www.ipsofactoJ.com/highcourt/index.htm [2000] Part 3 Case 14 [HCM]

HIGH COURT OF MALAYA

Coram

B.L. Ong

- vs -

Ong Thye Keow & Sons (Realty) Sdn Bhd

ABDUL AZIZ MOHAMAD J

21 AUGUST 1997

Judgment

Abdul Aziz Mohamad J

  1. Learned counsel for the defendants argued that for the plaintiff to succeed in this action[a] he must satisfy the requirements of section 181 of the Companies Act 1965. That is because the reliefs that he is seeking in this action are, so it was argued, reliefs under paragraph (a) of subsection (2) of section 181, being, in effect, orders to "direct .... any act .... "[b]. With respect, I disagree. The plaintiff is simply asking the defendants to give effect to the resolution of the EGM of 22 April 1996[c] by paying out to him the loan of RM1,080,000.00 that the EGM resolved to grant to him.

  2. If he is right in his contention that it is wrong for the directors to insist on his depositing his share certificates with the company secretary before the loan could be released to him, then the loan should be released to him. He does not have to make out a case of oppression to get what he seeks. The "act" intended by paragraph (a) must be an act that is appropriate to be ordered, among other matters that may be ordered, as a remedy in the particular circumstances of a case that needs to be brought as a case of oppression. It cannot be that the court cannot make an order directing a company, or the directors of a company, to perform any act unless oppression under section 181 is first shown.

  3. According to the fifth defendant (para. 4, affidavit 1.2.97[d]), the condition as to the depositing of share certificates was agreed to on the day of the EGM itself. But it is all very vague. The fifth defendant does not state who approved the condition. He says it was either during or shortly after the EGM. Why cannot he be certain? If it was during the EGM, then it must have been approved by the EGM. Yet it does not appear in the resolution of the EGM in relation to the loan. There was a resolution about calling in share certificates for cancellation [ordinary resolution (6)][e], but that was not meant as a condition for the loan. If the condition was approved by the directors just after the EGM, why does the fifth defendant entertain the possibility of its having been approved during the EGM? If the directors did approve it just after the EGM, it must have been in informal circumstances.

  4. A formal resolution by the board was made only at an emergency meeting of the directors on 17 July 1996[f], about three months after the EGM. By that time all the other directors had obtained their respective loans after depositing their share certificates. The plaintiff had not deposited his share certificates and therefore did not get paid his share of the loan. He could not deposit his share certificates because, so he says, his wife had wrongfully deprived him of them.

  5. That meeting was held to resolve the problem regarding the plaintiff because his solicitors had written threatening legal action. It was at that meeting that the condition as to depositing of share certificates was resolved. It was specifically stated in the resolution that the share certificates were required as security. As there had been no problem with the other directors, the resolution of the directors of 17 July 1996, although appearing to lay down a condition for all the directors, was in effect solely to overcome the plaintiff's challenge.

  6. Without that resolution, the directors would only have their claim that the condition was approved on 22 April 1996 to rely upon, which would not be quite so satisfactory in view of what I have said about the circumstances concerning the approval. In fact, from the minutes of the meeting of directors on 17 July, it appears that even then the chairman, the fifth defendant, was unsure about when exactly the condition was agreed upon. According to the minutes, he first informed the board that the condition was agreed upon during the EGM. When asked by the secretary whether it was resolved at a board meeting, he replied that it was agreed upon at a discussion held immediately after the EGM. Seen in that light, the resolution of 17 July does appear to be discriminatory.

  7. As to the purpose behind the requirement of the directors for the depositing of share certificates, the fifth defendant says (para. 5, affidavit 1.2.97) that it was to safeguard the interests of the company. They needed to gather together all the shares of the company in connection with the application for a reduction in the value of the shares of the company. They also needed to ensure that no share certificate would be transferred or charged by way of lien or in any other manner. But that explanation must be rejected in view of the directors' resolution of 17 July clearly stating that the share certificates were required to be deposited as security. I have to proceed on that basis.

  8. Now the imposition of the requirement as to depositing share certificates, which are share certificates of the company, as security before the loans approved could be paid out would amount to the company lending money on its own shares, which is prohibited by subsection (1) of section 67 of the Companies Act 1965. It says – and I omit the inapplicable greater part of it –

    Except as is otherwise expressly provided by this Act no company shall .... in any way .... lend money on its own shares.[g]

    In the event of contravention of the prohibition, "each officer who is in default" will be guilty of an offence [see subsection (3)]. In view of that consequence, it must be assumed that the EGM did not intend that the loans approved be secured by certificates of the company's own shares. The imposition of such a condition by the directors was therefore ultra vires the resolution of the EGM and the condition is therefore void.

  9. The defendants have failed to raise a triable issue. I allow the appeal with costs here and before the Senior Assistant Registrar. I set aside the order of the Senior Assistant Registrar dismissing the plaintiff's application for summary judgment. I make orders in terms of prayers (a), (b), (d) and (e) in the summons in chambers [enclosure (14)][h].

Legislations

Companies Act 1965: s.67, s181.

