Re Asian Organisation Ltd [1961] MLJ 295 Court of Appeal, Singapore (Tan Ah Tah Ag CJ, Chua and Ambrose JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 419.

3 [502] COMPANIES AND CORPORATIONS Shares – Allotment of shares – Shares improperly allotted – Whether there exists circumstances which render it just and equitable for court to exercise discretion to validate impugned share certificates – Companies Act 1965, s 63 – Dixon v Kennaway & Co [1900] 1 Ch 833 (distd); Gray & Farr Ltd v Carlile [1932] 1 DLR 391 (refd); D'Arcy v Tamar, Kit Hill & Callington Railway Co (1867) LR 2 Ex 158 (refd); Re Bonelli's Telegraph Co (1871) LR 12 Eq 246 (refd); South London Greyhound Racecourses Ltd v Wake [1931] 1 Ch 496 (refd); Ruben v Great Fingal Consolidated [1906] AC 439 (refd); Chong Sooi Chuen v Yuen Lai Chun [1988] 2 MLJ 443 (refd); Siti Aishah bte Ibrahim v Goh Cheng Hwai [1982] 2 MLJ 124 (refd); Yahya bin Mohamad v Chin Tuan Nam [1975] 2 MLJ 117 (refd); Thomas v Thomas [1947] AC 484, 487 (refd); Millheim v Barewa Oil & Mining [1971] WAR 65 (refd); Re The Swan Brewery Co Ltd (No 2) (1977-78) 3 ACLR 168 (refd); Re Fildes Bros Ltd [1971] WLR 592 (distd).

P, a limited company incorporated in Malaysia in 1967 as a family company, had over the years issued shares to the two families of X and D2, who were brothers. The shares were issued either as capitalization of loans or for debts owed to either one of the families' other com-panies. In 1977, D2 and members of his family was allotted 369 shares of P pursuant to a directors' resolution purportedly made under art 54 of the articles of association of the company. Z, on behalf of the company, issued a writ averring that the resolution was null and void. The company sought a declaration that the purported allotment of the 369 shares made to D was null and void and for an order that D delivered to the company the said share certificates for cancellation. In their defence, D contended that the allotment of the shares was valid. It was also contended that P was estopped from denying the validity of the shares as the share certificates were already executed, stamped and issued to them. D also counterclaimed, in the event the allotment of the shares was null and void, for an order validating their allegedly impugned shares on the basis of s 63 and s 355 of the Companies Act 1965 and also for an order to rectify the register of members of P under s 162 of the Act. In the High Court, P's claim was dismissed by the learned judge who allowed D's counterclaim. Dissatisfied with the decision of the learned judge, P appealed to the Supreme Court.

Held, allowing the appeal: (1) in the instant case, the directors' resolution was invalid and ineffectual because of non-compliance with the requirements of art 54 as there was evidence to show that not all the directors of P signed the resolution. The allotment of the shares was also null and void as there was non-compliance with art 55. In the result, the resolution and the allotment of the shares could not be said in law to be the act of P binding P but were instead a nullity. Accordingly, the argument based on estoppel would not avail D; (2) under the circumstances, there was nothing to render it just and equitable for the court to exercise its discretion to validate the impugned share certificates under s 63 of the Act. In fact, D's right to the allotment of these shares by capitalization is now pending hearing in the High Court and it would be proper to let justice take its own course and for the litigating parties to abide by the decision of that civil suit when it is finally disposed of by the court.

Kelapa Sawit (Teluk Anson) Sdn Bhd v Dr Yeoh Kim Leng & Ors [1991] 1 MLJ 301 Supreme Court, Malaysia (Harun Hashim, Ajaib Singh and Jemuri Serjan SCJJ).

Jimat bin Awang & Ors v Lai Wee Ngen [1995] 3 SLR 769; (1995) CSLR VIII[128] Court of Appeal, Singapore (Karthigesu and LP Thean JJA, Lai Kew Chai J).

See COMPANIES AND CORPORATIONS, Vol 3, para 286.

Dr Mahesan & Ors v Ponnusamy & Ors [1994] 3 MLJ 312; CSLR IX[1007] High Court, Kuala Lumpur (Zakaria Yatim J).

See COMPANIES AND CORPORATIONS, Vol 3, para 260.

Where a person in a fiduciary capacity had committed a fraudulent breach of trust of shares in a limited liability company.

Held: the cestui que trust was entitled to elect whether he would take the shares themselves plus all dividends received and interest thereon with annual rests or the highest possible price which the shares ever attained while in the hands of the wrongdoer plus simple interest upon such price at the rate of 6% per annum as from the date of the allotment of the shares to him.

Muthuraman Chettiar v Ee Kong Guan [1934] MLJ 31 High Court, Straits Settlements (Mills J).

The appellant who had subscribed his name to the memorandum and articles of the respondent company and agreed to take one share value $1,000 was appointed sales director of the company at a salary of $400 per mensem. The employment, which was for three years, was liable to be determined by a three months' notice on either side. On 19 August 1935 the directors of the company passed a resolution purporting to cancel the appellant's memorandum share. In September 1935 the company gave the appellant three months' notice to terminate his employment as sales director. On 4 October 1935 an agreement (exhibit C) was executed between the company and the appellant dispensing with the three months' notice and releasing each other from all claims. The directors, having been advised that the cancellation of the allotment of the appellant's memorandum was illegal, treated such cancellation as a nullity, and resolved to demand payment of the $1,000 from the appellant. On the same day the secretary of the company wrote to the appellant demanding payment. The company sued the appellant for the $1,000 and the trial judge held that he was liable.

Held, on appeal: (1) the resolution of 19 August 1935 was null and void; (2) the only matters within the contemplation of the parties at the time that exhibit C was executed were their mutual rights and obligations under that agreement and that as there was nothing in the circumstances of the case from which it could be inferred that the parties had intended a release of the liability attached to the memorandum share, the appellant was liable.

Ho Kim Hoi v The Anglo-American Corp Ltd [1938] MLJ 14 Court of Appeal, Federated Malay States (Terrell Ag CJ (Straits Settlement).

On 16 January 1989, Bank Negara had assumed control of the finance business of First Malaysia Finance Bhd ('FMF') under s 33(iii) of the Finance Companies Act 1969 following investigations into the financial standing of FMF. The investigations had revealed that FMF was hopelessly insolvent and no longer a viable concern as its paid-up capital had been impaired by heavy losses. Bank Negara later petitioned the court under s 31c of the Central Bank of Malaysia Ordinance 1958 for approval of a capital restructuring exercise which involved: (1) a reduction of FMF's existing capital to one sen per M$1 share, thereby reducing the existing paid-up capital of M$20,274,000 to M$202,740; and (2) a call on the existing shareholders to pay a sum of 99 sen per share held by them so as to restore the par value of the shares to M$1 each. The petition was opposed by three shareholders. Their objections were: (1) s 31c of the ordinance under which the petition was presented was not applicable; (2) the true and updated financial position of FMF had not been disclosed to the court; and (3) the amended second prayer of the petition, by which the consolidation of fractional shares was sought, fell outside the scope of s 31c. Two of the opposing shareholders contended that s 31c was not applicable to them as (1) they had not been guilty of any unscrupulous dealings; and (2) the section was intended to be retrospective. The explanatory statement attached to the Parliamentary Bill by which the ordinance was sought to be amended by the inclusion of s 31c stated that the purpose of the intended amendment was to prevent unscrupulous shareholders from retaining and benefitting from their equity stake after a bank or finance company had been rescued by Bank Negara. It was contended for the opposing shareholders that before s 31c could be applicable, there must be proof of unscrupulous dealings by shareholders of the bank or finance company. No valuation of the securities held by FMF for debts incurred in 1986 and 1987 had been undertaken and it was contended that, since some of the securities were lands, an up to date valuation of the securities should have been undertaken so that a true picture of the actual losses suffered for the two years could be seen.

Held, granting the petition: (1) an explanatory statement in a Parliamentary Bill can never be relied upon to interpret a provision in a statute as its presence in the Bill is merely to state the purposes and intentions of the Bill. All that Bank Negara needed to establish to invoke s 31c was to prove that FMF was an insolvent company as its capital had been lost or unrepresented by available assets; (2) s 31c is not penal in nature but it merely empowers the court to order the reduction of the share capital of a financial institution and to cancel its shares in instances where the capital of such a financial institution is lost or unrepresented by available assets; (3) since s 31c created a new disability which is penal in nature in respect of past events such as the losses already suffered by FMF since 1982, the section could only be interpreted to be prospective; (4) while it was true that there was no disclosure of any revaluation undertaken of the securities held by FMF for the debts incurred in 1986 and 1987, no other evidence was available as to what extent such revaluation could make any difference to the amount Bank Negara had placed as the accumulated loss. In carrying out its functions under the ordinance and the Act, Bank Negara must have considered the securities held by FMF when arriving at the total losses suffered by FMF; (5) it is true that s 31c does not make any provision for the consolidation of fractional shares but such a consolidation is part and parcel of the scheme for the cancellation of shares that the court was empowered to order under that section. Parliament was not concerned with the methods used to effect the cancellation of the capital of any financial institution but had left it to the wisdom of Bank Negara as the central bank of the country with supervisory powers over all financial institutions to find the most beneficial solution with regard to the cancellation of capital, provided of course it did not work to the detriment of any shareholder holding fractional shares.

Re First Malaysia Finance Bhd [1990] 1 MLJ 504 High Court, Kuala Lumpur (Siti Norma Yaakob J).

The appellant company in this case was incorporated pursuant to a shareholder's agreement dated 28 March 1972 and made between the Industrial and Commercial Bank Ltd, Arthur Lipper International Ltd and a Mr Sinclair. The initial share capital of $300,000 was issued. In late 1972 and early 1973, the directors of the appellant company decided to invest in an ice skating project in Kuala Lumpur, Malaysia. It was agreed that land and equipment for the project should be purchased in Kuala Lumpur amounting to about $970,000. Pursuant to this further shares were subscribed in the following proportions - Arthur Lipper International Ltd 332,500 shares, Industrial & Commercial Bank 332,500 shares and Mr Sinclair 35,500 shares. Arthur Lipper International Ltd paid for its shares and the International & Commercial Bank Ltd caused the respondent company, its subsidiary to pay for its shares. The share application money was paid into the appellant company's bank account as agreed by the parties. The issue of the shares was deferred 'until the ice skating project proved to be a going concern'. Work on the Kuala Lumpur project was started in 1973 but in December 1974 the project was abandoned as planning permission could not be obtained. The respondents demanded the return of the sum of $332,500 and interest. On 31 March 1976 the appellant company allotted 332,500 shares to the respondent company. The respondent company brought the action to claim the refund of the sum of $332,500 and interest.

Held: (1) the sole question on the evidence in this case was whether the appellant company agreed that the respondent company would be entitled to repayment of $332,500 if and when the ice-skating project 'did not prove to be a going concern'. The learned trial judge was right in holding that no such agreement had been proved; (2) the respondent company had failed to establish that their application for shares in the appellant company was subject to any contractual condition before or after the date of their application; (3) the appellant company could not convert or agree to convert their equity capital into a loan, conditionally or unconditionally and repay the loan without reduction in capital which no company could effect without the leave of the court; (4) the appellant company had no power to rescind the contract for shares and to return the application moneys as moneys borrowed or as moneys had and received because an illegal reduction of capital would thereby be involved; (5) circumstances may arise in which either a company or an applicant for shares or both may become entitled to rescind a relevant contract. In this case the appellants were neither able nor willing to rescind the contract and the respondent company having agreed to the deferment of the issue of the shares were only entitled to put an end to that deferment; they were not entitled to claim the return of their application moneys.

Merchant Credit Pte Ltd v Industrial & Commercial Realty Co Ltd [1983] 1 MLJ 124 Privy Council Appeal from Singapore (Lord Fraser of Tullybelton, Lord Scarman, Lord Bridge of Harwich, Lord Brandon of Oakbrook and Lord Templeman).

Where a declaration is made that a claimant is entitled to be registered as the owner of shares in a company it is not permissible to order that the company either register the claimant or refund to him the value of the shares; the latter course would have involved the company in an illegal reduction of capital. On registration the claimant would be entitled to draw dividends declared and payable after the date of purchase.

Sinnasamy v Hup Aik Omnibus Co [1952] MLJ 36 Court of Appeal, Federation of Malaya (Pretheroe Ag CJ, Thomson and Briggs JJ).

H petitioned the court for a confirmation by the court of a special resolution of H with regard to the reduction of its share premium account as a result of writing off the accumulated net deficit in H's profit and loss account amounting to $58,939,376. The consolidated accounts of H showed an accumulated loss of $58,940,000 arising from extraordinary items being charged to the profit and loss account. These extraordinary items comprise, inter alia, foreign exchange losses, losses of investments in subsidiaries, provision against losses to subsidiaries, provision against guarantees issued and loss on sale of subsidiaries. H submitted that in determining the question whether or not to confirm reduction of the share capital and the share premium account, the only relevant considerations for the court are: (a) the interest of the creditors; (b) the interest of the shareholders; and (c) the interest of the public. H also argued that it was not necessary to establish that it had actually sustained a loss.

Held, dismissing the petition: (1) the three considerations are relevant considerations but they are not the only considerations when reduction of share capital is sought on the basis of losses 'considered to be irrecoverable and are therefore permanently lost'. It is not enough that in the instant case, the court need only satisfy itself on matters relating to creditors, shareholders and public interest. It should also satisfy itself 'by evidence of the existence of the state of facts referred to in the resolution'; (2) the whole case for the company is that it has lost capital to the extent of $58,939,376 and wishes to write off this sum by reducing the share premium account by that sum. If the court so desires, it can take steps to satisfy itself whether these averred losses of the company have in fact been suffered and whether any such loss can properly be treated as losses for capital reduction purposes; (3) the non-disclosure as to the true nature of the London Tin transaction, which resulted in foreign exchange losses, but in which the real owner of these tin shares was one of H's subsidiaries, does not make it possible for the court to confirm the special resolution; (4) there was a direct sale of H's shares to its subsidiary and a loan given by H to its subsidiary for the purpose of dealing in the company's shares, which shares the subsidiary made use of to buy into London Tin. The provisions of s 67 have been directly breached; (5) although the company has followed the generally accepted accounting principle that all possible losses must be provided for but no account should be taken of profits or increases in value until they are realized, such an approach should not be adopted for the purpose of capital reduction because it does not establish that the book value of the investment is unrepresented by available assets. In order to arrive at an appropriate provision for diminution in value of investments in subsidiaries, it is necessary to value the subsidiaries taking into account not only the losses and decreases which have occurred in the value of assets but also any appreciation in the value of assets which may exist. In the circumstances, the losses on investments in subsidiaries cannot be treated as losses for capital reduction purposes and be written off against the share premium account of the company; (5) so long as loans to the six subsidiaries have not been written off in the books of H, and for so long as they continue to appear as debts in the books of the debtor subsidiaries, these loans cannot be treated as losses for capital reduction purposes and be written off against the share premium account; (6) as for the provisions against guarantees issued to a third party in respect of the two subsidiaries, these are provisions for a contingent liability under a guarantee and cannot be claimed as an established or permanent loss for capital reduction purposes. Provisions against guarantees issued on contingent liabilities cannot result in a diminution of capital until such time as the contingencies occur and the actual liability is established; (7) losses on sale of subsidiaries can be treated as a realized loss for capital reduction purposes.

Re Haw Par Brothers International Ltd Originating Petition No 39 of 1977 High Court, Singapore (Rajah J).

[Annotation: Reversed on appeal. For an account of the unreported Court of Appeal decision, see Pillai Sourcebook of Singapore and Malaysian Company Law (2nd ed, 1986).]

EH Ltd, a shareholder in EIL (one of the respondents) received a certificate representing 10.8 million shares in EIL. This certificate was held on trust for R. The certificate was deposited with A together with executed blank transfers as security for a loan granted by A to EIL. In October 1981, A unlawfully delivered the certificate to CH in return for a post-dated cheque for HK$90m. This cheque was never presented. At this date, the market price of EIL shares was HK$5.75. In 1982, A went into the market to purchase EIL shares at a price of HK$2.40. These replacement shares were delivered to R. R sued for damages in respect of the conversion. The action succeeded at first instance and before the Court of Appeal. A appealed to the Privy Council, inter alia, on the ground that R had suffered no damage in that they had received the 10.8 million EIL shares that they were entitled to.

Held, dismissing the appeal: (1) the general rules is that a plaintiff whose property is irreversibly converted has vested in him a right to damages for conversion measured by the value of the property at the date of conversion; (2) A never had any right to deal with the deposited shares. Their disposal amounted to conversion; (3) on the findings of the trial judge, A sold and irreversibly converted the EIL shares entrusted to them by EH Ltd. They thereupon became entitled to damages calculated by reference to the market price of the shares at the date of conversion, due to allowance being made for the value of those shares at the price paid by A for them.

BBMB Finance (Hong Kong) Ltd v EDA Holdings Ltd & Ors Privy Council Appeal No 26 of 1989 Privy Council Appeal from Hong Kong (Lords Bridge, Templeman, Griffiths, Goff and Lowry).

The plaintiff had instructed the defendant company to buy 1,000 Malayan Tin Dredging shares. The shares were bought and registered in the name of the defendant company. Subsequently transfer receipts for 1,000 shares were issued to the plaintiff together with executed transfers. The plaintiff deposited all the transfer receipts together with the executed transfers with the Overseas Chinese Banking Corp. Later he instructed the bank to exchange these for share certificates. Certificates for 500 shares were given but not for the other 500 shares, as it appeared that the certificates for them had already been issued to the defendant company and the shares had been transferred to three other persons. On the evidence there was nothing to show any positive wrongful act on the part of the defendant. The plaintiff relied on the fact that the defendant company's name appeared as transferors of the 500 shares.

Held: the plaintiff had not adduced evidence sufficient for the court to hold on the balance of probabilities that the defendants were liable for conversion and the claim must therefore be dismissed.

Lam Teik Kai v Hallam Nominees Ltd & Ors [1971] 1 MLJ 146 High Court, Kuala Lumpur (Abdul Hamid J).

Kidurong Land Sdn Bhd & Anor v Lim Gaik Hua & Ors [1990] 1 MLJ 485 Supreme Court, Malaysia (Lee Hun Hoe CJ (Borneo).

See CONTRACT, Vol 3, para 2714.

Chung Khiaw Bank Ltd v Hotel Rasa Sayang Sdn Bhd & Ors [1990] 1 MLJ 356 Supreme Court, Malaysia (Hashim Yeop A Sani CJ (Malaya).

See CONTRACT, Vol 3, para 2451.

A asked for a declaration that the debenture executed by A1 with D3 and the subsequent appointment of D1 and D2 as managers and receivers under the debenture were null and void as contravening s 67(1) of the Companies Act 1965. The debenture in question was one of the securities provided by A1 to secure two letters of guarantee from D3 to finance the purchase by A1 of the entire share capital of three private companies, namely, L Sdn Bhd, M Sdn Bhd and N Sdn Bhd for a consideration of M$46m. A2-A4 were the directors and shareholders of A1. A maintained that as the debenture covered assets to be acquired by A1 in futuro, it must mean the assets of the three companies, as at the time the debenture was executed, the assets of the three companies were the only certain and foreseeable assets to be acquired by A1. Accordingly, by means of providing their assets to be covered by the debenture, the three companies had given financial assistance to A1 in the purchase of their own shares. This rendered the debenture illegal under s 67(1) of the Act and consequently the appointment of the managers and receivers was null and void and unenforceable. The High Court found in favour of D and A appealed to the Supreme Court.

Held, dismissing the appeal: (1) in the instant case, the entire exercise as contemplated in the two loan agreements, the guarantees, the proposals as put forward to the Foreign Investments Committee and Bank Negara, did not in any way involve the assets of the three companies to finance the purchase of their shares whether directly or indirectly. The commercial reality of the transaction in the particular circumstances of the case was that the loans were secured on the existing assets of A1; (2) although the prohibition in s 67(1) against the giving of any financial assistance either directly or indirectly by a company in dealing with its own shares is wide, it does not prohibit a debenture creating a floating charge as in the instant case.

Yap Sing Hock Holding Bhd & Ors v Chuah Teong Hooi & Ors [1990] 3 MLJ 97 Supreme Court, Malaysia (Abdul Hamid Omar LP, Harun Hashim and Mohamed Yusoff SCJJ).

The plaintiff and two other persons were shareholders of Sarjana Sdn Bhd (`the first defendant') which had a paid-up capital of 5,700 ordinary shares. The plaintiff used the first defendant as a vehicle to purchase 132.7072 acres of land by an agreement dated 8 June 1992. On 19 June 1992, the first defendant entered into an agreement (`the agreement') with Pasti Hasil Sdn Bhd (`the second defendant') to resell the land to the latter. According to the agreement, RM1m of the purchase consideration would be capitalized as paid-up capital for 1m shares in the first defendant. These 1m shares had been allotted to the second defendant pursuant to a resolution passed by the first defendant at its extraordinary general meeting on 22 June 1992. The plaintiff commenced this action seeking declarations to render the allotment of the shares to the second defendant void. The plaintiff alleged that there was contravention of s 67 of the Companies Act 1965 (`the Act') because the first defendant had provided financial assistance to the second defendant to subscribe to the shares of the first defendant. Among the issues for determination were: (i) whether the plaintiff as a shareholder of the first defendant had the capacity in law to bring a claim against the first and second defendants based on the alleged contravention of s 67 of the Act when the aforesaid section afforded protection only to the first defendant and no one else; (ii) whether the first defendant had directly or indirectly given financial assistance to the second defendant for the purpose of the latter's subscription of the 1m ordinary shares in the former in contravention of s 67 of the Act; and (iii) the validity of a subscription of shares made in a company pursuant to the company itself providing financial assistance for the transaction, in contravention of s 67 of the Act. The plaintiff also contended that the return of allotment of shares to the Registrar of Companies, being a statutory requirement, fell within the ambit of ss 91 and 92 of the Evidence Act 1950 and therefore the entries contained therein, which showed that the 1m ordinary shares of RM1 each were allotted to the second defendant for which the amount paid was RM1 per share, could not be contradicted to show that the shares had been allotted to the second defendant on a fully paid-up basis.

Held, dismissing the plaintiff's claim with costs: (1) according to s 67(6) of the Act, only the company had the locus standi to institute an action in respect of a transaction entered into in contravention of s 67(1) of the Act. Therefore the plaintiff had no locus standi to bring this action; (2) the prohibition in s 67 of the Act was on the company giving, in any way, any financial assistance for the purpose of or in connection with a purchase of or subscription made or to be made by any person for any shares in the company. However, if the transaction was a bona fide commercial transaction entered into in good faith, the fact that the proceeds of the transaction were used to assist in acquiring the company's shares would not make the transaction illegal. In this case, the first defendant financially assisted the second defendant to acquire the 1m shares as the transaction that they entered into resulted in the second defendant obtaining the shares without any payment by reason of RM1m accruing from the sale of the land being treated as payment for the shares. The transaction was not a transaction whereby the first defendant acquired anything which it genuinely needed for its own purpose. It was a transaction which facilitated the second defendant's acquisition of control of the first defendant for its own purpose; (3) a contract which was prohibited by statute did not become void and unenforceable if the statute itself saved the contract or there were contrary intentions which could reasonably be read from the language of the statute itself. As s 67(3) of the Act prescribed penalties for a breach of s 67(1) and s 67(6) provided remedies for the breach and furthermore, having regard to the context and purpose of s 67(1), any transaction entered into in breach of the section was valid and enforceable. Thus the agreement in this case did not become void and unenforceable. In any event, s 67(1) of the Act only prohibited the giving of financial assistance for the acquisition of shares and not the acquisition of the shares itself which was the transaction which the plaintiff sought to have declared void; (4) s 92 of the Evidence Act 1950 did not apply to all documents that came within s 91. The prohibition contained in s 92 applied only to bilateral and dispositive documents.The section had no application to unilateral and non-dispositive documents such as police reports and as a consequence thereof, oral evidence was admissible to contradict them. Since the return of allotment of shares was a unilateral document, it therefore could be contradicted if the facts warranted it.

Datuk Tan Leng Teck v Sarjana Sdn Bhd & Ors [1997] 4 MLJ 329 High Court, Melaka (Augustine Paul JC).

A asked for a declaration that the debenture executed by A1 with D3 and the subsequent appointment of D1 and D2 as managers and receivers under the debenture were null and void as contravening s 67(1) of the Companies Act 1965. The debenture in question was one of the securities provided by A1 to secure two letters of guarantee from D3 to finance the purchase by A1 of the entire share capital of three private companies, namely, L Sdn Bhd, M Sdn Bhd and N Sdn Bhd for a consideration of M$46 m. A2-A4 were the directors and shareholders of A1. A maintained that as the debenture covered assets to be acquired by A1 in futuro, it must mean the assets of the three companies, as at the time the debenture was executed, the assets of the three companies were the only certain and foreseeable assets to be acquired by A1. Accordingly, by means of providing their assets to be covered by the debenture, the three companies had given financial assistance to A1 in the purchase of their own shares. This rendered the debenture illegal under s 67(1) of the Act and consequently the appointment of the managers and receivers was null and void and unenforceable.

