|
|
www.ipsofactoJ.com/appeal/index.htm [2008] Part 2 Case 8 [CAM] |
|
Judgment
Mokhtar Sidin JCA
Pan-Pacific Construction Holdings Sdn Bhd, the petitioner in the court below, took out the present petition praying for an order that Ngiu-Kee Corporation (the 1st appellant) sell their 70% shareholding in Pacific-Ngiu Kee Sdn Bhd (the 1st respondent in the court below) at a fair and commercial price or for the company to be wound up. The 1st appellant was the 2nd respondent in the court below while the 2nd appellant was the 3rd respondent in the court below. To avoid any confusion we will refer to the parties as they were in the court below.
The petition, inter alia, states:
|
THE RESPONDENTS
The Petitioner therefore prays as follows:
|
The 2nd and 3rd respondents gave notice of intention to appear on the petition. By a notice of motion dated 9 July 2004 the 2nd and 3rd respondents applied to strike out the petitioner's petition. The motion, inter alia, states:
|
(1) |
the Petition dated 3rd March 2004 filed herein be struck out pursuant to the inherent jurisdiction of this Honourable Court for
|
||||
|
(2) |
further or other relief that this Honourable Court deems fit and appropriate; |
||||
|
(3) |
costs of and occasioned by this application and the Petition be borne and paid by the Petitioner, |
|
The reasons behind this application are as follows:
|
On 29 October 2004, the learned judge dismissed the motion by the 2nd and 3rd respondents.
Before the hearing of the petition the parties filed a statement of agreed facts which read as follows:
|
STATEMENT OF AGREED FACTS THE RESPONDENTS
THE HISTORICAL BACKGROUND OF 1ST RESPONDENT
THE FIDUCIARY RELATIONSHIP BETWEEN THE PETITIONER AND THE 2ND RESPONDENT
THE AFFAIRS AND CONDUCT OF THE 1ST RESPONDENT Alleged Advance of RM3.78 million by the 2nd Respondent and the interests charged.
In addition the parties agreed that the issues for the trial are as follows: AGREED ISSUES FOR TRIAL
|
Although the agreed issues for trial are as stated above, it is clear to us that the order that the petitioner prayed for is:
|
(1) |
That the 2nd respondent may be ordered to sell all its shares in the 1st respondent to the petitioner at a fair and commercial price to be determined by a firm of auditors namely Messrs Ernst & Young or such other firm of auditors to be appointed by this Honourable Court; OR |
|
(2) |
That the 1st respondent may be wound up. |
The application by the petitioner to wind up the 1st respondent is under s. 181 of the Companies Act 1965. Section 181 of the Companies Act provides:
|
181. |
Remedy in cases of an oppression
Penalty: One thousand ringgit. Default penalty. |
We believe that the authority to wind up a company on the ground of oppression is Re Kong Thai Sawmill (Miri) Sdn Bhd; Kong Thai Sawmill (Miri) Sdn Bhd v Ling Beng Sung [1978] 1 LNS 170; [1978] 2 MLJ 227. The respondent in that case had applied by originating summons in his capacity as a member of the first appellant company for a number of orders the gist of which was that the second and third appellants be removed from office as managing director and director respectively and a receiver and manager be appointed to conduct the company's affairs and for repayment of various sums alleged to have been disposed of wrongfully or without proper authorization. There was an alternative relief asked for that the company be wound up. The company was a family company in which the elder brothers (the second and third appellants) were the majority shareholders. The respondent and two younger brothers were minority shareholders. It was alleged that the second and third appellants had committed breaches of their powers as directors of the company and in particular complaint was made relating to:
the purchase and outfitting of a motor yacht, Berjaya Malaysia;
loan to Mr. Harun Ariffin;
donations to political parties;
advances to and investments in joint ventures;
drawing by the second and third appellants from the company's funds, and
remuneration paid to the second appellant as managing director.
It appeared that after inquiries were made by the respondent many of the acts of the second and third appellants were validated by resolutions of the company. The learned trial judge dismissed the application but on appeal the Federal Court ([1976] 1 MLJ 59) held:
that the purchase by the second appellant of the yacht, Berjaya Malaysia was misuse of the company's funds and the moneys which he had paid out or for which he had himself reimbursed from the company's funds in respect of the donations to political parties were improperly paid. The second appellant should therefore take over the Berjaya Malaysia and pay to the company all the money spent on it and also pay the company the amount of donations paid to the political parties;
that in order to protect the minority shareholders in this case the court would order:
that one of the younger brothers be appointed director to safeguard their interests;
that donations be made in future only with the prior approval of the board of directors;
that no bank account be operated without the signatures of two directors, one of whom shall be other than the elder brothers, i.e., the majority shareholders;
that no moneys be drawn by any of the directors without the prior approval of the Board;
that the power delegated to the first respondent to make investments on behalf of the company be cancelled;
that three clear days' notice be given in writing of any directors' meetings, and
that the bonus for the directors in future be 2% of the nett profits and that no bonus be paid until after the passing of the company's accounts at the Annual General Meeting.
On appeal the Privy Council held:
|
(1) |
the courts in applying section 181 of the Companies Act, 1965, should do so according to its terms and its purpose and should not regard themselves as necessarily bound by United Kingdom decisions which were based upon a different section and in some cases restrictive. The same would apply, though with less force, to reliance upon Australian decisions based upon section 186 of the Australian Companies Act, 1951; |
|
(2) |
relief could not be sought under section 181 of the Companies Act, 1965 merely because facts were established which would found a minority shareholders' action; the section required "oppression" or "disregard" to be shown and these were not necessary elements in a minority shareholders' action. But if a case of "oppression" or "disregard" were made out the section would apply and it was no answer to say that the relief might also have been obtained in a minority shareholders' action; |
|
(3) |
for the case to be brought within section 181(1)(a) of Companies Act 1965 at all, the complaint must identify and prove "oppression" or "disregard". The mere fact that one or more of those managing the company possessed a majority of the voting power and, in reliance upon that power, made policy or executive decisions, with which the complainant did not agree, was not enough. There must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder was entitled to expect before a case of oppression could be made out. Similarly "disregard" involved something more than a failure to take account of the minority's interest: there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure; |
|
(4) |
what was attacked by section 181(1)(a) of the Companies Act was not particular acts but the manner in which the affairs of the company was being conducted or the powers of the directors exercised. These might be held to be "oppressive" or "in disregard" even though a particular objectionable act might have been remedied; |
|
(5) |
in this case none of the nine particular complaints listed by the Federal Court were substantiated and such relief as the Federal Court decided to give in respect of four of them could not be justified. There was no occasion to grant the ancillary relief under the remaining heads; |
|
(6) |
the grant of winding up was in the discretion of the court. In exercising this discretion the court would have in mind the character of the remedy, if sought to be applied to a company which was a going concern; it would take into account inter alia the gravity of the case made out under section 181(1) of the Companies Act 1965; the possibility of remedying the complaints proved in other ways than by winding the company up; the interest of the applicant in the company; and the interests of other members of the company not involved in the proceedings. In this case the respondent had failed completely to make out a case for winding up the company; |
|
(7) |
the remuneration of the directors and of the managing director which had been regularly voted and approved by the shareholders was a matter for them and no case could be made for interfering with that decision. |
Lord Wilberforce (delivering the judgment of the Court) at pp. 228-229 said:
|
Before examining such heads of claim as have survived, their Lordships must refer to the relevant law. Section 181(1) and (2) of the Malaysian Companies Act, 1965, are as follows: .... [quoted in para [7] of this judgment] This section can trace its descent from section 210 of the United Kingdom Companies Act, 1948 which was introduced in that year in order to strengthen the position of minority shareholders in limited companies. It also resembles the rather wider section 186 of the Australian Companies Act, 1951. But section 181 is in important respects different from both its predecessors and is notably wider in scope than the United Kingdom section. In sub-section (l)(a) it adds disregard of the interests of members, etc to oppression as a ground for relief in this respect making explicit what was already inherent in the section (set In Re H.R. Harmer Ltd). It introduces a new ground in sub-section (1)(b) and, most importantly, in sub-section (2), which sets out the kinds of relief which may be granted, it provides for "remedying the matter complained of" and states as a specific type of relief that of winding-up of the company. Section 210 is differently constructed. Under it, the court is required to find that the facts would justify the making of a winding-up order under the "just and equitable" provision in the Act. But also that to wind-up the company would unfairly prejudice the "oppressed" minority. The Malaysian section, on the other hand, requires (under subsection 1(a)) a finding of "oppression" or "disregard", and then leaves to the court a wide discretion as to the relief which it may grant, including among the options that of winding the company up. That option ranks equally with the others, so that it is incorrect to say that the primary remedy is winding-up. That may have been so before 1948 and even after the enactment of section 210, but is not the case under section 181. There are three particular points of direct relevance in the present appeal. First, it is claimed by the appellants that the section is not a substitute for a minority shareholders' action and specifically, that many if not most of the matters complained of would properly form the subject of such an action. Their Lordships agree with this in part Relief cannot be sought under section 181 merely because facts are established which would found a minority shareholders' action: the section requires (relevantly) "oppression" or "disregard" to