Hotel.

TKC, who had by virtue of the Articles of Association of the 1st Respondent company retired in 2015 and was not re-elected at the general meeting as there was no annual general meeting held in 2016, has automatically vacated office. Since TKC has vacated office, there were only 2 directors, namely, 2nd Respondent and the Petitioner. Since the notice under 145 and 153 of CA 1965 dated 30 January 2017 was only signed by one director, the said notice is void. Also, since there were only 2 directors left (the Petitioner and 2nd Respondent), removing the Petitioner as director would be in contravention of s. 122 of the CA 1965 which requires a company to have at least 2 directors. Thus the Application for Injunction made under s. 368A of the CA 1965 is to injunct the 2nd Respondent and TKC from contravening the said provision.

the 2nd Respondent’s action herein is a total disregard of the Interim Preservation Order. It is important to maintain the 16 status quo of the board composition of the 1st Respondent company to ensure check and balance in respect of the 1st Respondent affairs and management to avoid conflicting dealings on the part of the 2nd Respondent. The refusal by the 2nd Respondent to give an undertaking to maintain the composition of the board shows there is a real risk that the 2nd Respondent will continue to disrupt which will further detriment the 1st Respondent company and/or its contributories. The contentions of TKC and the 2nd Respondent opposing the Application for Injunction [24] TKC and the 2nd Respondent contends the balance of convenience lies in favour of refusing the injunction. Their grounds are as follows –

There is no serious issue to be tried before the court. There must be a claim pending before the court in which the Petitioner is required to show issues that merit a trial. Such a claim must involve adjudication of the validity of the Notice of EGM and the Circular Resolution. However there was no proceedings commenced challenging the validity of the 17 Notice of EGM and Circular Resolution in this Winding Up Petition before this Court.

Removal of directors and change in company secretaries are matters within the internal management of the 1st Respondent company. These are to be implemented in accordance with the powers given by its Memorandum and Articles of Association, either by the board of directors or shareholders at general meeting. The 2nd Respondent and TKC holding 55% of the 1st Respondent’s shares in aggregate, are entitled to convene an EGM and vote to remove the Petitioner as a director pursuant to Article 69 of the 1st Respondent’s Articles of Association (AA). In such circumstances, court should be slow to interfere in such management decisions.

The Petitioner is not a contingent creditor of the 1st Respondent company. There is no evidence to show that the 1st Respondent company has expressly agree to indemnify the Petitioner in the event the 1st Respondent company defaulted on the UOB Loan, which is unlikely given the fact that the 1st Respondent company is a solvent going 18 concern and the value far exceeds the UOB Loan. As there is no obligation on the part of the 1st Respondent company to indemnify the Petitioner therefore there is no debt from the 1st Respondent company to the Petitioner.

Other than being a personal guarantor for the UOB Loan and signatory of the 1st Respondent company to facilitate the business operation of the same, the Petitioner play nominal role in the management of the 1st Respondent company. There is no express agreement at all to ensure the Petitioner’s continuous participation in the management of the 1st Respondent company. TKC, who solely founded and funded the 1st Respondent company, was intended to have sole control of the 1st Respondent and upon the parents’ death the 2nd Respondent being the ultimate beneficiary of his parents’ shares would take over control of the 1st Respondent company.

With regard to the Petitioner’s argument that TKC has vacated his directorship, TKC submits that Petitioner cannot resile from her position which forms the basis of this Winding 19 Up Petition – that TKC is at all material time a director of the 1st Respondent company.

The Petitioner does not come with clean hands as she has breached her fiduciary duties, as evident from her conducts which were in complete disregard of the 1st Respondent’s interest. Such conducts includes, inter alia, attempt to remove the 2nd Respondent as director of the 1st Respondent company at a time when TKC was incapacitated as a result of a stroke and initiated wrongful distress purportedly on behalf of the 1st Respondent against Cairnhill Hotel, sealed the hotel premises, evicted the customers and sub-tenants at the peak of the hotel business (i.e. Christmas and New Year). This has exposed the 1st Respondent company to a huge claim of damages.