Held, dismissing the application of A: (1) in the instant case, the acquisition by A1 of the assets of the three companies was perfected the moment A1 had paid for them which was done at almost the same time the syndicated loans were released to A1 and the debenture executed with D3. From the point of time by virtue of such a purchase, A1 became a shareholder of the three companies and being the beneficial owner of all the assets of the three companies, it could deal with such assets in any way it thought fit including charging them to D3 to secure the bank guarantees provided by D3. Thus, the reference to the debenture that it shall also cover all the future assets of A1 must mean that it covered only the assets of A1 both present and future and not the assets of any other company. Accordingly, the creation of the debenture over the assets of A1 both present and future to secure the bank guarantees by D3 to enable A1 to purchase the paid-up capital of the three companies, did not offend s 67(1) of the Act; (2) having regard to the evidence in the instant case, the appointment of the receivers and managers to manage Al's affairs was not made in breach of any oral arrangement between the parties. There was insufficient evidence to show that D3 had represented to A1 that it would not enforce the debenture and D3 was accordingly not estopped from appointing D1 and D2 as receivers and managers to manage A1's affairs.

Yap Sing Hock Holdings Bhd (under Receiver & Managers) & Ors v Chuah Teong Hooi & Ors [1989] 2 MLJ 503 High Court, Kuala Lumpur (Siti Norma Yaakob J).

[Annotation: Affirmed on appeal. See [1990] 3 MLJ 97.]

Yap Sing Hock & Anor v Public Prosecutor [1991] 2 MLJ 334 High Court, Johore Bahru (Abu Mansor J).

See COMPANIES AND CORPORATIONS, Vol 3, para 102.

Intraco Ltd v Multi-Pak Singapore Pte Ltd [1994] CSLR XX 889 Court of Appeal, Singapore (Karthigesu and LP Thean JJA , Goh Joon Seng J).

See COMPANIES AND CORPORATIONS, Vol 3, para 142.

In January 1985, the plaintiffs were placed under receivership by their debenture holders. The receivers found that the plaintiffs had issued a cheque dated 6 June 1984 in favour of the first defendants ('Intraco') for the sum of $2,371,079.62. On 21 July 1985, the plaintiffs issued a writ claiming the amount paid as money lent or money held on resulting trust. Intraco claimed in their defence that the sum paid was consideration for the assignment to the plaintiffs by Intraco of debts amounting to $2,545,897.83 due from City Carton Co Pte Ltd and Box Pak (S) Pte Ltd ('the debtors'), under the agreement dated 24 May 1984. On 22 October 1986, the plaintiffs amended their writ to include the plaintiffs' directors and financial controller as defendants, and to assert that the payment to Intraco was a misapplication of funds as the debtors were insolvent and the assignment accordingly conferred no benefit to the plaintiffs. On the basis of this alleged misapplication, the plaintiffs charged that Intraco was liable for the tort of conspiracy and as constructive trustees. On 6 December 1991, the plaintiffs' solicitors wrote to Intraco's solicitors informing them of the plaintiffs' intention to make an application to add two claims. The first was for relief on the ground that the scheme entered into in May/June 1984 had the effect of the plaintiffs wrongfully rendering financial assistance to Intraco for the purchase of its shares. The second was for the par value of the plaintiffs' shares allotted to Intraco on the ground that the cash payments made by Intraco was illusory in nature, the real consideration then being the assignment of debts due from the debtors which were in fact worthless. On 14 December 1991, the plaintiffs' solicitors wrote again to Intraco's solicitors to inform them of their decision not to pursue the claim for subscriptions, and at the same time enclosed a draft of voluntary particulars to the plaintiffs' case on constructive trust, the essential facts and elements in respect of which the plaintiffs' solicitors claimed had already been pleaded. Intraco's solicitors were also requested to indicate whether the proposed course of action would be challenged, in which event, an application for amendment could be made made and fixed for hearing together with the plaintiffs' application for further and better discoveries. As there was no response to the said letter, the voluntary particulars were filed on 19 December 1991 during court vacation. At the trial on 6 January 1992, Intraco objected to the voluntary particulars being part of the plaintiffs' pleadings and submitted that they had introduced a new cause of action outside the limitation period. The plaintiffs, on the other hand, argued that Intraco had waived the right to object to the voluntary particulars. Further, it was argued that the case constituted by the voluntary particulars was already part of their pleaded case and that they were accordingly entitled to lead evidence and cross-examine on them. In any event, even if the voluntary particulars introduced a new cause of action, it was based on the same or substantially the same facts which had been pleaded. The plaintiffs therefore applied for leave to effect the relevant amendment under O 20 r 5(2) and (5) of the Rules of the Supreme Court 1970 ('the Rules').

Held, dismissing the plaintiffs' application: (1) as a general rule, the failure to object to the filing of voluntary particulars per se cannot amount to a waiver. The procedure is not found in the Rules and except in certain exceptional circumstances, for example where they would constitute an estoppel, a mere failure to respond cannot amount to a waiver. Order 18 r 5 in fact provides that except with the leave of the court or the consent of all parties to the action, pleadings cannot be served during court vacation as had been done here; (2) as particulars are part of pleadings, a party wishing to include them must, except where an amendment without leave is permitted by the Rules, obtain leave to add them. As the particulars were not filed in accordance with the Rules, the introduction of the voluntary particulars was unauthorized and they were accordingly not part of the plaintiffs' pleadings; (3) O 18 rr 7 and 15(1) which require a party to set out in his pleadings all material facts on which he relies for his claim or defence, and to state specifically the relief or remedy which he claims, is intended to ensure that the plaintiff has a legally sustainable claim and to inform the opponent in advance of the case to be met so that he would have adequate opportunity to prepare and present his case. The effect of failure to comply with the Rules might mean that an application to strike out the pleadings may be made, or the party in default might be precluded from presenting a case, leading evidence or cross-examining the opponent's witnesses on the point omitted. A court is also not allowed to make a finding or give a decision based on facts not pleaded. The plaintiffs' case based on a breach of statutory duty under s 76 of the Companies Act (Cap 50, 1990 Ed) was not included in the pleadings and they were, accordingly, precluded from presenting a case in respect thereof; (4) as a matter of practice, the law will not allow the Limitation Act to be circumvented by the device of introducing a fresh claim by amendment of the pleadings in a pending action as it would be unjust to deprive the defendant of an accrued statutory defence by such amendment; (5) the expression 'cause of action' might mean the facts which the plaintiff must prove to get a decision in his favour or the legal basis which entitles the plaintiff to succeed, ie the relief or remedy which the plaintiff claims. Its meaning therefore depends on the context in which it was used. In the context of O 20 r 5(5) of the Rules, the expression 'cause of action' means the relief or remedy sought by the plaintiff; (6) on a true construction of O 20 r 5(2) and (5), a plaintiff seeking an order under it must satisfy two requirements: (a) that the facts of the case remain the same or substantially the same; and (b) that the justice of the case is with him. If he fails in one, he fails altogether. As the power conferred on the court to grant leave to amend pleadings is discretionary, the court considering the application should adopt a broad common-sense approach. The plaintiffs failed to satisfy both requirements. They failed to plead the factual circumstances in connection with their case under s 76 of the Companies Act. Even if the plaintiffs had satisfied the first requirement, they failed to show that the overall equities rested with them. There was no explicable reason why the plaintiffs took seven years to raise the point which should have been obvious in the early stages of the proceedings. The plaintiffs' case was inextricably founded on the equitable principles of fiduciary duties and constructive trust, and delay defeats equity.

Multi-Pak Singapore Pte Ltd (in receivership) v Intraco Ltd & Ors [1992] 2 SLR 793 High Court, Singapore (GP Selvam JC).

[Annotation: Affirmed on appeal. See [1993] 2 SLR 1.]

The plaintiffs claimed the repayment of an interest free loan of $2,500 lent by the plaintiffs to the defendant at the latter's request to enable the defendant to purchase shares in the plaintiff company. Evidence of the loan was a general voucher signed by the defendant. The defendant denied the loan and averred that the issue of shares to him was in consideration of services rendered by him to the plaintiff company. As for the voucher the defence was non est factum. The defendant did not object to the legality or enforceability of the loan.

Held: (1) on the evidence it was clear that the 2,500 shares were the reward made to the defendant for services rendered to the plaintiff company and the claim should be dismissed on the facts; (2) alternatively, the plaintiffs' claim was founded on an illegality as the loan was made to enable a person to purchase the company's shares contrary to s 48 of the Companies Ordinance 1940.

Wai Hin Tin Mining Co Ltd v Lee Chow Beng [1968] 2 MLJ 251 High Court, Ipoh (Chang Min Tat J).

AD Ltd agreed to sell shares in PK to D1 in 1983. To finance D1's purchase, P agreed to provide, inter alia, a loan facility to D1. D2-D5 guaranteed D1's repayment of the loan. P's loan facility was also secured, inter alia, by a pledge of PK's shares in P's favour, PK's undertaking to P that PK's total liabilities should not exceed a certain sum and the deposit of titles to PK's land with P. The loan was fully disbursed to D1. D1 defaulted in repaying the loan and P sued D1-D5. The senior assistant registrar gave summary judgment to P. D1-D5 appealed to the High Court, firstly, on the ground that the loan was void under s 67(1) of the Companies Act 1965 because PK had provided financial assistance to P in connection with the purchase of PK's shares when PK gave an undertaking to P that PK's liabilities would be limited. D further argued that PK's deposit of its land titles with P, gave P a registrable interest in the land. D also alleged that in 1986 PK requested P to release PK's land titles to enable PK to provide security for X's loan to D4. For P to release PK's land titles, PK paid a certain sum of money to P. D avered that this contravened s 67(1) of the 1965 Act.

Held, dismissing the appeal: (1) PK's undertaking could not be the real security for the loan because the loan agreement identified the security for the loan to be the mortgage of PK's shares to P; (2) PK merely deposited the land titles with P and did not charge the land to P. In the event of D1's default of the loan, P could not proceed to sell PK's land. P therefore did not hold any registrable interest over PK's land titles; (3) PK's payment to P did not contravene s 67(1) of the 1965 Act because the transaction took place in 1986. For there to be any contravention, D must establish that the contravention took place in 1983 when the loan was granted to D1.

Utama Wardley Bhd & Anor v Lenggang Laut Development Sdn Bhd & Ors [1991] 3 MLJ 490 High Court, Kuala Lumpur (Siti Norma Yaakob J).

Re Fraser & Neave Ltd; Tan Keng Siong v Tan Hock Kiang & Ors 1965 Federal Court, Singapore (Wee Chong Jin CJ, Tan Ah Tah FJ and Chua J).

See COMPANIES AND CORPORATIONS, Vol 3, para 562.

The question which arose in this originating summons was whether a deed of settlement made by the testator Yeap Chor Ee, deceased, constituted a good and valid gift of certain shares. The material parts of the deed are as follows: 'Whereas the settlor is the owner of two thousand (2,000) shares of RM100 each fully paid-up in Ban Hin Lee Bank Ltd, having its registered office at No 43 Beach Street, Penang. And whereas in consideration of the natural love and affection of the settlor for the donee hereinafter mentioned, the settlor is desirous of assigning the said shares to the trustees to be held by them the trusts hereinafter mentioned. Now this indenture witnesseth as follows: (1) That for the purposes of effectuating the said desire and in consideration of his natural love and affection for the donees hereinafter mentioned, the settlor hereby assigns unto the trustees the said two thousand (2,000) shares of RM100 each fully paid-up in the Ban Hin Lee Bank Ltd absolutely to hold the same upon trusts for all the sons ...'. No transfer of the shares in question was in fact made and on the death of the testator, the deed of settlement was found in his safe.

Held: (1) in so far as the deed of settlement in this case purported to be a gift by way of transfer to the trustees mentioned therein, it was an imperfect transaction and therefore had no effect; (2) as by the deed of settlement, the testator had declared that he held the property on trust, the trust was good, and therefore the testator had constituted himself and himself only the trustee of the shares for the persons mentioned as beneficiaries.

Re Yeap Chor Ee, deceased [1954] MLJ 248 High Court, Penang (Spenser-Wilkinson J).

Raja Nong Chik v Public Prosecutor [1971] 1 MLJ 190 High Court, Kuala Lumpur (Raja Azlan Shah J).

See COMPANIES AND CORPORATIONS, Vol 3, para 121.

The respondent company was primarily engaged in merchant banking but participated in some business ventures. In early 1973, in order to raise funds for an ice-skating project which it invested in, the shareholders resolved to increase the authorized share capital of the respondent company from $1m to $2m. The board of directors agreed that the capital so contributed would be credited to a share application account in the books of the respondent company. In June 1973, the appellant company applied for 332,500 shares of $1 each and sent a cheque for $332,500 which the respondent company acknowledged receipt of on the same day. For the next two years and nine months, no decision was taken by the board of directors to allot shares to the appellant company against the application moneys in the share application account. The project was abandoned in December 1974 and the respondent's board of directors passed a resolution to repay the appellant company the sum of $332,500 from a loan to be raised. The attempt to raise the loan was unsuccessful. In August 1975, the appellant company then demanded the repayment and the respondent, through its solicitors, stated that the funds in the share application account 'were intended for the share capital of the company and not simply as an ordinary loan repayable on demand'. In March 1976, the respondent company passed an ordinary resolution authorizing the directors to allot 332,500 shares of $1 each to the appellant company and the shares were allotted on the same day. The appellant company commenced proceedings against the respondent and the trial judge ruled that the appellant were bound by the contract and were clearly not entitled to a refund of the amount they paid as subscription for the 332,500 shares. The appellant appealed.

Held, allowing the appeal: (1) the proper inference to be drawn from the undisputed facts was that the respondent company had treated the moneys of the appellant company in the share application account as a loan to the respondent company; (2) the directors explained that no allotment was to be made unless the ice-skating project was a going concern, and that the directors agreed that if for any reason the project was not proceeded with, the money was to be refunded; (3) after the project was abandoned, the respondent company accepted the position and the liability to repay to the respondent company the sum of $332,500. The respondent company cannot be allowed to contend that it was legally entitled in March 1976 to issue to the appellant company 332,500 shares; (4) as a matter of law, the right of the respondent company to issue shares to the appellant company, if in fact there was a right, failed because the respondent company had as early as January 1974 waived its right, and the appellant company was entitled to repudiate the contract, if ever there was one, and claim the refund of $332,500 together with interest.

Industrial & Commercial Realty Co Ltd v Merchant Credit Pte Ltd (unreported) (1982) Court of Appeal, Singapore (Wee Chong Jin CJ, Sinnathuray J and Chua J).

The plaintiffs applied for shares in the company. It was agreed on incorporation that the shares would be issued as and when the need arose. The directors made a call for payment in respect of shares to be issued to the plaintiffs on 2 December 1978. The plaintiffs having paid the respective sums in advance, demanded the issue of share certificates within 48 hours and threatened legal proceedings in default. The share certificates were not issued and the plaintiffs on 21 November 1978 issued a writ and applied by motion for an order for the said shares to be entered into the register of shareholders and that the defendants be restrained from convening an extraordinary general meeting for 2 December 1978 or any other meetings until the shares have been so registered.

Held: payment of money for the shares did not entitle the plaintiffs to have the shares issued immediately, nor had they the right to be entered in the register of members in respect of the shares paid for. Allotments of the shares would only be made later, on 2 December 1978.

Raja Khairulzaman Shah bin Raja Aziddin & Ors v Zaman Indah Sdn Bhd [1979] 2 MLJ 181 High Court, Ipoh (Abdoolcader J).

The defendant company in this case was formed pursuant to a shareholder's agreement dated 28 March 1972 and made between ICB, ALI and DFHS. The initial share capital of $300,000 was issued. After incorporation, the defendant company participated in several business ventures. In late 1972 and early 1973, the directors of the defendant company, comprising of one Hwang (nominee of ICB), Crafter (nominee of ALI) and DFHS decided to invest in an ice skating project in Kuala Lumpur. It was agreed that land and equipment for the project should be purchased in Kuala Lumpur amounting to $970,000. Pursuant to this, further shares were subscribed in the following proportions: ALI - 332,500 shares; ICB - 332,500 shares; and DFHS - 35,500 shares. ALI paid for its shares and ICB caused the plaintiff company, its subsidiary, to pay for its share, with the consent of the directors. The share application money was paid into the defendant company's bank account, as agreed by the parties. Work on the Kuala Lumpur project was started in 1973 but in December 1974, the project was abandoned. On 31 March 1976, by an ordinary resolution passed at the extra-ordinary general meeting of the defendant company, 332,500 shares of $1 each were allotted to the plaintiffs. The present action was brought to claim a refund of S$332,500 which the plaintiffs had paid to the defendants for the purchase of the said shares.

Held, dismissing the plaintiffs' claim: (1) no company can ever accept share capital from a shareholder on the basis that if the project fails, the capital subscribed by the shareholder will be refunded. In this case, therefore, the plaintiffs had no right to demand from the defendants refund of the share capital which they had willingly subscribed; (2) the share certificate was not issued to the plaintiffs within a reasonable time due to the express wish of the plainitffs; (3) the plaintiffs by virtue of their conduct were estopped from demanding the refund of S$332,500 which they paid towards the purchase of the said shares.

Industrial & Commercial Realty Co Ltd v Merchant Credit Pte Ltd 1978 High Court, Singapore (Choor Singh J).

Merchant Credit Pte Ltd v Industrial & Commercial Realty Co Ltd [1983] 1 MLJ 124 Privy Council Appeal from Singapore (Lord Fraser of Tullybelton, Lord Scarman, Lord Bridge of Harwich, Lord Brandon of Oakbrook and Lord Templeman).

See COMPANIES AND CORPORATIONS, Vol 3, para 496.

The petitioners were three of the four initial directors and shareholders of North Shore Marina Pte Ltd (the company). They petitioned under s 216(1)(b) of the Companies Act (Cap 50, 1994 Ed) (the Act) for leave to commence proceedings in the company's name for various orders under s 216(2)(c). The acts complained of were: (1) the company had asked the petitioners to resign as directors; (2) the company had issued a large number of shares on 6 May and 1 July 1994 to several persons other than the petitioners which (a) unfairly discriminated against the petitioners and (b) were prejudicial to all of them; and (3) the company allotted 16 shares to the respondent without the approval of the shareholders. The company had been incorporated for the purpose of bidding for a site for boatel development. Since the value of the land was beyond the financial reach of the company, the petitioners and Yap (the fourth director and shareholder) entered into a memorandum of understanding (the memorandum) with the respondent whereby, in consideration of the respondent paying the initial deposit in pursuance of the tender, (i) the respondent would be appointed a director of the company; (ii) he would be allotted 16 ordinary shares of S$1 each in the company; (iii) the other directors would, within two weeks of the date of the memorandum of understanding pay the respondent a specified sum (cl 1(iii) of the memorandum); and (iv) the respondent would have an 80% interest in the tender while each of the other parties would each have a 5% interest in the tender. Clause 2 of the memorandum further provided that if any of the other parties to the memorandum failed to comply with cl 1(iii), that person's interest in the tender would pass to the respondent. The same day Yap and the petitioners passed resolutions to appoint the respondent as an additional director and to issue to him 16 shares in the company. Subsequently, when the petitioners failed to comply with cl 1(iii) of the memorandum, an extraordinary general meeting was held on 9 March 1994. It was agreed that three additional directors be appointed, and that the directors of the company would resign once five new directors were appointed, all of whom would be nominated by any person or group of persons having 20% shareholding in the company. Also, by a board meeting held later the same day, the petitioners transferred their shares in the company to the respondent pursuant to certain negotiations between the respondent and the petitioners which afforded the petitioners another chance at retrieving their respective interests in the tender, which they had lost by virtue of cl 2 of the memorandum. A return giving changes of particulars in the register of directors dated 18 March 1994 was lodged with the Registrar of Companies and registered on 15 April 1994. According to this return, the petitioners ceased to be directors with effect from 9 March 1994. The nature of the cessation was not stated. The petitioners contended (a) that the issue of shares was in contravention of s 161 as the prior approval of the company in general meeting had not been obtained, and was therefore void; (b) their resignation as directors was invalid as there were no resolutions accepting their resignation; and (c) even if their resignation was accepted by the board of directors, such acceptance would be invalid as it would mean that the company would have had less than the statutorily mandated number of directors at the time.

Held, dismissing the petition: (1) s 161 of the Act was introduced for the protection of the shareholders of a company. The four directors were the only four shareholders of the company and it was open to them to accept the shortest notice of meeting or to waive it altogether. The issue of shares to the respondent was effected after the petitioners and Yap as shareholders in general meeting gave approval to an allotment which they had made as directors. It was done to carry into effect the terms of an agreement they had entered into to enable them and Yap to participate in a tender which would otherwise not have been available to them as they did not have the necessary money. The issue of these shares was therefore not without the prior approval of the company in general meeting and s 161(1) of the Act had been complied with; (2) the validity of any resignation did not depend on whether it was accepted by resolution unless this was provided for in the contract or in the articles of association of the company. On the evidence, the petitioners resigned their office on 9 March 1994 some time after the directors' meeting that day. At that time, the respondent and Yap were already directors apart from the three others who were appointed earlier that day. There were, therefore, at least two directors remaining who were both ordinarily resident in Singapore and the resignation was not invalid on the grounds stated by the petitioners; (3) further, there was no evidence that any of the petitioners had been asked to resign. They were present at the general meeting which passed a resolution providing for shareholders with a 20% interest in issued shares to have the right to nominate a director. It was their failure to acquire a beneficial interest in any shares after the board meeting held later that day which approved their transfer of shares that led to their resignation; (4) on the evidence, the petitioners ceased to have any beneficial interest in any shares in the company well before the issues of shares on 6 May and 9 July 1994. If the shares had been offered to the petitioners, they would have had to accept or decline them as directed by the respondent at his own cost and for his own benefit. There was no ground for holding that in these circumstances the omission in any way unfairly discriminated against them or was otherwise prejudicial to them. Further, art 43 of the company's articles expressly provided that the shares were to be offered in general meeting. It was the company in general meeting that approved the two issues of shares and the allotment among the several persons named. The respondent had been present and he was entitled to the whole of the beneficial interest in the shares originally issued to the petitioners. There were therefore no grounds for the third complaint.

Jimat bin Awang & Ors v Lai Wee Ngen [1995] 3 SLR 293; (1995) CSLR VIII[126] High Court, Singapore (Lim Teong Qwee JC).

Lim Cheng Huat Raymond v Teoh Siang Teik [1996] 3 SLR 605; (1996) CSLR X[669] Court of Appeal, Singapore (M Karthigesu and LP Thean JJA, Goh Joon Seng J).

See COMPANIES AND CORPORATIONS, Vol 3, para 300.

Section 111 (3) of Ordinance No 155 (Companies) provides that no banking company shall lend any part of its funds on the security of its own shares. A shareholder of the Batu Pahat Bank Limited holding fully paid-up shares had an overdraft with the bank. After the enactment of s 111 (3), the bank amended its articles of association so as to give themselves a lien over their fully paid shares. The customer having become bankrupt the Official Assignee claimed the shares.

Held, by Murison CJ, and Burton, J, Whitley J dissenting: the bank had no lien over the shares.

Re Tan Keng Tin & Re Chop Soon Bee [1932] MLJ 134 Court of Appeal, Straits Settlements (Murison CJ, Burton and Whitley JJ).

[Annotation: Reversed on appeal. See [1933] MLJ 237.]

Section 111 (3) of Ordinance No 155 (Companies) provides that no banking company shall lend any part of its funds on the security of its own shares. A shareholder of the appellants, the Batu Pahat Bank Ltd, holding fully paid up shares had obtained in 1921 an advance from the bank of about $10,000. By art 29 of its original articles of association the bank was given a lien on all the shares (not fully paid up) registered in the name of each member for all the members' obligations to the bank. After the enactment in the year 1923 of s 111 (3) of Ordinance No 155 (Companies) the bank by special resolution amended its art 29 so as to give itself a lien over its fully paid up shares also by deletion of the words 'not fully paid up'. The shareholder having been adjudged bankrupt, the Official Assignee claimed the shares to be 'part of his property'. The bank claimed a lien.

Held, on appeal to the Privy Council: (1) s 111 of Ordinance No 155 does not invalidate a security given in contravention of sub-s (3) thereof; (2) the bank's article of association No 29 as amended was not ultra vires; (3) continuing an existing loan to a customer of money previously lent was not a loan of the company's funds within the meaning of s 111 (3) of the ordinance; (4) the bank had a valid lien on the shares.

Batu Pahat Bank Ltd v Official Assignee [1933] MLJ 237 Privy Council Appeal from the Straits Settlements (Lord Blanesburgh, Lord Russell and Sir Lancelot Sanderson).

[Annotation: Decision of Court of Appeal ([1932] MLJ 134) reversed.]

The sole issue in this case is whether the defendant company is entitled to disregard notice of an equitable mortgage of shares in the defendant company made by the registered holder in favour of the plaintiff and to claim priority under its articles for its lien on the shares in respect of a debt incurred by the registered holder after the notice.

Held: the defendant company is not entitled to disregard notice of the equitable mortgage of shares in the defendant company made by the registered holder, in favour of the plaintiff, and to claim priority under its articles for its lien on the shares in respect of a debt incurred by the registered holder after the notice.

Chung Khiaw Bank Ltd v Four Seas Communications Bank Ltd [1965] 2 MLJ 74 High Court, Singapore (Ambrose J).