Representations

C.T. Chan (Tai King & Partners) for Plaintiff.

C.M. Lai (Bahari, Choy & Nongchik) for Defendants.

Notes:–

[a] In this action there are 7 defendants. Defendant 1 is a private limited company. At the material time Defendants 2 to 7, together with the plaintiff, are the directors in defendant 1. The directors are also members of defendant 1. In an extraordinary general meeting held on 22/4/96, defendant 1, by a members' resolution, granted an interest free loan to each of its directors (see note [c] below for details). Except for the plaintiff, all the other directors had received their respective loan sum. The defendants refused to release the plaintiff's loan. They argued that

(1)

it is a condition for the release of the loan that a director must deposit his shares certificates with the company secretary;

(2)

the condition was agreed upon at the extraordinary general meeting; and

(3)

all the other directors had done so.

The plaintiff being dissatisfied with the defendants' refusal, instructed his solicitors, Messrs Tai King & Partners to issue a letter dated 6/7/96 to defendant 1 demanding the release of his loan. Defendants 2 to 7 then held an emergency board meeting to discuss the demand. In that meeting they resolved to impose the condition on deposit of shares certificates as security for releasing the loan to all directors in general and to the plaintiff in particular (see note [f] below for details). The plaintiff then filed this action against the defendants. By a summons in chambers the plaintiff applied to enter a summary judgment against the defendants under Ord 14 of the Rules of the High Court 1980. The application failed before the Senior Assistant Registrar. The plaintiff then appealed to the Judge-in-chambers. This is the decision of the Judge after hearing the appeal.

[b] Companies Act 1965,

181.

Remedy in cases of an oppression

(1)

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

(a)

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

(b)

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

(2)

If on such application the Court is of the opinion that either of those grounds is established, the Court may, with the view of bringing to an end or remedying the matters complained of, make such order as it think fit and without prejudice to the generality of the foregoing the order may

(a)

direct or prohobit any act or cancel or vary any transaction or resolution;

(b)

regulate the conduct of the affairs of the company in future;

(c)

provide for the purchase of the shares or debentures of the company by other members or holders of debentures of the company or by the company itself;

(d)

in the case of a purchase of shares by the company provide for a reduction accordingly of the company's capital; or

(e)

provide that the company be wound up.

[c] Resolution of the Extraordinary General Meeting held on 22/4/1996:

ONG THYE KEOW & SONS (REALTY) SDN BHD

(Incorporated in Malaysia)

MINUTES of the Extraordinary General Meeting of the Company held at the Company's Registered Office, 9.06, 9th Floor, Wisma Inai, 241 Jln Tun Razak 50400 Kuala Lumpur on Monday, 22 April 1996 at 10:00 a.m.

PRESENT:

As per Attendance Sheet.

SECRETARY IN

ATTENDANCE:

Ms Kuah Soo Lan representing the Secretary, Mr Lim Boon Siang

BY INVITATION:

Mr Tan Ghee Kiat

CHAIRMAN

Mr Ong Meng Poh presided as Chairman of the Meeting.

QUORUM

The requisite quorum being present, the Chairman declared the Meeting duly convened.

NOTICE

The Notice calling the Meeting was taken as read.

ORDINARY RESOLUTION

LOAN TO DIRECTORS

THAT the Company do hereby grant an interest free loan of Ringgit Malaysia Six Million Four Hundred and Eighty Thousand (RM6,480,000/-) to the Directors as follows:–

ONG BENG GUAT

RM

270,000-00

ONG MING SUA

RM

270,000-00

ONG BENG LYE

RM

1,080,000-00

ONG BAN HUAT

RM

270,000-00

ONG MENG POH

RM

4,590,000-00

TOTAL

6,480,000-00

The members unanimously resolved that the aforesaid Ordinary Resolution be and is hereby approved.

ORDINARY RESOLUTION

INCREASE IN AUTHORISED SHARE CAPITAL

THAT the authorised share capital of the Company be increased from RM2,000,000-00/- be divided into 2,000,000 ordinary shares of RM1/- each to RM10,000,000/- divided into 10,000,000 ordinary shares of RM1/- each by the creation of an additional 8,000,000 ordinary shares of RM1/- each and such new shares shall rank pari passu in all respects with the existing ordinary shares of the Company.

The members unanimously resolved that the aforesaid Ordinary Resolution be and is hereby approved.

ORDINARY RESOLUTION

BONUS ISSUE

THAT the Directors be and are hereby authorised to increase the issued share capital of the Company from RM1,245,003/- to RM7,470,018/- by way of a Bonus Issue of 6,225,015 new ordinary shares of RM1/- each out of the retained profits, such shares to be allotted to the shareholders of the Company whose names appear in the Register of Members at the close of business on 22 April 1996 in the proportion of FIVE (5) new ordinary shares of RM1/- each for every ONE (1) existing ordinary share of RM1/- each, and that such ordinary shares shall, on issue, rank pari passu in all respects with the existing ordinary shares of the Company.

The members unanimously resolved that the aforesaid Ordinary Resolution be and is hereby approved.