In light of this Winding Up Petition no disposition of the 1st Respondent’s asset can be made without a validation order by the court. [25] It was contended on behalf of TKC that in a winding up proceeding such as in the instant case, the power of the court under s. 218 of the 20 CA 1965 is simply to determine the broad question of whether or not it is just and equitable for the subject Company to be wound up. Any interlocutory order made by the winding up court must have a linkage to the ultimate relief for winding-up. On this point, reliance was placed on See Teow Guan & Ors v Kian Joo Holdings Sdn Bhd & Ors [1995] 3 MLJ

It would appear TKC is of the view that s. 368A of the CA 1965 ought not to be invoked to grant the relief sought by the Petitioner as the issue of the validity of the requisition notice issued by the 2nd Respondent and TKC has no linkage to this Winding Up Petition which seeks for the winding up of the 1st Respondent company. The law [26] The Application for Injunction was made pursuant to s. 368A of the CA 1965. For convenience, the said provisions is reproduced below –

Injunctions

Where a person has engaged, is engaging or intends to engage in conduct that constituted, constitutes or would constitute-

a contravention of this Act;

an attempt to contravene this Act;

an attempt that aids, abets, advises or procures a person to contravene this Act; 21

an attempt to induce, whether by threats, promises or otherwise, a person to contravene this Act;

an attempt by which any person would be in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or

an attempt of conspiracy with others to contravene this Act, the Court may, on the application of the Registrar, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.

Where a person has refused or failed, is refusing or failing, or is intending to refuse or fail, to do an act or thing that the person is required by this Act to do, the Court may, on the application of the Registrar or any person whose interests have been, are or would be affected by the refusal or failure to do that act or thing, grant an injunction, on such terms as the Court thinks appropriate, requiring the first-mentioned person to do that act or thing.

The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised whether or not-

it appears to the Court that the person intends to engage again or to continue to engage, in conduct of that kind;

the person has previously engaged in conduct of that kind; or

there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind. 22

The power of the Court to grant an injunction requiring a person to do an act or thing may be exercised whether or not –

it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing;

the person has previously refused or failed to do that act or thing; or

there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing.

Where the Registrar applies to the Court for the grant of an injunction under this section, the Court shall not require the applicant or any other person, as a condition of granting an interim injunction, to give an undertaking as to damages.

Where an application for an injunction under subsection (1) or

has been made, the Court may, if the Court determines it to be appropriate, grant an injunction by consent of all parties to the proceedings, whether or not the Court is satisfied that that subsection applies.

Where in the opinion of the Court it is desirable to do so, the Court may grant an interim injunction pending determination of an application under subsection (1).

The Court may revoke or vary an injunction granted under subsection (1), (2) or (7).

In granting an injunction restraining a person from engaging in particular conduct, or requiring a person to do a particular act or thing, the Court may, either in addition to or in substitution for the grant of the injunction, order that person to pay damages to any other person. 23 [27] With regards to the principles applicable for purpose of determining interlocutory injunction, the Court of Appeal in Keet Gerald Francis Noel John v. Mohd Noor Bin Abdullah & Ors [1995] 1 MLJ 193; [1995] 1 AMR 373 referred to American Cyanamid Co. v. Ethicon Ltd [1975] 1 All ER 504 and set out the following principles –

the court has to determine whether the totality of the facts presented discloses a bona fide serious issue to be tried. However it is not for the court to decide at this stage to determine on the merits of the claim and defence of the parties. Suffice for the court to identify with precision the issues raised on the joinder and whether these are serious enough to merit a trial (Si Rusa Beach Resort Sdn Bhd v. Asia Pacific Hotels Management Pte Ltd [1984] 1 CLJ Rep 346; [1984] 2 CLJ 13; [1984] 1 MLJ 1320). If there is no serious question disclosed, the relief is refused;

having found that an issue has been disclosed that requires further investigation, the court must consider where the justice of the case lies. If after weighing all relevant matters including the practical realities, the court conclude that the 24 applicant would suffer greater injustice if relief is withheld, then the court would be entitled to grant the injunction; and

