Zung Zang Holdings Sdn Bhd (442649-T) v Zung Zang Trading Sdn Bhd (297320)-P) (S-02(NCVC)(A)-68-01/2018)

This is an appeal by the Appellant against the decision of the learned Judicial Commissioner, given on 3.12.2017, in granting the winding up order against the ZZ Holdings.

The winding up petition filed by ZZ Trading is premised on the just and equitable ground under section 218(1)(i) of the Companies Act 1965 and the complaint is that there is a breakdown of trust and confidence among the members of ZZ Trading and ZZ Holdings.

Gleaning from the Petition dated 15.4.2016, 1 the background facts can be summarised as follows.

The patriarch of the family, the late Kwan Chee Hang and his wife, Wong Nyuk Ching incorporated Kwan Chee Hang Sdn. Bhd. [“KCHSB”] on 14.9.1981. The primary business of KCHSB was in property letting business and to act as investment holding company. Besides the late Kwan Chee Hang and his wife, their two sons, namely, Kwan Hiuang @ Kwan Huang Cheng [“Michael”] and Kwan Hung Cheong [“Matthew”] were also involved in this family business.

KCHSB thereafter incorporated ZZ Trading on 25.4.1994 [formerly known as Zung Zang Wood Product Sdn. Bhd.] to carry out wood 1 Record of appeal vol. 1 – part A & B, pages 8-23. 3 manufacturing business. ZZ Trading is a wholly owned subsidiary of

ZZ Holdings was incorporated on 13.8.1997 to act as an investment holding company. ZZ Trading held 80% of the shares whereas Matthew held the remaining 20% of the shares. Matthew and his wife, Elaine Gay Chow Song [“Elaine”] are the only director of ZZ Holdings after the passing of the late Kwan Chee Hang.

ZZ Plantation was incorporated on 4.4.1995 to undertake oil palm plantation business and it currently holds 2,846.17 acres of plantation land. ZZ Holding held 80% of the shares whereas Matthew held the remaining 20% of the shares.

Granright Enterprise was incorporated on 20.12.1995 to deal in transportation construction, civil and building construction and oil palm planation business. ZZ Holdings was the majority shareholding of Granright holding 170,000 shares, that is, 85% of the shareholding, whereas Elaine held the remaining 30,000 of the shares. [KCHSB, ZZ Holdings, ZZ Plantation and Granright will be referred to as the “family companies”]

However, unbeknown to the family members/shareholders of the family companies, Matthew and Elaine committed fraudulent acts in respect of ZZ Holdings, ZZ Plantation and Granright by fraudulently diluted and/or divested the interest of the family companies to themselves in June 2003.

Matthew and Elaine fraudulent caused ZZ Trading to dispose of its 80% shareholding in ZZ Holdings to both of them in equal portion 4 making them the absolute owner of ZZ Holdings and having full control over ZZ Plantation and Granright, both of which own substantial plantation land.

After the discovery of the fraudulent acts of Matthew and Elaine in 2006, the late Kwan Chee Hang and Wong Nyuk Ching confronted Matthew during the Extraordinary General Meeting of KCHSB convened on 12.5.2007. Despite admitting to all his wrongdoing, Matthew had refused to undo the same and/or to rectify the register of member of the family companies affected by his wrongdoings.

KCHSB, Kwan Chee Hang and Wong Nyuk Ching then pursued against Matthew and Elaine and filed the following two suits in High Court seeking for various orders and declarations to rectify the register of members of the family companies and to undo all the fraudulent transfers and allotment of shares falsely and fraudulently procured by them. The two High Court suits are as follows: a. Suit No. S22-24 of 2008 was in respect of the fraudulent act against ZZ Plantation and ZZ Holding; b. Suit No S22-26 of 2008 was in respect of the fraudulent acts perpetrated against Granright and ZZ Holdings. [The two High Court suits will be referred together as the “two High Court Suits”]. [ZZ Trading [then known as Zung Zang Wood Product (ZZWP), ZZ Plantation and Granright will be referred to as the “affected family companies”]. 5

The High Court, after full trial of the two High Court Suits heard in consolidation, found that Matthew and Elaine had made fraudulent transfer of shares and allotments of shares in respect of the affected family companies. The High Court ordered that the register of members of the affected family companies be rectified to reflect the position of the shareholding prior the fraudulent acts of Matthew and Elaine.

Matthew and Elaine appealed to the Court of Appeal against the decision of the High Court in the two High Court Suits. The Court of Appeal dismissed the appeal with costs and affirmed the High Court’s decision.

Matthew and Elaine further appealed to the Federal Court against the decision of the Court of Appeal. The Federal Court also dismissed the appeal with costs and ordered that the register of members of the affected family companies be rectified to reflect the position of the shareholding prior to Matthew and Elaine’s fraudulent acts.

Pursuant to the Federal Court order dated 7.10.20132, Matthew and Elaine have rectified the register of members of the affected family companies based on the searches made at the SSM. However, Matthew and Elaine have not handed over the books of the affected companies, in particular the books of ZZ Holdings, ZZ Plantation and Granright and they are still in full control of these companies. 2 Record of appeal vol. 2(2) – Part C, pages 348-350. 6

Both Matthew and Elaine are the only directors of ZZ Holdings who control ZZ Plantation and Granright and both these companies own valuable plantation lands. Being in this position of control, Matthew has effectively blocked and/or prevented ZZ Trading and any other family companies from participating or investigating into the affairs of ZZ Holdings thus depriving them of their rightful legal rights and in blatant disregard of the terms of the Federal Court Order.

While Matthew and Elaine are in complete control of ZZ Holdings, they had devised a scheme to winding up both ZZ Plantation and Granright. As a result of the said scheme, both ZZ Plantation and Granright had been wound up in early January 2016.

As a result of all events set out above, the very core of trust and confidence no longer exist and it is no viable to run ZZ Holdings as a family company, so it is just and equitable to winding up ZZ Holdings.

20.There were two issues for determination before the High Court, namely, whether ZZ Trading has the locus standi to present the petition and whether ZZ Holdings can be wound up on just and equitable grounds.