By a mortgage deed (the first mortgage), A covenanted to pay certain sums of money to ESL and as security charged 14 million shares 'by way of fixed first change'. The same shares were later charged 'by way of fixed second charge' under a second mortgage (the second mortgage) to CIL. By a series of transactions both the mortgages became vested in R. R obtained judgment for payment of moneys due under the first mortgage but exercised its power of sale of the shares under the second mortgage. The proceeds of the sale of the shares were applied by R, not in satisfying the moneys due under the first mortgage but towards discharging the debt secured by the second mortgage. A claimed that the proceeds of sale should have been applied in the order laid down by the original mortgages and applied for an order that the judgment had been fully satisfied. The question before the court was: where there are two mortgages of the same property, can the mortgagees effectively agree to alter the priorities of the mortgages without the consent of the debtor?

Held, dismissing A's appeal: (1) in the ordinary case, a mortgagor has no right to insist on the order in which successive mortgage debts are satisfied; (2) the one matter that the mortgagor can insist upon is that, on redemption by payment, he gets back his security. But the mortgagor is bound to satisfy all his secured debts before he can recover the mortgaged property; (3) there may be cases (for example where the successive mortgages carry differing rates of interest) where the mortgagor has a genuine interest in ensuring that the debts are satisfied in a particular order. In such a case it will be for the mortgagor to insist upon a specific contractual provision precluding the alteration of the priorities of the mortgages.

Cheah Theam Swee v Equiticorp Finance Group Ltd & Anor [1991] 4 All ER 989 Privy Council Appeal from New Zealand (Lord Keith of Kinkel, Lord Griffiths, Lord Ackner, Lord Browne-Wilkinson and Sir Michael Kerr).

The plaintiff, an Indonesian national, sought a declaration that the first defendant was holding 92,000 shares of $1 nominal value each in the second defendant company, Aspa Shipyard Pte Ltd upon trust for him and for an order that these shares be retransferred to him. The company had a paid-up capital of 200,000 shares. If the plaintiff succeeded he would altogether own 190,000 shares in the company and would be its controller. The plaintiff claimed that in early 1980 the said shares were transferred by the plaintiff to the first defendant as his nominee, the first defendant having paid nothing for them and having executed a blank transfer form. In February 1980, the plaintiff bought a tug from Japan. Subsequently, he instructed the first defendant to register the said tug under the Singapore flag in the name of the second defendant company. At the material time, the Registrar of Singapore Ships had issued an administrative guideline in which it was clearly announced that as an administrative policy, vessels such as the tug boat, would not be accepted for registration under the Merchant Shipping Act (Cap 172, 1970 Ed) unless the corporate owner was itself owned as to at least one-half of its equity by Singapore citizens. The plaintiff was aware of this requirement. The Assistant Registrar of Singapore Ships confirmed in evidence that if he had known that the first defendant had held the said shares upon trust for a foreign national, he would not have registered the tug as a Singapore vessel. The plaintiff himself admitted that the true ownership of the said shares had to be kept away from the Registrar of Singapore Ships in order to obtain registration.

Held, dismissing the plaintiff's claim: on the evidence, the plaintiff had transferred the said shares to the first defendant in order that the Registrar of Singapore Ships would get a false picture. Although the first defendant had alone signed the registration papers containing the false representation, it was all done with the knowledge and consent of the plaintiff. The court would not aid the plaintiff to recover his shares since he had deceived the registrar.

Suntoso Jacob v Kong Miao Ming & Anor 1984 High Court, Singapore (Lai Kew Chai J).

Mahima Singh & Ors v Buldev Singh [1975] 1 MLJ 173 Federal Court, Kuala Lumpur (Ali, Ong Hock Sim and Raja Azlan Shah FJJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 331.

In this case, the respondents had brought an action for specific performance of an agreement for the sale by the first five appellants (vendors) of 10,200 shares of $100 each issued and fully paid up or at least 51% of all such shares issued in the Oriental Bank of Malaya Bhd (the sixth appellant) at the price of $160 a share. They also asked for an injunction restraining the vendors from parting with or disposing of the said shares. At the same time the respondents applied ex parte for an injunction restraining the vendors from parting with or disposing of any of the shares and also an injunction restraining the bank from registering the transfers of any such shares to persons other than the respondents. Gill J (as he then was) who heard the application granted an interim injunction. Subsequently the appellants applied to the court for an order that the order made ex parte before Gill J be discharged. Raja Azlan Shah J ([1969] 2 MLJ 110) rejected the application on the ground that the appellants had not satisfied him that the facts upon which the injunction was granted no longer existed. On appeal it was alleged: (a) even on the facts and pleadings disclosed by the respondents no legal contract had been disclosed by the respondents; (b) if such contract had been concluded it could not be specifically enforced under the provisions of the Specific Relief (Malay States) Ordinance 1950; and (c) the contract was illegal as an offence under s 363(3) of the Companies Act 1965 (Act 125), had been committed as there had been an offer of shares to the public.

Held, dismissing the appeal: (1) the facts disclosed that there was a probability of an agreement having been concluded between the parties; (2) a temporary injunction under s 50 of the Specific Relief (Malay States) Ordinance1950, like an interlocutory injunction in England, may be granted where the court is satisfied that there is a substantial question to be tried and until the case is tried, a case has been made out for the preservation of the property in the meantime in status quo; (3) it was not obvious on the facts disclosed that an offence under s 363(3) of the Companies Act 1965 had been committed in that there had been an offer to the public.

Nicholas & Ors v Gan Realty Sdn Bhd & Ors [1970] 2 MLJ 89 Federal Court, Kuala Lumpur (Azmi LP, Ali FJ and Syed Othman J).

The respondent claimed that he had lent moneys to the first defendant and that the moneys had not been repaid by the latter nor by the appellant company nor had they transferred or issued the shares to him. The action was brought both against the first defendant and the appellant company. The appellant company applied for the writ to be set aside and the statement of claim to be struck out on the ground that they disclosed no reasonable or probable cause of action against the appellant company and that they were frivolous and vexatious and an abuse of the process of the court. The learned judge dismissed the application of the appellant company and it appealed to the Federal Court.

Held: (1) the appellant company was not a party to any of the transactions between the respondent and the first defendant and the source of the funds for payment of the shares had nothing to do with the appellant company. In the circumstances the respondent had no reasonable cause of action against the appellant company and the proceedings instituted by him against it are vexatious and frivolous and an abuse of the process of the court and obviously unsustainable; (2) the statement of claim against the appellant company must be struck out and the action against it dismissed; (3) the temporary injunction obtained by the respondent against the appellant company became ipso facto discharged.

Yeng Hing Enterprise Sdn Bhd v Liow Su Fah [1979] 2 MLJ 240 Federal Court, Penang (Raja Azlan Shah CJ (Malaya).

The plaintiffs were a company incorporated in Hong Kong and on 7 May 1986 went into creditor's voluntary winding up. In the course of their investigations, the appointed liquidators discovered that the defendant was holding 750,000 shares in Faber Merlin Malaysia Bhd ('FMMB') on trust for the plaintiffs and commenced an action seeking a declaration that the shares and dividends paid thereon were held on trust for the plaintiffs. The defendant claimed that the shares were a gift to him by his employer, Chang Lee Sian.

Held, granting the declaration: (1) on the totality of the evidence, it was clear that the shares were beneficially owned by the plaintiffs. The documentary evidence showed that the shares had been placed with the Hang Lung Bank as collateral on 7 March 1981. The evidence then showed that the shares were transferred to the defendant. A trust deed was to be executed by the defendant but this was not done despite several reminders to the defendant and Chang Lee Sian; (2) there was no evidence which showed that Chang Lee Sian had any interest whatsoever in the shares or the bonus shares; (3) the defendant's evidence that the shares were a gift to him was also incredible. It was an unusually large gift from an employer to an employee. On a conservative estimate the shares were worth about S$1m. There was no evidence that Chang Lee Sian was reputed to be an extremely generous employer. There was also no documentary evidence to suggest that the shares were given to the defendant; (4) when the liquidators wrote to the defendant concerning the shares he did not suggest or indicate in any way that the shares were given to him by Chang Lee Sian.

Hinfield Co Ltd (in liquidation) v Chan Kheng Guan Suit No 1942 of 1987 High Court, Singapore (LP Thean J).

Pan-Electric Industries Ltd (in liquidation) v Oversea-Chinese Banking Corp Ltd & Anor [1994] 3 SLR 695; CSLR XIII[1532] Court of Appeal, Singapore (Karthigesu and LP Thean JJA and Lai Kew Chai J).

See COMPANIES AND CORPORATIONS, Vol 3, para 569.

Central Securities (Holdings) Bhd v Haron bin Mohamed Zaid [1979] 2 MLJ 244 Federal Court, Kuala Lumpur (Suffian LP, Raja Azlan Shah CJ (Malaya).

See COMPANIES AND CORPORATIONS, Vol 3, para 420.

In this case, the first and second respondents held in their own rights four and five shares respectively in a private limited company. The second respondent also held jointly with one of her stepbrothers ten shares, which it was alleged were to be held by them according to the instructions and wishes of their father, the founder of the company, in trust for the family's relatives in China. The second respondent also held six shares jointly with another of her stepbrothers. The company made a capital profit on the sale of a rubber estate and it was decided to pay advances from the capital profit to all the shareholders of the company at $6,090.38 per share. In respect of the joint holding of ten shares, the second respondent and her stepbrother were paid a sum of $60,903.80 by cheques, for which the second respondent signed the receipt vouchers. In respect of the joint holding of the six shares, the second respondent and her other stepbrother were paid a sum of $36,542.20 by cheque, for which again the second respondent signed the acknowledgment receipt. Subsequently, the company went into voluntary liquidation and the appellant was appointed the liquidator. The second respondent took out a summons in chambers to ask for orders that the shares which she held with her stepbrothers be split by the liquidator and that the liquidator should recover the sums paid on the joint shares and send the money from the ten shares to relatives in China and pay to the second respondent her share of the advance on the six shares jointly held with her stepbrother. She also asked that the winding up should be conducted under the supervision of the court. The learned trial judge stated that he was not in a position to decide on the allegations of misfeasance and misconduct against the liquidator and the directors and therefore declined to make orders on the prayers relating to the splitting of the joint shares but he made orders on the remaining prayers for the liquidation in effect to be under the supervision of the court. The appellant appealed to the Federal Court.

Held, allowing the appeal: (1) the liquidator had no power to split the joint shares on the application merely of one of the joint holders without any reference to the other joint holders; (2) the liquidator had no power to recall the moneys which had been properly paid out before she was appointed liquidator; (3) no orders could therefore be made on the prayers relating to the splitting of the shares and the recovery of the moneys; (4) in the circumstances the orders made on the other prayers in the summons-in-chambers would serve no purpose except to hold up indefinitely the winding up of the company, which after the payment of the capital profits to the shareholders, admittedly had very little money left for distribution.

Re Choong Khiaw Realty Co Sdn Bhd; Tan Swee Lian v Chia Chung Mee & Anor [1976] 2 MLJ 73 Federal Court, Kuala Lumpur (Gill CJ (Malaya).

The appellant bought and sold shares using overdraft facilities on the security of some shares deposited with the respondent bank. The stock market crashed and the respondent demanded payment of the overdraft. Eventually the respondent sold the shares for $46,945.20 leaving a balance of $13,174.59 on the overdraft account. In an action by the respondent bank against the appellant to recover for the balance due under the overdraft, the appellant contended that the bank was negligent in the sale of the shares and was therefore in breach of their duty as bankers. The appellant argued that the respondent bank was a bailee or pawnee of the shares and was under a duty to ensure that the sale of shares was a provident one.

Held: the question raised by the appellant was not alleged in the pleadings. The learned trial judge properly decided the case on the issues disclosed by the pleadings.

Kanagasabai Satkuru v United Malayan Banking Corp Bhd [1981] 2 MLJ 23 Federal Court, Kuala Lumpur (Suffian LP, Salleh Abas and Abdul Hamid FJJ).

Re City Securities Pte [1990] SLR 468 High Court, Singapore (Chao Hick Tin JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 42.

Re EG Tan & Co (Pte) [1990] SLR 1030 High Court, Singapore (Lai Kew Chai J).

See COMPANIES AND CORPORATIONS, Vol 3, para 47.

Article 5 of the company's articles of association stated that preference shareholders were entitled to a 5% cumulative dividend and also to participate in surplus profits after ordinary shareholders had been paid a 5% dividend. The court was asked to construe the phrase 'profits available for dividend'.

Held: (1) 'profits available for dividend' means the profits which the directors consider should be distributed after making provision for past losses, for reserves or for other purposes; (2) share premiums received by the company in any year cannot be regarded as being profits of that year available for dividend within the meaning of art 5(a)(ii); (3) the onus is on the preference shareholders to show that on the true construction of art 5(a)(ii) they are entitled to share in the surplus profits of the company.

Re Hume Industries (Far East) Ltd; Hume Industries (FE) Ltd v Humes Ltd 1972 High Court, Singapore (Tan Ah Tah J).

Re SQ Wong Holdings (Pte) Ltd [1987] 2 MLJ 298 High Court, Singapore (Chan Sek Keong JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 285.

Attorney General v Derrick Chong Soon Choy & Ors; Quek Leng Chye & Ors v Attorney General 1984 Court of Appeal, Singapore (Kulasekaram, Sinnathuray and Rajah JJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 124.

In this case, the minority shareholders originally applied for the purchase of their shares by the company or for the company to be wound up. An order was made for the company to be wound up and a liquidator appointed. The liquidator took steps to sell the rubber estate belonging to the company. Subsequently the appellants applied for a stay of the execution and for other relief. An agreement was arrived at between the majority and the minority shareholders the effect of which was to provide that the company would purchase the shares of the minority shareholders for $1,260,910 and for a reduction of the paid up capital of the company and that the company would raise the stipulated sum by a mortgage of its assets. The learned trial judge dismissed the application and directed the liquidator to proceed with the sale. The appellants appealed.

Held, dismissing the appeal: (1) s 67 of the Companies Act 1965 (Act 125) clearly prohibits except as is otherwise expressly provided by the Act the purchase by a company of its own shares or any direct or indirect financial assistance by it for the purchase of its shares. In this case there was a prayer for an order for reduction of capital without going through the essential requirements laid down in s 64 of the Act for a special resolution and the other requisite preliminaries. The provisions of ss 64 and 67 of the Act therefore applied to preclude the order sought; (2) in this case the liquidation had been going on for a considerable time and the sale by the liquidator of the estate was virtually completed and therefore the learned judge exercised his discretion under s 243 of the Act correctly in refusing the application for a stay and the other orders sought.

Mookapillai & Anor v Liquidator, Sri Saringgit Sdn Bhd & Ors [1981] 2 MLJ 114 Federal Court, Kuala Lumpur (Lee Hun Hoe CJ (Borneo).

In this ex parte application brought under an originating summons, the joint applicants, Actacorp Holdings Bhd ('Actacorp') and Ong Say Kiat ('Ong'), applied to the court for the determination of a question as to whether an arrangement entered into by the acquiring company, Actacorp, on 7 October 1992, to acquire 490,000 ordinary shares from Ong, one of their company director, in the target company, V-Pile System Sdn Bhd ('V-Pile'), would come within the prohibition under s 132G of the Companies Act 1965 ('the Act'). Ong was a substantial shareholder in V-Pile since 2 May 1989, whilst Actacorp were substantial shareholders in V-Pile since 10 July 1991, in accordance with s 69D of the Act. Ong and the persons connected to him were entitled to more than 15% of the votes from the voting shares in Actacorp. Section 132G of the Act, inter alia, states that a company shall not enter into any arrangements to acquire shares of another company in which a director of the acquiring company or a person connected to the director has a substantial shareholding as defined in s 69D of the Act, unless such arrangements had been entered into three years after the shares in that other company were first held. The prohibition under s 132G would apply in this case if Ong or the persons connected to him were substantial shareholders in V-Pile. The issues to be determined were, inter alia, whether: (a) s 132G is applicable at all in the arrangement entered into in this case on the ground that V-Pile was a private limited company and not a company as defined in s 69B; and (b) Actacorp, being substantial shareholders of V-Pile, were persons connected to Ong in accordance with s 122A, and therefore fall within the prohibition under s 132G.

Held, that the arrangement was not prohibited by s 132G: (1) since s 132G(1) depends upon s 69D in determining the question as to when a director of an acquiring company or a person connected to him may be said to have a substantial shareholding in the target company, the court is of the opinion that the intention of Parliament was to make applicable to s 132G the substance of the law under s 69D with regard to the meaning of substantial holding and s 69B(2) does not limit its application. Thus, s 132G is applicable although the target company, V-Pile, is a private limited company; (2) if a person connected to Ong has a substantial shareholding in the target company, the arrangement is prohibited by s 132G. The court held that in corporate matters, the person connected to the director under s 132G does not mean the subject company itself, but a different body. It is impossible for the subject company to make such arrangement with itself; (3) although Ong and the persons connected to him held 15% of the voting rights in Actacorp, this does not make Actacorp persons connected to the director (Ong) for the purposes of s 132G. The fact that Actacorp have a substantial shareholding in V-Pile does not give rise to such a prohibition under s 132G against the arrangement entered into by them.

Actacorp Holdings Bhd & Satu Yang Lain (Pemohon-pemohon) [1993] 1 MLJ 246 High Court, Kuala Lumpur (Abdul Aziz J).

[Annotation: This judgment was delivered in Bahasa Malaysia.]

The applicant was at all material times registered as a holder of 2,399,999 shares in the respondent company. The said shares were said to have been paid for by two cheques dated 21 August 1973 and 16 February 1974 from the applicant in favour of the respondent but no share certificates had been issued to the applicant in respect thereof. In 1980 the respondent discovered that in the applicant's returns to the Registrar of Companies, the applicant did not disclose that it was a shareholder of the respondent. The applicant was asked by the respondent to produce its accounts to prove that it held shares in the respondent but the applicant failed to do so. The respondent then resolved at its extraordinary general meeting on 31 December 1981 to suspend the applicant's shares pending further investigation and resolution. The applicant then filed a notice of motion for, inter alia, an order pursuant to s 162 of the Companies Act 1965 ('the Act') to rectify the respondent's register of members.

Held, dismissing the applicant's motion: (1) the jurisdiction of the court to grant the summary remedy to rectify the register of members of a company under s 162 of the Act is general but the exercise of it is discretionary. The discretion will only be exercised in favour of the applicant where the case is clear and free from difficulty or material doubt. Where the case is complicated and there is doubt as to the bona fides of the transaction, or where the case involves complicated questions of law and fact, the court will refuse to order rectification on a motion but will leave the applicant to seek rectification by way of an action; (2) the suspension of the applicant's rights and privileges as a member was not a ground for rectification of the register of members under s 162 of the Act. 'Suspension' merely operated as a temporary privation of rights and privileges of a member without his name being removed or erased from the register, whereas the word 'omitted' in s 162 involved either the non-inclusion or the removal of the name of the member from the register, which was a total deprivation of membership; (3) even assuming that s 162 of the Act were applicable in this case, the facts cast a serious doubt on the bona fides of the transaction. In the circumstances it would not be right to dispose of the matter summarily and the case should be dealt with by way of an action; (4) the delay on the part of the applicant in taking out the motion three years after it had knowledge that its rights were affected was unreasonable and the applicant was guilty of laches which was sufficient to deprive it of the relief sought under s 162 of the Act.

Sabah Penang Development Sdn Bhd v Yeng Hing Enterprise Sdn Bhd [1996] 4 MLJ 589; (1996) CSLR XII[1251] High Court, Sandakan (John Chong J).

Chang Ching Chuen & Ors v Aik Ming (M) Sdn Bhd & Ors (Pekan Nenas Industries Sdn Bhd, Intervener) [1995] 2 MLJ 43; (1995) CSLR IX[758] High Court, Johor Bahru (Haidar J).

See COMPANIES AND CORPORATIONS, Vol 3, para 222.

In this case, the appellants had brought an action against a number of defendants, including the respondent. The first defendant was a company formerly owned by the Ng family. The second defendant, Amanah Saham Pahang Bhd, had entered into a joint venture agreement to assign their timber concession to the first defendant, in consideration of the undertaking to transfer 51% of the shareholding of the first defendant to the second defendant. The respondent (sixth defendant) agreed to grant to the second defendant a timber concession in Pahang. After the timber concession had been granted, the second defendant assigned to the first defendant all the rights, title and interest of the second defendant in the concession. The respondent (sixth defendant) consented to the said assignment. In turn the Ng family transferred 51% of their shares in the first defendant company to the second defendant. Subsequently the Ng family transferred their remaining 49% in the first defendant company to the appellants. Differences arose between the second defendant and members of the Ng family and the appellants thereupon brought an action against the defendants in effect for an order that the agreement had not been validly terminated. As against the sixth defendant (respondent) the appellants claimed a declaration that it was bound to do all such acts and things as are necessary to make effective the concession agreement and assignment to enable the first defendant company to continue its operation. Conditional appearance was entered by the sixth defendant (respondent) and a summons-in-chambers was taken out (a) to set aside or strike out the writ of summons and statement of claim or (b) alternatively to strike out the name of the sixth defendant from the said writ and the statement of claim. The learned trial judge ruled that the 'plaintiff's membership of the first defendant was ultra vires the articles and he could not bring himself with it to sue'. The learned judge made an order in terms of the summons. The appellants appealed.

Held, allowing the appeal: (1) in this case, the inherent jurisdiction of the court was invoked to strike out the writ and statement of claim on the ground that it was an abuse of the process of the court. The inherent power to dismiss an action summarily without permitting the plaintiff to proceed to trial is a drastic power and should be exercised with great caution; (2) in this case, no application had been made to challenge the validity of the transfers of the shares under s 162 of the Companies Act. The questions posed before the learned judge ought to be decided at the trial; (3) the order of the learned judge in striking out the writ and statement of claim against the respondent should be set aside as the respondent had not made good the various charges against the appellants.

CC Ng & Brothers Sdn Bhd v Government of State of Pahang [1985] 1 MLJ 347 Federal Court, Kuala Lumpur (Lee Hun Hoe CJ (Borneo).

The defendant company ('the company') was incorporated in Singapore with an authorized share capital of 2,500,000 ordinary shares of S$1 each. Mo Meng and Mo Kwang each held 514,930 shares in the company, making a total of 54.4% of the paid-up capital. Both Mo Meng and Mo Kwang were directors of the company. The first plaintiff, Xiamen Bank, was a commercial bank established in China. The second plaintiff ('PIC'), an investment-holding company listed on the Hong Kong Stock Exchange, held 36.7% of the shares in Xiamen Bank. The third plaintiff ('XIB Nominees'), another Hong Kong company, was partly owned by the Xiamen Bank. On 16 March 1986 Mo Meng executed a guarantee in favour of Xiamen Bank and further, by way of memorandum, charged all the shares held by him in the company to Xiamen Bank as security for payment and discharge of his obligations under the guarantee. Mo Kwang also did the same on 21 March 1986. The share certificates were handed over to Xiamen Bank together with blank transfers of such shares. Both Mo Meng and Mo Kwang had given a power of attorney to Xiamen Bank to act on their behalf in respect of the disposal or sale of the shares in question. On 26 May 1987 Xiamen Bank wrote to Mo Meng and Mo Kwang to make full payment of amounts due to the bank. They failed to do so, whereupon the bank decided to take steps to enforce the charges over the shares it held. Xiamen Bank sold the shares to PIC and informed the company to register the transfer and issue new certificates in the name of XIB Nominees as nominees for PIC. The company refused to do so. PIC brought an action against the company under s 194 of the Companies Act (Cap 50) ('the Act'), considering itself to be an aggrieved party under the section and urged the High Court to substitute the name of XIB Nominees in the place of Mo Meng and Mo Kwang. The High Court made the order prayed for but the decision was reversed in the Court of Appeal. The Court of Appeal held that PIC was not an aggrieved party within the meaning of s 194 of the Act and that the requirements laid down for such transfers in the articles of the company had not been followed. (This will hereinafter be referred to as 'the first proceedings'.) The articles required that an offer of the company's shares be made to existing shareholders first before the shares could be transferred to outsiders. After the decision of the Court of Appeal, the plaintiffs made another attempt to register the shares in the name of XIB Nominees. On 3 June 1992, the plaintiffs, through their solicitors, sent a letter to the company indicating that Xiamen Bank, being the lawful attorney of Mo Meng and Mo Kwang, desired to transfer the shares which had been charged to them. The company refused to offer the shares to the existing shareholders on the basis that neither Mo Meng nor Mo Kwang had informed the company that they had appointed Xiamen Bank to act on their behalf. After a lapse of 14 days as required under the articles of the company, the plaintiffs' solicitors sent a transfer form duly indicating that Xiamen Bank was exercising the power of attorney given by both Mo Kwang and Mo Meng to transfer the shares to XIB Nominees. The company replied, stating that the directors in exercise of their absolute discretion declined to give effect to any such transfers. Later, the company gave reasons for their decision. The plaintiffs brought an action against the company to effect registration of the shares in the name of XIB Nominees. In the instant case, PIC was joined by Xiamen Bank and XIB Nominees. The High Court had to decide on four issues: (1) whether the plaintiffs were estopped by reason of the first proceedings from making the present application; (2) whether XIB Nominees was an aggrieved party under s 194 of the Act; (3) whether the requirement under the cles of the company had been complied with; (4) whether the directors had exercised their discretion properly in refusing to register the name of XIB Nominees as the owner of the shares in question.