the court must bear in mind that the remedy that the court is asked to administer is discretionary, intended to produce a just result for the period between the date of the application and the trial proper and to maintain the status quo. Findings of the court [28] It is the position of the 2nd Respondent that there is no serious issue to be tried because there was no proceedings commenced challenging the validity of the Notice of EGM and Circular Resolution in this Winding Up Petition before this court. On the other hand it was argued by the TPH/TPY that the issue which requires the court determination at this juncture is whether the status quo of the 1st Respondent ought to be maintained. In this respect, guided by the principles established by the Court of Appeal in the case Keet Gerald Francis Noel John, the serious issue disclosed from the affidavit evidence that have arisen for trial is discussed below. 25 [29] It is pertinent to note that the Petitioner’s Application for Injunction is intended to maintain the status quo of the 1st Respondent‘s board of directors (which consists of the Petitioner, 2nd Respondent and TKC) until the proceeding of this Winding Up Petition is disposed of. Based on the affidavit evidence of the parties, it is not disputed that the 2nd Respondent and TKC had jointly notified, through their letter dated 30 January 2017, the secretary of the 1st Respondent company of their intention for an extra general meeting be convened on 21 February 2017 for purpose of proposing a resolution (and if deem fit to approve) to remove the Petitioner of her directorship. Attached to the letter, was the Notice of EGM also dated 30 January 2017 and signed by both the 2nd Respondent and TKC. [30] The Petitioner’s calls (supported by TPH and TPY) for the composition of the board of the 1st Respondent company to be maintained is two folds. First, to ensure the decision making and running of the 1st Respondent company would be made in the interest of the 1st Respondent company. Second, to protect the Petitioner’s interest who claim to be a contingent creditor of the 1st Respondent company as she stood guarantor for the UOB Loan. 26 [31] With regard to the first ground, the Petitioner and the 2 supporting contributories urged this court to consider the past conduct of the 2nd Respondent relating to the payment of the Hotel Rental, where the 2nd Respondent had caused the payment of the same from Cairnhill Hotel to the 1st Respondent company to be deducted without the approval of the 1st Respondent company. Such deduction was made possible due to the 2nd Respondent being a shareholder and director of both the 1st Respondent company and Cairnhill Hotel. I had, in Tan Poh Lee v Tan Kim Choo Holdings Sdn Bhd & Anor [2016] 1 LNS 1049 in respect of the Petitioner’s application for the appointment of a provisional liquidator made the following observations based on the affidavit evidence adduced – [31] In the instant case the 1st Respondent’s single largest income in the form of the Hotel Rental of RM100,000 per month which has been duly and fully paid to 1st Respondent by Cairnhill Hotel since April 2014 is no longer forthcoming. Based on the cause papers in the Distress Suit the arrears of the Hotel Rental was RM424,000.00. The reason (as evident in the cause papers of the Distress Suit) why 1st Respondent did not receive in full the Hotel Rental is because Cairnhill Hotel had deducted from the Hotel Rental the medical expenses incurred by TKC. Though Cairnhill Hotel had averred there was an understanding between 1st Respondent and Cairnhill Hotel for such deduction, there is no evidence on the part of the 1st Respondent of such understanding or agreement. It is a foregone conclusion that such deduction was made possible by virtue of the 2nd Respondent’s position as a shareholder and director in both the 1st Respondent and Cairnhill Hotel. 27 [32] The Court view such unilateral action as a blatant disregard of the 1st Respondent interest and a breach of the 2nd Respondent’s fiduciary duty as a director. As an investment holding company the 1st Respondent survive on the rental revenue it generates from assets it own and it follows any disruption to the inflow of income will inevitably disrupt the 1st Respondent as a going concern. More importantly it will affect the 1st Respondent’s financial commitment under the UOB Loan. It is to be noted based on the Letter of Offer (Exhibit TPL 3 Enclosure 5) in respect of the UOB Loan, besides the guarantee given by Petitioner and TKC, the assets of 1st Respondent on which Cairnhill Hotel is located is charged to UOB as security for the UOB loan. [33] The 2nd Respondent’s position as the shareholder and director of both the 1st Respondent and Cairnhill Hotel has obviously place him in a conflicting situation insofar as his interest in the two companies is concerned. By allowing the deductions to be made and depriving 1st Respondent of its income, the 2nd Respondent has jeopardise the 1st Respondent financial commitment especially under the UOB Loan and thereby expose the 1st Respondent to legal action including foreclosure action over Wisma TKC. Such action by the 2nd Respondent is definitely not in the interest of the 1st Respondent. In fact it is detrimental to the 1st Respondent as a going concern. Since 2nd Respondent is in a position which enable him to decide for both 1st Respondent and Cairnhill Hotel, there is a real risk that the 1st Respondent assets in the form of Hotel Rental will continue to be dissipated. [32] Thus in the event the Petitioner is removed as a director of the 1st Respondent company while this Winding Up Petition is pending, it appears there would be no other means to ensure the decision making and running of the 1st Respondent company would be made in the interest of the 1st Respondent company. This is because the 2nd 28 Respondent, who appear to have the full support of TKC (whose mental health is being challenged by the Petitioner, TPH and TPY in originating summons 24NCVC-137-01/2016 under the Mental Health Act 2001) would be in total control of the board and management of the 1st Respondent company. [33] I am of the view the past and present conduct of the 2nd Respondent essentially relate to issues regarding the 2nd Respondent’s fiduciary duty to the 1st Respondent company. The crucial issue is whether there is indeed a breach on the part of the 2nd Respondent of his fiduciary duty. Although I had made certain observations regarding the 2nd Respondent’s breach of fiduciary duty, as correctly pointed out by learned counsel for TKC, such observations are not determinative (Perumahan Farlim (Pg) Sdn Bhd v Cheng Hang Guan & Ors [1989] 3 MLJ 223) as all evidence has yet to be adduced and detailed argument has yet to be made and considered by the court (Hock Hua Bank (Sabah) Bhd v Yong Liuk Thin [1995] 2 MLJ 21). Thus at this stage the crucial issue identified is the 2nd Respondent’s fiduciary duty to the 1st Respondent. This is in fact a live issue which require the determination of the winding up court, that is, whether the 2nd Respondent has breached his fiduciary duty and whether such breach led to the breakdown of the 1st Respondent’s substratum. 29 [34] As to the validity of the Notice of the EGM, I am incline to agree with the contentions that the said notice is void. The Notice of EGM reads as follows – NOTICE IS HEREBY GIVEN THAT, pursuant to a notice dated 30th January 2017 made in accordance with section 145 of the Companies Act 1965 and deposited at the registered office of the Company on 30th January 2017, an Extraordinary General Meeting of the Company will be held at Cairnhill Hotel (M-floor) No. 478, Batu 3 1/2, Jalan Ipoh, 51200, Kuala Lumpur on 21st February 2017 at 3.00pm for purposes of considering and, if thought fit, passing the following resolution which will be proposed as an ordinary resolution:-

