Wrp Asia Pacific Sdn Bhd v Dato' Lee Son Hong (WA-24NCC-25-01/2023)

This judgment concerns the Plaintiff’s Originating Summons for a Fortuna injunction against the Defendant arising from a statutory notice of demand under Sections 465(1)(e) and 466(1)(a) of the Companies Act 2016 issued by the Defendant against the Plaintiff for a sum of RM10,000,000.

After hearing this application, I allowed the Originating Summons. This judgment contains the full grounds for my decision.

The Plaintiff, WRP Asia Pacific Sdn Bhd, is a manufacturer and exporter of medical gloves. The Defendant, Dato’ Lee Son Hong, previously held the position of Managing Director and Chief Executive Officer of the Plaintiff, serving from 13.3.2006 until 29.11.2019. His spouse, Datin Too Sooi Keng (“Datin Too”), acted as a director at the Plaintiff company during the period spanning from 10.11.2009 to S/N ZJebsikyVkWIxWi2OjphSg **Note : Serial number will be used to verify the originality of this document via eFILING portal 3

16.11.2022. The Defendant and Datin Too jointly held a controlling 2/3 majority on the Plaintiff’s board of directors during this period, exercising significant managerial authority. Additionally, they held shares in the Plaintiff. [4] The Defendant instructed his legal representatives, Messrs Tee Tai Tzian & Sim, to issue a statutory notice dated 3.1.2023 (“the Statutory Notice”) under Sections 465(1)(e) and 466(1)(a) of the Companies Act 2016 which was served on the Plaintiff on 5.1.2023, demanding a sum of RM10,000,000. This amount was asserted to be an advance payment made by the Defendant between 29.3.2019 and 13.5.2019 for the daily operational expenses of the Plaintiff at that time (“the Alleged Debt”). [5] The Plaintiff did not respond to the Statutory Notice. Consequently, the Plaintiff's legal representatives filed this Originating Summons seeking for a Fortuna injunction Order, specifically for an injunction to restrain the Defendant from presenting or continuing a company winding-up petition based on the Statutory Notice or any other demand notice. It also prayed that the Defendant be restrained from publishing such a petition in newspapers or government gazettes and from taking further actions based on the Statutory Notice or any other demand notices. S/N ZJebsikyVkWIxWi2OjphSg The Plaintiff’s case [6] The Plaintiff contends that following the Defendant’s removal as its the Chairman of the Board on 29.11.2019, it conducted a forensic investigation, revealing a series of mismanagement and fictitious transactions within the company. Consequently, the Plaintiff initiated several legal actions against the Defendant. These suits encompassed various allegations, including fraudulent misappropriation, conspiracy to harm the Plaintiff, breaches of fiduciary duties, and fraudulent overpayments. Although several of these lawsuits remain unresolved, the Defendant, whose authority to instruct solicitors is contested, issued the Statutory Notice on the Plaintiff. In relation to this, the Plaintiff submits: a) The Defendant lacks the authority to instruct solicitors due to his medical condition, and the documents provided do not support the Defendant's claims. Furthermore, the Plaintiff contends that the authority of the Defendant’s appointed representative, Dato’ Sri Tan Shie Khai (“DSTSK”) is insufficient for the actions taken and that the issue of her authority is a matter for trial rather than a winding-up petition. b) The Statutory Notice was issued with the collateral purpose of exerting undue pressure on the Plaintiff and that the Defendant's history of breaching S/N ZJebsikyVkWIxWi2OjphSg fiduciary duties and taking detrimental actions provides evidence of an abuse of process aimed at pressuring the Plaintiff, reinforcing the claim that the Statutory Notice was issued for a collateral purpose. c) The true debtor in this case is the Defendant, who has failed to settle a debt of RM8,517,500.00 owed to the Plaintiff, as evidenced by multiple valid Court Orders up to 5.3.2023, including the Judgment Sum obtained in Civil Suit No WA-22NCC-606-10/2019 which was filed in respect of the Defendant’s fraudulent misappropriation, wherein the Defendant had caused the the Plaintiff to pay RM8.4 million to himself. Together with costs and interest, the total debt amounts to RM8,761,445.21. d) The Plaintiff submits that based on the Audited Financial Statements for the years 2019 to 2022, the Plaintiff is a profitable and financially sound company with substantial assets, revenue, and net profit as seen in the SSM search dated 10.1.2023 which indicates that the Plaintiff is not insolvent and should not face a winding-up petition. e) The balance of convenience favours granting a Fortuna