On the locus standi issue, the learned Judicial Commissioner relied on the print out of the SSM3 and held that “the printout has been adduced to show that the petitioner is holding 80% and there is no other documentary evidence other than the mere denial of a positive 3 ROA vol. 2(1) Part C, page 136. 7 assertion, I am of the view that the petitioner has discharged the burden on the balance of probabilities.”

On the just and equitable ground, learned Judicial Commissioner held that ZZ Holdings is an incorporated partnership notwithstanding he had found no direct or documentary evidence to show that ZZ Holdings was intended to be managed by way of an incorporated partnership. He concluded that ZZ Holdings is a quasi-partnership based on the formation of the family companies which showed that ZZ Holdings was intended to be managed as an incorporated partnership or quasi-partnership.

Learned Judicial Commissioner was of the view that there was no serious attempt by ZZ Holdings to rebut the allegation of breakdown in trust and confidence due to fraudulent acts committed by Matthew and Elaine against the affected family companies. Accordingly, the learned Judicial Commissioner accepted the contention by ZZ Trading that there is a breakdown in mutual trust and confidence between the parties.

Hence, the learned Judicial Commissioner made the winding up order against ZZ Holdings.

ZZ Holdings raised the following points in the appeal, namely: a. Locus standi: which raises two sub-points, namely,

ZZ Trading is not a member of ZZ Holdings.

(ii) Michael has no authority to represent ZZ Trading, and 8 b. ZZ Holdings is not a quasi-partnership. Even if it is, there is no ground to wind up on just and equitable ground. c. Time bar and relitigating. d. Winding up order granted based on affidavit evidence. Issue (a) Locus Standi Issue

ZZ Trading is not a member of ZZ Holdings

ZZ Holdings’ contention Learned Counsel for ZZ Holdings submitted that no party can petition for winding up of a company under section 218(1)(i) of the Companies Act 1965 unless he is a member of the company. ZZ Trading’s reliance on the Federal Court’s order to assert its shareholding in ZZ Holdings is misconceived because one does not become a shareholder because of the court order. Section 158(1) of the same Act clearly states that the register of members is prima facie evidence of shareholding. Table A of the article of Association of ZZ Holdings provides that the company only recognize registered shareholders. Thus, the only way to prove membership of ZZ Trading in ZZ Holdings is by production of the register of member, and not to rely on the computer printout from the SSM4.

It was submitted that the learned Judicial Commissioner in relying on the printout from the SSM did not address the issue whether the SSM computer printout had any legal effect or evidentiary value. 4 ROA vol. 2(1) Part C, page 136. 9

It was submitted that the computer printout from the SSM contained a disclaimer that the SSM will not be liable for any losses arising from any inaccurate or omitted information. Since the SSM cannot even vouch for the accuracy or completeness of the SSM printout, and unless a witness from SSM is called to explain the basis for SSM to record ZZ Trading as a shareholder, it cannot be accepted as proof as to the title to any shares.

Learned Counsel for ZZ Holdings submitted that pursuant to section 17(e) of the Companies Commission of Malaysia Act 2001, the corporate information is “received by, or filed or lodged with, the Commission”, most of the time by the company in question. Thus, SSM does not have the authority to provide any “conclusive” information with regard to shareholding.

It was further submitted that based on the copy of the register of members of ZZ Holdings marked “CI” 5 which was tendered during the appeal hearing of the two High Court Suits before the Federal Court [undisputed document], it shows that the only shareholders of ZZ Holdings are Matthew and Elaine.

The register of members of ZZ Holdings “CI” also shows that the transaction of the ZZ Trading’s shares to Matthew and Elaine on 3.6.2003 were undisturbed by the Federal Court order.

The Federal Court order affecting the shareholding of ZZ Holdings states as follows: 5 ROA vol 2(2) Part C, pages 455-456. 10

(ii) that the shareholdings of the members of ZZ Wood [now ZZ Trading] to be restored to the position as at 3.6.2003, that is, before the impugned transfer of shares, and that the shareholdings of the members of ZZ Holdings to be restored to the position as at 4.6.2003, that is, before the impugned transfer of shares.

(iii) that all transfers and or allotments of shares in the capital of ZZ Wood on or after 3.6.2003 and in the capital of ZZ Holdings on or after 4.6.2003 do stand cancelled and are of no effect.

Learned Counsel for ZZ Holdings submitted that based on “C1”, there was no other transfer transaction after 3.6.2003, definitely not on 4.6.2003. It was submitted that all the shares of ZZ Trading in ZZ Holdings were transferred out on 3.6.2003. Therefore, there is nothing on 4.6.2003 to be cancelled in respect of ZZ Holdings shareholding.

Learned Counsel for ZZ Holdings submitted that reading the Federal Court order together with the register of member of ZZ Holdings “C1”, they clearly showed that the transfer of ZZ Trading’s shares to ZZ Holdings on 3.6.2003 were undisturbed. They also clearly show that the only shareholders of ZZ Trading are Matthew and Elaine.

Learned Counsel for ZZ Holdings also submitted that the Federal Court order did not state that the ZZ Trading “is to be restored as the 80% shareholder of” ZZ Holdings. Thus, there is no basis for ZZ Trading to claim 80% shareholding in ZZ Holdings. 11

ZZ Trading’s contention On the other hand, learned Counsel for ZZ Trading contended that ZZ Trading is the 80% shareholder of ZZ Holdings and it has standing to present the present petition, and this is confirmed by the printout of the SSM6.

Learned Counsel for ZZ Trading submitted that it is mischievous and contemptuous for Matthew to assert that the current shareholders consisted only of himself and Elaine in the light of the Federal Court’s decision ordering Matthew to reinstate ZZ Trading 80% shareholding in ZZ Holdings. From the written grounds of judgment of the Federal Court, there is no doubt whatsoever that ZZ Trading owns 80% of the equity of ZZ Holdings. Hence, ZZ Holdings’ argument that ZZ Trading has no locus standi to present this petition is a non-starter.

Learned Counsel for ZZ Trading also relied on the case of Owen Si Liang Khui v Piasau Jaya Sdn. Bhd. & Anor7 where the Federal Court held that it does not lie in the mouth of the wrongdoers to say that the petitioner has no ground to stand on after having cut the very ground from under his feet. Our Decision ZZ Trading’s 80% equity in ZZ Holdings

We take note that ZZ Trading’s assertion of having 80% shareholding in ZZ Holdings is based on the printout of the SSM and the Federal Court order dated 7.10.2013 and the Judgment of the Federal Court. 6 ROA vol. 2(1) page 136. 7 [1996] 4 CLJ 716. 12

On the other hand, ZZ Holdings’ assertion of ZZ Trading’s lack of locus standi is also based on the Federal Court order dated 7.10.20138 and a copy of the register of members marked “C1”9.