That Tan Poh Lee be and is hereby removed as a director of the Company with immediate effect. This meeting is called by the undersigned members, being members holding together not less than one-tenth of the issued share capital of the Company pursuant to Section 145 of Companies Act 1965. sgd .................................................... TAN KIM CHOO @ TAN KIM CHOON Dated: 30th January 2017 sgd .................................................... TAN BOON THIEN The Petitioner, TPH and TPY averred that they were not served with the said Notice of EGM. The Petitioner, TPH and TPY as registered shareholders of the 1st Respondent company has the statutory right under s. 145(4) of the CA 1965 to attend and vote at the proposed EGM. 30 It is pertinent to note that the 2nd Respondent and TKC did not, in their affidavits, deny that the Notice of EGM was not served on the Petitioner, TPH and TPY. [35] The validity of the Notice of EGM is also called into question by reason of TKC’s status as a director. Premised on Articles 63, 64, 65 and 66 of the AA of the 1st Respondent company, TKC has retired in 2015 but was not thereafter re-elected because there was no annual general meeting conducted in 2015. Thus TKC has vacated his office as director of the 1st Respondent company. The relevant provisions of the AA are as follows –

At the first annual general meeting of the company all the directors shall retire from office, and at the annual general meeting in every subsequent year one-third of the directors for the time being, or if their number is not three or a multiple of three, then the number nearest one-third shall retire from office.

A retiring director shall be eligible for re-election.

The directors to retire in every year shall be those who have been longest in office since their last election, but as between person who become directors on the same day those to retire shall (unless they otherwise agree among themselves) be determined by lot.

The company at the meeting at which a director so retires may fill the vacated office by electing a person thereto, and in default the retiring 31 director shall if offering himself for re-election and not being disqualified under the Act from holding office as a director be deemed to have been re-elected, unless at that meeting it is expressly resolved not to fill the vacated office unless a resolution for the re-election of that director is put to the meeting and lost. [36] In support of her contentions, the Petitioner referred to a Ietter from TKC’s solicitor dated 17 December 2015 send to the Petitioner’s solicitor which is consistent with the Petitioner’s contentions. The relevant part of the said letter states as follows – Re: Kuala Lumpur High Court Civil Suit No.: 22NCC-383-11/2015 Tan Kim Choo @ Tan Kim Choon & Anor ... Plaintiffs And Tan Poh Lee & 2 Ors ... Defendants __ We refer to the above matter wherein we act for the 2nd Plaintiff (“our client”). In view of the ongoing legal action by our client against the rest of the shareholders of Tan Kim Choo Holdings Sdn Bhd (“the Company”) and for the purpose of preserving the status quo, we have been instructed by our client to propose, which we hereby do that the Company does not hold its AGM until the 15 months interval of the holding of the last AGM of the Company on 31.12.2014 expires. Alternatively, if an Annual General Meeting of the Company is called, our client shall not be retired from the directorship of the Company as that would have the same effect as the proposed motion of the EGM to remove our client as Director, which our client had applied to injunct. … 32 [37] In the case of Tan Sri Dato' Wan Sidek bin Wan Abdul Rahman v Rahman Hydraulic Tin Bhd [2012] 6 MLJ 681; [2012] 8 CLJ 801 where the provisions of the articles of the company is similar to the instant case, it was held that appellant had, by law, ceased to be director when respondent failed to hold annual general meeting for continuous period of four years. Since the appellant ceased to be a director it follows that under the articles of the company the appellant had no capacity to be appointed as managing director of respondent and that the service agreement entered between the appellant company appointing the appellant as managing director was invalid, void and unenforceable and the appellant could not rely upon it to support his case. [38] With the removal of the Petitioner as director and the vacation of TKC’s directorship there would only be one director (the 2nd Respondent) and as pointed out by learned counsel for the Petitioner such a situation would contravene s. 122(1) of the CA 1965 which requires the 1st Respondent company to have at least 2 directors. Under this circumstances the Petitioner is justified to invoke s. 368A of the CA 1965 to prevent contravention of the statutory provision. 33 [39] In respect of this issue TKC took the position that the issue pertaining to TKC’s automatic vacation of his directorship is merely a procedural irregularity which is not actionable and therefore cannot be the foundation for an injunction. To substantiate this, learned counsel for TKC referred the court attention to the provisions in the CA 1965 –