injunction because the Defendant has alternative means, such as pursuing a civil action, to assert his claim against the Plaintiff, which is a better alternative procedure. On the other hand, the S/N ZJebsikyVkWIxWi2OjphSg potential damages and losses the Plaintiff might suffer from a winding-up petition, including irreparable damage to its reputation and business relationships, make it unjustified to subject the Plaintiff to such risks for an unverified Alleged Debt, which is highly likely to be a fabrication. The Defendant’s case [7] The Defendant contends that during his tenure as a director of the Plaintiff company, he channeled his personal funds as an advance of RM10,000,000.00 to the Plaintiff for daily operational expenses in 2019. This amount was acknowledged and confirmed by the Plaintiff through signatures of three of its representatives on a balance confirmation letter dated 17.6.2019, which the Defendant presented to the Plaintiff. The letter detailed the transactions, and it is evident that the Plaintiff recorded these transactions in great detail, totaling RM10,000,000.00. The Defendant contends that the Plaintiff has not disputed receiving these funds, and the outstanding amount of RM10 million is recorded as “Current Liabilities” in the Plaintiff's audited financial statements from 2019 to 2021. Despite the Statutory Demand, the Plaintiff did not respond or deny the Defendant's claim. In relation to this, the Defendant submitted: a) His representative, DSTSK, has the legal standing to act on his behalf, supported by a Power of Attorney S/N ZJebsikyVkWIxWi2OjphSg dated 3.5.2021 and a Letter of Authorisation dated 10.5.2021. The Defendant argues that these documents should be read together as they pertain to the same matter, and the authorisation was not a prerequisite for a deponent to swear an affidavit, making the Plaintiff's claim that the Defendant's representative lacks the right to swear an affidavit and locus standi in this case unfounded. b) The Plaintiff's acknowledgment and recording of a RM10 million debt in audited financial statements, combined with the absence of a bona fide dispute, provides a strong prospect of success in filing a winding-up petition. Furthermore, the Defendant argues that obtaining a judgment is not a prerequisite, and the statutory demand served on the Plaintiff allows him to file the petition in accordance with the Companies Act 2016. c) Given the proven validity of the RM10 million debt, coupled with other outstanding debts, filing a winding-up petition against the Plaintiff is justified. As the debts are substantial, the Plaintiff is insolvent, justifying the Defendant’s initiation of winding-up proceedings for the Defendant's interests. S/N ZJebsikyVkWIxWi2OjphSg Law on Fortuna injunctions [8] The legal framework governing Fortuna injunctions finds its roots in a series of pivotal cases that have delineated the principles guiding the grant of such injunctions. Notably, in Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83, it was established that the presentation of a winding-up petition may be restrained if such an act constitutes an abuse of the court's process. This principle protects companies from threatened oppression and damage due to an abuse of court process. [9] The case of Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 CLJ 295 (Court of Appeal) elucidated the basis of Fortuna injunctions. It was emphasised that a 'Fortuna injunction' is sought to restrain an intended winding-up petition. This type of injunction is based on two branches of principles: the first deals with cases where the petitioner cannot succeed as a matter of law or lacks supporting evidence, while the second is relevant when there is a more suitable alternative means to resolve the dispute, even if the petitioner is legally entitled to present the petition and has supporting evidence. [10] Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [2011] 1 CLJ 947 (Court of Appeal) expounded further on these principles, specifying that to obtain an injunction under the first branch, the applicant must demonstrate that S/N ZJebsikyVkWIxWi2OjphSg the intended petition cannot succeed both as a matter of law and as a matter of fact, and that the presentation of such a petition may result in irreparable damage to the company. The second branch is reserved for cases where there is a more appropriate alternative procedure to address the dispute. [11] Additionally, the case of Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 2 CLJ 305 (Court of Appeal) emphasised that the general test laid down in American Cynamid Co v Ethicon Ltd [1975] AC 396 does not apply to Fortuna injunction cases. It was made clear that a bona fide dispute with