In our view although the Federal Court order did not expressly mention the number of shares held by ZZ Trading in ZZ Holdings which were to be restored, there is no question of doubt that it is the 80% equity held by ZZ Trading in ZZ Holdings before the impugned transfer of shares on 3.6.2003.

We find support of our view in the Judgment of the Court 10, which showed that the Federal Court accepted the finding of the learned trial Judge in two High Court Suits in respect of the fraudulent disposal of ZZ Trading’s 80% equity in the capital of ZZ Holdings to themselves. The Federal Court after observing the pleadings and evidence, stated: The corporate structure of KCH and its subsidiaries was not intricate. KCH held the entire equity of ZZ Wood [now ZZ Trading]. In turn, ZZ Wood held 80% of the equity of ZZ Holdings. And in turn, ZZ Holdings held 80% of the equity of ZZ Plantation and 85% of the equity of the 6th Appellant (Granright Enterprise Sdn. Bhd. – Granright). The balance of equity of ZZ Holdings, ZZ Plantation and Granright was held by the 4th and 5th Appellants [Matthew and Elaine]……”11 8 ROA vol. 2(2) Part C, page 348-350. 9 ROA vol. 2(2) part C pages 455-456. 10 ROA vol 2(1) pages 261 – 347. 11 ROA Vol 2(1) page 263 and 265. 13

Similar observation was repeated by the Federal Court, just before pronouncement of the order:12: Still, we need to correct the orders below….with respect to suits 24 and 26, ZZ Wood [now ZZ Trading] only owned 80% of the equity of ZZ Holdings, and ZZ Holdings only owned 80% of the equity of ZZ Plantation and 85% of the equity of Granright. [Underline added]

Regard being had to the above, it must follow that the equity of ZZ Trading in ZZ Holdings to be restored to the position before the impugned transfer of the shares is the 80,000 shares held by ZZ Trading in ZZ Holdings before the impugned transfer of shares by Matthew and Elaine on 3.6.2003. Rectification of ZZ Trading’s shareholding in ZZ Holdings

We are unable to agree with the submission of learned counsel for ZZ Holdings that merely because of the date “4th June 2004” mentioned in the Federal Court Order 13 , Matthew and Elaine’s shareholding in ZZ Holdings were not disturbed by the Federal Court order because based on the register of members of ZZ Holdings “C1”, there was no share transaction after 3 June 2003 in respect of ZZ Trading, and it showed that only Matthew and Elaine are the shareholders of ZZ Holdings. 12 ROA vol 2(1) page 344-345. 13 Record of appeal vol. 2(2) Part C, pages 248 – 360. 14

It is pertinent to bear in mind that court never acts in vain. Thus, it is inconceivable that the Federal Court, after accepting the trial court’s finding that there was fraudulent transfer of ZZ Trading’s 80% equity in ZZ Holdings by Matthew and Elaine to themselves, would allow Matthew and Elaine to remain as shareholders of ZZ Holdings thereby keeping the equity that they had acquired vide impugned transfer.

At the risk of repetition, paragraphs (2) and (3) of the Federal Court Order14 is reproduced with emphasis added:

that the shareholdings of the members of ZZ Wood [now ZZ Trading] to be restored to the position as at 3.6.2003, that is, before the impugned transfer of shares, and that the shareholdings of the members of ZZ Holdings to be restored to the position as at 4.6.2003, that is, before the impugned transfer of shares.

that all transfers and or allotments of shares in the capital of ZZ Wood on or after 3.6.2003 and in the capital of ZZ Holdings on or after 4.6.2003 do stand cancelled and are of no effect.

In our view, any ambiguity in the Federal Court Order can be resolved by reading the date “4.6.2003” as appeared in the Federal Court order together with the words that follow, which read, “that is, before the impugned transfer of shares” and also in the context of paragraph

particularly “do stand cancelled and are no effect”. [[Underline 14 Record of appeal vol. 2(2)- Part C, pages 348-350. 15 added]. In so doing, there should be no confusion in understanding the Federal Court order, that is, regard being had to the fraud committed by Matthew and Elaine against the affected family companies, it had ordered that the shareholding of the members of ZZ Holdings to be put right in the position it was before the impugned transfer of the shares and that any impugned transfers and allotment of shares in the capital of ZZ Holdings do stand cancelled and are of no effect.

We find that there is no confusion whatsoever on the part of ZZ Holdings, despite the ambiguity caused by the date “4.6.203”, in understanding the full effect of the Federal Court’s order. This is reflected in the Respondent’s Affidavit in opposition No. 5 affirmed on 20.6.2017 15 where it is deposed:

We admit that the letter dated 17.12.2013 from Szetu & Co., our former Solicitors, the undated Directors’ Circular Resolution, Form 32A transferring shares to ZZ Holdings, and share Certificates in the name of Petitioner, exhibited in AIR5 as B-4, had been issued , on the advice of our former Solicitors, Messrs. Szetu & Co. In fact, there was also a reminder letter dated 23 January 2014 sent by Szetu nan, now produced and shown to me, marked as “KCH2”16

The letter dated 23.1.201417 written by ZZ Holdings’ former Solicitors, Szetu & Co. requested ZZ Trading to return the Form 32A sent under 15 Record of appeal vol. 1 Part A & B, pages 86-92. 16 record of appeal vol. 2(3)-Part C, page 596. 17 ROA Vol. 2(3) page 596 16 cover letter dated 17.12.2013 for without which ZZ Holdings were “unable to comply with the Order of the Federal Court”.

It was deposed in the Respondent’s affidavit in opposition No. 518 that ZZ Holdings subsequently, upon their closer examination of the register of members; that ZZ Holdings discovered that the undated Directors’ Circular Resolution Form 32A transferring shares in ZZ Holdings and share certificates in the name of ZZ Trading were done unlawfully; being not in compliance with the Federal Court Order; and the same were accordingly revoked vide ZZ Holdings’ Directors’ Resolution dated 10.9.2015 19 which formally cancelled such unlawful transfer and ordered that the Register of Members be restored in accordance with the Federal Court’s order.