be shown, and these are not necessary elements in the action referred to. But if a case of "oppression" or "disregard" is made out the section applies and it is no answer to say that relief might also have been obtained in a minority shareholders action. To the extent that the appellants so contend their Lordships do not accept their argument. Secondly, for the case to be brought within section 181(1)(a) at all, the complaint must identify and prove "oppression" or "disregard". The mere fact that one or more, of those managing the company possess a majority of the voting power and, in reliance upon that power, make policy or executive decisions, with which the complainant does not agree, is not enough. Those who take interests in companies limited by shares have to accept majority rule. It is only when majority rule passes over into rule oppressive of the minority, or in disregard of their interests, that the section can be invoked, As was said in a decision upon the United Kingdom section there must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect before a case of oppression can be made (Elder v Elder & Watson Ltd): their Lordships would place the emphasis on "visible". And similarly "disregard" involves something more than a failure to take account of the minority's interest: there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure (per Lord Clyde in Thompson v Drysdale). Neither "oppression" nor "disregard" need be shown by a use of the majority's voting power to vote down the minority: either may be demonstrated by a course of conduct which in some identifiable respect, or at an identifiable point in time, can be held to have crossed the line. Thirdly, in a number of United Kingdom decisions it has been held that for section 210 to apply the complainant must show oppression continuing up to the date of proceedings (e.g., In Re Jermyn Street Turkish Baths Ltd); where there has been oppression in the past the section does not bite. Their Lordships agree that the wording of the section (and the same is true of section 181(1)(a)) relates to a present state of affairs: "are being conducted", powers "are being exercised" are grammatically clear: the language may be contrasted with that of section 181(1)(b) which refers to an act of the company which has been done or threatened. But this argument must not be taken too far. What is attacked by sub-section (l)(a)) is not particular acts but the manner in which the affairs of the company are being conducted or the powers of the directors exercised. And these may be held to be "oppressive" or "in disregard" even though a particular objectionable act may have been remedied. A last minute correction by the majority may well leave open a finding that as shown by its conduct over a period, a firm tendency or propensity still exists at the time of the proceedings to oppress the minority or to disregard its interests so calling for a remedy under the section. This point is well brought out in Re Bright Pine Mills Pty Ltd. Their Lordships have made these observations upon the Malaysian section 181, not because they disagree with the statement of the law by the Federal Court - which indeed recognized the wider scope of section 181 as compared with the corresponding provisions in England and in Australia, They are concerned rather to emphasise the utility of the jurisdiction conferred upon the courts in Malaysia, and to deal with particular arguments urged in this case with some of which they do not agree. It is now necessary to relate them to the facts as proved. |
The principles stated in the above case have been followed not only by the Malaysian courts but also by the Singapore courts and other courts in the Commonwealth. This is the leading authority in respect of s. 181 of the Companies Act 1965.
In Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd [1994] 1 LNS 73 Anuar J (as he then was) cited Re Tivoli Freeholds Ltd:
|
In Re Tivoli Freeholds Ltd at p 452, Menhennitt J said:
|
The words 'unfairly prejudicial' and 'just and equitable' had been explained by Hoffmann LJ in Re Saul D Harrison & Sons plc [1995] 1 BCLC 14 at pp. 17-19 where he said:
|
3. 'UNFAIRLY PREJUDICIAL' AND 'JUST AND EQUITABLE' What must a petitioner show in order to justify an order under s. 459 or an order to wind up? The grounds for winding up are that it is 'just and equitable' to do so. The grounds for an order under s. 459 are that
In deciding what is fair or unfair for the purposes of s. 459, it is important to have in mind that fairness is being used in the context of a commercial relationship. The articles of association are just what their name implies: the contractual terms which govern the relationships of the shareholders with the company and each other. They determine the powers of the board and the company in general meeting and everyone who becomes a member of a company is taken to have agreed to them. Since keeping promises and honouring agreements is probably the most important element of commercial fairness, the starting point in any case under s. 459 will be to ask whether the conduct of which the shareholder complains was in accordance with the articles of association. The answer to this question often turns on the fact that the powers which the shareholders have entrusted to the board are fiduciary powers, which must be exercised for the benefit of the company as a whole. If the board act for some ulterior purpose, they step outside the terms of the bargain between the shareholders and the company. As a matter of ordinary company law, this may or may not entitle the individual shareholder to a remedy. It depends upon whether he can bring himself within one of the exceptions to the rule in Foss v Harbottle [1843] 2 Hare 461. But the fact that the board are protected by the principle of majority rule does not necessarily prevent their conduct from being unfair within the meaning of s. 459. Enabling the court in an appropriate case to outflank the rule in Foss v Harbottle was one of the purposes of the section. So in Re a Company (No 00370 of 1987), ex p Glossop [1988] BCLC 570, [1988] I WLR 1068, where the complaint was of a consistent refusal by the board to recommend payment of a dividend, Harman J said that such conduct could make it just and equitable to wind up the company. He did so by reference to the seminal judgment of Lord Wilberforce in Howard Smith Ltd v Ampol Petroleum Ltd [1974] I All ER 1126, [1974] AC 821 on the principles by which the court decides whether the conduct in question could justify a just and equitable winding up and also whether it is unfair for the purposes of s. 459. ... Although one begins with the articles and the powers of the board, a finding that conduct was not in accordance with the articles does not necessarily mean that it was unfair, still less that the court will exercise its discretion to grant relief. There is often sound sense in the rule in Foss v Harbottle [1843] 2 Hare 461. In choosing the term 'unfairly prejudicial', the Jenkins Committee (para 204) equated it with Lord Cooper's understanding of 'oppression' in Elder v Elder and Watson [1952] SC 49:
So trivial or technical infringements of the articles were not intended to give rise to petitions under s. 459. Not only may conduct be technically unlawful without being unfair: it can also be unfair without being unlawful. In a commercial context, this may at first seem surprising. How can it be unfair to act in accordance with what the parties have agreed. As a general rule, it is not. But there are cases in which the letter of the articles does not fully reflect the understandings upon which the shareholders are associated. Lord Wilberforce drew attention to such cases in a celebrated passage of his judgment in Ebrahimi v Westbourne Galleries Ltd [1972] 2 All ER 492 at 500, [1973] AC 360 at 379, which discusses what seems to me the identical concept of injustice or unfairness which can form the basis of a just and equitable winding up:
Thus the personal relationship between a shareholder and those who control the company may entitle him to say that it would in certain circumstances be unfair for them to exercise a power conferred by the articles upon the board or the company in general meeting. I have in the past ventured to borrow from public law the term 'legitimate expectation' to describe the correlative 'right' in the shareholder to which such a relationship may give rise. It often arises out of a fundamental understanding between the shareholders which formed the basis of their association but was not put into contractual form, such as an assumption that each of the parties who has ventured his capital will also participate in the management of the company and receive the return on his investment in the form of salary rather than dividend. These relationships need not always take the form of implied agreements with the shareholder concerned; they could enure for the benefit of a third party such as a joint venturer's widow. But in Ebrahimi v Westbourne Galleries Ltd ([1972] 2 All ER 492; 500) Lord Wilberforce went on to say:
Thus in the absence of 'something more', there is no basis for a legitimate expectation that the board and the company in general meeting will not exercise whatever powers they are given by the articles of association. |
In Toh Kian Chuan v Swee Construction and Transport Co (Malaya) Sdn Bhd [1995] 1 LNS 317 Mohd Ghazali J (as he then was) said:
|
From my reading of the circumstances forwarded by the petitioner, the oppression that he was complaining about seems to relate more towards the directors of the respondent company rather than towards the affairs of the respondent company itself. From the facts, I gather that the petitioner and a few directors and shareholders of the respondent company are from the same family. The petitioner has contended that the respondent company in essence is managed by three directors, namely, TBC, the said Toh Kian Boon and one Toh Keng Gee. He claimed that he played a significant role in the respondent company for over 30 years and that he had continued to serve the company until his employment was terminated on 15 June 1994. In his affidavit in support of the petition, he did not specifically state that he was its chief executive and had chaired several meetings relating to the transaction over the said land but only said so when TBC alleged in his affidavit that he had failed to disclose 'fully and frankly' all the facts. In reply, the petitioner explained that being the elder brother of the family, he was invited to chair most of the meetings but contended that 'he believed that he was only informed of the facts that they wish to let him know'. As stated earlier, what needs to be determined by the court is whether the petitioner has brought himself within the scope of s. 181(1) of the Act. What is the scope of s. 181(1)? In The Law of Company Liquidation by J O'Donovan (3rd Ed), which was referred to in the submission of counsel for the respondent company, the learned author said (at pp 141-142) that relief under s. 320 of the Australian Companies Act (which is the equivalent of s. 181 of our Act) is available to any member of a company who complains that its affairs are being conducted in a manner which is oppressive to one or more of the members, including himself and that the second requirement is that it must be the affairs of the company itself which are conducted in an oppressive manner. The learned author then went on to say at pp 143-144):