substantial grounds must exist, and it is not sufficient to merely raise a serious question to be tried. [12] In the case of SSM Management Sdn Bhd v Aeon Big (M) Sdn Bhd [2019] 5 CLJ 695 (Court of Appeal), it was reiterated that there is no requirement for a creditor to obtain a judgment before serving a statutory demand or initiating winding-up proceedings. However, the burden of proof falls upon the applicant to demonstrate a bona fide dispute or present evidence of an ability to pay the debt. [13] With these principles in mind I proceeded to consider the submissions and materials before the court in respect of the matter at hand. S/N ZJebsikyVkWIxWi2OjphSg Analysis and findings of the court Locus standi [14] Learned counsel for the Defendant argues that the Defendant’s appointed representative, DSTSK, has locus standi in the case and that the Plaintiff's challenge to her standing is not valid. It is submitted that DSTSK had the authority to take any action on the Defendant’s behalf, as derived from a Power of Attorney dated 3.5.2021 and Letter of Authorisation dated 10.5.2021. It was further argued that all documents i.e. the Power of Attorney and Letter of Authorisation executed simultaneously must be read together to ascertain the parties' intentions, citing Cergas Tegas Sdn Bhd (In Liquidation) v SAP Holdings Bhd & Anor [2013] 8 CLJ 745. It was also submitted that that authorisation is not a prerequisite for a deponent to swear an affidavit, citing Syarikat Ying Mui Sdn Bhd v Muthusamy a/l Sellapan and Other Appeals [1999] 6 MLJ 622. [15] However, after reviewing the material placed before the court, I find that the issue of whether or not DSTSK possesses the authority is a triable issue which cannot be dealt with in the winding-up court and, as such, a winding-up petition and the winding-up court would not be an appropriate avenue for the present dispute. My reasons are stated below. S/N ZJebsikyVkWIxWi2OjphSg [16] The Defendant’s locus standi to instruct solicitors in respect of the subject matter of the Statutory Notice, as any instructions given to Messrs Tee Tai Tzian & Sim by him are subject to serious doubt given that the Defendant is unable to instruct his solicitors due to his medical conditions. The Plaintiff has provided supporting documentary evidence i.e. letters of the Defendant’s solicitors to the court and a letter from the Defendant’s doctor to show that the Defendant is indeed unable to instruct his solicitors including the issuance of the Statutory Notice. These are elaborated as follows: a) On 30.6.2022, the Defendant’s solicitors, Messrs S Ravenesan, informed the court by way of a letter in Civil Suit No. WA-22NCC-54-01/2020 regarding a legal dispute related to an unauthorised canteen operation agreement, that their client who is the Defendant here, had experienced a stroke and, as a result, was unable to provide any instructions or guidance in this case. b) This was followed by a letter “To Whom It May Concern” from Dr Esther Ebenezer of Pantai Hospital, Ipoh dated 8.8.2022 which concluded that Dato’ Lee would not be fit to stand as a witness or give any valid statement in the court. c) On 26.10.2022, Dato’ Lee’s solicitors still maintained the position that Dato’ Lee was incapable of giving S/N ZJebsikyVkWIxWi2OjphSg instructions due to his medical condition and that they were awaiting a full medical report from a Government Hospital. [17] The authority provided to DSTSK to affirm the Defendant’s affidavit in reply on behalf of the Defendant or to instruct solicitors in relation to the Statutory Notice for the Alleged Debts is insufficient, as the Power of Attorney and the Letter of Authorisation do not confer DSTSK the authority to affirm the Defendant’s affidavit in reply where personal knowledge is required, institute the claim against the Defendant as stated in the Statutory Notice, or engage or instruct any solicitor to institute any claim in respect of the same. [18] As stated in Subramania Pillay v Sundarammal [1968] 2 MLJ 115 (Federal Court), a power of attorney is to be strictly construed and a donee relying on it must show that the authority in question is found within the four corners of the instrument. The donee's authority to act under a power of attorney must be found within the instrument, either expressly or by necessary implication, and not beyond its four corners. Further, in Re Azhar Azizan Harun (as the absolute representative of Eleanor Dulcie Robinson) [1998] 7 MLJ 89 it was stated that the duty to swear a verifying affidavit is a personal duty of the deposing party, and an attorney cannot perform this duty due to the personal knowledge required. S/N ZJebsikyVkWIxWi2OjphSg [19] The authority provided in the Power of Attorney