Matthew also deposed that ZZ Holdings also instructed M/s Chung & Associates to write to inform KCHSB via the letter dated 14.4.201620 to inform them that the Form 32A, undated Directors’ Circular Resolution, and Share Certificate had been cancelled and are void and of no effect.

It is plain to us that Matthew’s statement is an afterthought taking advantage of the ambiguity of the Federal Court order to negate its legal effect. There is no shadow of doubt that ZZ Holdings knew what the Federal Court had ordered them to do, that is, to restore 80,000 shares belonging to ZZ Trading in ZZ Holdings before the impugned transfer of shares by Matthew and Elaine to themselves. 18 ROA vol. 1 – Part A & B, pages 86-87, paragraph 11 -14. 19 ROA vol. 2(3) – Part C, pages 598-599. 20 ROA vol. 2(3) page 600. 17

As submitted by learned Counsel for ZZ Holdings, the corporate information in SSM is “received by, or filed or lodged with, the Commission”, most of the time by the company in question. In this case, there is no evidence as to how SSM received the information to change the shareholdings in ZZ Holdings to reflect that ZZ Trading is holding 80,000 shares in ZZ Holdings.

We note that although ZZ Holdings had written to SSM complaining about changing the shareholding information without the prior knowledge of ZZ Holdings, it is curious that it has not taken any steps to rectify the corporate information to put back Matthew and Elaine as the only shareholders of ZZ Holdings as they alleged that their shareholding had not been disturbed by the Federal Court order.

As the corporate information is a public document, it is prima facie evidence in absence of evidence to the contrary. In this case, ZZ Holdings has not proven that the corporate information contained in the print out of the SSM 21 is inaccurate. On the contrary, it is consistent with the Federal Court order and in particular the High Court Order which was affirmed by the Court of Appeal and Federal Court. Thus, the learned Judicial Commissioner had not, in our view, erred by relying on it to establish the locus standi of ZZ Trading in presenting this petition.

We will rely on the case of Owen Sim, supra22. In this case, the petitioner Owen Sim presented a petition under s. 181 of the Companies Act 1965 praying that the sale and transfer of his shares 21 ROA vol. 2(1) Part C, page 136. 22 [1996] 4 CLJ 716. 18 to the 2nd respondent be declared null and void. The 1st respondent applied to strike out the petition on the ground that it disclosed no reasonable cause of action or was scandalous, frivolous, vexatious or was an abuse of the process of the court. The High Court allowed the respondent’s striking out application, on the ground that, inter alia, s. 181(1)(b) of the Act could only be invoked by a member of a company and not by a shareholding. The petitioner appealed to the Court of Appeal against the decision of the High Court.

In allowing the appeal, the Federal Court speaking through Gopal Sri Ram JCA [as he then was] held: [11] A respondent who is guilty of unconscionable or inequitable conduct will not be permitted to raise or rely upon the requirement of membership to defeat a petitioner's standing as this would amount to his using 'statute as an engine of fraud.' It does not matter how the proposition is formulated so long it has the effect adverted to.

Although Owen Sim’s case is about a petition under s. 181, we think the principle enunciated by the Federal Court applies equally to a winding up petition under s. 218(1)(i).

Regard being had to the fact as to how ZZ Trading’s name was fraudulently removed from the register of members of ZZ Holdings, coupled with the Federal Court order and the printout of the SSM , it is unjust or inequitable to permit ZZ Holdings to challenge ZZ 19 Trading’s locus standi to move the Court. On the high authority of Owen Sim’s case, ZZ Holdings is estopped from so asserting.

For all the reasons given above, we find no merit in this ground of appeal.

(ii) Michael has no authority to represent ZZ Trading

ZZ Holdings’ Contention Learned Counsel for ZZ Holdings submitted that ZZ Holdings had objected to Michael’s authority to represent ZZ Trading in presenting the petition right from the very beginning. Michael derived his purported authority to represent ZZ Trading from the ZZ Trading’s Extra General Meeting [“EGM”] held on 26.7.2014. Two resolutions 23were purportedly passed on that day: a. to remove Matthew and Elaine as the director of ZZ Trading; and b. to appoint 3 individuals as the director of ZZ Trading, including Michael.

However, submitted learned Counsel for ZZ Holdings, the Court of Appeal on 17.11.201724 found that “all the resolutions passed at the EGM are not valid and hence not enforceable against the Appellant.”25 Therefore, from the time of ZZ Trading’s EGM held on 26.7.2014 right to the presentation of this petition on 15.4.2016 until 23 Further Supplementary Record of Appeal page 23. 24 ROA page 756. 25 Further Supplementary Record of Appeal page 23. 20 today, Michael has no authority or standing to represent ZZ Trading. As a result, this petition is a nullity from the very beginning.

ZZ Trading’s contention Learned counsel for ZZ Trading submitted that at the time the Petition was presented in April 2016, the EGM was already held and appointed Michael as the managing director. On 23.9.2016, the High Court upheld the resolutions passed in the said EGM. Until the EGM was set aside by the Court of Appeal on 17.9.2017, Michael had affirmed all the affidavits in the winding up proceedings. It was submitted that notwithstanding the COA’s decision, Michael is able to represent the ZZ Trading as an agent of necessity since ZZ Trading is the majority shareholders of ZZ Holdings and has the right to elect the management or director of ZZ Holdings and to appoint Michael to represent them.

We find this issue is a non-starter by virtue of section 127 of Companies Act 1965. This provision states as follows: The acts of a director or manager or secretary shall be valid notwithstanding any defect that may afterwards be discovered in his appointment or qualification. [Emphasis added].

As submitted by learned counsel for ZZ Trading, Michael was the appointed director of ZZ Trading when the Petition was presented and when he affirmed the affidavits on behalf of ZZ Trading during the winding up proceedings. Pursuant to section 127 of the Companies Act 1965, the Petition and the affidavits affirmed by 21 Michael are valid notwithstanding that subsequently the appointment of Michael was set aside by the Court of Appeal. Issue (b) ZZ Holdings is not a quasi-partnership. Even if it is, there is no ground to wind up on just and equitable ground.