s. 127 which provides acts of directors and officers shall be valid notwithstanding any defects discovered in his appointment;

s. 129(3) which provides that any act done by director shall be valid notwithstanding there was a defect in his appointment; and

s. 355 which states that no proceedings shall be invalidated by any defect, irregularity or deficiency of notice or time unless the court is of the opinion that substantial injustice has been or may be caused. [40] While mere procedural irregularity may not justify the grant of an injunction, it is my considered opinion the defective Notice of EGM in the instant case is not a mere procedural irregularity as the consequences of proceeding with the proposed resolution as stated in the said notice 34 would cause substantial injustice to the 1st Respondent company, the Petitioner and the contributories TPH and TPY in the following manner –

first and foremost, the Petitioner, TPH and TPY were not served with the Notice of EGM depriving them their statutory membership right to attend, speak and vote at the EGM. This would be unjust to them, in particular to the Petitioner whose position as a member of the 1st Respondent board is the subject matter of the proposed EGM with the intention to remove her from the said board;

the proposed resolution to remove a director is serious business, therefore the requirements for convening a general meeting to consider the proposed resolution ought to be complied strictly including service on members of the company. This is especially so when the director proposed to be removed happened to be a member of the company, like in the instant case. Thus the rationale of requiring a special notice to be issued for removal of director. S. 128 of the CA 1965 provides as follows –

Notwithstanding anything to the contrary in the memorandum or articles of the company, special notice shall be 35 required of any resolution to remove a director or to appoint some person in place of a director so removed at the meeting at which he is removed, and on receipt of notice of an intended resolution to remove a director the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting. However the Petitioner who is to be removed from the board of the 1st Respondent was not notified of the intended EGM;

in the event a resolution is passed premised on the defective Notice of EGM, the board of the 1st Respondent company would only consists of the 2nd Respondent and TKC who are also directors and shareholders of Cairnhill Hotel. In so far as the UOB Loan is concerned affidavit evidence has been shown that the 1st Respondent company has defaulted in its repayment obligations to UOB due to the 2nd Respondent’s act allowing only part payment of the hotel rental to be made to the 1st Respondent company. In light of the bad squabble between the Petitioner and 2nd Respondent, it is not something unlikely that the Petitioner’s interest as a guarantor to the UOB Loan may be adversely affected if only the 2nd Respondent and TKC sits on the board of the 1st 36 Respondent company. The fact that the 2nd Respondent refused to give an undertaking to the Petitioner that the composition of the board be maintained pending disposal of this Winding Up Petition speaks volume. Furthermore past events has shown the 2nd Respondent is somewhat capable of acting against the interest of the 1st Respondent company and also the Petitioner when only part of the Hotel Rental was paid to the 1st Respondent company. As such I am of the view it does not matter that there is no agreement between the 1st Respondent company and the Petitioner that the Petitioner will be indemnified by the 1st Respondent company. The risk faced by the Petitioner as a guarantor is simply obvious – she is exposed to legal action by UOB if the UOB Loan is not serviced accordingly.