and Letter of Authorisation is insufficient to allow DSTSK to institute any presentation of winding-up petition and/or pursue any claim in respect of the same, and the current action of DSTSK is clearly in excess of the authorities conferred by the Power of Attorney and the Letter of Authorisation. There is no written authority provided to DSTSK to affirm any affidavit and/or commence any proceedings in relation to the matter herein. This is also the case even if the purported Letter of Authorisation and the Power of Attorney are being read together as if they are one. [20] Moreover, the contents stated in the DSTSK’s affidavit mostly contain facts that the attorney is not able of her own knowledge to prove. This presents a critical issue, rendering the affidavit inadmissible in accordance with Order 41 rule 5(1) of the Rules of Court 2012, or at the very least, it raises an issue that must be determined through legal proceedings. The alleged transactions underlying the demand of the Defendant took place on or around 2019, which were about 2 years before the effective date of the Power of Attorney and the Letter of Authorisation. The affidavit affirmed by DSTSK relates to factual matters that transpired before DSTSK was in the picture as the attorney, and thus not within the personal knowledge of DSTSK. [21] As a demonstration of DSTSK’s lack of personal knowledge of the matters, she repeatedly failed, neglected or was unable to identify or disclose the identity of those who S/N ZJebsikyVkWIxWi2OjphSg signed on the “Confirmation of Balance” document dated 17.6.2019. Therefore, the current action of DSTSK to affirm the affidavit in relation to these matters and to pursue any claim in respect of the same is clearly in excess of her authorities provided by the Defendant. Existence of Debt [22] Learned counsel for the Defendant argues that the Defendant had a prospect of success in the winding-up petition, and the Defendant had the right to file the petition under the Companies Act 2016 as the Plaintiff owed the Defendant RM10 million, and this debt was still outstanding. The Defendant relied on the “Confirmation of Balance” document dated 17.6.2019 signed by individuals the Plaintiff's representatives, which showed that the Plaintiff was aware of the amount owed. The Defendant also referred to the audited Financial Statements of the Plaintiff, which showed the outstanding debt as “amount due to directors.” Learned counsel for the Defendant argued that the Plaintiff's claim that the signatures on the Confirmation of Balance document were not those of the Plaintiff's directors was an afterthought. The Defendant maintained that there was no bona fide dispute about the outstanding debt and argued that a winding-up petition could be filed without obtaining a judgment first. S/N ZJebsikyVkWIxWi2OjphSg [23] I am unable to accept the Defendant’s submission. [24] The Plaintiff has raised several valid points to challenge the validity and existence of the Alleged Debt as stated in the Statutory Notice. [25] There is a lack of internal records pertaining to the Alleged Debt and the inability of the Plaintiff’s auditor in the Plaintiff’s Reports and Financial Statements for the Financial Year Ended 30.6.2019 to verify its existence or validity to further support the Defendant’s position. The Plaintiff’s Auditors gave a qualified opinion in the Auditor’s Report stating that they were unable to verify the existence of the balances of the amount due to directors at RM16,580,615, the very particular that the Defendant is relying on in the Statement of Financial Position as contained in the Plaintiff’s Financial Statements. Even in the Financial Statements for the Financial Year Ended 30.6.2022, the Plaintiff’s Auditors still gave a qualified opinion on the balances of the amount due to directors which stood at RM15,949,923.00. Moreover, there are no contemporaneous documents to prove the validity of the alleged advances or the purpose of such advances provided by the Defendant. [26] The Defendant merely relied on a “Confirmation of Balance” dated 17.6.2019 purportedly issued by him to the Plaintiff, which was acknowledged by unknown individuals whose identities were not disclosed by the Defendant or DSTSK. I S/N ZJebsikyVkWIxWi2OjphSg have examined the document and the confirmation portion appears as follows: [27] It is clear that out of 3 signatures appearing in the confirmation portion, 2 are unidentified. For the remaining signature, the handwritten name “Horace Pek” appears but DSTSK made no attempt to explain who this was. [28] Additionally, there is a history and pattern of fraudulent behaviour and/or conduct committed by the Defendant against the Plaintiff. Particularly, I took