ZZ Holdings’ Contention Learned counsel for ZZ Holdings submitted that the learned Judicial Commissioner held, “The facts as presented in the petition in my view are sufficient to show that the parties can no longer enjoy the trust and confidence that is vital in a partnership kind of arrangement as in the present petition.” 26 It was submitted that this finding self-contradicted the learned Judicial Commissioner’s own earlier realization that, “based on the facts, I am also aware that there is no direct or documentary evidence to show that the company was intended to be managed by way of an incorporated partnership.”27 That being the case, submitted counsel for ZZ Holdings, the Court could not apply the principle of quasi-partnership to this petition by solely relying on the breakdown in relationship, which alone is not sufficient to wind up a company.

Learned Counsel for ZZ Holdings further submitted that the learned Judicial Commissioner was plainly wrong in his finding that, “the formation of the companies by the father of both Michael and Huang and the relationship of the parties being members of the same family, in my view lends strong support to the Petitioner’s contention that the 26 Supplementary Record of Appeal, page 77. 27 Supplementary Record of Appeal, page 67. 22 Respondent was intended to be managed as an incorporated partnership or quasi-Partnership.”28

It was submitted that the word “companies” suggests that the learned Judicial Commissioner was influenced by the affairs of and the events occurring in the other companies. However, as far as ZZ Holdings is concerned, there was no understanding that other members were entitled to participate in its management. The learned Judicial Commissioner had erred by focusing on “the relationship between the parties………(as) family members” 29 instead on ZZ Holdings’ affairs, in total disregard of the high authority of the Court of Appeal in Yai Yen Hon, supra30, which held: Since the court here was concerned with Juta Vila (M) Sdn. Bhd., the allegations Kok has made in the petition with regard to his problem with some other businesses called Firenze Enterprise, Plus Parade Sdn. Bhd. and Globerplex (M) Sdn. Bhd. were irrelevant.

Learned counsel for ZZ Holdings submitted that there was never any understanding among the family members that any of them would be involved in the management of ZZ Holdings. Quite to the contrary and as admitted by Michael, the family members entrusted the management of ZZ Holdings to Matthew, and the family members never participated in the management of ZZ Holdings. 28 Supplementary Record of Appeal, page 67. 29 SROA pages 74-75. 30 [1997] 2 MLJ 190. 23

Under the circumstance, submitted learned Counsel for ZZ Holdings, there is no factual basis to say that there existed a “quasi-partnership arrangement” and/or that it was somehow “wrongful” for Matthew and Elaine to “exclude” ZZ Trading from participating in ZZ Holdings’ management.

It was submitted that in Abdul Ravuff bin Datuk AS Dawood v Pasla Holdings Sdn. Bhd. 31 , the Court of Appeal, citing Ebrahimi v Westbourne Galleries Ltd32 and Tien Ik Enterprises Sdn. Bhd. & Ors v Woodsville Sdn. Bhd. 33 rejected the argument that the subject company was a quasi-partnership despite the fact that the members of the company were family members [including the petitioner] and held: There is nothing to suggest that there was an agreement or understanding that all or some of the members of the Company including the petitioner could participate in the conduct of the business.

Reliance is also placed on Fairview Schools Bhd v Indrani a/p Rajaratnam & Ors (No. 2)34, where the Court of Appeal pointed to the requirement for a finding of a quasi-partnership for the shareholder to stand in relation towards each other in the same way as partnerships do. The argument of a quasi-partnership was rejected because there was no express or implied partnership between the shareholders. 31 [2003] 3 MLJ 296. 32 [1973] AC 360. 33 [1995] 1 MLJ 769. 34 [1998] 1 MLJ 110. 24

It was submitted that the learned Judicial Commissioner had not given in depth consideration of the facts when considering whether quasi-partnership existed.

Learned Counsel for ZZ Holdings further submitted that mere breakdown of relationship between the shareholder is also not enough to winding up the company, citing the case of Pan Pacific Construction Holdings Sdn. Bhd. v Ngui-Kee Corporation (M) & Anor 35 considered in Mega Education System Sdn. Bhd. v Ozone Glass Design Sdn. Bhd.36.

Thus, submitted Counsel for ZZ Holdings, it is erroneous for the learned Judicial Commissioner to completely and solely rely on the breakdown of relationship of trust and confidence between the shareholder as sufficient by itself to winding up ZZ Holdings.

Learned Counsel for ZZ Holdings also submitted that not only that the family member was not entitled to participate in the management, there were never any query as to the manner in which ZZ Holdings had been managed. All the dissatisfactions were focused on the affairs in the other companies. It was submitted that the learned Judicial Commissioner had erred by focusing on “the relationship between the parties………(as) family members” 37 instead on ZZ Holdings’ affairs, in total disregard of the high authority of the Court of Appeal in Yau Yen Hon. ZZ Trading’s Contention 35 [2010] 6 CLJ 721 [FC] 36 [2011] 6 MLJ 644 [CA]. 37 SROA pages 74-75. 25

On the other hand, learned Counsel for ZZ Trading submitted that the court’s jurisdiction under section 218(1)(i) is invoked where the company is a quasi-partnership but it can also apply to other circumstances, for example, where there is a deadlock or where there is a breakdown in mutual trust and confidence among the shareholder, citing Varusay Mohamed Shaik Abdul Rahman v SVK Patchee Bros (Malaysia) Sdn. Bhd. 38and Kok Fook Sang v Juta Vila

(M) Sdn. Bhd.39

Learned Counsel for ZZ Trading submitted that it is not wrong for the learned Judicial Commissioner to look at the background of the formation of ZZ Holdings to ascertain whether such quasi-partnership existed and having done so, it is an irrefutable fact that ZZ Trading and ZZ Holdings are family companies and all the shares in the respective companies are held by family members only.

It was submitted that regard being had to the decision and findings of the High Court in the two High Court Suits and Federal Court, it is no longer open for ZZ Holdings and Matthew to dispute the wrongdoing and fraud as set out in paragraph 13 to 29 of the Petition. Learned Judicial Commissioner had therefore correctly reached the conclusion that there was a breakdown in mutual trust and confidence between the parties to justify the winding up of ZZ Holdings.