Held, ordering the name of XIB Nominees to be registered as the shareholder in place of Mo Meng and Mo Kwang: (1) for res judicata to estop a person from bringing an action to court, three factors must be satisfied. Firstly, the question in issue in the proceeding must be precisely the same as the question in issue in the prior proceedings. Secondly, the parties to the proceeding must be precisely the same as in the prior proceedings. Thirdly, the issue must have been finally determined by a court of competent jurisdiction; (2) in the instant case, the parties were not the same as in the first proceedings and the issues were different, and as such, res judicata does not apply; (3) the issue estoppel relied on by the defendant also cannot be substantiated; (4) this estoppel precludes a party from contending the contrary of any precise point which, having been once distinctively put in issue, has been finally determined against him; (5) the first issue in the first proceedings was whether PIC was the aggrieved party within the meaning of s 194 of the Act and thus entitled to rectify the company's register. It was decided that PIC was not the aggrieved party; (6) the second issue in the first proceedings was whether Xiamen Bank, who had given notice to transfer the shares, was a person who was entitled to do so under the art 33 of the articles of company. The Court of Appeal held that since Xiamen Bank only had an equitable interest in the shares, it could not be considered to be entitled to transfer the shares to another as the legal title was still vested in Mo Meng and Mo Kwang; (7) neither of these two issues arose in the present case and the present issues were whether XIB Nominees was an aggrieved party under s 194 of the Act, whether the provision of the articles had been complied with, and whether the directors had properly exercised their discretion in refusing to register XIB Nominees as the registered owner of the shares in question; (8) as such, the issues in the first proceedings were different from the issue in the immediate case and hence the issue estoppel did not arise; (9) XIB Nominees was the person to whom the legal interest in the shares was purportedly transferred and it was XIB Nominees whose name the company refused to enter in the register; (10) Xiamen Bank had rightly exercised its power of attorney on behalf of Mo Meng and Mo Kwang in transferring the legal interest in the shares to XIB Nominees and as such, the refusal to enter XIB Nominees' name in the register made XIB Nominees the aggrieved party under s 194 of the Act; (11) in the instant case, unlike the first proceedings where PIC was trying to enter the name of XIB Nominees as its nominee, the present action was one requiring the entering of XIB Nominees as the legal owner of the shares per se and not as a nominee for another and this was in accordance with the Court of Appeal's decision in the first proceedings; (12) both Mo Meng and Mo Kwang had not cancelled the power of attorney given to Xiamen Bank to dispose of their shares; (13) the directors, according to s 128(2) of the Act, must give reasons for exercising their discretion to refuse registration of the transfer of shares and the court may review sufficiency of such reasons; (14) the reasons given by the directors were not satisfactory and hence their decision cannot be upheld.

Xiamen International Bank & Ors v Sing Eng (Pte) Ltd [1993] 3 SLR 228 High Court, Singapore (Judith Prakash JC).

3 [556] COMPANIES AND CORPORATIONS Shares – Registration of shares – Shares registered in name of executors – Grant of probate not extracted at time of registration – Consent of board of directors not obtained – Validity of registration – Companies Act 1965, s 103(3) – Pow Hing & Anor v Registrar of Titles, Malacca [1981] 1 MLJ 155 (refd); Howard v Bodington (1877) 2 PD 203 (refd); London & Clydeside Estates Ltd v Aberdeen District Council [1980] 1 WLR 182 (refd); Ting Chong Maa v Chor Sek Choon [1989] 1 MLJ 477, 478 (refd); Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741, 758 (refd); Siew Soon Wah v Yong Tong Hong [1973] 1 MLJ 133 (refd); Ramsden v Dyson [1966] LR 129 (refd); Plimmer v Mayor of Wellington (1884) 9 App Cas 699 (refd); Inwards v Baker [1965] 2 QB 29 (refd); Ives (ER) Investment Ltd v High [1967] 2 QB 379 (refd); Amalgamated Investment & Property Co v Texas Commerce International Bank Ltd [1982] 1 QB 84 (refd); Willmott v Barber (1880) 15 Ch D 96 (refd); Crabb v Arun District Council [1976] 1 Ch 179 (refd); Taylors Fashions Ltd v Liverpool Victoria Trustees [1982] QB 13 (refd); Shaw v Applegate [1977] 1 WLR 970 (refd).

D2 and X were appointed as executors to administer the estate of Z. D2 and X had their names registered as joint holders of Z's shares in D1, the family company. P filed the present action against D1 and D2 claiming for, inter alia, an injunction to restrain D2 from exercising the voting rights relating to Z's shares and removing P1 as the managing director of D1. In view of the fact that the holding of an annual general meeting of D1 was imminent, P filed an interlocutory application praying for the same reliefs. The court ordered that the annual general meeting be adjourned until the disposal of the interlocutory application which was ordered to be heard inter partes. It was argued, inter alia, for P that the registration of the names of D2 and X as personal representatives of Z in regard to the latter's shares was void as no grant of probate had been extracted at the time of registration of the shares and that no consent was obtained from the board of directors of D1 contrary to s 103(2) and (3) of the Companies Act 1965. It was further submitted that damages would not be an adequate remedy in connection with the voting rights of the shares of Z.

Held, allowing P's application: (1) in the instant case, the transmission of the shares was by operation of law and was not a transfer at all. No fraud of any kind was perpetrated in the registration of the shares. In the circumstances of the case, the requirement in s 103(3) was therefore a directory requirement and failure to comply with it was inconsequential. Accordingly, the issue relating to the invalidity of the registration of the shares did not give rise to a serious question for trial; (2) however, in regard to the exercise of the voting rights relating to the shares of Z, the court took the view that it did raise a serious question for trial, that damages would not be an adequate remedy and that the balance of convenience would lie in favour of P1 by granting an injunction on the following terms: (i) that both executors, that is, D2 and X, must concur in the exercise of the votes relating to the shares of Z and (ii) in the event of both executors so concurring, then both or either of them should be estopped from exercising such rights as are based on 1/4 of the shares of Z which belonged beneficially to P1. The court, in considering the relationship of the parties and the conduct of D2 in threatening to exercise the voting rights even of 1/4 of the shares of Z to which P1 was beneficially entitled, held that it would be unconscionable in the circumstances for D2 as executor to enforce his strict legal right to exercise such voting rights; (3) with such restraint imposed on D2, the court was of the view that the struggle for power would be carried out in a just and democratic way at the annual general meeting. As it was no longer necessary to prevent the annual general meeting from being held, the court discharged the earlier order adjourning the meeting.

Gan Tuck Meng & Ors v Ngan Yin Groundnut Factory Sdn Bhd & Anor [1990] 1 MLJ 227 High Court, Ipoh (Peh Swee Chin J).

The plaintiffs were the liquidators of Pan-Electric Industries Ltd ('Pan-El') and were seeking a declaration against the defendants (Banque Paribas, Singapore) that the plaintiffs were the beneficial owners of 24 million shares ('the shares') in the capital of Orchard Hotel (Singapore) Pte Ltd. Pan-El had agreed to buy from Ambassador Hotels Ltd the shares at the price of $16.5m. Completion was to have taken place on 31 August 1985. Pan-El did not have the funds to close the transaction and needed financing to complete its purchase of the shares. Some time in August 1985, the financial controller of Pan-El requested the defendants to give Pan-El a loan of US$7.5m as a 'bridging facility' to enable Pan-El to complete the purchase of the shares. The security was to be a pledge of the shares. At that time Pan-El was in a midst of raising moneys by a rights issue to reduce the borrowing of Pan-El generally and to raise moneys to pay for the shares. It was intended that the bridging facility be repaid upon completion of the rights issue. The head office of the defendants approved the loan. After the approval, the financial controller of Pan-El informed the defendants that Pan-El did not wish to take the bridging facility by way of a loan but would instead require the funds by way of sale and repurchase, that is, Pan-El would sell the shares to the defendants (thus raising funds for Pan-El) and Pan-El would then at an agreed date repurchase the shares from the defendants (this having the effect of repaying the funds to the defendants). It was explained to the defendants that Pan-El could not take a loan and give the shares as a security because of Pan-El's negative pledge covenant given to other banks. The price of the repurchase of the shares by Pan-El factored in the interest income and other sums payable to the defendants if the transaction had been a loan. The defendants agreed to change the transaction from a loan to a sale and repurchase as the income to the defendants remained the same whether it was a loan or a sale and repurchase. Consequently, a share purchase agreement and a share repurchase agreement were entered into between Pan-El and the defendants. As the defendants at that time did not have a document to reflect the transaction as a sale and repurchase, the internal records of the defendants reflected the transaction as a loan. However, the legal nature of the sale and repurchase transaction was properly reflected during the auditing of the accounts of the defendants. The plaintiffs alleged that the label of a sale and repurchase used by the parties did not accurately reflect the true nature of the transaction, which was a loan agreement secured by a charge over the shares. It followed that such charge over the shares should have been registered as a charge under s 131(3)(c) of the Companies Act (Cap 50, 1990 Ed) and as this was not done, the charge was void as against the plaintiffs for want of registration. The plaintiffs also argued that it was not necessary to establish that there was an intention to avoid the requirements of s 131(3)(c) of the Companies Act ('the Act'), but it was sufficient to show that the effect of the transaction would be to avoid such registration requirement. The plaintiffs were not alleging fraud nor that the sale and repurchase transaction was a sham.

Held, dismissing the plaintiffs' application: (1) in deciding whether there was a loan secured by the mortgage of the shares or whether there was a sale and repurchase of the shares, the most helpful approach was to correctly identify the true substance and reality of the transaction and not merely the form the transaction took or the label given to it by the parties. The court had to look at the true and common intention of the parties, pay due regard to both the substance and form of the transaction and the position of the parties and to the whole of the circumstances leading to and under which the transaction came about; (2) the reality of the transaction was that the defendants were unwilling to grant the bridging facility without security over the shares, and that the head office of the defendants had approved the proposed loan to be secured by the mortgage of the shares. Pan-El had made it clear to the defendants that it could not create the mortgage of the shares because of its negative pledge covenant. It was the financial controller of Pan-El who suggested that there should be a bona fide purchase of the shares by the defendants and a genuine buy-back by Pan-El, the genuine and bona fide terms of which were correctly and fully recorded in the share purchase agreement and the share repurchase agreement. The impediment against any secured borrowing by Pan-El was powerful evidence that the alternative commercial solution by way of sale and repurchase reflected the true pith and substance of the transaction. One of the telexes between the Singapore branch of the defendants and its head office in Paris also recorded the true pith and substance of the transaction, in so far as it stated that the structuring of the transaction as a sale and purchase in no way altered the credit/security position of the bank and that the security arrangement had to be structured in that way because of the negative pledge covenant given by Pan-El to its other bankers; (3) If the purpose of a transaction was to avoid the registration requirement of a charge and the transaction is otherwise unsupported by any commercial reality or if the true intention of the parties was to create a charge, the court could accept the submission of the plaintiffs that it was not necessary to establish that there was an intention to avoid the registration requirements of s 131(3)(c) of the Act. However, if the requirement of registration was avoided incidentally by reason of or as a direct consequence of a bona fide change in the true legal character of a transaction from one of a mortgage of shares to a bona fide sale and buy-back because there was a good reason why a mortgage of shares was not possible as in the present case, the court failed to see how such a transaction would require registration as a charge.

Thai Chee Ken & Ors (Liquidators of Pan-Electric Industries Ltd) v Banque Paribas [1992] 2 SLR 848 High Court, Singapore (Lai Kew Chai J).

[Annotation: Affirmed on appeal. See [1993] 2 SLR 609.]

The liquidators of Pan Electric Industries Ltd ('Pan El') appealed against the dismissal by Lai Kew Chai J of their application for a declaration that the respondents were not the beneficial owners of the 24 million shares in Orchard Hotel (Singapore) Pte Ltd ('OH') presently registered in their name ('the subject shares') (see [1992] 2 SLR 848). The appellants initially sought to obtain a bridging facility from the respondents for the financing of the purchase of shares. The security was to be the pledge of shares. Eventually, it was agreed by an agreement dated 30 August 1985 that the respondents would buy the subject shares from Pan El for US$7,306,417.28 on 31 August 1985. By another agreement of the same date, Pan El agreed to buy back the shares for US$7,544,233.02. It was a condition of the respondents' agreement to purchase the shares that Pan El execute the repurchase agreement contemporaneously with the sale agreement.

Held, dismissing the appeal: (1) because, of course, financing can be done either one way or the other, and to point out that it is a transaction of financing throws no light upon the question that has to be determined; (2) where there is no evidence that the real agreement reached between the parties was wholly different from that recorded in the documents before the court, or that there was an independent contract apart from the documents before the court, the court has to look at the documents themselves to ascertain the nature and substance of the transaction; (3) while the court should be scrupulous to ensure that parties do not evade the policy enunciated in s 131 of the Companies Act (Cap 50, 1985 Ed) regarding the protection of creditors by adopting a legal shell that apparently and formally lies outside the statutory provisions, the court must not take a hostile attitude and presume that evasion of the policy is intended; (4) freedom of contract should be respected to the extent that it must be recognized that different legal forms can be used to achieve the same economic object or end, and that some legal forms legitimately fall outside the statutory provisions. In the latter situation, it is not correct to speak of evasion of the law but rather, there has to be recognition of the fact that lacunae exist in the statute which the legislature, and the legislature alone, has to decide whether or not to close. It is thus possible for some financing transactions to fall outside the statutory provisions, and the fact that a transaction is a financing arrangement does not ipso facto bring it within the legislation since the object of a transaction is distinct from its nature at law; (5) (c) the repurchase price was not based on the purchase price plus interest on the latter for the period between the date of sale and the latest contractual date for the repurchase as this method of calculation is common to cases of financing by way of sale and repurchase; (6) the fact the respondents' internal documentation treated the transaction as a loan and that it was only after Pan El's default on the repurchase agreement that the documentation was changed and the relevant authorities informed is irrelevant; (7) the only question that has to be determined is whether, looking at the matter as one of substance, and not of form, the discount company had financed the dealers in this case by means of a transaction of mortgage and charge, or by means of a transaction of sale;the documentation indicated a sale and buy-back agreement rather than a loan agreement: (a) the denomination of the transaction in US dollars was a reflection of the object of the transaction, ie that the appellants needed the money urgently; (b) it is not an uncommon feature of such transactions that the price bears no relation to the value of the shares at the date of the agreement;the object of the entire transaction was the raising of funds for Pan El. The mode or nature of the financing was not at the forefront of their minds save that the respondents wanted the comfort of the subject shares, whether that assurance was by way of security interest in the shares or the absolute beneficial interest. Hence, the respondents' willingness to accede to the suggestion of a sale and repurchase rather than a loan.

Thai Chee Ken & Ors v Banque Paribus [1993] 2 SLR 609 Court of Appeal, Singapore (Yong Pung How CJ, Chao Hick Tin and Warren LH Khoo JJ).

CK Ltd and WM Ltd agreed to set up a joint venture company, A Ltd, to develop certain pieces of property. The scheme involved the acquisition of property from subsidiaries of CK Ltd and WM Ltd by A Ltd. It also involved the acquisition of shares in some of these subsidiaries. In pursuance of the scheme, A Ltd bought 30% of the share capital of R Ltd, a subsidiary of CK Ltd. R Ltd owned land in Hong Kong. Shortly after A Ltd bought the shares in R Ltd, CK Ltd received an offer from a third party to acquire R Ltd. This offer was accepted and CK Ltd, together with A Ltd, transferred to the third party some 85% of the share capital of R Ltd. A Ltd made a profit of about HK$40m. They were assessed to tax on this profit. The Board of Review upheld the assessment. On appeal to the High Court, the appeal was allowed. The Court of Appeal reversed the High Court. A Ltd appealed to the Privy Council.

Held, allowing the appeal: (1) there was nothing in the agreement amongst A Ltd, CK Ltd and WM Ltd which contemplated that A Ltd would trade in the shares of subsidiary or associated companies. The actual activities of A Ltd after acquiring the agreed assets did not present any characteristics of a general trade in shares. The trading transaction in R Ltd's shares was unique; (2) the broad purpose of the joint venture agreement between CK Ltd and WM Ltd was to bring about the profitable development of land. A Ltd was to become owner of a number of parcels of land as stock in trade and it was also to become the holding company for a number of other companies whose stock in trade was land. The shares in these companies held by A Ltd constituted its capital structure and not as stock in trade; (3) the fact that A Ltd obtained a fortuitous offer to acquire the shares of R Ltd did not mean that those shares were held as trading stock. The transaction was therefore not an adventure in the nature of trade.

Beautiland Co Ltd v Commissioner of Inland Revenue Privy Council Appeal No 51 of 1990 Privy Council Appeal from Hong Kong (Lords Keith, Templeman, Oliver, Jauncey and Sir Robert Megarry).

[Annotation: The Hong Kong ordinance considered here differs from the Income Tax Acts of Singapore and Malaysia. However, the Privy Council's interpretation of the term 'trade' may be persuasive on the interpretation of the local statutes.]

Coramas Sdn Bhd v Rakyat First Merchant Bankers Bhd & Anor [1994] 1 MLJ 369 Supreme Court, Kuala Lumpur (Harun Hashim and Edgar Joseph Jr SCJJ and Lim Beng Choon J).

See CONTRACT, Vol 3, para 3179.

A person who contracts for the purchase of 'transfer and scrip' cannot be compelled to take a bearer warrant. There is no rule of law, similar to the saying 'silence gives consent', applicable to mercantile contracts; and an omission to reply (in connection with such a contract) does not constitute a waiver. Under a contract for scrips for mining shares 'expected to be mailed about the end of March', and which if mailed would have arrived on 23 April, it is not a delivery within a reasonable time, to have the scrips mailed early in April, and to offer them on 15 May.

Fraser v Everett [1889] 4 Ky 512 High Court, Straits Settlements (Wood Ag CJ).

Where there is a breach of contract for the purchase of shares, but the vendor is able to go into the market and sell the shares at once, his duty is to do so and sue the vendee at law for the difference in price as damages for the breach, but where there is no market for the shares, he is entitled to sue the vendee in equity for specific performance of the contract. The defendant agreed to purchase from the plaintiff certain shares in a tin mining company registered in London, the bought-note was as follows: 'Bought from Jos Heim Esq, three hundred Bentong Straits Tin Co's shares £1 paid up at $23.5, delivery in about one month on arrival of scrips from London'. At the end of the month the plaintiff was unable to deliver the 'scripts', but tendered the defendant certain documents in reference to the shares known as 'certified transfers' which would have enabled the defendant to have got himself registered in London as the owner of the said shares.

Held: (1) the 'certified transfers' enabling registration in London were not equivalent to delivery of the 'scripts' at Singapore, and the court would not force the same on the purchaser. The 'certified transfers' were prepared and signed by the secretary to the company in London - the name of the transferee was left blank and was subsequently filled in by the plaintiff (the vendor) at Singapore; (2) the transfers were void and the transferee, the defendant, could not be compelled to take them.

Heim v Lim Tiang Hee [1889] 4 Ky 465 High Court, Straits Settlements (Goldney J).

A contracted through a broker with B, in Singapore, for the purchase of 2,000 shares in the Pahang Corp Ltd. At the date for completion, some of the scrips, being in England, could not be delivered.

Held: it was no excuse for the non-performance of a condition, that it is impossible for the obligor to perform it, if the performance be, in its nature, possible.

Fraser & Co v Tan Hay Seng [1889] 1 SLJ 143 High Court, Straits Settlements (Goldney J).

When a share broker buys shares for a client the whole of the contract between them must be examined in order to see whether personal responsibility has been incurred by the broker. He can only be held bound if it appears from the contract itself that he has contracted to be personally bound if a presumption has been raised by s 230 of the Contract Enactment 1899, and not rebutted. The effect of the words 'as brokers' is as laid down in Gadd v Houghton (1876) 1 Ex D 357, and is the same as 'bought of our principals'. A broker dealing as such is neither buyer nor seller. When he is employed by the buyer to buy and the seller to sell, he arranges terms as common agent for both parties, but is primarily agent to the principal by whom he was originally employed. If he proceeds to fulfil the order according to the usual course of business that fact is sufficient to rebut the presumption created by s 230.

Low Leong Huat v Planters' Stores and Agency Ltd [1911] 2 FMSLR 46 Court of Appeal, Federated Malay States (Law CJC and Ebden JC).

If a person, having actual knowledge - not mere suspicion that a company has suspended payment - sells shares therein to another, knowing that other to be ignorant of the fact, and not disclosing it to him, but rather, representing that the financial position of the company was sound, and that large profits would accrue from a purchase of such shares, the sale will be set aside by the court, as obtained by fraud and misrepresentation.

Simons v Teo Guan Thye [1889] 4 Ky 544 High Court, Straits Settlements (Goldney J).

The court will allow parol evidence to rectify a clear mistake in a written contract for the payment and delivery of shares at a future date.

Lim Ah Sam v Lim Tay Sim [1890] 2 SLJ 144 Supreme Court, Straits Settlements

The plaintiffs who were sharebrokers sued the executrix of an estate to obtain indemnity for loss. The agent of the executrix instructed the brokers to sell on her behalf shares in a company registered in England and the brokers concluded a contract to sell. When they came to deliver it was found that the will had not been proved in England and the delivery was consequently bad. The brokers were then compelled to buy and deliver other shares and suffered a loss in doing so. The brokers had made no inquiry whether the necessary grant of probate had been made but it was found as a fact that the agent of the executrix knew of the defect and did not disclose it to the brokers.

Held: the brokers were bound to inquire into the title of the executrix under the circumstances and would have been prevented from recovering their loss if the agent of the executrix had not known of the defect.

Lyall and Evatt v Lim Kim Keat [1928] SSLR 206 High Court, Straits Settlements (Sproule ACJ).

The plaintiff was a sharebroker carrying on business in Kuala Lumpur. The defendants had a series of transactions with the plaintiff which they claimed to repudiate because the plaintiff in some cases acted as principal without informing the defendants and in other cases made undisclosed profits.

Held: the plaintiff as broker was bound to give a full disclosure of all the facts of the purchase and sale to his clients.

Fearon & Co v Stivin [1927] 6 FMSLR 104 High Court, Federated Malay States (Farrer-Manby J).

A broker being instructed by three distinct principals to sell three distinct lots of shares sold them all in a lump to the defendant; he and the broker signed single contracts for the purchase and sale of the whole number of shares, which contracts the broker signed 'as broker'. The defendant never inquired who were the broker's principals. The trial court held that each principal as he came to light was entitled to sue on the contract in respect of the number of shares in which he was interested. The Court of Appeal was divided in opinion.

Carr v Teo Guan Tye [1890] 4 Ky 561 Court of Appeal, Straits Settlements (O'Malley CJ and Pellereau J).

In this case, the first appellant had agreed to buy shares in the Perforated Plates Sdn Bhd for $780,890 from the respondents. A sum of $78,089 was paid as deposit. The balance of the purchase price was to be paid in six monthly instalments and full payment of the purchase price was guaranteed by the second appellant. Apart from the deposit no other payment was made. The respondents thereupon sued the first appellant for specific performance and the second appellant for payment of the balance of the purchase price, that is $702,801. The respondents applied for summary judgment. The appellants opposed the application and argued that there were triable issues. It was alleged that the contract was a conditional one, as the appellants had agreed to procure the release of the respondents from certain guarantees by the completion date. Counsel for the appellants argued that so long as the condition precedent was not fulfilled there could be no specific performance. It was also argued that there was no mutuality in the contract and that with the appointment of receivership over the company it was not equitable to order specific performance. The learned trial judge rejected the arguments for the appellants and gave judgment for the respondents. The appellants appealed to the Federal Court.

Held, dismissing the appeal: (1) the contract in this case was not a conditional contract. The procuring of release from the guarantees was not a condition precedent but merely a term of the contract; (2) there was mutuality in this case, as, if the first appellant obtained the release of the guarantees he could compel the respondents to deliver the shares on payment; (3) the company was not a party to the contract which was between two shareholders and therefore the contract did not affect the receivers.

Ho Kok Cheong Sdn Bhd & Anor v Lim Kay Tiong & Ors [1979] 2 MLJ 224 Federal Court, Kuala Lumpur (Lee Hun Hoe CJ (Borneo).

The plaintiffs bought 2,000 shares from Alex Goei, a stockbroker, sometime in 1962. The shares were to be delivered to him in May 1962 but they were never so delivered - in fact they were wrongfully sold at a lower price in June 1962. From the evidence it was clear that both Alex Goei and the plaintiff were to blame for the delay which resulted in the plaintiff discovering in 1964 that his shares were sold in 1962. Subsequently the defendants took over the business of Alex Goei and as a result of this taking over the defendants were not in a position to know how their business transactions stood vis-a-vis their clients. In an action for damages for breach of contract,

Held: in view of the inconclusive nature of the authorities and in the circumstances of the case, damages for breach should be arrived at a figure roughly about half way between the contract price and the highest peak before the action, ie at 60 cents per share.

Rodrigues v Robert Wee & Co 1965 High Court, Singapore (Winslow J).

P and D formed LBC Pte Ltd. In 1981 P agreed to sell to D his shares in LBC. P alleged that the agreed price was S$1.85 per share for 260,000 shares. D paid S$260,000. After some time P pressed for payment of the balance owed. D denied owing anything, contending that the purchase price was S$1 per share. P sued D for the balance of the purchase price. D raised three defences: firstly, that there was no contract with P, the contract being with the registered owners of the shares; secondly, that the purchase price of the shares was S$1 per share; thirdly, that P was not the proper party to maintain the action. It appeared in evidence that the shares sold by P to D were not all registered in P's name. 156,000 shares were registered in the names of relatives who held the shares as nominees of P. These registered shareholders signed transfers in blank to enable P to make delivery of the shares to D. D died before the trial of the action and his personal representatives were added in his place.