into account the findings of Justice Adlin Abdul Majid as stated in Her Ladyship’s Grounds of Judgment in Civil Suit No. WA- 22NCC-606-10/2019. This is a case where the Plaintiff sued the Defendant and his wife Datin Too Sooi Keng for breaching their fiduciary obligations. The Plaintiff proved that the Defendants therein, in breach of their fiduciary duties had misappropriated funds and created a fictitious transaction by transferring RM32,600,000 from the Plaintiff to themselves and a company associated with them. The S/N ZJebsikyVkWIxWi2OjphSg court granted the reliefs sought by the Plaintiff, including a declaration of breach of fiduciary obligations. [29] The Defendant or his representatives never raising the existence of this Alleged Debt at any juncture, even though parties have been in extensive litigation since 2019, is also a cause for concern. I find that the Defendant's action and Alleged Demand are merely an afterthought, given that the Defendant had not once raised and/or demanded the Alleged Debt since he was terminated as the director of the Plaintiff in 2019 but only did so after judgments against his favour were delivered and other trials against him were approaching. [30] In Kumpulan Liziz Sdn Bhd (in liquidation) v Pembinaan Azam Jaya Sdn Bhd [2021] MLJU 2425 the Court of Appeal held that if the sum stated in the Statutory Notice is being disputed bona fide and on substantial grounds, there is no debt due for the purposes of Section 466(1)(a) Companies Act 2016. [31] Given the numerous triable issues related to the existence of the Alleged Debt and the validity of the Statutory Notice, any intended presentation of the winding-up petition ought to be restrained until their disposal. Therefore, the Plaintiff’s arguments are accepted, and it is ordered that any intended presentation of the winding-up petition should be restrained until the disposal of the triable issues related to the S/N ZJebsikyVkWIxWi2OjphSg existence of the Alleged Debt and the validity of the Statutory Notice. Irreparable damage [32] In evaluating the balance of convenience in this case, it is essential to consider the available remedies and the potential consequences of each course of action. The Defendant has the option to pursue his claim through a civil action against the Plaintiff. This alternative legal procedure offers a more suitable avenue for addressing his concerns and seeking redress. [33] Conversely, the potential damages and losses that the Plaintiff may incur as a result of the presentation of a winding-up petition are substantial and, more significantly, irremediable. The mere initiation of a winding-up petition can inflict irreparable harm to a company's reputation and its ongoing business operations. In this particular case, the adverse effects on the Plaintiff’s business relationships with suppliers, access to banking facilities, and customer confidence are highly probable, given that the winding-up petition is based on an unverified “Alleged Debt” that raises suspicions of its authenticity. [34] Thus, the balance of convenience unequivocally tilts in favour of the Plaintiff. It is essential that this court intervenes prior to the commencement of the winding-up petition to preserve the status quo of the parties. This measure is S/N ZJebsikyVkWIxWi2OjphSg crucial in maintaining fairness and justice, particularly in light of the genuine disputes raised concerning the “Alleged Debt.” [35] Furthermore, the intervention of this court serves to safeguard the Plaintiff from any perceived injustice, potential oppression, and the significant damages that could arise from the presentation of the winding-up petition. This preventive action is taken to avoid the abuse of the court's process. In this context, granting a Fortuna injunction is not only legitimate but also essential to protect the rights and interests of the Plaintiff. Conclusion [36] In my perspective, the most reasonable course of action is to grant an injunction to prevent the Defendant from initiating winding-up proceedings against the Plaintiff. This decision stems from my assessment that the debt in question is genuinely disputed. Furthermore, I have ascertained that any attempt to present a winding-up petition is likely to be unsuccessful and could result in irreparable harm to the Plaintiff, given their current financial stability. S/N ZJebsikyVkWIxWi2OjphSg [37] Regarding costs, I ordered the Defendant to pay the Plaintiff the sum of RM7,000.00 subject to allocator. 26 October 2023 ATAN MUSTAFFA YUSSOF AHMAD Judge Kuala Lumpur High Court (Commercial Division) Counsel: For the Plaintiff: Sean Tan and Seaw Ja Hui (PDK) (Messrs Messrs Thomas Philip) For the Defendant: Lee Lin Jun (Messrs. Tee Tai Tzian & Sim)