The latest development highlighted by the Petitioner in her affidavit Enclosure 154 shows a sum of RM4,798,200.00 were remitted by the Land Office to the 1st Respondent’s bank account with Public Bank Berhad. The monies were paid as compensation for the acquisition of land owned by the 1st Respondent. Based on the documents exhibited in Enclosure 154, it appears the 2nd Respondent is well aware 37 of the matter and has been dealing with the Land Office in respect of the same. Despite the Interim Preservation Order dated 22 February 2017, the notification (Pemberitahu Pemberian Dan Tawaran Pampasan) under the Land Acquisition Act 1960 issued by the Land Office dated 28 February 2017 to the 1st Respondent company was not circulated to the Petitioner. There was no denial by the 2nd Petitioner on this matter. [41] The 2nd Respondent and TKC argued as they both hold 55% of the 1st Respondent’s shares in aggregate, the court ought not to interfere with their rights as the majority member to remove the Petitioner as director pursuant to Article 69 of the AA. It is not disputed the 2nd Respondent and TKC are, in aggregate, the majority shareholders. Be that as it may, in exercising their right as shareholder they are obliged to comply with the procedural provisions in the CA 1965. The fact that both of them are the majority shareholders does not give them the right to ignore the statutory provisions, especially when it is about removal of a director which requires special notice to be given. More so in the instant case, where there is an Interim Preservation Order made by the court for the status quo of the composition of the board of directors of the 1st Respondent to be maintained. 38 [42] Taking into account the facts and events that transpired as stated in the affidavits of all the parties involved, I am of the view the injunctive relief sought by the Petitioner is in furtherance of or in connection with the final order sought in this Winding Up Petition, which is for the winding up of the 1st Respondent company. At the risk of repeating, the injunction is for purpose of maintaining the status quo of the 1st Respondent company until the merits of this Winding Up Petition is ventilated in a trial. [43] The interim injunction sought by the Petitioner is diametrically opposite to the order sought by the petitioner in the case of See Teow Guan cited and relied on by the learned counsel for TKC. In that case, the respondent applied to strike out one of the prayer in the winding up petition where the petitioner sought for an order that there be a distribution in specie of shares and investment on the ground that the relief could not be granted by the court at the hearing of the petition. It was held by the Court of Appeal that the under s. 221 of the CA 1965 the winding up court may make interim orders pending the disposal of the petition. However it was held the winding up court has no power to make an order as to the distribution or disposal of the assets of the target company as the power to deal with the assets of a company on a winding up is vested in the liquidator. In respect of interim order that 39 may be made by a winding up court, the court referred, with approval, to the following – In a textbook entitled Applications to Wind up Companies which is a work by Mr Derek French, there appears the following commentary (at p 130) on the court's powers under s 125(1) of the Insolvency Act 1986, of the United Kingdom which, for present purposes, is in pari materia with s 221(1) of the Act: The power given to the court by s 125(1) to make an interim or other order is limited to making ancillary orders in furtherance of or otherwise in connection with a present or prospective winding-up order… … In Re RJ Jowsey Mining Co Ltd [1969] 2 OR 549, the Ontario Court of Appeal had to consider the powers of a companies court under s 258 of the Corporations Act 1960 of that Province which was in the following terms: The court may make the order applied for, may dismiss the application with or without costs, may adjourn the hearing conditionally or unconditionally or may make any interim or other order as is deemed just.. Laskin JA, with whom MacKay JA agreed, when considering the effect of the identical phrase 'or other order' appearing in the section said: The orders (interim or other order as is deemed just) which may be made under s 258 on a winding-up application (short of dismissal of the application) are ancillary orders, referable to a winding up and which may result ultimately in dismissal or 40 granting of the application according to whether the terms of such ancillary orders are or are not observed… Thus I am of the view it is within the power of this winding up court to grant the interim injunction sought by the Petitioner. [44] Premised on the above reasons it is my considered opinion that the interim injunctive relief ought to be granted so as to ensure the status quo of the management of the 1st Respondent is maintained between the date of the Application for Injunction and the trial of this Winding Up Petition. This is especially so in light of the various allegations (including breach of fiduciary duties, disruption of the 1st Respondent’s affairs and operations) made by the Petitioner (and her supporting contributories TPH and TPY) on the one part and the 2nd Respondent and TKC on the other part against each other. I accordingly allowed the Petitioner’s Application for Stay. Application for Stay Contentions of the 2nd Respondent and TKC [45] The reason for TKC’s Application for Stay concerns Suit 58. It is the position of TKC and the 2nd Respondent that Suit 58 ought to be disposed of first as the issues raised vide Suit 58 are more complex and 41 of a wider ambit than this Winding Up Petition herein. This is because Suit 58 seeks to effectively and completely adjudicate the on-going dispute between TKC and his children including the ownership of the shares currently held by the Petitioner, TPY and TPH in the 1st Respondent. In the event Suit 58 is decided in favour of TKC, the Petitioner will be required to transfer the shares she holds to TKC and this will ultimately remove their locus standi as contributory of the 1st Respondent company and accordingly the Petitioner’s right to present this Winding Up Petition. Without the final determination of the said issue of ownership of shares in the 1st Respondent company in Suit 58, not only the Petitioner’s capacity to bring the Petition itself is in doubt, the status of the two supporting contributories as shareholders of the 1st Respondent company is also questionable. [46] Even though Suit 383 which was commenced by the 2nd Respondent, was struck out by the Court of Appeal, it did not settle or dispose of the issues of the 2004 family arrangement and their shareholding in the 1st Respondent company. This is because –