|
In Elder v Elder & Watson Ltd [1952] SLT 112, with regard to the phrase oppressive to some part of the members' found in s. 210 of the English Companies Act 1948 (which is the equivalent of s. 181 of our Act), Lord President (Cooper) said (at p 113):
|
... the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a company is entitled to rely. This, broadly speaking, was the class of case which the draftsman of s. 210 evidently had in mind, and the question is whether the petitioners have brought themselves, within the scope of the section. |
At p 116 of the same case, Lord Keith said:
|
It is not lack of confidence between shareholders per se that brings s. 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involves, I think, at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder; |
And at the same page further said:
|
The company's affairs must be conducted in a manner oppressive to some part of the members and that connotes to my mind an abuse of power by some person or persons controlling the company and resulting in injury to the rights of some part of its members. |
In Re Kong Thai Sawmill (Miri) Sdn Bhd [1978] 1 LNS 170; [1978] 2 MLJ 227, Lord Wilberforce said (at p 229):
|
The Malaysian section, on the other hand, requires (under sub-s 1(a)) a finding of 'oppression' or 'disregard', and then leaves to the court a wide discretion as to the relief which it may grant, including among the options that of winding the company up. |
Further down at p. 759 the learned judge said:
|
For the petitioner to succeed in his application for the said reliefs, he must show the following, namely:
|
On the whole, I am of the view that the circumstances and matters complained of by the petitioner do not at all denote that there was oppression within the meaning of s. 181(1) of the Act. There is nothing to show that the respondent company's actions complained of were designed to injure the petitioner in his rights as a member. The petitioner was privy to the whole transaction from day one, i.e. from the day the three lots were sold to Wangsa Idaman Sdn Bhd and the negotiations and agreements which ensued after TBC informed the respondent company that Mustapha Buang was in a position to get the said land 'converted' and subdivided for the purpose of developing it into an industrial estate right up to his termination as chief executive of the respondent company. He is a member of both the respondent company and LMSB and there is evidence to show that he was aware of the arrangement made between the respondent company and Mustapha Buang who was using Wangsa Idaman Sdn Bhd as a vehicle for the 'conversion' and subdivision of the said land. His contention that the approval was only with regard to surrender and re-alienation and not by way of 'conversion' and subdivision has no bearing upon his complaint at all as the end result was the same, i.e. the state government has agreed to the surrender and re-alienation of the said land in the form of several units with the category of land use of 'building' and 'industry'.
Let us now turn to the present appeal. The learned judge in his judgment said:
|
The matters relied on by the Petitioner as justifying those allegations concern (leaving out those which the Petitioner no longer pursue):
(1) RM3.78 million loan and interest charged The books of the Company showed that the 2nd Respondent had advanced to the Company the sum of RM3.78 million as on 31 May 2003 but this was queried by the Petitioner and also queried was the rate of interest charged. This resulted in the appointment of Ernst & Young, a firm of auditors, to verify the matter and the firm came back with their report on 17 September 2004 after the petition was filed. The report was of the view that of the alleged RM3.78 million loan, the sum of RM861,366.35 was not supported by any verifiable documents. But it was recorded in the minutes of the Company's board meeting held on 10 November 2005 that Liew Tuck Wah, the area manager of the Company, "had furnished all the documentation to Ernst & Young to provide him with a written confirmation that the amount of RM861,000/- had been reconciled in the year 2004". When Liew Tuck Wah testified, he was not questioned as to his said assertion in the board meeting that the sum had been reconciled and as to how it was reconciled. What is established at most was that there was some accounting deficiency, in that credits and debits were raised without the usual consent or the necessary supporting documents, and not that there was any attempt on the part of any of the Respondents or any of them to inflate the amount of the indebtedness so as to siphon the money of the Company away. It was not suggested to any of the witnesses who testified on behalf of the Respondents and neither did the auditor's report so suggest. However, whether the sum of RM861,000 had been reconciled as asserted by Liew Tuck Wah depends very much on the auditor's confirmation for which Liew Tuck Wah was supposed to obtain for tabling at the next board meeting. There is no evidence as to whether the auditor will or will not confirm the reconciliation. Given the manner in which the accounts were kept and kept by the same internal accountant working for the Company, the 2nd Respondent and another company called Maestro Products Sdn Bhd, the Petitioner was justified in being suspicious and for feeling that something was amiss which the auditor confirmed. I am not unaware that the Company was already given the opportunity to explain and had in fact attempted to explain by supplying the documents through their letter dated 22 April 2004 as noted by the auditor but fail to do so. If Liew Tuck Wah's assertion that the account had been reconciled is true and confirmed by the auditor, that would be the end of the matter. If it cannot be reconciled and an auditor so say, it would mean that what was asserted by Liew Tuck Wah at the meeting was a ruse to get out of the situation and made for the purpose of defeating the petition; if it is such a ruse, it could only work for now but cannot defeat a subsequent petition based on the failure to reconcile the account because the failure worked to the advantage of the 2nd and 3rd Respondent, it being that Maestro Products Sdn Bhd is a company under their control. For the present, the manner, described earlier, in which the accounts had been maintained disadvantage of the Company and thus to the detriment or disregard of the interests of the Petitioner and that also explained their lack of urgency in resolving the matter of the said deficit amount. It was not unreasonable for the Petitioner on the matters I have referred to lose their trust and confidence in the 2nd Respondent as a partner of the joint venture enterprise. It was contended on behalf of the Respondents that "PW1 agreed during cross examination that the issue of advances and interest charged on the advances by the 2nd Respondent had been resolved (page 14 NOP)." But that is not quite correct because it was only the question of interest that was resolved as can be gathered by the following question and answer of PW1, Mr Lo Vui Bin and not the question of the amount of the loan:
As for the matter of the interest, even if it had been resolved it does not mean the end of the petition because, as said in Re Kong Thai Sawmill (Miri) Sdn Bhd, at p. 229:
It bears mentioning that before the matter of the interest was resolved the 3rd Respondent had attempted to explain that certain interest was not really interest but "3% charged by Maestro Products Sdn Bhd as commission is actually for freight charged incurred on centralizing purchasing". At the very least, that attempted explanation was a clear admission that the accounts kept do not reflect the actual nature of the transaction and surely it is not a behaviour that one expects from a joint venture partner. (2) Company paying salaries of three staffs of 2nd Respondent It is not in dispute that the Company was made to pay for the salaries of three staffs who were based in the office of the 2nd Respondent in Kuala Lumpur totaling over RM30,000.00 per month. The 3rd Respondent justified it in these words:
If anything, it shows that unless the Petitioner is constantly on the alert about how the 2nd Respondent dealt with the accounts including how it charged the Company with expenses, the expenses may simply be loaded to the disadvantage of the Company and thus affects the bottom line of the account of the Company. The fact that the 2nd Respondent had stopped doing so, that is charging the Company the salaries of the staffs employed by the 2nd Respondent, is a clear admission that it was wrong to do so in the first place. The so-called pro rata sharing of the expenses, as explained by the 3rd Respondent, do not hold water simply because what the 2nd Respondent alleged they were doing to justify loading the salaries onto the Company was already provided for in the form of payment of a fee of 1% based on the turnover of the Company by the Petitioner to the Respondent which worked out to be RM300,000 in one year and RM450,000 in another year. Since the explanation was obviously untenable, it would have been a waste of time to examine the 3rd Respondent on this point when she testified and therefore that fact that she was not questioned on this does not mean that what was done was right when it was admittedly wrong in the 2nd Respondent discontinuing such loading of salary expenses onto the Company. (3) Using Company's staff to look after Lawas store of 2nd Respondent Again there is no dispute that a staff paid for by the Company was made use of to look after the Lawas store of the 2nd Respondent in which the Company has no interest. But 3rd Respondent was dismissive of the issue by saying that: "Too small an amount to make it an issue." It was also revealed that the staff was also made use of to help in the Marudu store of the 2nd Respondent. Conclusions When you have such a series of incidents as have been adverted to earlier with each resulting in the detriment of the Petitioner but to the advantage of the 2nd Respondent, then the cumulative effect of them is to make any partner of the 2nd Respondent very wary of their behaviour and justifiably to lose confidence in them. This is exactly what has happened with the Petitioner. The situation is made worse by the attitude of the 3rd Respondent, who ran not only the Company but eleven other stores belonging to the 2nd Respondent, in saying, what I would term, what comes to mind without caring for the consequence or the accuracy and if it was to her advantage; this is a reflection in the unfair manner she dealt with the Company and the Petitioner. When the 3rd Respondent was queried in a meeting on why the Company was suffering losses as compared to other profitable years, this was minuted as to what she had said:
That accusation had since been retracted and it was sought to explain that what the 3rd Respondent said was a "knee-jerk reaction" but it reflects adversely on the person making the statement. Not only did she say what came to mind, she seems also to say whatever meets her aim which was to justify the losses irrespective whether it is the truth and how as a result it unfairly casts aspersion on others by saying the accounts were fabricated. That being the case, it is difficult to expect the Petitioner to continue to have confidence and trust in the 3rd person and consequently in the 2nd Respondent, since the 3rd Respondent is in effective charge of both the Company and the 2nd Respondent. Then there is the manner in which the account was loaded with expenses against the Company's interest and consequently against the interest of the Petitioner which I have already adverted and which contributed to the losses of the Company. What I have said clearly established the fact that the 2nd Respondent and the 3rd Respondent had conducted the affairs of the Company in a manner oppressive to the Petitioner and in disregard to its interest. It was contended that the Petitioner made baseless allegation of oppression and disregard in order to wrest control of the Company but this contention cannot be sustained since the allegations, given what I have already said, are obviously not baseless. It was also argued that the conduct of the 2nd Respondent or the 3rd Respondent cannot be oppressive or in disregard of the interest of the Petitioner when they went about fine-tuning the purchase system which resulted in lower cost to the Petitioner and when they lent money to the Company when fund was needed. Again those exercises were used to unjustifiably charge the Company with salaries which the 2nd Respondent should have paid and to charge the Company with interest on yet to be accounted for loan for a substantial sum which I had mentioned earlier; they were tools to oppress the Petitioner and to disregard the interest of the Petitioner. What is left to consider is the orders I should make. |
Before proceeding further, it is better for us to remind ourselves that the 1st respondent was a Joint Venture Company (JV) where there is a big disparity in the shareholding, namely, the petitioner is holding only 30% of the shares while the 2nd respondent is holding 70% of the shares. The petitioner contributed RM900,000 to the paid-up capital of the 1st respondent while the 2nd respondent contributed RM2,100,000. The petitioner acknowledged that before the incorporation of the JV the 2nd respondent had 11 supermarkets all over Sarawak which indirectly recognized the expertise of the 2nd respondent in the business of supermarkets. The JV was established to carry out the business of supermarkets in Kota Kinabalu. We are not sure why there is a big disparity in the shareholding of the JV between the petitioner and 2nd respondent because in normal joint venture the shareholding of the company would be in equal shares with very minor disparity.
Whatever is the disparity in the shareholding of the JV, it is clearly stated the Board of Directors consisted of three members from the petitioner of which one of them would be the chairman while the 2nd respondent would have five members of which one of them would be the managing director. This is not in accordance with the shareholding of the parties and we believe this is the concession given by the 2nd respondent to the petitioner. Under the JV Agreement the business of the 1st respondent is to be carried out at a building owned by a subsidiary of the petitioner with a fixed rent. In our view, this is another concession given by the 2nd respondent to the petitioner. The 1st respondent was incorporated on 24 June 1998. It is not disputed that the 2nd respondent is a public listed company on the 2nd Board of the KLSE.
Since the 2nd respondent is a public listed company the minority shareholding of the company keeps changing as and when its shares are traded. The petitioner knew of this fact before entering into the JV Agreement. We are enlightening this fact because the 2nd and 3rd respondents alleged that the petitioner raised the issue of oppression and disregard of the interests of the minority shareholders in order to wrest control of the 1st respondent. The learned judge had brushed aside this allegation as baseless. We are of the view that the allegations are not baseless. As can be seen from the record itself on 17 April 2001, hardly three years after the JV was incorporated, the petitioner through its solicitors wrote to the 2nd respondent the following letter:
|
The Managing Director Dear Sir/Madam
We act for Pan-Pacific Construction Holdings Sdn Bhd in the matter at hand. We refer to the recent resignations of all of the former directors of your company namely, Mr. Tan Ah Ngew, Mr. Philip Tang Huat Hung and Mr. John Tang Kiong, and are instructed by our client to refer you to section 8.2:3 of the Joint Venture Agreement dated 10 July 1998, which provides that a Termination Event is deemed to have occurred if there is any change in the control or ownership of a party without the prior written consent of the other party. In this respect, our client has also received a copy of the "letter from the HSBC Bank Malaysia Berhad dated 12 April 2001, suspending the banking facilities accorded to Pacific-Ngiu Kee Sdn with effect from 21 April 2001 until further notice, owing to "the recent change in management in both Pacific-Ngiu Kee Sdn Bhd and Corporate guarantor Ngiu Kee Corporation Bhd". We are instructed by Pan-Pacific Construction Holdings Sdn Bhd to give you NOTICE that they wish to exercise their rights under section 8.3:1 of the said Joint Venture Agreement and you are hereby required to sell all of your shares in the Pacific-Ngiu Kee Sdn Bhd to our client subject to the terms provided in the said section 8.3:1. |
The response to this letter is a letter from the Chief Executive Officer of the 2nd respondent dated 19 April 2001:
We refer to your lawyer's letter Ref No. CPS/0014/SUNYAP/HC and our meeting between our Ms. Kat Yong and Mr. Andrew Lo today. As indicated by your Mr. Andrew Lo, we understand that your headquarters in Taiwan has agreed to sell the 30% shares to us. Therefore, we would like to formally make an offer to acquire the 30% shares on the basis as per our Joint Venture Agreement. We would also like to propose that the above matter to be referred to our Auditors, Ernst & Young to determine the valuation of the Fair and Commercial Price subject to fee and expenses approved by us. Thank you. |
The response to this letter was a letter from the petitioner's solicitors dated 11 May 2001 which reads:
|
Chief Executive Officer
Dear Madam
We are instructed by Pan-Pacific Construction Holdings Sdn Bhd to reply to your letter dated 19 April 2001 offering to acquire our client's entire shareholdings ("Shares") in Pacific-Ngiu Kee Sdn Bhd. Without prejudice to our Notice of Termination dated 17 April 2001, we are pleased to inform you that our client is willing to transfer the Shares to your company subject to the following terms.
We look forward to your early reply on the above terms. |
As can be seen from the above letter, though the petitioner agreed to sell their 30% shareholding, it imposed many conditions which is available under the JV Agreement to make it difficult for the 2nd respondent to agree. Surprisingly, before the 2nd respondent could respond to the above letter the solicitors for the petitioner dispatched another letter dated 17 May 2001 which reads:
|
Chief Executive Officer
Dear Madam
We refer you to our letter of 11 May 2001 (ref CPS/001/SUNYAP/HC/2). Pan-Pacific Construction Holdings Sdn Bhd now instructs us to inform you that they intend to acquire your 70% store holdings in Pacific-Ngiu Kee Sdn Bhd as per the terms of our Notice of Termination of 17 April 2001. TAKE NOTICE therefore that the terms of our client's offer to transfer their entire shareholdings in Pacific-Ngiu Kee Sdn Bhd to you as set out in our without prejudice letter of 11 May 2001, is hereby withdrawn with immediate effect. |
The response to the last two letters was a letter dated 23 May 2001 from the solicitors for the 2nd respondent which reads:
|
Messrs, Cheu, Adnan & Razi
Dear Sirs,
We refer to the above matter wherein we act for Ngiu Kee Corporation (M) Bhd. We have been instructed by our client to inform you as follows:
Under the circumstances, we have been instructed by our client to inform you that our client shall proceed with the purchase of the 30% shares as agreed between the parties. Take note, that our client shall hold your client responsible for any failure on their part to sell their 30% shares in the joint venture company to our client. |
The response to this letter was a letter from the petitioner's solicitors dated 29 May 2001:
|
Paul Cheah & Associates
Dear Sirs
We are instructed by Pan-Pacific Construction Holdings Sdn Bhd to refer to your faxed letter of 23 May 2001. Our client confirms that they will insist on their rights to purchase Ngiu Kee Corporation (M) Bhd's 70% shares in Pacific-Ngiu Kee Sdn Bhd as per terms of our Notice of Termination of 17 April 2001. We do not agree that the events set out in your said letter gave rise to concluded contract between the parties for the sale of our client's 30% shares in Pacific-Ngiu Kee Sdn Bhd. These events:
were nothing more than a series of offers and counteroffers to sell the shares subject to contract and the offered terms set out in our letter of 11 May 2001 were made expressly without prejudice to the rights of our client under the Notice of Termination of 17 April 2001. These offered terms were withdrawn vide our letter of 17 May 2001 before your client accepted them. Unless the parties can reach agreement as to the Fair and Commercial Price for the sale of your client's 70% shares in Pacific-Ngiu Kee Sdn Bhd within thirty days from the date of this letter, our client is agreeable to the appointment of Messrs Ernst & Young to determine the Fair and Commercial Price in accordance with the provisions of clause 7.4 of the Joint Venture Agreement, which provides inter alia:
The "Offeror" in this case is Ngiu Kee Corporation (M) Bhd as provided by the provisions of clause 8.3:1 of the Joint Venture Agreement. Kindly let us have your client's response in due course. |
The respondent's solicitors' response to the above letter is a letter dated 1 June 2001:
|
Messrs. Cheu, Adnan & Razi
Dear Sirs,
We refer to the above matter and your letter dated 29 May 2001. We have been instructed by our client that the facts remain the same as stated in our letter dated 23rd May 2001. In addition our client reiterates:
|
On 12 June 2001 the solicitors for the petitioner dispatched the following letter indicating that they would be filing an action in the High Court at Kota Kinabalu to seek a declaration:
|
Paul Cheah & Associates
Dear Sirs
We are instructed by Pan-Pacific Construction Holdings Sdn Bhd to refer to your letter of 1 June 2001. Our client has instructed us to seek a declaration from the High Court at Kota Kinabalu on the issue whether there was a legal and binding offer and acceptance of the sale of their 70% shares in Pacific-Ngiu Kee Sdn Bhd as contended by your client. |
Pursuant to that letter the petitioner filed an originating summons dated 27 June 2001 against the 2nd respondent seeking a declaration that the petitioner has the right to purchase the 70% shares of the 2nd respondent in Pacific Ngiu Kee Sdn Bhd. The above originating summons was eventually withdrawn with the consent of both parties.