Learned counsel for ZZ Trading submitted that learned Judicial Commissioner is correct in finding that the formation of the family 38 [2002] 3 CLJ 741. 39 [1996] 2 MLJ 666 26 companies showed that ZZ Holdings was intended to be managed as an incorporated partnership and that there were sufficient evidence to show there is a breakdown in mutual trust and confidence between the parties.

Learned Counsel for ZZ Trading submitted that the last straw was when Matthew and Elaine supported the winding up of ZZ Plantation and based on the petitions filed by their companies, resulting in winding up orders being made on 15.1. 2016.

Under section 218(1)(i) of the Companies Act 1965, the court may order the winding up of a company if it is of the opinion that this would be just and equitable that the company be wound up.

Our section 218 (I)(i) of the Act is pari materia with the provisions of section 222(f) of the Old United Kingdom Companies Act 1948. It is therefore pertinent to harken to the judicial pronouncement of Lord Wilberforce in the locus classics case of Ebrahimi v Westbourne Galleries 40 on the approach to be adopted by the court when interpreting the words “just and equitable”: There are two other restrictive interpretations which I mention to reject. First, there has been a tendency to create categories or headings under which cases must be brought if the clause is to apply. This is wrong. Illustrations may be used, but general words should remain general 40 [1973] A.C. 360, 379. 27 and not be reduced to the sum of particular instances. Secondly, it has been suggested, and urged upon us, that (assuming the petitioner is a shareholder and not a creditor) the words must be confined to such circumstances as affect him in his capacity as shareholders. I see no warrant for this either. No doubt, in order to present a petition, he must qualify as a shareholder, but I see no reason for preventing him from relying upon any circumstances of justice or equity which affect him in his relations with the company or , in a case such as the present, with the other shareholders.

In Malaysian Company Law Principles & Practice, Second Edition by Chan & Koh, learned authors wrote: The words “just and equitable” are words of the widest significance and do not intend to limit the jurisdiction of the court to any particular case. There is no necessary limit to the generality of the words “just and equitable”. It is a question of fact and each case must depend on its own circumstances and merits. It would be impossible and wholly undesirable to define the circumstances in which a company may be wound up on just and equitable grounds. Lord Wilberforce in Ebrahimi’s case had suggested that consideration of the equitable consideration might include one or more of the following three elements: 28

an association formed or continued on the basis of a personal relationship, involving mutual confidence, which is often found where a pre-existing partnership had been converted into a limited company;

an agreement, or understanding, that all, or some, of the shareholders should participate in the conduct of the business;

restriction upon the transfer of the members’ interest in the company, so that if confidence was lost, or one member was removed from management, he could not take out his stake and go elsewhere.

It cannot be gainsaid that the circumstances under which the ground of just and equitable being relied upon to wind up companies are not confined to the three categories stated in Ebrahimi’s case. Menhennitt J observed in Re Tivoli Freeholds Ltd 41that: “These headings are not an exhaustive set of categories and when all the facts of the case are examined it may be found that more than one of the recognized headings is relevant or that some new or additional aspect makes it just and equitable to winding up a company.” 41 [1972] VR 445, SC (Victoria) 29 [see, “Principles of Company Law in Malaysia” by Shanthy Rachagan, Janine Pascoe and Anil Joshi 2002 edition, page 523].

The wide discretion of the courts to wind up companies on the application of the just and equitable rule is illustrated in the following circumstances: a. a breakdown in the mutual trust and confidence of members [the ground relied upon by ZZ Trading in this petition]; b. a deadlock in management of the company because members or director do not get along; see Re Yenidge Tobacco Co. Ltd42 c. exclusion from the management of the company where there was an agreement or undertaking (see Ebrahimi, supra) or a mutual expectation; see Tay Bok Chon v Tahansan Sdn. Bhd.43 d. fraud, misconduct or oppression in the conduct and management the company’s affairs; see Lock & Anor v John Blackwood Ltd 44 or e. a failure of substratum; see Re Tivoli Freeholds Ltd45. Breakdown in the mutual trust and confidence of members

Learned authors of Malaysian Company Law principles & Practice, wrote: 42 [1916] 2 Ch 426. 43 [1987] 1 MLJ 433. 44 [1924] AC 783. 45 [1972] VR 445, SC (Victoria) 30 Breakdown of a quasi-partnership 22.115 The court can order the winding up of a company where there is a breakdown in relationship of mutual trust and confidence which was the foundation of an understanding by which the operations of the company were to be governed. These have become known as the quasi-partnership cases. It is not necessary to show that any partnership agreement or deed was entered into before the principle can be applied. A good and close working relationship may be an indication, but is not an overwhelming one, of such relationship. The history of the company and the context of the case provide useful indications as to the nature of the relationship between the shareholders. These are cases where the relationship between the company and members cannot be resolved by the application of strict principles of company law. In those cases, it may be appropriate to superimpose equitable consideration on legal principles to give effect to the agreement or understanding which exists between the parties.

In Ebrahimi’s case, supra, a private company was incorporated to take over a partnership business dealing in Persian and other carpets. The partners were the appellant and Nazar. The crucial fact was that both partners equally shared the management and the profit of the partnership. Both of them became the shareholders holding equal shares of 500 shares of one pound each and they were made the first directors of the new private company. Soon after the formation of the company, Nazar’s son, George, was made a director and each of the 31 original shareholders transferred to George 100 shares, making Nazar and is son George having a majority of votes in general meetings. The company did not distribute dividends but the directors were paid remuneration. Subsequently Nazar and his son George passed an ordinary resolution removing the appellant as the director, who thereby lost his source of remuneration. The appellant then presented his petition for the winding up of the company. The court of first instance made an order to winding up the company but this was set aside by the Court of Appeal. The appellant appealed to the House of Lords and it upheld an order winding up the company on just and equitable grounds. The finding of facts by Lord Wilberforce are important to form the basis of his Lordship’s judgment: It is apparent enough that a potential basis for a winding up order the just and equitable clause existed. The appellant after a long association in partnership, during which he had an equal share in the management joined in the formation of the company. The inference must be indisputable that he and Mr Nazar did so on the basis that the character of the association would, as a matter of personal relationship and good faith, remain the same.