Suit 383 was struck out on the reason that the 2nd Respondent has no privity nor right to sue and that TKC should have initiated the action in relation to the ownership of 42 shares in the 1st Respondent company. Pursuant to the said ruling, TKC initiated Suit 58.

when the Court of Appeal allowed the 2nd Respondent’s appeal against the order of this court appointing a provisional liquidator, the said court had also ordered the proceeding of this Winding Up Petition be stayed pending the disposal of Suit 383. As it turned out, Suit 383 was struck out by another Court of Appeal. It is the 2nd Respondent’s position that the spirit and intent of the Court of Appeal was that the proceedings of this Winding Up Petition ought not to proceed until the question of whether or not the Petitioner was clothed with locus standi is determined. As the Petitioner’s locus standi is being challenged in Suit 58 filed by TKC, this Winding Up petition ought to be stayed pending determination of Suit 58. Contentions of the Petitioner, TPH and TPY [47] The grounds for resisting the Application for Stay may be summarized as follows – 43

The claim that determination of Suit 58 will have an effect on the interest and right of the Petitioner, TPH and TPY to the present this Winding Up Petition does not hold water. This is because even though TKC claims that all the shares registered in the names of all the children in each of the family companies including the 1st Respondent company are held for the benefit of TKC upon the purported Parents’ Primary Trust and purported 2004 Family Trust Arrangement, Article 6 of the 1st Respondent’s AA clearly states that trusts are not to be recognized.

The issue of ownership of the shares of the Petitioner, TPH and TPY in the 1st Respondent company had already been adjudicated in Suit 383 when the Court of Appeal struck out the 2nd Respondent’s claim against the Petitioner and the contributories TPH and TPY. The said decision was affirmed by the Federal Court when it dismissed the 2nd Respondent’s for leave to appeal.

Suit 58 which is civil in nature differs from this Winding Up Petition which seeks to wind up the 1st Respondent company (governed under the Companies Act 1965, Companies 44 (Winding-up) Rules 1972 and the Articles of Association of the 1st Respondent company) based on the just and equitable principle. It is submitted that the fundamental basis and subject matter of both disputes are not the same in substance, character and effect in that this Winding Up Petition is premised on the breakdown of the substratum and deadlock in the management of the 1st Respondent company whereas Suit 58 concerns with the issue of ownership of shares in the 1st Respondent company. It is thus submitted that Suit 58 has no bearing on this Winding Up Petition and Suit 58 ought to proceed towards disposing it.

The 1st Respondent’s assets is imminently dissipating and unable to carry out its business and satisfy its statutory obligations to lodge its annual returns and its financial obligations to repay the UOB Loan.

A winding up petition ought to be disposed of expeditiously and a stay would cause an unwarranted delay and injustice to the 1st Respondent company and its shareholders. 45 The law [48] The Application for Stay was made pursuant to s. 222(f) of the CA 1965 which reads – 221 Powers of Court on hearing petition

On hearing a winding up petition the Court may dismiss it with or without costs or adjourn the hearing conditionally or unconditionally or make any interim or other order that it thinks fit, but the Court shall not refuse to make a winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets or that the company has no assets or in the case of a petition by a contributory that there will be no assets available for distribution amongst the contributories.