Held, granting P's claim: (1) on the evidence, the contract was made between P and D. There was not a shred of evidence to suggest that the contract was between the registered holders of the shares and the transferees; (2) the court also accepted P's evidence that the agreed price was S$1.85 per share. There was material before the court (in the form of the company's accounts) to show how the price of S$1.85 was arrived at. There was no reason why P should agree to sell his shares at S$1 per share when the documents in his possession showed that they were worth more than that; (3) P was the beneficial owner of the 260,000 shares sold to D. The contract was between him and D solely. The legal owners of the shares (ie his nominees) were not parties to the contract. There was no question of joining these persons as parties in the action. P was granted judgment on his claim for the balance of the purchase price.

Loh Sing Cher v Tan Ah Chow & Anor [1990] SLR 555 High Court, Singapore (Thean J).

A company may be estopped by the issue of fully paid certificates under its seal from denying that they were fully paid up even against the original allottee.

Wills v Jimah Rubber Estate Ltd [1911] 12 SSLR 112 High Court, Straits Settlements (Law Ag CJ).

The plaintiffs entered into a shareholders agreement with the first and second defendants, to sell their share holdings in the fourth defendant company to the latter, under which the approval of the Securities Commission of Malaysia was required and it was reserved that in the event of the approval not being obtained within 90 days, of if the approval was unacceptable to either the first or second defendant, the original shareholders were to buy back all shares presently held by the first and second defendants at a price of RM3,520,000 together with costs incurred by the first and second defendants arising from the agreement or termination thereof upon demand. Any disputes were to be referred to arbitration which was to be final and binding on the parties. On 17 April 1994, a deed of assignment assigned the shareholders agreement to the third defendants. A dispute arose between the parties on the interpretation of cl 3B as to whether the 90 days time period was the essence of the agreement and/or the right to buy back was only reserved in the first and second defendants upon their demand and not a right of the plaintiffs. The plaintiffs filed a writ seeking a declaration that the shareholders agreement was terminated pursuant to cl 3B as a result of the failure to obtain within 90 days from the date of the shareholders agreement the approval of the Security Commission, an order that the first and second defendants deliver up to the plaintiffs the share certificates for 2,800,000 shares in the fourth defendant company which were registered in the names of the first and second defendants with an executed memorandum of transfer for the shares in consideration for the payment of RM3,520,000 paid by the plaintiffs to the third defendant, an account of the financial status of the fourth defendant company for the period when the defendants were in control of the company, an order that the first, second and third defendants resign from the board of directors of the fourth defendant company, damages, costs and such other orders as the court sees fit. The plaintiffs filed a summons in chambers for the appointment of receivers and managers to manage the affairs of the fourth defendant company and sought an injunction restraining the defendants from acting or exercising any rights or power as directors and shareholders of the fourth defendant company. The defendants took out separate summonses seeking to have all proceedings stayed under s 6 of the Arbitration Act 1952, pending reference of the plaintiffs' claim to arbitration and to strike out the plaintiffs' statement of claim under O 19 r 19 of the Rules of the High Court 1980 (RHC) for disclosing no reasonable cause of action, being frivolous, vexatious and an abuse of the process of the court and having the action dismissed with costs to be paid by the plaintiffs.

Held, allowing the first and second defendants' application to strike out the plaintiffs' claim with costs to be taxed and paid forthwith and dismissing the plaintiffs' prayer for injunctive relief with costs to the defendants to be taxed and paid forthwith and ordering the plaintiffs' cause of action against the third and fourth defendants to be stayed pending the disposal of the dispute by arbitration: (1) it was clear from the facts that the plaintiffs were claiming against the first and second defendants on an agreement which had since been assigned to the third defendant, with the consent of the plaintiff. The plaintiffs therefore had no cause of action against the first and second defendants as the assignment operated as an estoppel by deed and destroyed the cause of action, if any. By that consent deed, the plaintiffs had undertaken not to assert their contractual rights against the first and second defendants and had in fact released them from their original intended bargains in favour of the substituted parties; (2) the parties expressly chose and reserved for themselves arbitration as a means to settle their differences touching on the agreement and in light of the two Malaysian decisions of Tan Kok Cheng & Sons Realty Co Sdn Bhd v Lim Ah Pat [1995] 3 MLJ 273 and Seloga Jaya Sdn Bhd v Pembenan Keng Teng (Sabah) Sdn Bhd[1994] 2 MLJ 97 the court was not prepared to consider the third and fourth defendants' application to strike out and merely held the parties to their commitment to refer the dispute to arbitration. The court did not intend to trespass into the agreed territorial jurisdiction of the arbitrator and direct the plaintiffs accordingly to exhaust their action before the arbitrator and not the court; (3) on the totality of the facts before the court and in the avoidance of an injustice to a party the court invariably guided itself with the balance of convenience as a basis. The granting of an injunction without the appointment of a receiver to administer the presently healthy state of affairs of the fourth defendant company would paralyse the company which had previously been turned from a total liability company to a company with a large credit balance, improved results, strong management and with no danger that the assets of the company would be dissipated. As the granting of an injunction was discretionary relief and not an absolute right ex debito justicia there were no justifiable circumstances in which to exercise the discretion to grant the injunction as to do so would do more harm than good; (4) the plaintiffs' cause of action against the third and fourth defendants was stayed pending the disposal of the dispute upon reference to an arbitrator and in the interim the status quo of the management of the fourth defendant company was maintained and the defendants were made accountable for any defaults in the event the arbitrators award was in favour of the plaintiffs.

Lim Hoong Teong Jacob & Ors v Wong Jun Hiang, Jagjit Singh, UI Associates Holdings (M) Sdn Bhd & Anor Civil Suit No D1-22-421-95—High Court, Kuala Lumpur (KL Rekhraj J).

The parties were originally partners carrying on business until they decided to form themselves into a company. The company, which was the first defendant, was a private unlimited company having a share capital. The plaintiff held $50,000 of the shares and the second defendant $250,000. They were the only shareholders and directors. The company had served a notice asking the plaintiff to transfer all his shares to the second defendant under art 21(d) of the articles of association of the company. The plaintiff did not comply with the notice but instead brought an action: (a) for a declaration that the defendants were not entitled or empowered in law or in equity to enforce art 21(d) to transfer the plaintiff's shares to the second defendant; (b) for a declaration that the said company was in fact a partnership and the defendants were not entitled in law or in equity to make the said requisition. He subsequently applied by motion for an injunction to restrain the defendants until trial of the action from enforcing the provisions of the article. The plaintiff submitted that, as the company was in substance a partnership, the mutual rights of the members were not exhaustively defined in the articles and that what was intended to be done could not conceivably be within the contemplation of the parties when the company was formed.

Held: the interim injunction would be granted as it is only doing substantial justice to the case and for the purpose of safely preserving the subject matter of the action until the rights of the parties are finally determined and the defendants would therefore be restrained from exercising their rights under the said article.

Wong Kim Fatt v Leong & Co Sdn Bhd & Anor [1975] 1 MLJ 20 High Court, Kuala Lumpur (Abdul Razak J).

A husband, the registered holder of $5,000 ordinary stock in the company, gave to his wife his share certificate together with a transfer form signed by him but not attested by a witness. The form was undated and the consideration was not stated. Some years later the wife affixed her signature to the transfer form which was duly attested, and after causing the transfer to be dated and stamped sent it together with the certificate to the company for registration. The company refused to register the transfer because the signature of the husband had not been attested. The wife made no attempt to remedy the omission because of strained relationship with her husband. Instead, she applied by originating motion to the High Court for an order to rectify the register of members of the company by removing the name of the husband therefrom and inserting therein her name in substitution as the holder of the stock. The learned judge who heard the application in granting the same held that the articles of association of the company contained no mandatory requirement with regard to the form of instrument of transfer and the husband being presumed to make a gift had done all he could do to divest himself of the ownership of the stock and to vest it in his wife. On appeal,

Held: (1) it is settled law that a shareholder who desires to transfer his shares must comply with provisions relating to transfer laid down in the articles of association. The usual or common form of transfer requires the transferor's signature to be attested and this was the correct interpretation of the relevant article of association of the company in this case; (2) assuming the husband intended to make a gift of the stock it was nevertheless an incomplete gift according to law because he failed to do everything required to transfer effectually the stock from himself to his wife and the learned judge erred in deciding that the husband had done all he could do to divest himself of ownership and vest it in the wife.

Re Fraser & Neave Ltd; Tan Keng Siong v Tan Hock Kiang & Ors 1965 Federal Court, Singapore (Wee Chong Jin CJ, Tan Ah Tah FJ and Chua J).

The plaintiffs dealt with a firm of brokers for the purpose of purchasing and selling forward rubber on terms which required the plaintiffs to lodge security with the brokers to cover possible loss. The security lodged took the form of scrip for shares standing in the names of third parties, but which belonged to the plaintiffs as beneficial owners, accompanied by blank transfers. The brokers, who were also agents for clients dealing in shares, had an account with the defendant bank, the principal use of which was to finance their clients' speculations in shares. The account was overdrawn and, under pressure by the bank, the brokers lodged the plaintiffs' scrip and transfers with the bank as security for the overdraft. The bank filled in the blank transfers with the names of their nominees and forwarded the scrip and transfers for registration of the transfer. The plaintiffs shortly afterwards gave notice to the bank of their interest in the shares, and demanded the return of the documents but the bank refused to surrender the shares, except on payment of their full value.

Held: subject to payment of any sum due on the account between the plaintiffs and the brokers, the plaintiffs were entitled to recover the shares, or their value, from the defendants. Where a beneficial owner parts with the indicia of title to his shares to a transferee, in cases where the rights of a third party dealing with the transferee are involved, the test is the owner's intention. If the owner's intention was to charge the shares in favour of the transferee, the transferee can sub-mortgage to the third party, but any rights acquired by the third party are limited by the amount owing by the owner. The mere deposit creates no estoppel in favour of third parties against the owner. If on the other hand, the owner's intention was to confer authority to the transferee to pledge or sell the shares, the owner cannot set up, against the third party, a limit upon the authority which he gave, provided that the third party is a holder for value without notice. An alleged custom to the effect that, owing to a course of dealing in Singapore, it was an inevitable presumption that the holder of scrip, in the names of third parties, with blank transfers attached, has unlimited authority to deal with the shares, held not to have been proved.

MacPhail & Co (Ipoh) Ltd v P & O Banking Corp [1931] SSLR 157 High Court, Straits Settlements (Terrell J).

The plaintiff delivered to a firm of brokers the scrip for a number of shares of which he was the registered owner. The scrip was accompanied by the usual blank transfers. A cheque for an amount representing about 70% of the market value of the shares was handed to the plaintiff who also received bought and sold notes relating to the shares. The brokers had opened an account with the defendants under an arrangement whereby the brokers deposited shares with the defendants. The defendants advanced money to the brokers on the security of such shares. The brokers in turn used these moneys to finance carrying transactions with their clients. The scrip, the subject of dispute in this action, was delivered by the brokers to the defendants in pursuance of the arrangement between them. The plaintiff applied to the defendants for the return of the shares and tendered to them the amount advanced on them, but the defendants refused to deliver them except on payment of their full market value. On behalf of the defence it was urged, inter alia, that the effect of the contracts between the plaintiff and the brokers was that the shares were sold outright and that the plaintiff acquired the right to repurchase the shares at any time within three months.

Held: (1) though there was nothing on the face of the bought and sold notes to indicate that the brokers by virtue of the notes became the owners of the shares there was ample evidence that the real intention of the parties was that the shares should be a security for repayment of the loan made to the plaintiff; (2) the defendants had no title to the shares against the plaintiff except to the extent of what was due from the plaintiff to the brokers, and that on the payment of the sum due on the account between the plaintiff and the brokers, the plaintiff was entitled to recover the shares, or their value, from the defendants.

Seah Eng Lim v P & O Banking Corp [1933] MLJ 140 High Court, Straits Settlements (Whitley J).

The Sheriff of Singapore seized the shares of a company registered in the name of the defendant. Prior to such seizure the defendant had sold the shares to the claimants who bought them bona fide. Blank printed transfers without the name of the transferee being filled in were signed by the defendant and handed to the claimant together with a scrip for the shares seized, which scrip was in the claimant's possession at the date of seizure. Before the seizure took place, the defendant had absconded.

Held: (1) the blank transfers carried to the person whose name might be subsequently filled in as transferee, the equitable interest, and that in this case they would have carried the legal interest as well had there not been a provision in the articles of the company that transfers should be executed both by the transferor and transferee; (2) there was no illegality in the transaction which would avoid the purchase of the shares.

Hilckes v Lee Choon Guan [1912] 1 MC 17 High Court, Straits Settlements (Hyndman-Jones CJ).

On 28 January 1950, the appellant and respondent entered into an agreement whereby the appellant agreed to sell to the respondent his holding of 2,340 shares in the United Traction Co Ltd for the sum of $46,800. The United Traction Co Ltd was a private limited company and its articles of association contained restrictions on the transfer of shares, the effect of which was to require a proposing transferor to give notice to the company of his intention to transfer his shares, and thereafter to constitute the company his agent to sell the shares to other members of the company or other persons selected by the company, at a value fixed by the auditors, and only if the company failed to find a purchaser, was the proposing transferor at liberty to sell his shares to any person at any price. Both the appellant and the respondent knew of the restrictions in the articles of the company. The respondent duly paid the purchase money and the appellant handed to him the share certificate in respect of the shares. The appellant refused to execute a transfer of the shares and on 21 August 1953 his solicitors wrote to the respondent stating that as the agreement for the sale of the shares was contrary to the articles of association, it was bad in law and therefore the appellant could not transfer the shares but would return the purchase price of $46,800. The respondent, however, refused to accept the return of the purchase price and eventually brought an action claiming specific performance of the contract to sell the shares or further or alternatively a declaration that the appellant was a trustee of the shares or further or alternatively damages for breach of contract. The trial judge held that the appellant had entered into a valid contract to sell the shares for which he received the purchase price. He then held that because of the articles of association of the company it would be inequitable to order specific performance of the contract of sale of the shares having regard to the rights and interests of the remaining shareholders. He held however that by reason of the contract of sale and receipt and payment of the purchase price the equitable and beneficial interests in the shares passed from the appellant to the respondent and granted a declaration that the appellant was a trustee for the respondent of the shares.

Held, (Whyatt CJ (S) and Hill J, Thomson CJ dissenting): (1) the agreement for sale of shares made contrary to the restrictions of sale imposed by the articles of association of the company was void and no rights, legal or equitable, arose between the appellant and the respondent under it; (2) the sale purported to be a sale of the legal and equitable rights in the shares and could not be treated as a valid sale of equitable rights of the shares only.

Gan Sin Tuan v Chew Kian Kor [1958] MLJ 62 Court of Appeal, Federation of Malaya (Thomson CJ, Whyatt CJ (Singapore).

The plaintiffs were existing members of the defendant company. They applied by way of originating summons for the rectification of the register of members of the defendant company to have their names registered as owners of certain shares that had been transferred to them. The directors of the defendant company had refused to register the transfers in favour of the plaintiffs in purported exercise of their powers under art 44(1) of the articles of association of the company. Article 43 of the articles of association of the company allowed a proposed transferor of shares to transfer or sell his shares to any person at any price if the company could not within a stipulated period find any member willing to purchase the shares of the proposed transferor. The directors stated that although they were not obliged to assign any reason for the refusal to register the transfer, the reason was that the transferee was a non-Malaysian and the transfer, if registered, would result in less than 51% of the issued shares of the company being held by Malaysians. This would in turn run foul of one of the terms of the manufacturing licence which the manufacturing company held in respect of its only business.

Held, allowing the plaintiffs' application: (1) the directors had no discretion to refuse to effect a transfer of shares from one member to another. If the transfer of shares is from a member to someone outside the ring of members, the directors' discretion to decide whether the proposed transfer is to be registered is limited by the art 43 procedures. Once the directors had failed to find a willing purchaser as provided by art 43, the directors could not rely on art 44(1) and refuse to register a transfer in favour of any other transferee. To hold otherwise would mean there would be a contradiction in terms of art 44(1) and art 43; (2) the fact that the transfer would result in the company losing its licence would not per se allow the company to go against its articles of association. The company has to make adjustments and perhaps seek to have their licence amended or move to other fields of business where the equity structure was acceptable to the authorities.

Arunachalam & Ors v Kwality Textiles (Malaysia) Sdn Bhd [1990] 2 MLJ 167 High Court, Kuala Lumpur (VC George J).

3 [582] COMPANIES AND CORPORATIONS Shares – Transfer of shares – Equitable mortgage of shares – Sale of shares by mortgagee to plaintiffs – Whether defendant company breached statutory provisions in not sending out notice of refusal – Whether defendant company's articles of association permitted transfer to non-member – Harrold v Plenty [1901] 2 Ch 314 (refd); Stubbs v Slater [1910] 1 Ch 632 (refd); Re Copal Varnish Co Ltd [1917] 2 Ch 349 (refd); Re Hackney Pavilion Ltd [1924] 1 Ch 276 (refd); Hunter v Hunter [1936] AC 222 (distd); Re Diamond Rock Boring Co Ltd, ex p AR Shaw (1877) 2 QBD 463 (refd).

In this case, M and K, who were directors of the defendant company, charged shares that they owned in the defendant company to XIB under two guarantees and memoranda of charge. A blank instrument of transfer was executed and delivered to XIB. By a letter dated 9 May 1987, XIB forwarded to the defendant company the relevant share certificates and the two transfer forms, duly completed, in favour of XIB Nominees Ltd. No reply was given by the defendant company to this letter. On 22 June 1987, XIB gave notice to the defendant company, pursuant to art 34 of the articles of association of the defendant company, that XIB wished to transfer the shares. The defendant company did not respond within 14 days as required under art 35. On 20 August 1987, XIB notified the defendant company that it had sold the shares to the plaintiffs and requested the defendant company to issue the new share certificates in favour of XIB Nominees Ltd. On 25 August 1987, the defendant company replied that as XIB was never the registered proprietor of the shares, XIB's request could not be granted. The plaintiffs made an application under ss 130 and 194 of the Companies Act (Cap 50, 1985 Ed) ('the Act') to rectify the register of shareholders of the defendant company and for an order that the defendant company do deliver to the plaintiffs new share certificates in the name of the plaintiffs' nominee. The contention of the defendant company was that XIB was not entitled to give notice to the company under art 34.

Held, allowing the plaintiffs' application: (1) both M and K had delivered the relevant share certificates to XIB together with the duly executed blank forms. This arrangement amounted to an equitable mortgage. XIB could exercise the power of sale in the event of default by M and K without having to apply to the court for an order of sale; (2) at no time did the defendant company reply to the lodgment of transfer in favour of XIB Nominees Ltd. The defendant company had failed, within the period of one month, as required under s 128(1) and (2) of the Act, to send out the appropriate notice of refusal. The defendant company was therefore clearly in breach of those provisions of the Act; (3) under art 33 of the articles of association, it was clear that there was no restriction on the right of transfer of shares to another member of the defendant company. A transfer to a non-member must, however, be preceded by a written notice to the defendant company specifying the particulars set out in art 34; (4) art 34 referred to 'a person proposing to transfer any share', not to a 'member'. Article 34 should be read with art 33 which provides that a 'share may be transferred by a member or other person entitled to transfer'. Under the guarantees and the memoranda, and under general law, XIB was clearly a person 'entitled to transfer'; (5) no dispute of title was raised by either M or K. Fictitious issues were unnecessarily raised by the defendant company. There was no reason why the court should not exercise its summary jurisdiction under s 194(1) of the Act in ordering rectification of the register.

PIC Property Ltd v Sing Eng (Pte) Ltd [1988] SLR 669 High Court, Singapore (Chao Hick Tin J).

[Annotation: Reversed on appeal. See [1990] SLR 81; [1990] 3 MLJ 129.]

The appellants were a public company listed on the Stock Exchange of Singapore and which went into receivership in late 1985. The appellants, through their liquidators, claimed to be beneficial and absolute owners of 1.55 million shares in ACMA Electric Industries Ltd ('ACMA'), which was a public company whose shares were and still are listed on the same stock exchange. At all material times, the legal title to these shares was vested in the names of corporate nominees as trustees for the appellants. Some time in 1984, however, the appellants deposited with Associated Asian Securities (Pte) Ltd ('AAS') 6.3 million ACMA shares, of which the disputed shares constituted a part, together with the transfers executed in blank. There was, however, no credible evidence as to the purpose of this deposit. Subsequently, AAS in turn deposited with the two respondents a total of 1.55 million ACMA shares and the transfers duly executed in blank as security for certain banking facilities for their own benefits. The appellants claimed that AAS had no beneficial interest of any kind to transfer, mortgage or otherwise deal with the shares for their own benefits. The appellants then took out an originating summons seeking a declaration that they were still the beneficial owners of the shares in question. Both here and in the court below, the questions were as follows: (1) did the appellants at all material times own the ACMA shares in question? and (2) if so, did the two respondents' interests as equitable mortgagees take priority over the beneficial ownership of the appellants, on the ground that having left in AAS's custody both the share certificates and duly executed transfers in blank, they are estopped from denying that AAS had either express or implied authority to mortgage the shares to the respondents? In the High Court, Chao Hick Tin J found against the appellants on the first issue. That was sufficient to dispose of the action. Accordingly, he dismissed the originating summons. Nevertheless, Chao Hick Tin J also held that, if the appellants had proved their beneficial ownership, he would have found for them on the second issue. The appellants appealed.

Held, dismissing the appeal: (1) the appellants had shown that, probably, they beneficially owned the shares at all material times. The learned trial judge failed to give any weight to the highly significant fact that no other party had come forward to assert an adverse claim to the shares and had given too much weight to the appellants' failure to collect the dividends and to respond to a request by ACMA for confirmation of their beneficial ownership; (2) it is the unquestionable law that share certificates, even coupled with duly executed transfers in blank, are not negotiable instruments as such, in the sense that their mere delivery would not, in spite of a prior defect of title, pass the title in the chose in action to the bona fide purchaser or mortgagee for value without notice; (3) nevertheless, the question is whether there is an estoppel by conduct which gives rise to a clear representation. This is purely a question of fact. As such, decided cases should be read in their individual factual contexts. In the present case, the appellants are estopped in all the circumstances from denying that they had vested AAS with implied or ostensible authority to deal with the shares. The business of AAS as stockbrokers was to buy and sell shares. They bought and sold shares on their own account as well as for their customers. Shares in their hands accompanied by duly executed transfers were part of their stock in trade. They were not custodians of shares as they were not nominee companies. The appellants had left those shares with AAS for an extended period of one and a half years. By doing so, the appellants had put AAS in a position where the latter could deal with the shares in question in such a way that anyone who dealt with AAS would assume that the latter had been clothed with the authority to deal in them. There was, therefore, a clear representation that AAS had the implied or ostensible authority to deal in the shares. This was so whether the respondents were mortgagees or buyers.

Pan-Electric Industries Ltd (in liquidation) v Oversea-Chinese Banking Corp Ltd & Anor [1994] 3 SLR 695; CSLR XIII[1532] Court of Appeal, Singapore (Karthigesu and LP Thean JJA and Lai Kew Chai J).

Jimat bin Awang & Ors v Lai Wee Ngen [1995] 3 SLR 769; (1995) CSLR VIII[128] Court of Appeal, Singapore (Karthigesu and LP Thean JJA, Lai Kew Chai J).

See COMPANIES AND CORPORATIONS, Vol 3, para 286.

3 [585] COMPANIES AND CORPORATIONS Shares – Transfer of shares – Person entitled to transfer shares – Equitable mortgagee not entitled to transfer shares – Register of members – Rectification of register – Person aggrieved', meaning of – Articles of association – Pre-emptive rights – Notice by equitable mortgagee insufficient to satisfy article dealing with pre-emptive rights – Allied Properties Sdn Bhd v Semua Holdings Sdn Bhd (unreported) (not folld); New Lambton Land & Coal Co Ltd v London Bank of Australia (1904) 1 CLR 524 (folld); Safeguard Industrial Investments Ltd v National Westminster Bank [1980] 3 All ER 849 (folld); Hunter v Hunter [1936] AC 222 (folld)

MM and MK were directors and shareholders in A. They charged their shares in A to XIB under a memorandum of charge. The share certificates and blank transfers were lodged with XIB. The shares remained registered in the names of MM and MK. When MM and MK defaulted, XIB proceeded to enforce the charges. As a preliminary step, they served notice on A that XIB as 'persons entitled to transfer' the shares they constituted A as their agent to sell the shares to any of the existing members, in compliance with the right of pre-emption contained in art 33 of A's M&A. There being no response from A, XIB then purported to sell the shares to R by virtue of the power given in the memorandum of charge. After the sale, R submitted the share certificates and executed transfers and asked that the shares be registered in the name of XIB Nominees. The transfers purported to be transfers by XIB to XIB Nominees as nominee for R and were executed by XIB as transferor and XIB Nominees as transferee. The company declined to register the transfers. R took out an application for rectification of the register of members under s 194 of the Companies Act, claiming to be a 'person aggrieved' by the refusal of the company to register XIB Nominees as a member. The High Court granted the application (see [1989] 2 MLJ 29). A appealed.