From the above sequence of events it could be seen that the intention of the petitioner was to take over the 1st respondent. Even after agreeing to sell its 30% holding and imposing several conditions which the 2nd respondent was willing to accept, the petitioner reneged on the offer. Instead it insisted on buying the 70% holding of the 2nd respondent. When the 2nd respondent refused, the petitioner filed the OS seeking a declaration that the 2nd respondent had breached the JV Agreement and as such should sell its 70% holding to the petitioner. The breach cited by the petitioner was the change of shareholding in the 2nd respondent. As we have stated earlier, the 2nd respondent being a public listed company, the shareholding in the 2nd respondent is bound to change. For that reason, we are of the view that the reasons given by the petitioner were rather flimsy. The whole idea of the petitioner was to take over the 1st respondent from the 2nd respondent and run the supermarket by itself. We believe the second reason given by the petitioner was the appointment of the 3rd respondent. We noted that from the minutes of the management committee meeting that the Chairman of the Board of Directors was the Deputy Managing Director of the 1st respondent before the appointment of the 3rd respondent as the Managing Director in accordance with the JV Agreement. It would not be wrong for us to say that the Chairman (Mr Lo) was not happy with the appointment of the 3rd respondent as the Managing Director. The evidence shows that before the appointment of the 3rd respondent, the Chairman was the Deputy Managing Director of the 1st respondent and was running the supermarket. With the appointment of the 3rd respondent, his appointment as Chief Executive expired.
Taking the above as a whole we are of the view that the learned judge was in error when he came to the conclusion that the contention of the respondent that the petitioner wanted to wrest control of the company cannot be sustained.
Let us now turn to the issue of 'disregard of interests' and 'oppression' as found by the learned judge. As pointed out in the authorities we have cited there are four broad classes of conduct that would justify judicial remedy under s. 181 of the Companies Act, namely:
oppressive conduct;
conduct in disregard of interests;
unfairly discriminatory conduct; or
prejudicial conduct.
The learned judge found the act of oppression or disregard of interests of the petitioner by the respondents is in respect of:
The loan of RM3.78 million and interest charged;
Charging to the petitioner the salaries of three members of the staff of the 2nd respondent; and
Using the petitioner's staff to look after the affairs of the 2nd respondent.
We take note that the question whether there is oppression, disregard, unfair discrimination, or whether the act complained of is prejudicial is one that must be determined according to the facts of each particular case.
In addition to the three issues raised by the learned judge in his judgment, we would like to add another issue which we feel ought to be considered:
|
(4) |
Whether the learned judge was right in making the order that the majority shareholder (the 2nd respondent) has to sell its shares to the minority shareholder (the petitioner). |
Before dealing with the issues, we would like to refer to excerpts of minutes which we find have relevancy in respect of the issues. The first is the minutes of the Board of Directors' meeting held on 18 June 2003 where the bank had given notice to withdraw the banking facilities given to the 1st respondent. In Agenda 6 it is stated:
|
The Chairman remarked that the Corporate Guarantee provided by the shareholders in respect of the banking facilities offered by HSBC should be proportionate to their shareholding. Ms Kat Yong reported that HSBC offered facility of RM2.0 million to be secured by corporate guarantee of RM12.0 million from Ngiu Kee Corporation Berhad (NKC) and RM3.6 million from Pan-Pacific Construction Holdings Sdn Bhd (PPCH). She added that HSBC refused to reduce the quantum of the corporate guarantee. In view of the foregoing, the Chairman asked on behalf of PPCH whether NKC would be willing to counter indemnify PPCH for amount exceeding RM600,000.00 (i.e. their 30% portion). Mr Mazelan on behalf of NKC confirmed that NKC is willing to counter indemnify PPCH. The Chairman requested for time until the end of this week to sort out this issue with PPCH's Head Quarter in Taiwan. Ms Kat Yong reported that the Company has applied for RM6.0 million facility from BIMB for the purpose of repaying HSBC and 'will eventually transfer the whole account to BIMB'. She added that BIMB is still considering the Company's application. She further reported that BIMB provides C.I.T. security services to the Company free of charge versus RM1,800.00 monthly charged by HSBC. The Chairman reminded the Management that the operation of the Account should be in line with the JV Agreement. |
From the minutes and the correspondence tendered as exhibits, it is clear that the 2nd respondent had been threatened by the bank in respect of the banking facilities already given to the Company. The Board was also informed that the HSBC was willing to continue the banking facilities on condition that the 2nd respondent and the petitioner provide additional security. As can be seen the 2nd respondent was willing to provide the additional security and also agreed on the request by the petitioner to indemnify the petitioner in respect of the petitioner's share of additional security and yet the petitioner was not ready to give the undertaking, on the excuse that the Chairman on behalf of the petitioner had to refer the matter to its headquarters in Taiwan. It is clear to us that the petitioner was not willing to take any risk but to enjoy all the benefits under the JV
Further down the minutes in Agenda 7 and Agenda 8 it state as follows:
|
AGENDA 7 AMOUNT OWING TO/FROM RELATED COMPANIES: Ms Kat Yong briefed the Board on the amount due from related companies of which the breakdown analysis is presented in Appendix 6 of the Board Paper. The Board noted this information and will decide on the treatment of this accounts after the Management has verified these accounts together with the Auditors and report to the Board. AGENDA 8 ADVANCES FROM NGIU KEE GROUP The Board noted this information that as at 31 May 2003 the Ngiu Kie Group has advanced RM3.78 million to the Company for the repayment to its suppliers. |
At the Board of Directors' Meeting the minutes of the meeting shows the following:
|
AGENDA 4 BANKING FACILITIES WITH HSBC BANK MALAYSIA BERHAD, KOTA KINABALU (HSBC) Ms Kat Yong reported that HSBC has reduced the Company's banking facilities from RM6 million to RM3.12 million. Mr Lau also helped by granting his personal guarantee for RM1 million as additional security for the HSBC facilities. Furthermore, HSBC requires the Company to make full settlement by 29 February 2004. Mr Chairman, on behalf of the Board, recorded a note of thanks to Mr Lau for granting his personal guarantee and endorsed his generosity. Mr Lau expressed his concern over the Company's cash requirement of approximately RM6 million, and finding ways to resolve the cash requirements whilst the Company's profit level in not there. Mr. Kung commented that unless the Company improves on its profitability, he is doubtful on the ability of the Company to continue surviving. Ms Kat Yong reported that the Company shall continue to source for banking facilities from other banks. She added that barring unforeseen circumstances NKC's right issue should be completed by January/February 2004. By then, NKC would be in a position to assist the Company financially. ... AGENDA 6 MONTHLY MANAGEMENT ACCOUNTS AND BUDGET FOR SEPTEMBER TO DECEMBER 2003 The Board noted that the monthly management accounts have not been submitted to the Board Members regularly and in time for the management committee meeting. Mr Lau commented that the monthly management accounts and Board Papers should be distributed to the Board Members well in advance to enable them to consider the subject matter in advance. At this juncture, Mr. Louis Phung (Mr. Louis), the Accountant, was invited into the Meeting Room. Ms Kat Yong briefed the Board on the Budget for September to December 2003. She reported that the Company's performance to date is better than last year and quite close to the management budget. Ms Kat Yong also highlighted the finance costs of RM450,260 charged by NKC being interests on outstanding amount due to NKC. She informed the Board that she has instructed the Management to prepare a breakdown of the finance costs. Mr. Cui-chih (Mr. Chou) queried on the following:
Mr Lau remarked that transactions involving finance and interest chargeable should be subject to the Boards' approval. He pointed out that clause 4.4.2 of the Joint Venture Agreement provides that advances by the joint venture partners, are subject to the prevailing banking interest rate for overdraft facilities/term loan facilities to be agreed between the shareholders. He added that exceptional items such as the aforesaid finance costs charged by NKC should be verified and confirmed by the Company's auditors and that the Shareholders' approval should be obtained in accordance with the Joint Venture Agreement. Mr. Kung requested for the management report on the floor plan counters performance to be extended to him for his perusal and comments. In response, Ms Kat Yong instructed Mr. Liew to provide the requested information to Mr. Kung. Mr. Liew reported that as of 25 September 2003, the total actual sales for September is RM2.2.million and the Management is targeting at RM3.0 million sales by end of September 2003. He added that the staff sets sales target for year 2003 at RM43 million but the HQ has increased the target to RM46 million. He also reported that due to tight cash flow, the Company has been delaying payments to suppliers and hence faced difficulty in obtaining merchandise from suppliers. He also explained that one of the reasons the Company was not able to meet the sales target last year was due to the withdrawal of certain items from sale rather than to do so below costs. Mr. Kung sought clarification on the 1% Management Fees charged by NKC without evidence of providing proper management. Ms Kat Yong explained that these fees are in respect of the share of Costs incurred by NKC on the Group's MIS Dept outsourced, centralised purchasing, internal audit functions outsourced and centralised internal audit functions. She added that the Company paid the least HQ expenses shared by all stores. Mr Lau commented that a cost vs benefit analysis on the Management fee charged should be computed and presented to convince the other joint venture partner. He also suggested that future budget be prepared up to February the following year instead of up to December for the year. He further emphasized that the Company should set objective to recoup the share capital of the Company in three (3) years' time i.e. by the year 2006. AGENDA 7 OUTSTANDING RENTAL FOR JULY AND AUGUST 2003 OF RM387,543.87 Ms Kat Yong reported that HSBC shall release RM1 million by next week. The fund shall be used to pay suppliers and consigners so as to facilitate new merchandises to come in to meet the October sales requirement. Mr Lau proposed that the Company consider payment to landlord after the Chinese New Year 2004. He further suggested that the Board appeal to the Landlord for consideration. Mr. Kung remarked that pursuant to the Tenancy Agreement, if the Company fails to pay three (3) months rental due then the Company would have breached the Tenancy Agreement. He added that the company should give confidence to the Landlord by demonstrating its ability to pay the rental and to safeguard the tenancy. Mr Chairman commented that the rental is based on the percentage of sales and late payment interest on outstanding rental shall be charged by the Landlord according to Agreement. The Board recorded that the Company shall be putting the sublease at risk should the Company delay payment of rental after the Chinese New Year 2004 as the outstanding rental by then would be for 8 months equivalent to approximately RM1.6 million. ... AGENDA 10 AMOUNT OWING FROM RELATED COMPANIES OF RM620,124 AS AT 31 DECEMBER 2002. Mr Chairman expressed his concern over when the related companies would settle the long outstanding amount due to the Company. Ms Kat Yong remarked that it remains a business decision made even though merchandise bought from Taiwan were not sellable. Therefore, respective stores would have to absorb their respective portion of the costs. However, she felt that the Company should absorb the salaries of Mr. Robert Tan who was then employed under the Advertising and Promotions Department of the Company. Mr. Chou requested that the Management write to the respective related companies for payment or else to charge interest on the outstanding amount. Mr Lau requested that a consolidated report on the amount due from the related companies be presented to the Board. He then proposed that NKC to decide either:
The Board agreed with Mr Lau's proposal. AGENDA 11 ADVANCES FROM NGIU KEE GROUP OF RM3.78 MILLION Mr Chairman remarked that the Board has in the last meeting requested for details of the advances from Ngiu Kee Group but still not received yet. Mr. Liew and Mr. Louis were then instructed to provide the requested details to the Board. At the proposal of Mr Lau the Board agreed that the Company's external auditor be requested to verify and confirm the advances from Ngiu Kee Group in writing. |
At the Board of Directors meeting that took place on 17 November 2003 the minutes show the following:
|
AGENDA 2 (iii) STOCK LOSS OF RM775,000/- Ms Kat Yong respond that Messrs Ernst & Young ("EY") has quoted a fee of RM40,000/- on the proposed verification of the stock Loss (RM775,000/-) and Advances from Ngiu-Kee Group (RM3.78 Million). The Board is of the opinion that the fee quoted by EY is too high. The Board unanimously RESOLVED the following:
AGENDA 3 BANKING FACILITIES WITH HSBC BANK MALAYSIA BERHAD (HSBC) KOTA KINABALU Ms Kat Yong informed the Board that HSBC shall be withdrawing facilities on 29 February 2004. The Management is still looking for facilities from other banks and working towards paying off RM3.0 Million to HSBC. She added that the existing Bank Guarantee ("BG") facility from HSBC of RM120,000/- against Fixed Deposit in favour of Sabah Electricity Sdn Bhd which is secured by a cash deposit of RM120,000/- shall be cancelled by 15 December 2003. She suggested that upon cancellation the BG facility be transferred to other bank to establish some new banking relationship. The Board agreed that upon cancellation of the existing BG facility from HSBC, the Company shall approach Bank Islam Malaysia Berhad for a new BG facility of RM120,000/- against Fixed Deposit in favour of Sabah Electricity Sdn Bhd and that authority be hereby given for any two of the directors to sign, for and on behalf of the Company, the necessary application documents relating thereto. AGENDA 7 INTERESTS CHARGED BY NGIU KEE SDN BHD Ms Kat Yong briefed the Board on the computation of interest charged by NKSB on the advances to the Company. She explained that the 3% charged by Maestro Product Sdn Bhd as commission is actually for freight charges incurred on centralized purchasing. Mr. Chou questioned why the interests charged by NKSB have not been taken up in the Company's audited accounts for the years 2001 and 2002. Ms Kat Yong replied that the Management has overlooked to take into account the interest chargeable on advances in the Company's account for the years 2001 and 2002. Mr Lau pointed out that clause 4.4:2 of the Joint-Venture Agreement ("JVA") provides that advances by the JV partners are subject to the prevailing banking interest rate for overdraft facilities/term loan facilities to be agreed between the shareholder. He added that the interest charged should be based on the actual quantum advances to PNK at the proposal of Mr Lau. The Board RESOLVED that the Management be instructed to prepare a detail breakdown on the quantum financed by NKSB and the interest computation for the Board to consider and decide on whether to accept or reject the proposed prior year adjustments relating thereto. AGENDA 8 REPORT STOCK LOSS OF RM775,000/- The Board agreed to defer the subject pending the report by an independent audit firm. AGENDA 9 REPORT ON ADVANCE FROM NGIU-KEE SDN BHD ("NKSB") The Board agreed to defer the subject pending the report by an independent audit firm. AGENDA 11 PROPOSAL TO OBTAIN MEMBERS' APPROVAL ON AUTHORITY FOR DIRECTORS TO ISSUE SHARES Ms Kat Yong informed the Board that the company needs RM3.0 million for repayment to HSBC and another RM3.0 million for working capital and the Management is requesting for rights issue. Mr Chairman recalled that in the last Board Meeting, the Board Members spoke on continuing to source for banking facilities from other banks and looking forward to some financial assistance from Ngiu Kee Corporation Berhad's ("NKC") rights issue. He further suggested the Board to wait until all avenues be exhausted before rights issue by the Company be considered. Ms Kat Yong remarked that NKC is raising the Rights Issue for its Group. She added that the Company is merely 70% owned by NKC whereas other subsidiaries are 100% owned by NKC. Hence NKC may only assist the Company to the extent of 70% of which is still subject to the approval of the Board of NKC. She further added that in any event, NKC cannot afford to allow the Company to default the bank, otherwise the banking facilities of the whole NKC Group would be affected and hence with or without Rights Issue NKC would still he supporting PNK. At this juncture Mr Chairman reminded all members of the Board to refrain from saying anything which they do not mean at this meeting. Mr. Kung expressed his concern over the future of the Company and the inability of the Company to give confident to the shareholders on its ability to generate profit and hence unable to convince the shareholders to pump in more capital into the Company. Mr Lau remarked that the Management should try to convince both the Board of Directors and the shareholders by presenting a detail proposal paper setting out a comprehensive plan which include a schedule on how and when the shareholders can recoup their capital investment. Mr. Kung agreed with Mr Lau on the Management to supply the shareholders with more information. Mr Chairman remarked that the Company put into effect the decision of the shareholders. He suggested that the shareholders get together and discuss first before going to the Board. Mr Lau agreed that the shareholders have a discussion among themselves first. The Board finally agreed that the shareholders shall have a separate meeting on the proposed rights issue. |
Let us now turn to the issues.