One of the main points which the House of Lords was invited to consider was whether a winding up under the just and equitable ground should be based on partnership law. Lord Wilberforce reviewed the law and having considered a substantial number of cases held that: 32 My Lords, in my opinion these authorities represent a sound and rational development of the law which should be endorsed. The foundation of it all lies in the words “just and equitable” and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own; that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure…..the “just and equitable” provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equity considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights or to exercise them in a particular way. (Underline added)

The decision of the House of Lords in Ebrahimi’s case, supra, was applied in the Malaysian case of Tay Bok Choon v Tahansan Sdn. Bhd.46 which subsequently went to the Privy Council. 46 [1987] 1 MLJ 433, PC; [1987] BCLC 472; [1987] 1 WLR 413. 33

The learned author of Malaysian Company Law Principles & Practice, summarized the case of Tay Bok Choon’s case thus:

22.119 ………In that case, the issue capital of a company was equally divided between four directors. In 1980, one of the directors transferred his shares to the petitioner. In the course of the negotiations for the transfer of shares it was agreed between the directors and petitioner that he would be appointed a director and chairman of the board. The petitioner’s son was also appointed to be the fifth director. The petitioner obtained financing for the company and lent money to two of the other directors to enable them to subscribe for more shares in the company. In 1981, the board of directors voted to vest all executive powers in one Mak, who was appointed director despite the petitioner’s opposition. Subsequently, the petitioner and his son were removed as directors. The petitioner then petitioned for the winding up of the company. The learned trial Judge, N.H. Chan J. (as his Lordship then was) made a winding up order but the decision was reversed on appeal to the Federal Court.

22.120 On further appeal to the Privy Council, the order of N.H. Chan J was restored. Lord Templeman held that the petitioner had been led to believe, even in the absence of an express assurance, that he would be entitled to a seat on the board so long as he held one quarter of the issued share capital of the company. 34 Although there was no express assurance or specific undertaking to this effect, the Board was satisfied that such an obligation was to be inferred from the conduct of the parties. It was never contemplated that the petitioner would be reduced to the supine position of a minority shareholders whose only right was to attend the company in general meeting. That being so, the petitioner had made out his case to have the company wound up.

In Kok Foo Sang’s case, supra, the appellant, the second respondent and third respondent were directors and hold of a construction company. There were differences between the directors and the appellant filed a petition to the court. A winding up order was sought by way of an alternative on the grounds that the parties had operated the company as though it was a partnership, under section 218(1) of the Companies Act 1965. The Judicial Commissioner rejected the appellant’s application. the appellant’s appeal was dismissed by the Court of Appeal, which held, inter alia: In Ebrahimi v Westbourne Gallaries Ltd & Ors [1973] AC 360 at p 379 Lord Wilberforce said: Certainly the fact that a company is a small one, or a private company, is not enough. There are very many of these where the association is a purely commercial one, of which it can safely be said that the basis of association is adequately and exhaustively laid down in the articles. There must be something more. There must be shown situations which will enable the winding up court to exercise its equitable jurisdiction to order the company to be wound up…… 35 ……………… For instance, if there was a deadlock in the management of the company (which was in substance a partnership) because the members or directors did not get along: see Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426. Similarly, where the petitioner in a partnership like company had been deliberately excluded from the management of the company where there was an agreement or undertaking (Re Westbourne Gallaries Ltd [1973] AC 360) or a mutual expectation (Tay Bok Choon v Tahansan Sdn Bhd [1987] 1 MLJ 433) that he would be allowed to participate in managing the company. Also, where the minority members of a partnership like company have lost confidence in the directors because of their lack of probity in the conduct of the company's affairs: see Loch & Anor v John Blackwood Ltd [1924] AC 783 where it was accepted by Lord Shaw that the object of the directors was to keep the petitioners in ignorance so as to acquire their shares at an under value, and Re Wondoflex Textiles Pty Ltd [1951] VLR 458 where those in control of the company tried to squeeze a minority member out of the company with the object of making his position intolerable. Put shortly, what it means is this, where a company is in substance an incorporated partnership, a winding-up order may be made (under the just and equitable rule) in situations where a partnership may be dissolved by the court. But where the company is not in substance an incorporated partnership, such situations are no longer 36 grounds for a winding-up order to be made under the rule as the use of the partnership analogy is no longer valid. [[Underline added] In the instant case, the petitioner asks for the company to be wound up merely because it is in substance an incorporated partnership. But that is not enough. For a winding-up order under the just and equitable rule to be made, in the case of a partnership like company, there must be shown situations where a partnership may be dissolved by the court. None are shown in the petition.

Learned authors of “Principles of Company Law in Malaysia” further wrote at page 524: The question of what constitute a breakdown in confidence such as to justify winding up a company arose in the Australian case of Carpenter v Carpenter Grazing Co Pty Ltd (1986) ACLC 18. A dispute involving share allotments was resolved by the court when an allotment was declared invalid as not being in the interests of the company as a whole. However, the court refused to winding up the company. Although the company was a small, family company it was not a quasi-partnership as referred to as in Ebrahimi v Westbourne Galleris Ltd [1973] AC 360. In the circumstances of Carpenter’s case, the company was set up by a father in a way which conferred control of management on him and gave equity interest only to the children. This meant that the company was no analogous to a partnership, which presumes all 37 partners have the right to participate in management. The fact that there had been a dispute over reactive shareholdings which had since been resolved by the court, did not in itself show an irretrievable breakdown of confidence nor a deadlock between family members. The above principles have been adopted in both Singapore and Malaysia. The High Court in Singapore held that relief may be given to a shareholder of a company who is in effect a “partner” in an “incorporated partnership” where it can be proved that there is oppression by the other “partner”: Re La Mar Diamant (Overseas) Pty Ltd (1993) 3 MSCLC 95, 973. The court held that in such circumstances, had there been an application for a winding up, the application would have been granted on the ground that the relationship of good faith and trust in the partnership arrangement had broken down and the winding up would have been justified under the “just and equitable” ground. [Underline added]

The Court of Appeal in Yap Yen Hon & Ors v Lim Mong Sam @ Lim Ah Tee,47 supra, held: Even if the respondent had crossed the first hurdle of quasi-partnership, he had to clear another hurdle of exclusion from management before a consideration can 47 [1997] 2 MLJ 190. 38 arise as to whether the company should be wound up under the just and equitable rule. ………. In several leading cases in which there was an obligation to allow the petitioner to participate in the management, the petitioner was removed as a director and consequently excluded from management. These cases are Re Lundie Brothers Ltd [1965] 2 All ER 692, Ebrahimi v Westbourne Galleries Ltd [1972] 2 All ER 492 and Tay Bok Choon v Tahansan Sdn Bhd [1987] 1 MLJ 433. In these cases, petitions were presented after the petitioners were removed as directors.