Held, allowing the appeal: (1) R had not applied to be registered as member of A. It was not a person whose name had been omitted from the register and therefore not a 'person aggrieved' within the meanings of s 194 of the Companies Act (Cap 50); (2) a person is not entitled to have shares registered in the name of a nominee, except in accordance with the Act and the company's memorandum and articles ('M & A'). In the instant case, the articles expressly disallowed registration of shares in the name of a nominee. R therefore was in error in seeking to have XIB Nominees registered as member as nominee for it, and A was justified on this ground in rejecting the transfers; (3) XIB was not a member of A and therefore had no power to give notice under the M&A of its desire to transfer the shares, which were registered in the names of MM and MK. The notice given by XIB was insufficient to satisfy the article conferring a right of pre-emption on the other members of the company; (4) the word 'transfer' used in the M&A meant transfer of the legal interest. XIB had no legal title to transfer, only an equitable interest under a charge. Accordingly, they were not persons entitled under the articles to transfer the shares; (5) a sale or transfer notice not given in accordance with the pre-emption provisions of the articles is ineffectual and the subsequent transfer in breach of such provisions is inoperative. The appeal was accordingly allowed.

Sing Eng (Pte) Ltd v PIC Property Ltd [1990] SLR 81 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Thean JJ).

The plaintiffs (DMIB), together with the first (PSD), second (LTAT), and third (KPDM) defendants and the Kedah State Development Corporation (PKNK) decided to form a company to be known as IT International Sdn Bhd (ITISB), the primary object of which was the manufacture of tyres. The plaintiffs applied at the instance of the promoters for a manufacturing licence to the Ministry of Trade and Industry. The ministry approved the application by letter dated 20 October 1978 with conditions set out in an appendix to the letter, condition (c) of which was material to the decision in this case and which in substance stipulated that at least 79% of the shares of ITISB should be held by Malaysian citizens, including at least 65% to be held by Bumiputras. On 25 October 1978 the ministry issued the licence. On 13 December 1979 the promoters and Malaysian Rubber Development Corporation Bhd (MARDEC) entered into a joint venture agreement (JVA) by which they agreed to form ITISB in the terms and on conditions set out in the JVA, pursuant to which ITISB was incorporated on 20 December 1979. JVA restricted the freedom to the transfer of shares, the objective being to ensure that while a member had the right to divest itself of its share in ITISB, the remaining members could ensure that their proportion of equity ownership would not be watered down by such divestment. ITISB's business fell short of projections, and three of the shareholders (the outgoing shareholders) had decided to sell their shares in ITISB. It became obvious that it fell upon the plaintiffs and/or the sixth defendant, Pernas-Sime Darby Holdings Sdn Bhd (PSDH) to buy the shares. The outgoing shareholders purported to follow the preemption procedures and their letters of offer were accepted by the plaintiffs. It was pointed out at the ITISB board meeting of 23 December 1982 that the plaintiffs taking up the shares would infringe condition (c). The ministry gave its views in a letter dated 1 January 1983 that any increase in the holding of the plaintiffs, the majority of the shares of which were held by non-Malaysians, would infringe condition (c) of the Manufacturing Licence. At a board meeting of ITISB held on 12 January 1983, the board approved the transfers of the shares of the outgoing shareholders to PSDH despite protests by the plaintiffs. On 14 January 1983, the plaintiffs filed the present suit seeking declarations that the outgoing shareholders were bound by the agreements for sale of their shares to the plaintiffs and the transfers of their shares to PSDH were null and void and for injunction and damages. On 14 January 1983 the plaintiffs obtained an interim injunction restraining the registration of the transfers. On 19 January 1983 the ministry gave approval to PSDH for the transfers to them of the shares. The plaintiffs never applied to the ministry for approval but to the Foreign Investment Committee which required them to apply to the ministry.

Held, dismissing the plaintiffs' claims: (1) as it was the Ministry of Trade and Industry which had issued the manufacturing licence and had imposed condition (c), the Malaysian Authorities referred to in the offer letters must be the ministry; (2) the plaintiffs were bound by the ruling of 4 January 1983 given by the ministry. What had been agreed was that ministry ruled that condition (c) would be breached by the plaintiffs exercising their rights of pre-emption then the acceptance by the plaintiffs of the offer of the shares of the outgoing shareholders was to be considered null and void and the acceptance of PSDH would be operative. The ministry's ruling was that any increase in the holding by the plaintiffs in ITISB would infringe condition (c); (3) the plaintiffs are not entitled to the declarations sought and their claims were dismissed with costs.

Dunlop Malaysia Industries Bhd v Pernas-Sime Darby Sdn Bhd & Ors [1985] 2 MLJ 101 High Court, Kuala Lumpur (George J).

Tong Kok Chai v Ocean Front Pte Ltd & Anor [1988] SLR 642 High Court, Singapore (LP Thean J).

See COMPANIES AND CORPORATIONS, Vol 3, para 25.

The plaintiff was anxious to sell his 80,000 $1 shares in a private limited company, MS Ally Sdn Bhd, the first defendant company. Transactions of shares in the company were governed by its articles of association. By letter dated 21 September 1982, the plaintiff's solicitors, pursuant to art 27, notified the company of his desire to sell his 80,000 shares, without stating the sale price. The solicitors by a subsequent letter of 1 October 1982, stated the price to be $2.60 per share. It was common ground that 1 October 1982 was the effective date for notice under art 27. The pre-emptive procedures provided in the articles required the company, after receipt of the notice and within 28 days thereof, to offer the shares to the persons then holding the remaining shares in the company as nearly as might be in the proportion to their holding of shares in the company, giving a time limit for acceptance, so that in case the shares or some of them were not purchased, the unpurchased shares could be reoffered to such members who might be interested in them. The plaintiff as vendor had six months to find a purchaser (who could be a non-member of the company) only after the company had failed to find a purchaser or purchasers of the shares within the stipulated 28-day period. If there were shares still not sold after the six-month period, the entire process had to be repeated to effect a sale of them. The company was unable to find a purchaser for the shares within 28 days from 1 October 1982. Thus the plaintiff had six months from 29 October 1982 to find a purchaser for his shares, but no sales took place. Then by letter dated 18 June 1982, a new notice was given under the articles and this time the company's solicitors sought the opinion of the auditors of the company as to the 'fair value' of the shares. The auditors stated the net tangible asset value per share of the company, based on the company's accounts for the accounting year ended 31 March 1982, to be $1.63, which they later confirmed to be the 'fair value'. By letter dated 15 July 1983, the company's solicitors informed the plaintiff that the board of directors had found 11 members of the company to purchase 25,000 shares at $1.63 per share. The purchase money had been deposited with the company's solicitors and the plaintiff was required to deliver the certificates for the 25,000 shares. He refused to accept the auditors' valuation. Nevertheless, the company proceeded under art 30 and effected the transfer of 25,000 of the plaintiff's shares in favour of the 11 purchasers, whereupon the plaintiff issued the present originating summons, seeking rectification of the register of the members of the company by striking out the names of the 11 purchasers and replacing their names with that of the plaintiff. The issue for determination was whether the purported transaction of the plaintiff's 25,000 shares was proper.

Held: the purported transaction of the 25,000 shares was made without adherence to the requirements of the company's articles of association and must be set aside. Per curiam: 'The scheme of the pre-emptive procedures for sale of shares made it necessary for the offer for sale and acceptance of the offer to be made without a specification of the sale price. [The vendor and the purchaser] must be given the opportunity of arriving at an agreement on fair value.'

Mohamed Yahaya v MS Ally Sdn Bhd & Ors [1985] 1 MLJ 243 High Court, Kuala Lumpur (George J).

The applicant was the transferee of 279,300 shares in Stephens Properties Sdn Bhd. By art 21 of the articles of association of the company, the transfer form which should have been left at the company's registered office was instead left with the company secretary. However, the company acknowledged receiving the transfer in a letter of 24 December 1980 and advised that the application for the transfer of the shares had been tabled before the board on 1 December 1980. Art 23 of the articles of association of the company expressly provided that if the directors refuse to register a transfer they shall have to serve notice of the refusal to the transferee within one month after the date on which the transfer was lodged. In this case between 24 December 1980 and 22 May 1981 nothing was done, a delay of over five months. On 22 May 1981 the applicant was informed that the board of directors had decided against the registration of the transfer. The applicant contended that the company's power of veto against the transfer of the shares had been lost by undue delay. In defence, the company raised for the first time in these proceedings objections that the transfer was not properly lodged at the registered office of the company.

Held: (1) the proper time for the exercise of the power of the veto is the occasion at which the transfer is placed before the board for confirmation or within a reasonable time from that date. In the present case, the board had by unnecessary delay lost its chance of exercising its power of veto against the transfer of the shares to the applicant; (2) as regards the company's contention that the transfer had not been properly lodged the company cannot blow hot and cold as it suits it. Applying the principle of estoppel by conduct to the present case it would be unfair or unjust to allow the company to say that the transfer was not lodged at the registered office when the board had let the applicant believe that the lodgment was valid by considering the question of the transfer at the company's board meeting.

Ho Shee Jan v Stephens Properties Sdn Bhd [1986] 2 MLJ 43 High Court, Kuala Lumpur (Chan J).

In this case, the appellant had obtained a transfer to himself of 10,000 shares in the respondent company from the First Nominees Pte Ltd. He applied on 12 June 1982 for the registration of the transfer but he received a reply in September 1982 that the board of directors of the company had declined to register the transfer. The appellant applied for rectification of the register of members of the company. It was alleged that the directors in refusing to register the transfer had not exercised their discretion reasonably and in good faith and that in any event their discretion had been lost by unreasonable delay because they took more than three and a half months to send the notice of refusal to him contrary to the requirements of s 105 of the Companies Act 1965 (Act 125). One of the reasons for the delayed refusal alleged by the respondent was because of the need to obtain the approval of the Foreign Investment Committee in accordance with the Guidelines for the Regulation of Assets, Mergers and Take-overs.

Held: non-compliance with the requirements of the guidelines can obviously have adverse consequences especially to a private company such as the respondent company, so that the exercise of the discretion by the directors in refusing to rectify the register was in the circumstances something the learned trial judge rightly declined from interfering with.

David Hey v New Kok Ann Realty Sdn Bhd [1985] 1 MLJ 167 Federal Court, Johore Bahru (Salleh Abas LP, Wan Suleiman and Hashim Yeop A Sani FJJ).

The applicant granted three loans to Malaysian Fancy Plywood and Veneer Co Ltd. As security for the loans, shares in Semua Holdings were pledged to the applicant. The applicant's nominees requested registration of the shares. Semua Holdings declined to do so. The applicant brought proceedings seeking to rectify the register of members of Semua Holdings by striking out the names of the pledgors in respect of the pledged shares and substituting the name of the applicant as the owner of the shares. Three issues were raised at the hearing, namely: (a) whether the applicant was the aggrieved party under s 162 of the Companies Act 1965 (Act 125) (the 'Act'); (b) whether Semua Holdings had delayed in communicating their decision to refuse registration; and (c) whether the directors of Semua Holdings had exercised their discretion bona fide in refusing registration.

Held, allowing the application: (1) As the applicant was the ultimate beneficial owner there could be no doubt whatsoever that the applicant was the person aggrieved by the refusal of Semua Holdings to register the shares in the name of either the applicant or their nominees. The fact that the nominees were not a party to the action was quite immaterial to the real issue at hand which was whether the respondents had a right to refuse registration and, if so, whether that right had been properly and legally exercised; (2) in respect of the first request for registration of the transfer, Semua Holdings had not complied with the mandatory requirement of deciding within one month on a request for registration. However, by the submission of the second request in the light of the request for information by Semua Holdings as to the true owner of the shares, both parties had waived whatever rights or obligations both had under art 23 and s 105 of the Act as regards the first request; (3) the second request was lodged on 26 September 1986 and rejected by notice on 10 October 1986 and hence Semua Holdings were well within the statutory period of one month and to that extent the applicant's contention that Semua Holdings had failed to comply with art 23 read with s 105 of the Act was not correct; (4) when exercising their discretion to refuse registration, the directors of Semua Holdings had to act in good faith. The third and fifth respondents were directors of Semua Holdings and had pledged their shares to the applicant. They must have known that what the nominees were requesting was nothing more than to enable the applicant to perfect its securities by applying to have the shares registered in their name. The third and fifth respondents were statutorily bound to disclose their personal interests in the matter. In failing to do so, they had clearly shown themselves to be harbouring an ulterior motive as, being the beneficial owners of the shares so pledged, they tended to gain by Semua Holdings' refusal to register the transfer. As the exercise of their discretion was clearly a breach of their statutory duty, the exercise of such a discretion was not bona fide. The fact that only two members of the board had not exercised their discretion bona fide did not, however, make the other directors less liable for their action, as the decision to refuse was a collective action of the board. Since two of its members had acted in bad faith, that made the whole decision null and void. The applicant could not be denied its right to have the shares so pledged to be registered in its nominees' name.

Allied Properties Sdn Bhd v Semua Holdings Sdn Bhd & Ors [1988] 3 MLJ 185 High Court, Kuala Lumpur (Siti Norma Yaakob J).

Where directors of a company are given by the articles of association an absolute and uncontrolled discretion with regard to registering a transfer of shares the only limitation on the directors' discretion is that it should be exercised bona fide in the interests of the company. Once the directors have stated on oath that they have exercised their discretion in the interests of the company it must be assumed that they have so exercised their discretion unless the contrary is established by cross-examination of the deponents or by establishing a substantive case showing that that discretion has been wrongly exercised, though in some cases this may appear from the affidavit.

Kesar Singh v Sepang Omnibus Co Ltd [1964] MLJ 122 High Court, Seremban (Ismail Khan J).

In this case, the second applicant had sold 15 shares in the company to the first applicant and sent a notice to the directors. The directors informed the second applicant that his application for disposing of his shares to the first applicant could not be approved, but it could be considered for approval provided he gave the pre-emption right equally to all the existing shareholders. The articles of association of the company provide that the directors may decline to register any transfer of shares to a person of whom they do not approve and may also decline to register any transfer of shares in which the company has a lien.

Held: (1) although if the directors had simply expressed their opinion it would not be for the court to examine or to inquire into the ground on which they had formed their opinion, in this case, the directors had exercised their power for a reason not empowered by the articles of the company and therefore this was an improper exercise by the directors of the powers vested in them; (2) the second applicant had therefore a legal right in favour of his claim and the court must give effect to it by ordering the company to register the transfer.

Lim Ow Goik & Anor v Sungei Merah Bus Co Ltd [1969] 2 MLJ 101 High Court, Sibu (BTH Lee J).

The plaintiff applied for an order that the fifth defendant do register the transfer of 10,050 shares in the fifth defendant company ('the shares') now in the name of the first, second, third and fourth defendants ('the defendants') from the defendants to the plaintiff. The plaintiff alleged that in consideration of the plaintiff lending a sum of RM7,000 ('the loan') to a certain company ('the borrower'), the defendants had agreed to transfer to the plaintiff the shares held by them in the fifth defendant. The defendants had executed and deposited with the plaintiff a memorandum of transfer of the shares in escrow ('the memorandum'). The borrower failed to repay the loan within the stipulated time and the plaintiff applied in writing to the fifth defendant to have the shares registered in the plaintiff's name. The plaintiff's application was rejected by the directors of the fifth defendant without assigning any reason for its rejection. The plaintiff contended that the board of directors in refusing to register the said shares had failed to exercise its powers under the articles of association of the fifth defendant. The fifth defendant relied on art 30 of the articles of association (which provides that the directors may decline to register any transfer of shares without assigning any reason). The fifth defendant further submitted that as the plaintiff only brought the action after a delay of almost six years after it became aware of the board's decision, the latter was not entitled to the relief sought in the summons. The fifth defendant also pointed out that there was a ten-year period of delay before the plaintiff filed a notice of intention to proceed with the case.

Held, dismissing the application: (1) a public company (although not listed on the Stock Exchange), such as the fifth defendant, may impose restrictions on the right to transfer if the articles of association so provide; (2) it was clear that under art 30 of the articles of association the directors had absolute discretion to refuse to transfer the shares to the plaintiff without assigning any reason;the plaintiff was also guilty of laches.

Re Selangor Omnibus Co Bhd; Four Seas Enterprise Corp Sdn Bhd v Yap Yean Cheong & Ors (1995) CSLR VIII[2279] High Court, Kuala Lumpur (Zakaria Yatim J).

The respondents ('the plaintiffs') had obtained an ex parte interlocutory mandatory injunction ('the order') from the High Court against the appellants ('the defendants') to effect the registration of the transfer of 540,000 shares of the first defendant company ('the shares') to the plaintiffs in the share register of the company and to issue new share certificates in the plaintiffs' names, within two working days of receiving the share certificates. The plaintiffs' writ was filed in the Appellate and Special Powers Division of the High Court, Kuala Lumpur when proceedings should have commenced in the Commercial Division. The order was served on the defendants on 11 April 1995. On 12 April 1995, the first to tenth defendants applied to set aside the order. The application came up for hearing on 13 April 1995 but the judge adjourned it to 27 April 1995 which was after the two-day period he had allowed for compliance of the order. The defendants immediately applied for a stay of the order pending disposal of their application to discharge it but the judge refused a stay. On 14 April 1995, the transfer of the shares was registered in the share register of the first defendant company and new share certificates were issued to the plaintiffs under compulsive compliance of the order. On 18 April 1995, the first to the tenth defendants filed a notice of appeal against the order to the Court of Appeal and the present motion for a stay of the order pending appeal.

Held, ordering that the defendants be restrained from exercising any rights attached to the shares pending disposal of the appeal: (1) O 29 r 1(2) of the Rules of the High Court 1980 provides for an ex parte injunction to be applied for only in a case of urgency. In the instant case, there was no urgency shown. As such, it was quite wrong to grant relief ex parte behind the backs of the defendants when they should have applied inter partes in order to give the defendants a proper opportunity to be heard; (2) the terms of the order had pre-empted the defendants from exercising their right to apply to discharge an ex parte injunction obtained behind their backs and was manifestly unjust. The plaintiffs through their legal advisers had abused the process of the High Court by instigating the injustice through misuse of the court's procedure and had brought the administration of justice into disrepute among right-thinking people; (3) the plaintiffs' affidavit in support of their ex parte application did not state that the first defendant company had refused to register the transfer of the shares or in what manner the other defendants, as directors of the first defendant, had obstructed or prevented the registration of the shares. Furthermore, the affidavit failed to bring to the court's notice the statutory prohibition under s 103(1) of the Companies Act 1965 against a company registering a transfer of shares unless a proper instrument of transfer in the prescribed form had been delivered to the company. There was neither a delivery of any instrument of transfer to the company as required by law, nor any evidence of any refusal by the company to register the transfer of the shares; (4) the order which compelled compliance within two working days and the subsequent conduct of the judge in adjourning the defendants' application to set aside the order to a date after the period allowed for compliance without granting a stay, had effectively deprived the defendants from exercising their right to apply to set it aside. This misuse of the court's procedure was manifestly unfair to a party to litigation before it and the court, therefore, had a duty to exercise its inherent power to prevent misuse of its procedure; (5) the fact that the proceedings were filed in the wrong division did not render the proceedings in any way invalid but may, coupled with other considerations, give the impression to right-thinking people that litigants can choose the judge before whom they wish to appear for their case to be adjudicated upon. Since justice must not only be done but must also be seen to be done, it was incumbent on the trial judge to have taken the initiative of transferring the proceedings to the right division so as to dispel any notion that he was partial to any party.

Ayer Molek Rubber Co Bhd & Ors v Insas Bhd & Anor [1995] 2 MLJ 734; (1995) CSLR VIII[2280] Court of Appeal, Kuala Lumpur (NH Chan, Siti Norma Yaakob JJCA and KC Vohrah J).

This appeal arose out of an action concerning a dispute in a Chinese family over 300 $1 shares in the capital of Rimau Omnibus Co Ltd, a private holding company. The family consisted of five brothers named Ong Kong Chu, Ong Kong Seng, Ong Kong Pong, Ong Kong Chuan and Ong Kong Chee in order of seniority in age. Prior to 1954 the first four brothers were the registered owners of 1,465, 300, 245 and 342 shares respectively in the holding company, with the youngest brother having no shares in his name at that time. On 16 February 1954, the eldest brother Ong Kong Chu transferred 1,265 of his shares to the youngest brother Ong Kong Chee, keeping 200 shares in his name to enable him to retain his position as a director of the company. Within the next two days Ong Kong Seng, Ong Kong Chuan and Ong Kong Pong also transferred their entire holdings to Ong Kong Chee, with the result that the eldest brother in the family remained the registered owner of 200 shares and the youngest brother (hereinafter referred to as the first defendant) became the registered owner of 2,152 shares. On 26 April 1955, the first defendant executed an instrument appointing Ong Kong Chu as his attorney in respect of the shares transferred to him with powers, inter alia, to receive and give effectual discharges for all moneys derived therefrom and 'to sell assign transfer and to mortgage for any purpose and for such price or other consideration (whether pecuniary or not) or sum of money and upon such terms and conditions the said shares as the said attorney shall think fit'. This power of attorney was never revoked and remained operative until the first defendant executed a transfer of the entire 2,152 shares to Lin Ah Moy (hereinafter referred to as the second defendant), the wife of Ong Kong Chu, on or about 10 December 1959. The four transfers in 1954 were expressed to be for a consideration of $2 for a $1 share and the total amount purported to have been paid by the first defendant was $4,304. The transfer in 1959 of the 2,152 shares from the first defendant to the second defendant was also expressed to be in consideration for the same amount of $4,304. On 27 April 1964, Ong Kong Seng commenced this action as the original plaintiff against the first and second defendants claiming for a declaration that the 300 $1 fully paid-up shares and numbered from 317 to 616 were held by each of the defendants as a trustee for him, and for an account of the dividends and income received by them during the relevant period. In his statement of defence the first defendant admitted that the 300 shares were transferred to him in trust for the plaintiff and that all dividends received during the period when the said shares stood registered in his name were paid to Ong Kong Chu who, as the then head of the family, was keeping a joint family account. He did not deny para 4 of the plaintiff's statement of claim to the effect that in or about the month of December 1959 he, by the direction of the plaintiff, transferred the said shares into the name of the second defendant with her concurrence, to the intent that the same should be held by her as a trustee for and on behalf of the plaintiff. The second defendant denied in her statement of defence that the said shares were transferred to her to be held by her in trust for the plaintiff, her defence being that she purchased 2,152 shares, amongst which were included the shares in dispute, from the first defendant for $2,152. The trial judge found that there was no consideration on the 1954 and 1959 transfers and gave judgment for the plaintiff against the second defendant, the appellant herein.

Held, dismissing the appeal: (1) the proviso to s 92 of the Evidence Ordinance 1950 permits the admission of evidence relating to want or failure of consideration; (2) the plaintiffs and the first defendant were not estopped from denying the truth of the contents of the memoranda of transfer; (3) there was ample evidence in this case that the transfer of the shares were made at the suggestion of the second defendant's husband who was the head of the family; (4) on the face of it, there was nothing fraudulent about the transfers. There was ample evidence for the learned trial judge to come to the conclusion that the transfers were made in trust; (5) there can be no question of a presumption of advancement in the case of a transfer from a brother to a brother or from a brother to his brother's wife. In those circumstances the court must find a resulting trust in favour of the original transferor; (6) in this case this presumption was not rebutted on the evidence; (7) a transfer without consideration creates a rebuttable presumption of a resulting trust;as the learned trial judge found as a fact that the second defendant was not a bona fide purchaser for value, this court could not possibly disturb that finding of fact or draw any inferences adverse to that finding.

Lin Ah Moy v Lee Cheng Hor & Ors [1970] 2 MLJ 99 Federal Court, Ipoh (Ong CJ (Malaya).

The deceased, Tan Jim Lay, aged 79 died on 19 July 1974. He appointed the first defendant the sole executor and trustee of his last will and testament dated 8 June 1974. It was not disputed that from 18 July until his death, the deceased was in a coma. Probate of the said will was granted to the first defendant on 7 May 1975. It was clear from the evidence that the deceased had, for some time prior to his death, been desirous of transferring his shareholding in the company by way of gift to the first defendant. In pursuance of such desire, in 1973 the deceased executed a share transfer in blank in the first defendant's favour. On 18 July 1974 a resolution allowing 'the transfer of 1,000 shares of $100 each fully paid in this company from Mr Tan Jim Lay to Tommy Tan' was approved and signed by the directors of the company. The transfer was dated 18 July 1974, stamped and entered on the same day in the register of members of the company. The first, second and third plaintiffs, beneficiaries of the will, claimed that the share transfer was false as the deceased could not have signed it on 18 July 1974 as he was on that day in a state of coma and had died without regaining consciousness on 19 July. They therefore claimed that the transfer was void and sought for an order that the company register the deceased's estate as the owner of the said 1,000 shares. Before the action came to be tried the plaintiffs' solicitors agreed that action would not be proceeded against the second defendants on the latter's undertaking that they would abide by the court's decision.

Held, dismissing the plaintiffs' claim: (1) it is not necessary for a share transfer to be valid for it to be actually signed on the date shown on the share transfer; (2) the gift of the said 1,000 shares to the first defendant had, before the death of the deceased, been perfected by the transfer to him of these shares and there was nothing improper or fraudulent in such transfer.