(1) RM3.78 million loan and interest charged
The advance of RM3.78 million to the 1st respondent from the Ngiu Kee Group was first raised at the Directors Meeting which took place on 18 June 2003. It was explained at that meeting that the advance was necessary in order to repay the suppliers. The suppliers had indicated that supply of the goods ordered by the 1st respondent would be stopped if no payment was made. The respondents claimed that they did thus in accordance with cl. 4.4.2 of the JV Agreement which provides:
|
Any additional finance required by the Company may be advanced by the parties subject to the prevailing banking interest rate for overdraft facilities/term loan facilities to be agreed between the Shareholders. |
We take note that when this advance was made, the 1st respondent was facing financial difficulties because the bank threatened to reduce the overdrafts and subsequently to withdraw all the financial facilities. The bank also required the 1st respondent to give additional security. As we have said earlier, the 2nd respondent was agreeable to give the additional security but not the petitioner despite the fact that the 2nd respondent was willing to indemnify the petitioner in respect of the petitioner's share of additional security. For that reason, the bank withdrew the financial facilities in stages. Indirectly, the petitioner was not willing to contribute additional fund or to secure continuation of the bank's financial facilities when the petitioner knew that the 1st respondent was hard-pressed for funds. It is clear to us that in addition to paying the suppliers, the respondents had to pay the rental of the business premises, the large amount of electricity bills and the administrative expenses. Even the request by the 1st, 2nd and 3rd respondents for the petitioner to ask the landlord (the petitioner's subsidiary) to withhold or reduce the rent was refused. The Chairman, speaking on behalf of the petitioner, said that the rentals must be paid in accordance with the JV Agreement. The petitioner only suggested that the 1st respondent looked into other banks for its financial facilities which the 1st respondent had done but was not successful. We would not be wrong to say that the petitioner wanted the 1st respondent to go bust.
It was in this situation that the 2nd respondent advanced the RM3.78 million to float or assist the 1st respondent. It is easy to understand why the 2nd respondent was willing to do so, because it wanted to save its 70% investment. In our view, this was not an oppressive act by the 2nd respondent, but rather an oppressive act by the petitioner in particular the Chairman, Mr Lo.
At the Board of Directors meeting that took place on 17 November 2003 the members (including the directors from the petitioner) unanimously agreed that the management of the 1st respondent be instructed to request auditors to include the verification of the said advance of RM3.78 million and the alleged stock losses as part and parcel of the forthcoming annual audit for the financial year ending 31 December 2003. There was a delay in instructing the auditors due to the fact that at the beginning the board members felt the fees requested by the auditors were on the high side. Eventually the auditors agreed to do the verification on an agreed fee. The "Report on Verifications of Stock Loss and Advances from Ngiu Kee Sdn Bhd" was completed on 17 September 2004. It is interesting to note that even before the report was completed the petitioner proceeded to file the present petition. This was completely against the board's unanimous decision to wait for the report before any action could be taken. The evidence shows that according to the auditor's report, the stock loss and the advance had been verified and there should not be any more grievances by the petitioner. Instead of waiting for the auditor's report to be finalized, the petitioner filed the present petition. In our view, when the petitioner filed the petition, it was a total disregard of the unanimous decision of the Board of Directors and total disregard of the parties' interest.
The "Report on Verifications of Stock Loss and Advances from Ngiu Kee" confirmed and reported that in the accounts of the company the sum of RM2,921,157.21 out of the alleged sum of RM3,782,523.65 was accounted for leaving only the difference of RM861,366.35 unverified. As can be seen this unverified difference was explained at the Board of Directors' meeting of the company held on 10 November 2005 (pp. 1315-1318 of the Record of Appeal Vol. 5).
Though this piece of evidence was adduced during the trial by Mr. Liew, the petitioner did not make any issue on this reconciliation during the trial. The petitioner did not cross-examine Mr. Liew on this explanation of reconciliation. For that reason, learned counsel for the respondents submitted that the petitioner had regarded it as non issue and that difference, i.e., the unverified amount of RM861,000 had been reconciled.
The learned judge in his judgment in respect of this reconciliation said:
|
.... The report was of the view that of the alleged RM3.78 million loan, the sum of RM861,366.35 was not supported by any verifiable documents. But it was recorded in the minutes of the Company's board meeting held on 10 November 2005 that Liew Tuck Wah, the area manager of the Company, "had furnished all the documentation to Ernst & Young to provide him with a written confirmation that the amount of RM861,000/- had been reconciled in the year 2004". When Liew Tuck Wah testified, he was not questioned as to his said assertion in the board meeting that the sum had been reconciled and as to how it was reconciled. What is established at most was that there was some accounting deficiency, in that credits and debits were raised without the usual consent or the necessary supporting documents, and not that there was any attempt on the part of any of the Respondents or any of them to inflate the amount of the indebtedness so as to siphon the money of the Company away. It was not suggested to any of the witnesses who testified on behalf of the Respondents and neither did the auditor's report so suggest. However, whether the sum of RM861,000 had been reconciled as asserted by Liew Tuck Wah depends very much on the auditor's confirmation for which Liew Tuck Wah was supposed to obtain for tabling at the next board meeting. There is no evidence as to whether the auditor will or will not confirm the reconciliation. Given the manner in which the accounts were kept and kept by the same internal accountant working for the Company, the 2nd Respondent and another company called Maestro Products Sdn Bhd, the Petitioner was justified in being suspicious and for feeling that something was amiss which the auditor confirmed. I am not unaware that the Company was already given the opportunity to explain and had in fact attempted to explain by supplying the documents through their letter dated 22 April 2004 as noted by the auditor but fail to do so. If Liew Tuck Wah's assertion that the account had been reconciled is true and confirmed by the auditor, that would be the end of the matter. If it cannot be reconciled and an auditor so say, it would mean that what was asserted by Liew Tuck Wah at the meeting was a ruse to get out of the situation and made for the purpose of defeating the petition; if it is such a ruse, it could only work for now but cannot defeat a subsequent petition based on the failure to reconcile the account because the failure worked to the advantage of the 2nd and 3rd Respondent, it being that Maestro Products Sdn Bhd is a company under their control. For the present, the manner, described earlier, in which the accounts had been maintained do make out a prima facie case that they had been kept to the disadvantage of the Company and thus to the detriment or disregard of the interests of the Petitioner .... |
It is clear to us that the learned judge had committed an error in coming to the conclusion against the weight of evidence before him. In its petition, the petitioner claimed that the sum of RM861,000 had not been verified. The onus is on the petitioner to satisfy the court that the amount had not been verified. In our view, mere suspicion or deficiency in keeping the accounts of the business is not enough. The petitioner has to prove that the amount was never verified and that there is evidence to show that the amount had been siphoned out of the company (1st respondent) for the benefit of the 2nd respondent. For that reason, we are of the view that the petitioner failed to prove that the amount have not been verified or the 2nd respondent had abused or misused the fund for the 2nd respondent's benefit.
The interest charged on the advance of RM3.78 million made by the 2nd respondent was also an issue raised by the petitioner. The learned trial judge found the issue in favour of the petitioner. As can be seen from the minutes of the Board of Directors meeting, the rate of interest charged was explained in that the interest charged was 2.5% above BLR. This was more or less the amount charged by a bank. The Chairman (Mr Lo) being the principal representative of the petitioner who appeared as witness (DW1) in the course of cross-examination agreed that the interest charged on the advances had been resolved by the 1st respondent and that the 1st respondent agreed to pay the interest at that rate. He could not say otherwise because at the Board of Directors meeting held on 2 December 2002 which he chaired the board unanimously agreed that the interest is payable on the advances to be obtained from the shareholders. In our view, the learned judge erred in making an issue on this when the parties had agreed to it.
For the reasons we have stated above, we find that the petitioner failed to prove that the advances of RM3.78 million and the interest had oppressed the petitioner or that they have the effect of disregarding the interests of the petitioner. On the other hand, we find the advances were done to help the company of which the petitioner is a shareholder.