The principle that can be distilled from the case authorities is even though the Companies Act and the companies’ articles may allow for a particular course of action, such as the removal of a director, where the company was in substance a “quasi-partnership” the majority shareholders had to act in a way which was consistent with the understanding the shareholders had at the time the company was formed. This understanding involved mutual confidence. Where the understanding had been repudiated and the minority shareholder was excluded from management of the affairs of the company and deprived of his right to share in its profits as in Ebrahimi’s case, the circumstances for the application of just and equitable ground exists to wind up a company. 39

As submitted by learned Counsel for the Appellant, there are two hurdles which the ZZ Trading must fulfill before the Court can exercise its equitable jurisdiction to wind up a company on the just and equitable ground. The first hurdle is that ZZ Trading must prove that ZZ Holdings is in substance a incorporated partnership. If the company is not an incorporated partnership, there is no ground to winding up the company. The second hurdle is that ZZ Trading should plead the circumstances of “just and equitable” under section 218(1)(i) of the Companies Act 1967. First hurdle: Whether ZZ Holdings was an incorporated company/quasi-partnership?

We have no hesitation to find that the learned Judicial Commissioner is clearly wrong in holding that ZZ Holdings is an incorporated partnership or a quasi-partnership when there is no evidence whatsoever to substantiate. It is apparent from the Grounds of Decision that the learned Judicial Commissioner was fully aware of the lack evidence which would suggest that ZZ Holdings was intended to manage like an incorporated partnership. He clearly stated: “Based on the facts, I am fully aware that there is no direct or documentary evidence to show that the company was intended to be managed by way of an incorporated partnership”.

We also find that the learned Judicial Commissioner had fallen into error when he considered the background of the formation of ZZ 40 Holdings and based on the fact ZZ Trading and ZZ Holdings are family companies and that the majority shareholders of these companies are from the same family, he concluded that ZZ Holdings was intended to be managed as an incorporated partnership or quasi-partnership, even though there is no direct or documentary evidence to support it.

As can be seen in the Australian case of Carpenter v Carpenter Grazing Co Pty Ltd 48, supra, even though it was a small family company, the court refused to winding up the company because it was not an incorporated partnership. The company was set up by a father who conferred control of management on himself and gave equity interest to the children. The company was likened to partnership in which all partners were presumed to have the right to participate in management.

The glaring fact in this case is that there is no evidence whatsoever to suggest that family members had participated in the management of ZZ Holdings or presumed to have the right to participate in the management of ZZ Holdings. ZZ Trading in the petition averred that the family company’s business was carried out based on mutual trust and confidence. To this end, the late Kwan Chee Hang and the family members had fully entrusted the management of KCHSB, ZZ Trading, ZZ Holdings and Granright to Matthew being a family member.49

This is confirmed by Matthew in the following Respondent’s affidavit in opposition, namely: 48 (1986) ACLC 18. 49 ROA vol. – Part A & B, page 12, paragraph 12. 41 a. paragraph 16 of the Respondent’s affidavit in opposition affirmed on 4.7.2016 50, where he averred as follows:

the Respondent denied Petition paragraph 12. Save that at all material times, the Respondent, ZZ Plantation and Granright were managed solely by myself and/or my wife. There were never managed by any other existing family member at least since 1997, nor has there been any agreement or understanding that other family members are entitled to participate in the management of the Respondent. b. paragraph 3 of the Respondent’s affidavit in reply dated 18.6.2016, as follows:51

PA3 paragraph 10 is not admitted, save and except that the companies stated therein, with the exception of Kwan Chee Hang Sdn. Bhd., have always been managed by myself and my wife and have never been managed by Michael or any other existing family member. [NB. “COMPANIES” referred to family companies including ZZ Holdings].

The above averments were not credibly refuted by ZZ Trading.

It may be true that the family members in entrusting the management of the family companies including ZZ Holdings to Matthew had trust and confident that he would manage it with honestly, least to commit 50 ROA vol. -Part A & B page 31, paragraph 16. 51 ROA vol. 1-Part A & B, page 61. 42 fraud against the members of family companies including ZZ Holdings. Be that as it may, the glaring fact is that no members of the family companies including ZZ Holdings was involved in the management or expected to be involved in the management of ZZ Holdings. The incorporation of ZZ Holdings bears no semblance to a partnership in which members of ZZ Holdings participated or presumed to have rights to participate in the management of the company. Neither was any evidence to show that ZZ Trading/ KCHSB/Michael had monitored Zung Zang Holdings’ management since its inception and which had continued to be date of the winding up presentation.

It is settled law that to constitute a breakdown in relationship of mutual trust and confidence, there must exist an arrangement analogous to a partnership. In as much as a partnership may be dissolved by the court under the just and equitable rule, that company may be similarly wound up if the petitioner shows that it is just and equitable to do so.

Upon finding that there was no evidence to show that ZZ Holdings is an incorporated partnership or quasi-partnership, the learned trial Judge ought to have forthwith dismiss the petition. The learned Judicial Commissioner has fallen into error by ordering ZZ Holdings to be wound up on the ground of just and equitable when ZZ Trading has failed to prove that ZZ Holdings is an incorporated company or quasi-partnership.

On this ground alone, the appeal should be allowed without the need to consider other grounds raised in the appeal. 43

It is therefore our unanimous decision that the appeal be allowed with cost and the order of the High Court is set aside with cost of RM50,000.00 subject to payment of allocatur. Dated: 10 October 2019 Sgd YEW JEN KIE (delivering judgment of the court) Court of Appeal Judge Putrajaya For Appellants : CHUNG JIUN DAU (CHEN KOK ON bersamanya) [CHUNG & ASSOCIATES] For Respondents : NORBERT YAPP [NORBERT YAPP & Associates] Notice: This copy of the court’s reasons for judgment is subject to editorial revision.