Robert Tan & Ors v Tommy Tan & Anor 1984 High Court, Singapore (Rajah J).

The testator died in 1931 having named six persons as executors and trustees. The will was proved by four of such persons, leave being reserved to the remaining two. Double probate was made by one of these remaining two. One of the clauses of the will directed the trustees to stand possessed of all the testator's property, movable and immovable upon certain trusts. The debts of the estate and all estate duties were settled by the end of 1936. In 1944 only two of the executors and trustees who had proved were in Singapore, the plaintiffs - also executors and trustees - being out of the Colony. The deceased held certain shares in the defendant-company and they were still in his name in 1944 when the Singapore executors and trustees transferred them for value, the defendant-company duly registering the new holder. The plaintiffs claimed that as the administration of the estate was completed by the end of 1936, the residue of the estate including the shares were vested in all the trustees and therefore the transfer of 1944 was null and void, not being the act of all the trustees then existing. They also contended that as the probate and copy of the will had been served on the defendants the latter had notice of the trusts set out in the will.

Held: (1) as the shares were in 1944 still in the name of the deceased the administration of the state was not completed and any one of the several co-executors, for the purpose of the administration, could deal with their disposal; (2) production of the grant of probate to the company merely gave notice of the names and addresses of the persons who had constituted themselves the legal personal representatives of the testator and the company was not affected with notice, express or otherwise, of the other contents of the will.

Look Chun Heng & Anor v Asia Insurance Co Ltd [1952] MLJ 33 High Court, Singapore (Storr J).

This was an application to rectify the register pursuant to s 162 of the Companies Act 1965 (Act 125) by striking out the name of one L deceased as holder of 1,400 shares in the respondent company and inserting in lieu thereof the name of the applicant. The deceased died sometime in 1963 and until his death was the chairman of the board of directors of the respondent company. The applicant (the widow of the deceased) was the sole surviving executor and trustee of the estate of the deceased. The other directors were the applicant and two nephews of the applicant. In December 1967 the applicant applied to have her name registered against the shares standing in the name of the deceased. On this being refused she wrote through her solicitor to the respondent company forwarding the grant of probate and a draft resolution signed by the applicant for signature by the directors. The grant of probate and the draft resolution was returned unsigned. In January 1968 the applicant was served with a writ (Suit No 21 of 1968) alleging that a sum of $93,898.94 was due and owing by the estate of the deceased to the respondent company. The applicant then made the present application to rectify the register.

Held: (1) where a shareholder in a company dies and the transmission clause in its articles of association is in the form of cl 39 the personal representative is entitled to be registered in respect of and to have a certificate of the shares and the company has no right to enter in the register of members or in the certificate any statement as to the company's claim under its articles to a lien on the shares for the liability of the deceased to the company; (2) as the claim to the lien in Suit No 21 of 1968 was altogether denied and the action was being resisted, the applicant was entitled to a 'clean' certificate like that possessed by the person from whom she derived her title; (3) art 39 of the articles of association of the company enabled the personal representative to be registered as a member in respect of the deceased's shares. It did not stipulate that the personal representative must apply to be registered in a representative capacity; (4) the register therefore ought to be rectified in terms of the motion and the directors must bear the costs of this application. An application to question the authority of counsel to act for a company may be made at any stage in the proceedings, even at the conclusion of the trial.

Re LY Swee & Co Ltd; Khoo Leong Kee v LY Swee & Co Ltd [1968] 2 MLJ 104 High Court, Kuala Lumpur (Raja Azlan Shah J).

The plaintiff in 1881 bought from the defendant certain shares in the S & SS Co and paid the purchase money. No delivery was made by the defendant, but the defendant paid the profits or dividends accruing on five shares sold as aforesaid to the plaintiff up to 1885. In 1885, the company was voluntarily wound up, and a new company (No 1) was formed bearing the same name and with the same capital, and the shareholders in the old company obtained new certificates for shares in the company (No 1) in exchange for their shares in the old company. In February 1888, the defendant signed a memorandum, which he delivered to the plaintiff in which the interest of the plaintiff to the extent of five shares in the S & SS Co was acknowledged, and the defendant undertook to deliver the said shares to the plaintiff on the happening of a certain event namely when he obtained them from his father who was a holder of shares in the S & SS Co. In February 1889, the new company was voluntarily wound up and another new company (No 2) was formed under the same name but with increased capital and the shareholders in the company (No 1) received new certificates in company (No 2) in exchange for and in proportion to their shares in company (No 1). In 1892, the defendant's father died and the defendant obtained letters of administration to his estate. In 1895, the company (No 2) was wound up voluntarily and a new company (No 3) was formed under the same name but with different capital and the defendant as the holder of his late father's shares received new certificates in exchange for his certificates in company (No 2). The defendant never delivered any shares to the plaintiff and no profits or dividends had since 1885 been paid to the plaintiff. In 1896, the plaintiff sued the defendant for specific performance of the agreement of 4 February 1888, and for an account.

Held, (Collyer Ag CJ and Hyndman Jones J, Law J dissenting) affirming Leach J: the defendant was a trustee for the plaintiff in respect of the shares which he had agreed to deliver and that the plaintiff's claim was not barred by the Indian Limitation Act 1859.

Lim Eng Yong v Lim Chin Swee [1897] 5 SSLR 4 Court of Appeal, Straits Settlements (Collyer Ag CJ, Law and Hyndman-Jones JJ).

In this case by a consent order, it was ordered that all the shares of the appellant and his brother be purchased by all or any of the respondents at a fair and just price to be assessed by a firm of accountants to be approved by the court. On the application of the appellant Ms Price Waterhouse were appointed to assess the shares. Subsequently, the appellant made an application that the valuation of Price Waterhouse be rejected. The learned trial judge dismissed the application and the appellant appealed.

Held, dismissing the appeal: in the circumstances of this case, there was no justification to go behind the valuation report or allow any further inquiries to be made as to the correctness or otherwise of the valuation.

Lee Kee Choong v Empat Nombor Ekor (NS) Sdn Bhd & Ors [1975] 1 MLJ 134 Federal Court, Kuala Lumpur ( Gill CJ (Malaya).

This was an appeal against the valuation of the Collector for purposes of estate duty of certain properties belonging to the estate of the deceased. Among the assets were shares in a private company and credit balances with a private company.

Held: (1) the assessment of the value of the shares in a private company depends on the estimate of the price which in the opinion of the Collector such property would fetch in the open market at the time of the death of the deceased and the court was not prepared to say that the valuation placed by the Collector on the shares of the company in this case was manifestly excessive; (2) debts, even if they are likely to be bad must be brought in for the purposes of assessment of estate duty; if they prove irrecoverable a claim may be made for refund of duty.

Re Leong Cheong Kweng, deceased [1966] 1 MLJ 155 High Court, Kuala Lumpur (Abdul Aziz J).

P, the minority shareholders, had, by a petition, applied for, inter alia, an order to provide for the purchase of their shares in G Sdn Bhd by D1 and/or D3 or by G Sdn Bhd itself. P had alleged that G Sdn Bhd had been run by D in such a manner which was prejudicial to their interests. The order which was granted by the court on the application of P provided for their shares to be sold within three months at a price to be fixed by an accounting firm appointed by the court with the consent of the parties. The court had also ruled that there was no oppression committed by D on P. In the instant application, P sought the assistance of the court to determine the daSte at which the shares are to be valued. P were of the view that the relevant date for valuation was the date of 'oppression' while D took the view that it should be the date of the filing of the petition. Counsel for D contended that P had not given the court any reasons for the delay in filing the petition and that there was no evidence to show that D were responsible for the reduction in the price of the shares. Held: in the instant case, as the court had ruled earlier that there had been no oppression, the date that should be taken into consideration is the date the petition was filed. In the event, the court directed that all administrative matters be completed within four months from the date of the order.

Guan Seng Co Sdn Bhd & Ors v Tan Hock Chan & Ors Company (1990) CSLR VIII[2755] High Court, Ipoh (Abdul Malek J).

This was an appeal from the decision of the Federal Court reported at [1975] 1 MLJ 134. By a consent order it had been agreed that all the shares of the appellant and his brother be purchased by all or any of the respondents at a fair and just price to be assessed by a firm of accountants to be approved by the court. On the application of the appellant Messrs Price Waterhouse were appointed to assess the shares and they did so. The appellants made an application that the valuation of Messrs Price Waterhouse be rejected. The learned trial judge dismissed the application and an appeal to the Federal Court was dismissed. In addition to the grounds raised in the petition of appeal before the Federal Court, the appellants argued that as the report of the accountants was based only on the documentary matters they mention, that is the memorandum and articles of association and the audited and unaudited accounts, there was an error in principle which vitiated the valuation.

Held, dismissing the appeal: (1) no grounds had been shown for rejecting the valuation of the independent accountant; (2) in the case of this company there was no reason why a fair and just valuation could not be made on consideration only of the material specifically mentioned in the report and no expert evidence was led to suggest that it could not.

Lee Kee Choong v Empat Nombor Ekor (NS) Sdn & Ors [1976] 2 MLJ 93 Privy Council Appeal from Malaysia (Lord Kilbrandon, Lord Salmon and Lord Russell of Killowen).

[Annotation: Decision of the Federal Court [1975] 1 MLJ 134 affirmed.]

Mrs H died possessed of 833 'A' shares in the 'S' company. At the date of her death the 'S' company was a private limited company with a capital of $1,000,000 divided into 5,000 ordinary shares of $100 each and 5,000 'A' shares of $100 each. The 'A' shares carried (a) the right to participate in a distribution of profits up to but not exceeding 15% in respect of any year, if declared, after paying or providing for the payment of a dividend for such year on the ordinary shares at the rate of 15% but did not carry any further right to participate in profits except to such extent (if any) as the company in general meeting might resolve; and (b) the right in a winding up to the whole of the surplus assets of the company available for distribution amongst its members which would remain after repaying the whole of the capital paid up on the ordinary shares. The ordinary shares carried no rights to participate in surplus assets in a winding up beyond the full amount paid up on each ordinary share. Voting control of the 'S' company was in the 'U' company. The 'S' company had substantial reserves, and the rights of the 'A' shares to surplus assets in a winding up would have made the 'A' shares very valuable had a winding up been commenced or in prospect. There was, however, no prospect of a winding up and the deceased's holding was insufficient to enable her, or her representative, to force a winding up. The 'A' shares had never received dividends of more than 5% per annum. The executor of the deceased valued the deceased's 'A' shares at par ($100) or thereabouts. The Commissioner of Estate Duties valued the deceased's 'A' shares at $959 each, ie on the basis of a hypothetical winding up assumed to take place at the date of the death. Against this valuation the executor petitioned the court. The petition was heard by Terrell J who held that the shares should not be valued as on the basis of a hypothetical winding up but valued the 'A' shares at $375 each. Against this valuation the executor appealed to the Court of Appeal. There was no cross-appeal.

Held: (1) the value of the shares for the purpose of estate duty was to be estimated at the price which they would fetch if sold in the open market on the terms that the purchaser should be entitled to be registered and to be regarded as the holder of the shares, and should take and hold them subject to the provisions of the articles of association, including those relating to the alienation and transfer of shares in the company; (2) restrictions on the right to transfer or alienate shares is a depreciating factor. How much it depreciates the value of the shares depends upon the rigidity and extent of the restriction imposed by the articles of association governing the particular shares; (3) per McElwaine CJ and Horne J: the true construction of the special resolutions and articles of association and having regard to all other matters affecting the 'A' shares, the value to be placed upon them under s 15(1) of the Estate Duty Ordinance was $150 each; (4) per Mills J: the value to be placed upon the 'A' shares under s 15(1) was $100 each. The court has no jurisdiction to say what reserve fund may be 'properly' required by a company. What portion of the profits should be retained is entirely a matter of internal management which the shareholders must decide for themselves, and the court has no jurisdiction to control or review their decision.

Re Hogg, deceased; Anderson v Commissioner of Estate Duties [1939] MLJ 139 Court of Appeal, Straits Settlements (McElwaine CJ, Mills and Horne JJ).

In estimating the value of the share, the court must take into consideration every advantage and disadvantage to the company and every benefit and clog attaching to the shares as well as the nature of the particular company.

Re JB Young, deceased [1955] MLJ 108 Court of Appeal, Federation of Malaya (Mathew CJ, Murray-Aynsley CJ (Singapore).

This appeal concerned the validity of a transfer of shares in a private company. Prior to 9 September 1992, the debtor, one Quah Wee Tiong (Wee Tiong), a stockbroker once employed by the respondent, owed the respondent S$1,552,027.99 for share transactions. The respondent commenced an action against Wee Tiong for the recovery of the sum in Suit No 1842/92. On 15 September 1992, the respondent obtained an interim injunction in the action to restrain Wee Tiong from disposing or otherwise dealing with his assets, but the order remained at the time unserved personally on Wee Tiong who was then outside Singapore. Some time in December 1992, Wee Tiong returned to Singapore, but the respondent was unaware of it. On 8 December 1992, he transferred 720 shares of Soon Aik (Pte) Ltd (Soon Aik) for a purported consideration of S$10 to the appellant who was his father and the patriarch of the family's company Soon Aik. On 26 July 1993, the respondent obtained judgment against Wee Tiong for the said sum of S$1,552,027.99 and interest thereon at 6% pa from 9 September 1992 to 26 July 1993 and costs fixed at S$1,500 against Wee Tiong in the said action. However, the respondent's attempt to seize Wee Tiong's 720 shares in Soon Aik failed because they had already been transferred to the appellant. The appellant's defence in the court below was that the 720 Soon Aik shares were transferred to him in repayment of a S$40,000 loan which he gave to Wee Tiong. This loan was given some time in early 1992, even before the respondent commenced their action for the recovery of debts owed by Wee Tiong, but the share transfer was only formalised on 8 December 1992. This version was rejected by the judicial commissioner. The judicial commissioner found that, on the facts, the appellant and Wee Tiong had committed a conspiracy to injure the respondent by putting the 720 shares of Soon Aik out of the respondent's reach. He also found that there was an intention to defraud the respondent under s 73B of the Conveyancing and Law of Property Act (Cap 61), thereby rendering the share transfer void. He therefore ordered that the appellant pay the respondent damages for the conspiracy, in an amount to be assessed by the Registrar of the Supreme Court. The appellant appealed.

Held, allowing the appeal in part: (1) on the evidence, the court agreed with the trial judge's finding that the appellant did not give the purported S$40,000 loan to Wee Tiong. Consequently, no consideration at all had been given by the appellant for the 720 shares. Since there was no such loan, the 720 shares could neither be for full nor part repayment of the purported loan. In effect, the transaction was a gift by Wee Tiong to the appellant; (2) constructive fraud could be raised in the present case, there being: (a) a voluntary transfer or gift of the shares; and (b) the donor, Wee Tiong, was deeply indebted at the time of the gift. Therefore, in such circumstances, no actual proof was required to show that the debtor had an intention to defeat, delay or defraud his creditors. The fraudulent intention would be attributed to him. And, the fraudulent intent may be imputed because, on such facts, a man must be presumed to intend the natural consequences of his own act - or what would be called constructive fraud - as distinct from a situation whereby a man's intention was proved by direct evidence or inferred from the surrounding circumstances; (3) on the evidence, the presumption of fraudulent intent could be properly triggered against Wee Tiong. Once such a legal presumption was triggered, it would be conclusive. The voluntary share transfer was accordingly caught by the Elizabethan Statute and rendered void because of constructive fraud; (4) the tort of conspiracy comprised conspiracy by unlawful means and conspiracy by lawful means. The difference between the two was important because the former required a `predominant purpose' to injure the respondents whereas the latter had no such requirement; (5) quite apart from the question as to whether a fraudulent preference constituted unlawful means, even if there were a tort of conspiracy by unlawful means here, this was unlawful precisely because the transfer was caught by the Elizabethan Statute. This being the case, the transfer would be avoided under the Elizabethan Statute. And this would have a direct impact on the proof of damages because, if the Elizabethan Statute was contravened, the shares would have to be returned to the debtor. The respondents would have suffered no loss. Unless the respondents could prove other losses such as those arising out of delay, they could not argue that the Elizabethan Statute was breached and claim damages at the same time; (6) in this case, the purpose of the share transfer was really to preserve the integrity of the family company, or to protect Wee Tiong's assets, rather than to injure the respondents financially. An intention to deprive the respondents of their recovery of the debt was not the same as a predominant purpose to injure the respondents. Where lawful means were used, the purpose of the combination must be `spiteful and malicious'. The conspirators' actions had to therefore serve none of their own commercial purpose. It followed that the claim for a tort of conspiracy by lawful means could not succeed. Accordingly, no damages were payable; (7) (per curiam) the words `every conveyance of property made whether before or after 12 November 1993, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced' in s 73B of the Conveyancing and Law of Property Act (Cap 61) was not intended to give retroactive effect to the provision. The wording was to cater for a scenario whereby a voluntary conveyance had taken place first followed by the incurring of a debt at a later date. In such a case, a cause of action under the provision only accrued when the debt was incurred. Thus, the date of conveyance and cause of action should be kept separate, the latter being the controlling date for the application of the provision. Accordingly, if the cause of action accrued before the commencement date of s 73B, it would follow that the Elizabethan Statute would apply. By the same token, if the cause of action accrued after the commencement date of s 73B, then s 73B would be the governing statutory provision.

Quah Kay Tee v Ong & Co Pte Ltd [1997] 1 SLR 390 Court Of Appeal (Yong Pung How CJ, Lai Kew Chai and Chao Hick Tin JJ).

A testator by his will, appointed the two plaintiffs and the first defendant as his executors and trustees. The assets of the testator's estate included 81,200 shares in a limited company. Differences arose as to the election of a director to the board of the company. The first defendant, whose name stood first in the register of shareholders in respect of the 81,200 trust shares, was by virtue of art 76 of the articles of association of the company alone entitled to vote in respect of these shares. Using the 81,200 shares at his own discretion the first defendant secured the election of one FYL by a majority of 124,860, whereas if the 81,200 votes had been cast the other way the election would not have been carried. The two plaintiffs, who were the other two co-trustees of the estate, regarded the election of FYL as unsatisfactory and sought to make the first defendant exercise the voting rights according to their directions (they being the majority). It was submitted on behalf of the first defendant that the court had no jurisdiction to grant the relief sought on an originating summons as O 55 did not contemplate proceedings between co-trustees; and an originating summons taken out for purposes connected with a trust must be by trustees against beneficiaries or vice versa.

Held: (1) O 55 rr 3 and 5 is applicable to proceedings brought by one trustee as plaintiff against a co-trustee as defendant, where trustees cannot agree in a matter falling within the administration of the trust. Accordingly the court has jurisdiction to grant the relief sought on an originating summons; (2) the first defendant could not be coerced into exercising his discretion in a particular way. But it is a well-settled principle that the trustees must act in unison. Therefore the first defendant should not exercise the voting rights attached to the 81,200 shares belonging to the testator's estate except in accordance with the unanimous decision of all three trustees. If the first defendant could not agree with his co-trustees on any matter on which a poll was taken then the voting rights attached to the 81,200 shares could not be exercised in respect of that matter at all.

Foo Yin Shang & Anor v Foo Yin Fong & Ors [1960] MLJ 63 High Court, Federation of Malaya (Good J).

In this case, the respondent claimed a sum of $10,248.13 advanced to the appellant for the supply of logs. The money was paid to the appellant trading under the name of Westlake Timber Company at the request of the appellant. Judgment was given for the respondent and the appellant appealed. It was argued on the appeal that the respondent had sued the wrong party and should have sued Westlake Timber Sdn Bhd.

Held: a person who is the sole owner of a company may be sued in the company name.

Vu Siew Chin v Wong Fah Yoon [1982] 2 MLJ 221 Federal Court, Johore (Wan Suleiman, Syed Othman and Abdul Hamid FJJ).

Re Sanpete Builders (S) Pte Ltd [1989] SLR 164 High Court, Singapore (Chao Hick Tin JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 690.

The plaintiff company sought the return from the defendant of all records and documents of the company, specifically the minute books and account books for the years 1983 to 1986. The plaintiff company was incorporated in July 1975 by Ng Yu Chee to take over and continue his business of plumbing contractors, which was started in 1969. The defendant, who was a cigarettes salesman helped him by keeping the books of the business and in other ways like collecting money and checking tender prices. He started in 1969 and continued after the incorporation of the company. Yu Chee, one of the original shareholders, died in May 1982. After Yu Chee's death, the defendant took over the running of it. He described himself as the managing director. Troubles then started between the defendant and the other shareholders. In 1987, some of the shareholders decided to take over the control of the company. The defendant was removed as a cheque signatory and a new company secretary appointed. However, they were unable to file accounts with the Registry of Companies as the account books for 1983 to 1986 were not available. In his defence, the defendant maintained that he had accounted for the 1983 and 1984 books and documents. He denied having kept any books and documents of the company. The plaintiffs countered that the defendant having been in full charge of the company, should have had all the documents or should have known where they were.

Held, dismissing the claim: (1) the ultimate burden of proof of the case lies with the plaintiff. In the circumstances of this case, because there was evidence that the defendant was managing the company and was responsible for its accounts, the evidential burden shifted to him to account for the books and documents; (2) despite the less than straightforward manner in which he had tried to explain the movements and whereabouts of the 1984 books and accounts, he had shown in fairly detailed lists what books and documents are available for 1983 and 1984. He had also given some explanation about 1985. If there were more documents which the plaintiffs considered that he might have had, then it was for them to define with some precision what they were, and for them to show that there were reasons to believe that the defendant had them. The plaintiffs had not done so; (3) on the state of the evidence, it was not possible to make an order, especially in the general and all sweeping terms of the plaintiffs' summons. Neither was it possible on the evidence at hand to order the defendant to account for any specific documents or classes of documents. An order of the nature asked for by the plaintiffs is enforceable by committal, and the court should not make such an order unless it is justified by cogent evidence.

Ng Yu Chee Pte Ltd v Ng Yew Lay (1994) CSLR VII[1] High Court, Singapore (Warren LH Khoo J).

See civil procedure, para II [29].

Afad Sha Shd Bhd v SPPIK Dagang Sdn Bhd & Anor [1997] 4 MLJ 90 High Court, Kuala Lumpur (Kamalanathan Ratnam JC).

Bank Bumiputra Malaysia Bhd & Anor v Lorrain Esme Osman & Ors [1987] 1 MLJ 502 High Court, Kuala Lumpur (Zakaria Yatim J).

See COMPANIES AND CORPORATIONS, Vol 3, para 147.

Khong Kit Seng & Anor v Niblock [1963] MLJ 237 Court of Appeal, Federation of Malaya (Thomson CJ, Hill and Barakbah JJA).

See COMPANIES AND CORPORATIONS, , Vol 3.

Anyone connected with a company may start proceedings in the company's name subject to the risk that the defendants will challenge his right to do so. In that event the court will stay proceedings until a general meeting has been called to decide whether or not the company shall sue.

Ong Heok & Anor v Ooi Bee Tat & Ors [1982] 2 MLJ 326 High Court, Penang (Gunn Chit Tuan J).

A winding-up order was made against the plaintiff company on 7 November 1977. However, on 2 March 1981, the order was stayed until further order. It was also ordered, inter alia, that the Official Receiver or his solicitors do forthwith demand and/or recover by all lawful means all moneys due from all debtors of the company for distribution to the various creditors of the company. By a writ of summons dated 7 April 1982, the plaintiffs claimed against the defendants the sum of $39,300 being deposit paid under a sale and purchase agreement dated 2 October 1975 entered into between the plaintiffs as purchasers and the defendants as vendors, for the purchase of an apartment. The plaintiffs sought to amend the indorsement of their claim and statement of claim by adding a new cause of action against the defendants, namely, the recovery of a sum of $29,936.71 being money allegedly due and payable by the defendants to the plaintiffs under a building contract dated 16 March 1977 for work done by the plaintiffs as contractor and the defendants as employer. The issues that arose were whether the plaintiffs' solicitor had authority to institute the suit herein and that even if this suit had been properly instituted, whether, on the facts, the plaintiffs could apply for leave to amend under O 20 r 5(5), Rules of the High Court 1980.

Held: (1) a letter by the Official Receiver stating that he had no objection to the plaintiffs' solicitor taking court action against the debtors owing money to the plaintiff company before the winding-up order dated 7 November 1977 adding, that in such event, they would be acting, not on behalf of the Official Receiver, but on behalf of the plaintiffs who would be liable as regards all costs and expenses, can in no way abrogate or even modify the order dated 2 March 1981 enabling only the Official Receiver or his solicitors to recover all moneys due from all debtors of the company; (2) in the circumstances it could not be said that the new cause of action arose out of the same facts or substantially the same facts as the cause of action for the return of the deposit for the purchase of the apartment. To allow such an amendment would turn a suit of one character into a suit of another and inconsistent character; (3) this suit was instituted without authority and should accordingly be dismissed with costs; (4) when a suit is instituted by solicitors on behalf of a company without authority its directors must bear the costs personally.

Chin Kok Kwong Construction Sdn Bhd v Sunrise Towers Sdn Bhd [1986] 2 MLJ 41 High Court, Penang (Edgar Joseph Jr J).