SPECIAL RESOLUTION

CAPITAL REDUCTION

(1)

THAT the capital of the Company comprising RM10,000,000-00/- divided into 10,000,000 ordinary shares of RM1/- each of which 7,470,018 have been issued and fully paid and 2,529,982 are unissued be reduced to RM1,000,000/- divided into 10,000,000 ordinary shares of RM0.10 each and that such reduction be effected by returning to the holders of the issued and fully paid 7,470,018 ordinary shares of RM0.90 per ordinary share, such capital being in excess of the wants of the Company and by reducing the nominal amount of each of the 10,000,000 ordinary shares of RM1/- each to RM0.10 each.

The members unanimously resolved that the aforesaid Ordinary Resolution be and is hereby approved.

ORDINARY RESOLUTION

(2)

THAT immediately and contingently upon the foregoing resolution taking effect that the shares in the Company be consolidated in such manner that every 100 of the existing ordinary shares of RM0.10 each shall be consolidated into 10 ordinary shares of RM1/- each of which 747,002 ordinary shares have been issued on each of which RM1/- shall be treated as fully paid and of which 252,998 ordinary shares have not been issued or allotted.

(3)

THAT immediately and contingently upon the foregoing resolution taking effect the authorised capital of the Company be increased to its former capital of RM10,000,000/- by the creation of 9,000,000 new ordinary shares of RM1/-.

(4)

THAT the Board of Directors be empowered to appoint Messrs Chooi & Company a firm of solicitors to lodge the Company's Petition to the High Court for confirmation of the Special Resolution pursuant to Section 64 of the Companies Act 1965.

(5)

THAT any one Director and / or the Secretary of the Company be authorised to sign all documents and to affix the Common Seal thereon relating to the Capital Reduction.

(6)

THAT the existing share certificates be called in by the Secretary for cancellation and that the new share certificates be issued, subject to the provisions of the Company's Articles of Association.

The members unanimously resolved that the aforesaid Ordinary Resolutions be and are hereby approved.

CONCLUSION

There being no further business, the Meeting concluded at 10:00 a.m. with a vote of thanks to the Chair.

Kuala Lumpur

22 April 1996

..... signed ....

CHAIRMAN

[d] Fifth defendant affirming the affidavit of 1/2/97 for and on behalf of First defendant company. By paragraph 4 of the affidavit he deposed as follows [translation]:

On the day of the meeting of 22 April 1996, during or shortly after the meeting, it was agreed that all directors who were granted the approved loan must deposit their respective shares as a condition for the release of the loan.

[e] See resolution of the EGM laid out in full in note [c] above.

[f] Resolution of the Emergency Director's Meeting held on 17 July 1996.

1.0

TO DISCUSS THE LETTER FROM MESSRS TAI KING & PARTNERS DATED 6 JULY 1996

The Secretary tabled the letter from Messrs Tai King & Partners dated 6 July 1996 to the Board pertaining to the demand for the release of an interest free loan of RM1,080,000/- to Mr Ong Beng Lye. He also briefed the Board of the resolutions passed at the Extraordinary General Meeting held on 22 April 1996 ("the EGM").

The Chairman informed the Board that during the last EGM, it was agreed that the loans would be released to the Directors on the deposit of their share certificates with the Secretary as securities. He further added that as at to-date, all Directors had already deposited their share certificates with the Secretary and had received their respective interest free loans except Mr Ong Beng Lye. The Secretary asked whether it was resolved at a Board Meeting. The Chairman said it was agreed at a discussion held immediately after the EGM. The Secretary then advised the Directors to have the matter minuted at today's Board Meeting.

On the proposal of Mr Ong Meng Poh and seconded by Mr Ong Beng Kwee, the Board resolved that the interest free loans would be released to the Directors provided that the Directors deposit their respective share certificates with the Secretary as securities.

The Board further resolved that the interest free loan amounting to RM1,080,000/- be released to Mr Ong Beng Lye upon deposit of his share certificate to the Secretary as security.

The Board further resolved that Messrs Bahari Choy & Nongchik be appointed to act on behalf of the Company and to reply the letter from Messrs Tai King & Partners dated 6 July 1996.

[g] Companies Act 1965,

67.

Dealing by a company in its own shares, etc.

(1)

Except as is otherwise expressly provided by this Act no company shall give, whether directly or indirectly and whether by means of a loan guarantee or the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or, where the company is a subsidiary, in its holding company or in any way purchase deal in or lend money on its own shares.

[h] In the summons-in-chambers dated 21 December 1996 filed by the plaintiff for summary judgment under Ord 14 of the Rules of High Court 1980 he prayed for the following reliefs:–

(a)

The sum of RM1,080,000/- be released to the Plaintiff by Defendant 1;

(b)

Defendants 2-7 as directors implement the members' resolutions and cause Defendant 1 to release the loan to the Plaintiff;

(c)

General damages;

(d)

Interest on the loan amount at the rate of 8% calculated from 22 April 1996 to the date of full payment; and

(e)

Costs for this action.

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