(2) Company Paying Salaries Of Three Staffs Of 2nd Respondent
The respondents admitted during the Board of Directors' meetings of paying the salaries of three staff members of the 2nd respondent. The respondents did not hide this fact from the Board of Directors. The explanation for paying them was given during the meeting. This is found at the Board of Directors' meeting held on 6 September 2002. In that meeting it was explained that the three staff members were stationed in the central purchasing office so that they could help identify goods ordered by the 1st respondent. It is not disputed that other outlets have placed members of their staff in the central purchasing office in Kuala Lumpur and they were paid by the different outlets. Placing the three staff members had benefited the 1st respondent. For that reason, the salaries of the three staff members were paid by the 1st respondent. The Chairman (Mr Lo) admitted that this arrangement had benefited the 1st respondent.
Taking into consideration that the payments were revealed to the shareholders and they were made openly and not in secret and also the fact that it was discussed during the Board of Directors' meeting to which the Board had accepted, we fail to see how these payments could be oppressive. Further, the Board of Directors accepted the fact by paying the three staff members who were in the central purchasing office, in 2001 alone the 1st respondent had saved RM1.8 million. Admittedly, the payments might be wrong but it could not be said to be oppressive. These payments are somewhat similar to payments made in Re Kong Thai Sawmill (Miri) Sdn Bhd (supra) where it was held that those payments were not oppressive of the minority of the shareholders. In that case the situation is worse because the minority shareholders were not in the board. In the present case, the petitioner's representatives were in the board and one of them was and still is the Chairman of the board. Anyway, it was in evidence that this practice had stopped.
(3) Using Company's Staff To Look After Lawas Store Of 2nd Respondent
The respondents admitted that a member of the 1st respondent's staff (an accounts clerk) was used to look after the Lawas store and he was paid by the 1st respondent. The Managing Director (DW2) admitted during the board's meeting and at the trial that it was wrong to do so and had stopped this. She had instructed the Lawas store to make restitution of the salaries paid to that member of the staff.
Since this issue was raised during the board's meeting and during the trial where DW2 admitted it was wrong and she had stopped the practice and requested for restitution from the Lawas store, we are of the opinion this does not amount to oppression.
(4) Whether The Learned Judge Was Right In Making The Order That The Majority Shareholder (The 2nd Respondent) Has To Sell Its Shares To The Minority Shareholder (The Petitioner)
The learned judge after finding that the 2nd and 3rd respondents had oppressed the petitioner made the order that the 2nd respondent to sell all its 70% shareholding in the company to the petitioner. There is no dispute that in the present appeal the 2nd respondent is the majority shareholder holding 70% of the company paid-up capital while the petitioner is the minority shareholder in the company. The learned judge in making that decision stated:
|
Winding up the petitioner is out of the question since it is a going concern and employ a sizeable number of workers and since all the parties feel that they can make the company a profitable concern. Though it did cross my mind that perhaps the petitioner should sell the shares to the 2nd respondent but that would not only be condoning oppressive conduct or conduct in disregard of the interest of the petitioner but also allow them a reap an advantage out of their questionable conduct, including enjoying the continued benefit of special rent of the premises occupied by the company and which belonged to a subsidiary of the petitioner. That option is also out. That leaves only the viable option of the petitioner buying over all the shares of the 2nd respondent in the company. Therefore, I order that the 2nd Respondent shall sell all its shares in the Company to the Petitioner at a fair and commercial price to be determined by Ernst & Young, a firm of auditors, which price shall be determined within 30 days hereof and the sale to be concluded within 30 days thereafter .... |
First of all, we agree with the learned judge that the order to wind up the company is out of the question since it is an ongoing concern. The only issue is the selling of the shares by the majority to the minority.
The authorities cited by the parties show in most cases the order of sale would be from the minority to the majority and not otherwise. In Malaysia the authorities show it is the minority shareholders who should sell their shares to the majority shareholders when they have shown that they have been oppressed or the majority shareholders have disregarded the minority shareholders. Except for the present petition, as ordered by the learned trial judge, the authorities in Malaysia show that it was for the minority to sell their shares to the majority. (See Edmund Charles Liebenberg v ICB-Griffin Manufacturing Sdn Bhd [2005] 3 CLJ 613; Ting Teck Sie v Wong Sen Chiew [2005] 6 CLJ 495; Liew Teck Fook v Chan Yip Pooi [2005] 5 CLJ 20; Tan Kian Hua v Colour Image Scan Sdn Bhd [2004] 6 CLJ 174; Eric Lau Man Hing v Eramara Jaya Sdn Bhd [1998] 3 CLJ Supp 126; Lee Chee Onn v Lee Keng Soon [1994] 3 CLJ 461; and Chiew Sze Sun v Cast Iron Products Sdn Bhd [1994] 1 CLJ 157).
Coming to the present appeal, as we have stated earlier, the disparity shareholding between the parties is so great that it would create total injustice to the 2nd respondent holding 70% of the paid-up capital in the 1st respondent to sell their majority shareholding to the petitioner. Anyway, as we have said earlier, the petitioner failed to prove oppression or disregard of its interest by the 2nd respondent. If the petitioner had proved oppression or disregard of its interest, the fair order should be for the petitioner to sell their shares to the 2nd respondent and not otherwise.
Conclusion
As stated in the case of Toh Kian Chuan v Swee Construction and Transport Co (Malaya) Sdn Bhd (supra):
|
(1) |
For the petitioner to succeed in his application for the said reliefs, he must show that it was the affairs of the company which were being conducted in an oppressive manner, and that the respondent company had oppressed the minority shareholders which in this case is the petitioner. |
|
(2) |
On the whole, the circumstances and matters complained of by the petitioner did not at all denote that there was oppression within the meaning of s. 181(1) of the Act. There was nothing to show that the 2nd and 3rd respondents' action complained of was designed to injure the petitioner in its rights as a member. The petitioner had failed to prove that the directors representing the respondents had acted in disregard of the petitioner's interest. There was nothing to suggest that the company was not being conducted efficiently by the existing board of directors in the interests of the members, neither was there any violation of the conditions of fair play or any abuse of power being committed by the directors of the respondents which could amount to oppression. Oppression must be in the form of dishonesty and in the instant case, there was none. |
Having gone through the evidence made available in the record, we are of the view that the acts of the 2nd and 3rd respondents as stated by the learned trial judge were not sufficient to prove that the petitioner, being a minority shareholder, had been oppressed. There is also no evidence to show that the directors representing the 2nd respondent in the 1st respondent had acted in disregard of the petitioner's interest. As can be seen from the minutes of the Board of Directors meeting, the directors representing the 2nd respondent had been very accommodating to the directors representing the petitioner in answering and explaining the issues raised by he directors representing the petitioner. The directors representing the 2nd respondent had not brushed aside or refused to discuss the issues raised by the directors representing the petitioner.
For the above reasons, we could not find any merit on the issues raised by the petitioner. We hereby allow the appeal by the 2nd and 3rd respondents and dismiss the petitioner's petition with costs here and below. The petitioner is to bear the costs on their own and not from the 1st respondent's fund. The deposit is to be refunded to the 2nd and 3rd respondents who are the appellants in this appeal.
Cases
Chiew Sze Sun v Cast Iron Products Sdn Bhd [1994] 1 CLJ 157 HC
Toh Kian Chuan v Swee Construction and Transport Co (Malaya) Sdn Bhd [1995] 1 LNS 317 HC
Edmund Charles Liebenberg v ICB-Griffin Manufacturing Sdn Bhd [2005] 3 CLJ 613 HC
Eric Lau Man Hing v Eramara Jaya Sdn Bhd [1998] 3 CLJ Supp 126 HC
Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd [1994] 1 LNS 73 HC
Lee Chee Onn v Lee Keng Soon [1994] 3 CLJ 461 HC
Liew Teck Fook v Chan Yip Pooi [2005] 5 CLJ 20 HC
Re Kong Thai Sawmill (Miri) Sdn Bhd; Kong Thai Sawmill (Miri) Sdn Bhd v Ling Beng Sung [1978] 1 LNS 170; [1978] 2 MLJ 227
Re Saul D Harrison & Sons plc [1995] 1 BCLC 14
Tan Kian Hua v Colour Image Scan Sdn Bhd [2004] 6 CLJ 174 HC
Ting Teck Sie v Wong Sen Chiew [2005] 6 CLJ 495 HC
Legislations
Companies Act 1965: s.181
Representations
P.K. Lim (M/s PK Lim & Co) for the petitioner
Dr David Fung (M/s Alex Pang & Co) for the respondents.
Notes:-
This decision is also reported at [2008] 2 AMR 750.
|
|
all rights reserved taiking.thing pte ltd |
|
|