The Court may on the petition coming on for hearing or at any time on the application of the petitioner, the company, or any person who has given notice that he intends to appear on the hearing of the petition –

direct that any notices be given or any steps taken before or after the hearing of the petition;

dispense with any notices being given or steps being taken which are required by this Act, or by the rules, or by any prior order of the Court;

direct that oral evidence be taken on the petition or any matter relating thereto;

direct a speedy hearing or trial of the petition or any issue or matter;

allow the petition to be amended or withdrawn; and 46

give such directions as to the proceedings as the Court thinks fit. [49] As regards to the legal principles applicable to stay proceeding, cases of high authorities has held it is incumbent upon the applicant in a stay application to prove there are special circumstances or special grounds to justify a stay (Ming Ann Holdings Sdn Bhd v Danaharta Urus Sdn Bhd [2003] MLJ 49; Kosma Palm Oil Mill Sdn Bhd & Ors v Koperasi Serbausaha Makmur Bhd (2004) 1 MLJ 257). What amounts to special circumstances is essentially a question of facts in each particular case. Findings of the court [50] With the legal principles in mind and having considered the affidavits evidence and submission from the parties I am of the view there are special circumstances which warrants this court to exercise its discretionary power to stay this Winding Up Petition. [51] While it is undisputed Suit 58 concerns the ownership of the shares held by the Petitioner, TPH and TPY in the 1st Respondent and that this Winding Up Petition concerns the winding up of the 1st Respondent on just and equitable principle, I am not able to agree with 47 the Petitioner’s argument that Suit 58 has no bearing or impact on this Winding Up Petition. [52] Suit 58 is premised on the purported Parents’ Primary Trust and purported 2004 Family Trust Arrangement where TKC claims that the Petitioner, TPH and TPY holds the shares in trust for him. Based on the Amended Petition dated 24 March 2017 the Petitioner is the registered shareholder of 15% of the issued and paid up capital of the 1st Respondent company. The Petitioner also claim to be the beneficial owner of 233,393 shares registered in the name of TKC pursuant to an agreement to transfer shares dated 9 October 2009 executed between TKC and the Petitioner. If Suit 58 is successful, it simply means the Petitioner who presented this Winding Up Petition has no locus to present the said petition as she is not a shareholder of the 1st Respondent. [53] It is argued Suit 58 is speculative and argumentative. It is so at this juncture. As such the matter ought to be ventilated and adjudicated (including Article 6 of the AA of the 1st Respondent company which states that trust is not recognized) in the said suit for purpose of determining the status of the Petitioner and contributories TPH and TPY as shareholders of the 1st Respondent company. Thus Suit 58 48 concerns, among others, an issue which is vital to this Winding Up Petition which is the legal capacity of the Petitioner to commence the same and the legal capacity of TPH and TPY to support this Winding Up Petition. In Sibu Slipway Sdn Bhd v Yii Chee Ming & Ors [2017] 1 MLJ 368 the Court of Appeal took the position that it is most prudent for claims in relation to dispute as to ownership of shares in a company be determined before the presentation of winding up petition of the company. Accordingly it is my considered opinion that the outcome of Suit 58 has a direct impact on this Winding Up Petition. [54] Suit 58 was initiated by TKC after Suit 383 was struck out by the Court of Appeal. Such initiation is premised on the finding of the Court of Appeal that it is TKC and the estate of the late Madam Chang Ying who has the locus to commence such action and not the 2nd Respondent who was not privy to the purported agreement in 2004. Thus TKC is merely pursuing the issue to exercise his right to enforce the terms of the purported trust arrangement. Whether the purported trust was validly created is an issued for the court in Suit 58 to consider. This includes the evidence of one Chew Pai Kiat (a lawyer and also the executor and trustee of the estate of Madam Chang Ying (TKC’s wife) ) who according to counsels for the Petitioner and the 2nd Respondent supports their respective position in respect of the purported trust. 49 [55] It appears the opponents of the Application for Stay is relying on the doctrine of res judicata and estoppel when it was argued that the issue of ownership of the shares in the 1st Respondent company had been ventilated and adjudicated in Suit 383. However there is no evidence adduce to demonstrate the same. [56] Premised on the aforesaid grounds, I allowed TKC’s Application for Stay subject to the Interim Preservation Order and application for validation order by parties. ( KHADIJAH BINTI IDRIS ) JUDICIAL COMMISSIONER HIGH COURT (COMMERCIAL DIVISION) DATED 31 OCTOBER 2018 Counsel: Petitioner : Michael Chow with Sunita Shalini Sankey of Messrs Sankey Respondents : K. Shanmuga of Messrs Kanesalingam & Co. (for the 2nd Respondent) : David Lai of Messrs David Lai & Tan (for the Contributory – Tan Kim Choo) 50 : Terence Chan Kah Meng with Lui Kar Yee of Messrs Lim Kian Leong & Co. (for the Contributory – Tan Poh Hui) : Ng Thiang Tuan, Keith Kwan and P Y Cheah of Messrs Tuan, Mohd Zain & Co. (for the Contributory – Tan Poh Yee)