A writ was taken out by a firm of solicitors holding themselves out as solicitors of the first plaintiff. Judgment in default of defence was entered against the defendant and an attempt to have the default judgment set aside failed. The defendant subsequently took out a summons-in-chambers seeking various orders and, in particular, sought to have the writ set aside or struck off pursuant to O 18 r 19 and/or under the inherent jurisdiction of the court on the ground that at all relevant times the firm of solicitors had no proper authority to cause the writ to be issued on behalf of the first plaintiff. It was discovered that the firm of solicitors was instructed to act by one Soo Seng Chuan who, it was discovered, beneficially owned all the shares in the first plaintiff but was entered in the books of the first plaintiff as a minority shareholder only. The rest of the shares in the first plaintiff were held by two other Malay shareholders as nominees of Soo Seng Chuan in order to misrepresent the first plaintiff as a Bumiputra company. Soo Seng Chuan in fact managed the entire affairs of the first plaintiff and even appointed a board consisting of Malay directors 'for ceremonial purposes'.

Held, striking off the first plaintiff's writ: (1) the lack of authority of the solicitors to act can be challenged at any stage of the proceedings; (2) the challenge having been made, the burden of proving that the suit had been instituted with proper authority vests with the first plaintiff; (3) the articles of association of the first plaintiff provide that the business of the first plaintiff shall be managed by the directors and the directors may appoint a managing director. The powers of such managing director will be limited powers specifically conferred on him; (4) in respect of Soo Seng Chuan, none of the articles of the first plaintiff's articles of association had been invoked to give him any of the powers he claimed to have or have reserved to himself as alleged beneficial owner of all the shares of the first plaintiff; (5) the beneficiary of shares in a company registered in the name of another person as trustee has no rights in such company and any relations which the trustee has with the beneficiary are matters with which such company has nothing whatsoever to do; (6) there has therefore been a failure to prove that Soo Seng Chuan had the authority to instruct the firm of solicitors to institute the suit. The effect is to make the proceedings a nullity in the sense that the action has not been properly instituted; (7) the act of the firm of solicitors causing the writ to be issued without proper authority can be ratified by the first plaintiff. Ratification, however, must be effected within a reasonable time; (8) the first plaintiff had failed the reasonable time test since what was held out to be ratification was the resolution of the board of directors and of the shareholders of the first plaintiff over a year and over two years respectively from the date of the challenge to the authority of the solicitors, and well over three years and four years respectively from the date of the unauthorized issue of the writ. Worse, the status and shareholding of the individuals held out as directors and shareholders of the first plaintiff when the said resolutions were passed were the subject of a challenge in a Kuala Lumpur High Court civil suit; (9) all orders made under or pursuant to the writ and pursuant to applications thereunder had to be and were set aside.

Syawal Enterprise Sdn Bhd & Anor v Dayadiri Sdn Bhd [1990] 3 MLJ 239 High Court, Kuala Lumpur (VC George J).

The applicant was the owner of a building project. The respondent was the main contractors for the project. Under the terms of a building contract to which both the applicant and the respondent were parties, they referred a dispute between them to arbitration. Thereafter, the applicant, through the present originating summons, sought, inter alia, security for the applicants' costs of the arbitration proceedings.

Held, dismissing the application: (1) the arbitration proceedings should proceed without security for costs; (2) an order for security for costs would be oppressive to the respondents.

Gateway Land Pte Ltd v Turner (East Asia) Pte Ltd [1987] SLR 553 High Court, Singapore (Sinnathuray J).

In this case, the respondents had received from the Arab-Malaysian Merchant Bank Bhd on behalf of the appellants a notice of a takeover scheme under s 179 of the Companies Act 1965 (Act 125). The respondents contended that the notice was bad in law on the ground that the appellants had not obtained the approval of the Capital Issues Committee (CIC) as required by s 6 of the Securities Industry Act 1983 (Act 280). The respondent therefore contending that they had a duty to protect the interests of the company and its shareholders against an unlawful act, brought an action against the appellants for a declaration that a public company which intended to make a takeover offer within the meaning of s 179 should first obtain the approval of the CIC before issuing a notice of takeover to the offeree company. It also sought, inter alia, for an injunction that the appellants refrain from taking any further steps in the takeover scheme as required by s 179 of the of the Companies Act and in particular from despatching to Emtex shareholders the offer documents. VC George J held that the respondents had locus standi to initiate the suit and that CIC approval of the proposal for the takeover scheme was a condition precedent to any step being taken under s 179 of the Companies Act 1965. He granted the interlocutory injunction as prayed. The appellant appealed.

Held, by a majority (Seah SCJ dissenting): (1) in addition to the requirements of s 179 of the Companies Act, for any takeover scheme, s 6 of the Securities Industry Act 1983 makes it mandatory for a Malaysian incorporated company to submit to the CIC a proposal, that is, the proposed takeover scheme, for approval. The existence of an approved takeover scheme must precede the making of a takeover offer by the offeror corporation; (2) there is no substance in the argument that the offeree corporation could have no interest in the matter merely because the takeover scheme was only intended for the shareholders. When the proposed offer was bad in law it must surely affect the interest of EMTEX directors in ensuring that the company would not be taken over illegally. They had therefore a sufficient or real interest in the suit.

MBF Holdings Bhd v Emtex Corp Bhd [1986] 1 MLJ 477 Supreme Court, Kuala Lumpur (Wan Suleiman, Seah and Mohamed Azmi SCJJ).

The plaintiff's appeal to the Supreme Court against the decision of the High Court that it has no jurisdiction to hear the plaintiff's application in view of s 179(8) of the Companies Act 1965 ('the Act') was allowed, and the matter was referred back to the High Court. The plaintiff, a public listed company, had sought a declaration that the decision of the Malaysian Panel On Take-Overs & Mergers ('the Panel') to the effect that r 34 of the Malaysian Code on Take-Overs & Mergers ('the Code') applied to the issued share capital of the plaintiff company, continues to be applicable. The Panel had earlier decided that the defendants and certain other parties had acted in concert in relation to their acquisition of shares and voting rights in the plaintiff company, in consequence of which, r 34.1(a) of the Code was triggered and the defendants were therefore required to extend a mandatory general offer on the balance of the shares and voting rights not held by them to the other shareholders of the plaintiff company. The defendants failed to make the mandatory general offer to the other shareholders, and the Panel decided to exercise its powers under the provisions of s 179(7A) of the Act by issuing a public censure against the defendants and the other parties concerned. The defendants then contended that as they had already been publicly censured by the Panel, r 34.7 of the Code must cease to apply against them anymore. The defendants then sought a clarification from the Panel in regard to r 34.7 of the Code, and the Panel replied stating that the issuing of the public censure against the defendants was made pursuant to s 179(7A) of the Act, in consequence of which, the defendants were released from their obligations and restrictions under r 34.1 and r 34.7 of the Code. The substantive issue before the court was, whether the issuing of the public censure by the Panel against the defendants for failing to make the mandatory general offer had the automatic legal effect of releasing the defendants from their obligations and restrictions under r 34.1 and r 34.7 of the Code as was asserted by both the defendants and the Panel, or, whether r 34.1 and r 34.7 continue to apply notwithstanding the public censure until the mandatory general offer has been made, as was contended by the plaintiff.

Held, dismissing the plaintiff's application: (1) it is abundantly clear from s 179 of the Act that the Panel has been given full power to administer, supervise and control take-overs and mergers through the Code, and included in its powers is the right to issue rulings on the interpretation of general principles and rules of the Code; (2) the public censure issued by the Panel had in effect wiped out the non-compliance of the defendants in regard to the general principles and rules of the Code, in particular the defendants' failure to extend the mandatory general offer. And this had been made very clear in the Panel's statement in reply to the clarification sought by the defendants. It cannot be said that in stating so, the Panel had made a jurisdictional error, as the law is clear that the Panel has the sole power to administer the Code in relation to all take-overs and merger transactions, and at the same time there also appears to be no error of law not going to jurisdiction. Therefore, there is absolutely no reason for the court to intervene in the matter; (3) in stating that the issuance of the public censure had abrogated the obligation of the defendants to comply with r 34.7 of the Code, the Panel was not merely expressing an opinion on the after-effect of the public censure, as was alleged by the plaintiff, but was actually making a ruling and a decision which it has the power to make under s 179(4)(a) and s 179(7A) of the Act; (4) the discretion of the court to grant a declaration cannot be exercised when it affects a party who is not a party to the action, such as the Panel, or when there is a more appropriate alternative remedy available like the writ of certiorari; (5) the court will not make declarations in respect of disputes which are not justiciable as doing so will be contrary to established principles on which the court exercises its declarative jurisdiction. The instant matter before the court cannot be said to be a justiciable dispute as the Code had been framed in non-technical language and is considered to be more of a gentleman's guide to self-discipline, and is concerned with the observance of good business standards and practices or ethics and conduct in respect of take-overs and mergers, rather than with the enforcement of law; (6) although the court has an almost unlimited jurisdiction to grant declaratory relief, that jurisdiction may be taken away by express statutory provisions or provisions in statutes which may by necessary implication exclude the court's power to make declarations. Nevertheless the court will not be quick to infer that its jurisdiction has been excluded, and clear words are necessary to oust the declaratory jurisdiction of the court. However, the relevant statute law applicable to the instant case had made the position very clear that the court should not interfere in the matter; (7) to hold that the Panel is subject to the supervisory function of the court amounts to an extension of the jurisdiction of the court to areas that was never intended for by Parliament when it provided for the establishment of the Panel and the formulation of the Code. The intervention of the court in reviewing the decisions or rulings of the Panel which is a self-regulating body will at best impede, and at the worst frustrate, the purposes for which the Panel exists. The decision of the Panel in regard to the matter in dispute between the plaintiff and the defendants was, by its nature, not and should not be made amenable to judicial review.

Petaling Tin Bhd v Lee Kian Chan & Ors Originating Summons No DI-24-201-91 High Court, Kuala Lumpur (Abdul Malek J).

The facts of this case which were not disputed were as follows. The appellant company was a public listed company. On 23 February 1991, the Panel on Take-overs and Mergers ('the Panel') appointed under s 179(2) of the Companies Act 1965 ('the Act') made a ruling that certain shareholders in the appellant company, including the first and second respondents ('the concert parties'), were 'acting in concert' within the meaning of r 2 of the Code on Take-overs and Mergers 1981 prepared by the Panel under its powers pursuant to s 173(a) of the Act ('the Code'), and were therefore under a duty pursuant to r 34 of the Code to extend a general offer to all the shareholders of the appellant company before transferring their shares, unless they obtained the consent of the Panel to do otherwise. On 20 May 1991, the Panel confirmed that the concert parties were not released from their obligations to make a general offer. On 19 July, however, the appellant company received for registration transfer forms for the transfer of 2,000 shares beneficially owned by the first respondent and registered in the name of the third. No general offer had been made yet. In August, the concert parties were publicly censured pursuant to the powers conferred on the Panel under s 179(7A) of the Act for failing to comply with the Code. The respondents then contended that the Panel's rulings, by virtue of the public censure, had been erased and that the restriction on the transfer of the concert parties' shares was no longer effective. The Panel, in a letter dated 5 September 1991, agreed with the respondents. On 11 October 1991, the appellant company commenced proceedings by way of originating summons to seek a declaration as to whether they were under a legal duty to register the transfers referred to above and whether r 34.7 continued to apply despite the public censure. When the appellant's motion was first heard in the trial court, it was dismissed on the preliminary ground that the court had no jurisdiction to hear the matter by virtue of the Panel's decision of 5 September. An appeal on the preliminary issue was allowed by the Supreme Court in an oral judgment which held that the Panel's decision was made outside its jurisdiction and was therefore not caught by s 179(8) of the Act ousting the jurisdiction of the court in respect of the Panel's decisions made within its jurisdiction, and the case was remitted to the High Court before another judge for a hearing on its merits. The High Court again dismissed the motion on the ground, inter alia, that it did not have jurisdiction to interfere with the Panel's decision because of the ouster clause.

Held, allowing the appeal: (1) the trial judge erred in reopening the issue of the Panel's jurisdiction, and deciding that it had no jurisdiction when the Supreme Court had clearly held otherwise in the earlier decision; (2) the purported decision of the Panel on the effect of the public censure amounted to an opinion on the interpretation of the Act itself and not a ruling in the exercise of its jurisdiction under r 34.1 or 34.7 of the Code. It was null and void and not caught by the privative clause in s 179(8); (3) the fact that there were no provisions for penal sanctions in the Code did not mean that the Code was a mere gentleman's agreement and not concerned with the enforcement of the law. The Code in Malaysia was a piece of delegated legislation and has the force of law, and cannot be equated with the London Code on which it was based (which was a wholly voluntary self-regulatory set of rules promulgated by those involved in take-overs and mergers). In cases of delegated legislation, there is always a 'residual area' reserved for the courts; (4) the concept of 'justiciability' requires consideration of the subject matter of the question at issue, the manner of its presentation and the appropriateness of judicial adjudication in the light of these factors. Appropriateness may be determined according to both institutional and constitutional standards which, in turn, require consideration of the adequacy of judicial machinery for the task as well as the legitimacy of using it. The appellant company had sought the ruling of the court on a definite and existing dispute which entailed the interpretation of the law with which the court was qualified to deal with, so the issues posed by the originating summons arose directly from an existing justiciable controversy between the parties; (5) (6) when exercising the discretion as to whether or not to grant declaratory relief, the court must weigh the advantages of granting the declaration against the disadvantages, and the minimum requirement must be achieving justice between the litigants. This last factor is one which only experience can teach the courts; (7) even if an alternative prerogative remedy like certiorari was available, that would not in itself warrant the dismissal of declaratory proceedings; (8) the object of the 'concert parties' provisions is to prevent the take-over of company control by stealth. The purpose of r 34.7 was to prevent the offeror from obtaining de facto control of the company's board before it has implemented the mandatory bid. That purpose is achieved by, inter alia, freezing the shares already held in two ways, namely, by proscribing transfers and by suspending voting power; (9) the whole purpose of the Code can be circumvented by deliberate non-compliance if the imposition of a public censure can remove the very obligation the breach of which resulted in the imposition of the public censure in the first place. Accordingly, the imposition of the public censure pursuant to the powers conferred upon the Panel by s 179(7A) did not have the effect of releasing the concert parties from the obligations and restrictions imposed upon them by rr 34.1 and 34.7 of the Code, which continue in force until the consent of the Panel is obtained or the concert parties comply with the direction to make a mandatory general offer; (10) no matter what form an ouster clause takes, judicial review is available in respect of jurisdictional error;in the circumstances, it was not necessary to make the Panel a party to the action before the court would be enabled to make a declaration, as the rights of the Panel would not be affected by the declaration sought. Further, the Panel had notice of the intention of the appellant to take action against the respondents but did not apply to be joined as a party; there was, therefore, no denial of opportunity to be heard and others cannot complain if the Panel itself did not complain. In any event, even if the Panel had been made a party it would have made no difference to the proceedings as the legal position of the point at issue was clear. In such cases, even the denial of the opportunity to be heard could be condoned;the fact that s 179 of the Act has since been repealed by s 47 of the Act with the result that the Panel no longer exists was immaterial; ss 46, 47(1) and (2) of the Securities Commission Act 1992 (the saving clauses) provide for the continuance of rights and liabilities with the result that the Securities Commission now steps into the shoes of the Panel.

Petaling Tin Bhd v Lee Kian Chan & Ors [1994] 1 MLJ 657; CSLR XV[127] Supreme Court, Malaysia (Jemuri Serjan CJ (Borneo).

The plaintiff company is a public listed company. A group of the plaintiff company's minority shareholders including the first and the second defendants ('the group'), purchased shares of the plaintiff company in the open market and had acquired 33.5% of the voting rights in the plaintiff company. The Malaysian Panel on Take-overs and Mergers ('the Panel') then directed the group to make a general offer to the rest of the shareholders of the plaintiff company and required the group to comply with r 34.7 of the Malaysian Code on Take-overs and Mergers ('the Code'). The group however failed to follow the Panel's direction and the Panel invoked public censure against all the minority shareholders whom it held to be concerted parties under s 179(7A) of the Companies Act 1965. The first and the second defendants subsequently sold their shares of the plaintiff company in open market after their public censure. The plaintiff company however refused to register the transfer of the shares from the first and the second defendants to the third parties on the ground that r 34.7 of the Code had not been complied with. The plaintiff company then sought a ruling of the Panel on the effect of r 34.7 of the Code in the light of the Panel's public censure of the shareholders including the first and the second defendants. The Panel decided that r 34.7 of the Code ceased to have effect once the concerted parties had been punished by the public censure ('the ruling'). The plaintiff company applied to court for, inter alia, a declaration that it was under a legal duty to refuse to register the transfer of the shares from the first and the second defendants. The plaintiff company argued that the ruling was made outside the Panel's jurisdiction because the ruling concerned the interpretation of s 179(7A) of the 1965 Act and such a matter of law was therefore outside the Panel's jurisdiction.

Held, dismissing the application: (1) the Panel itself formulated the Code and as such the Panel must have the authority to interpret r 34.7 of the Code; (2) reading s 179(2), (4)(a), (8) and (9) of the 1965 Act, it is clear that the power of interpretation of the general principles and rules concerning take-overs and mergers is solely vested in the Panel. Accordingly the legislature has taken away the court's jurisdiction in respect of such matters; (3) the words in s 179(2), (4)(a), (8) and (9) of the 1965 Act also makes it clear that the Panel's decisions on the Code shall be final and not capable of being challenged in the courts.

Petaling Tin Bhd v Lee Kian Chan & Ors (1992) CSLR XV[126] High Court, Kuala Lumpur (Shaik Daud J).

Petaling Tin Bhd v Lee Kian Chan & Ors (1992) CSLR XV[126] High Court, Kuala Lumpur (Shaik Daud J).

See COMPANIES AND CORPORATIONS, Vol 3, para 606.

In their attempted take-over of the plaintiff company, the defendants included in their offer document a proforma consolidated balance sheet using which the net tangible asset ('NTA') value of each share of the defendants if the take-over was effected was computed to give at 50% + 1 RM1.18 and at 100% RM1.06. It turned out that the defendants gave a value of RM60m to the development properties of the plaintiff against the audited balance sheet value of RM44.002m in effecting the computation. Using the latter figure, the value of the NTA per share would have been significantly less than that computed on the basis of RM60m. This opinion of the value at RM60m was supported by neither a valuation report nor a certificate of valuation in the offer document. Section 179 (5)(a) of the Companies Act 1965 requires every acquirer to submit all information and documents relevant to the take-over to the Panel of Take-overs and Mergers ('the Panel') prior to the despatch of the offer document to the shareholders. On 16 September 1991, which was before the time to accept or reject the offer had arrived, the plaintiffs lodged a complaint to the Panel in respect of the omission of the valuation. On 17 September 1991, the defendants produced a letter from a firm of valuers which seemed to suggest that the valuers had been instructed by the defendants earlier in the year to give a valuation of the relevant properties. The company secretary of the defendants stated as much in his affidavit filed in the proceedings. The valuation report however showed that the instructions to the valuers were given by some other company and not for the purpose of the take-over exercise in dispute; further, it was valued on a subjective basis in that the company required the valuers to make certain assumptions.

Held, declaring the offer document invalid, null and void and granting a mandatory injunction against the defendants, requiring them to withdraw the offer: (1) when the defendants purported to submit pursuant to s 179(5)(a) all information and documents relevant to the take-over to the Panel, it did not have any valuation made in connection with the proposed take-over or the required certificates from valuers. In any event, no such valuation and certificate were submitted to the Panel. In view of the substantial difference between the valuation in the audited accounts of the plaintiff of its development properties and the valuation given to those properties in the proforma consolidated balance sheet, it cannot be said that the defendants had met the requirements of s 179(5)(a); (2) where there are inadvertent slips that have not significantly prejudiced anyone, the Panel and/or the court could apply principles similar to that of the 'slip rule' in respect of the Rules of the High Court to make good what would otherwise be bad. However, such was not the case with the defendants; (3) that the value of the development properties had been enhanced from RM44.002m to RM60m was not pointed out to the shareholders in the offer document, not to speak of not being supported by the opinion of an independent valuer. As such, the defendants have fallen short of the standard of accuracy and fair representation required by rr 14.1, 15.1, 16.1 of the Code of Take-overs and Mergers; (4) the notes to the proforma consolidated balance sheets do not, as alleged by the defendants, sufficiently point out that the figures are not necessarily as audited. The notes should have been designed to be read and understood by lay shareholders; (5) the defendants suggested that IAS 3 was used. It is doubtful that IAS 3 could be used for a proforma consolidation in respect of a proposed take-over; (6) the Panel does not have the power to waive the express mandatory requirements under s 179 of the Act. Even if the offer document is read with the addendum, it still cannot be said that the facts necessary for the formation of an informed judgment as to the merits or demerits of the offer has been accurately and fairly presented to the shareholders. The valuation that purported to support the enhanced valuation was not made for the purpose of the attempted take-over of the plaintiff company by the defendants. The defendants are not to be allowed to patch up the inadequate presentation, the Panel is not to be allowed to allow it and in any event, the attempted patchwork was so clumsily effected that it is ineffective.

Sri Hartamas Corp Bhd v Lam Soon Huat Development; Chong Wai Hiong & Ors v Lam Soon Huat Development Bhd (1991) CSLR XV[627] High Court, Kuala Lumpur (VC George J).

The defendant made a take-over bid for Emtex Corp Bhd (the plaintiff) and served the plaintiff with a take-over notice pursuant to s 179 of the Companies Act 1965. The defendant had earlier submitted this proposal to the Capital Issues Committee but at the time the s 179 notice was issued the CIC's approval had not been given. The plaintiff challenged the validity of the s 179 notice. The defendant's contention was that the plaintiff had no locus standi to challenge the notice since the takeover bid offers were made to the shareholders of Emtex and not to Emtex itself.

Held, allowing the plaintiff's application: (1) by s 179 of the Companies Act, Emtex the offeree corporation is required to issue a statement in terms of Part C of the 10th Schedule to the Act which could include the recommendations of the directors on the take-over scheme. This itself demonstrated that Emtex was dubious about the procedures adopted to effect the take-over and therefore had a genuine interest in having its legal position declared. Furthermore, the take-over of a corporation does affect a corporation to such an extent as to give it the required locus standi to seek the opinion of the court on the validity of the purported takeover exercise; (2) on a true construction of s 6 of the Securities Industry Act, an offeror is not to embark on a takeover exercise of a company without the prior approval of the CIC. This CIC approval had to be obtained even prior to sending off the s 179 notice to the offeree company. To proceed with the take-over exercise without such approval having been obtained will be a breach of the requirement of s 6 and as such can and will be restrained by injunction.

Emtex Corp Bhd v MBf Holdings Bhd [1985] 2 CLJ 235 High Court, Kuala Lumpur (VC George J).

X Sdn Bhd owed money to Y Sdn Bhd. A, one of the directors of Y Sdn Bhd met with B who was the director of X Sdn Bhd and D. A alleged that with B's concurrence, Y Sdn Bhd applied for a loan from D using P Sdn Bhd's land as security. Consequently D lent money to Y Sdn Bhd and P Sdn Bhd's land was charged to D. Upon Y Sdn Bhd's failure to repay the loan, D applied for and obtained an order for sale of P Sdn Bhd's land from the Land Administrator (LA) after an enquiry was held. P Sdn Bhd did not appear at the enquiry despite having notice of it. After the order for sale was made, P Sdn Bhd negotiated with D to settle the loan and had made part payment to D. Consequently the auction of P Sdn Bhd's land was postponed a number of times until P Sdn Bhd applied to the High Court for a declaration that, inter alia, the third party charge in D's favour was void because its creation was ultra vires the objects of P Sdn Bhd as set out in its memorandum of association. There was a lapse of more than two years between the time the order for sale was made and P Sdn Bhd's present application. P Sdn Bhd argued that if the charge was void, the LA's order for sale was likewise void. P Sdn Bhd also alleged that Y Sdn Bhd was not related to P Sdn Bhd in any manner whatsoever. P Sdn Bhd further claimed that D knew that P Sdn Bhd and Y Sdn Bhd were not related. P Sdn Bhd alleged that the third party charge was not created for its benefit or interest. P Sdn Bhd finally averred that B's knowledge concerning the fact that the charge was not for the benefit of P Sdn Bhd, could be imputed to D.

Held, dismissing the application: (1) any defects in the charge should be raised at the enquiry before the LA under the scheme of the National Land Code 1965. The chargee or chargor cannot be allowed to reopen the enquiry of the LA by bringing in a matter which the party concerned had failed to do so at the beginning; (2) it is within the discretion of the court to grant a declaration and the court must exercise its discretion with care as to whether it is reasonable or not under the circumstances of the case to do so; (3) in the circumstances of this case P Sdn Bhd's bona fides was questioned and the court would refuse to exercise its discretion to grant the declaration particularly when the LA had rightly and properly exercised his discretion to grant the order for sale; (4) if P Sdn Bhd had any right to challenge the LA's order for sale, it should have appealed to the court under s 418 read with s 31 of the 1965 Code; (5) there could be no doubt that P Sdn Bhd was empowered to create a third party charge on its property to secure a loan for Y Sdn Bhd. The creation of the third party charge was within the ambit of the object clause of P Sdn Bhd's memorandum of association; (6) D accordingly had no business to enquire as to whether P Sdn Bhd had misapplied the loan. Furthermore D was not put on notice by any express requirements that the power to take a loan was only exercisable for the purposes of P Sdn Bhd's business; (7) B concurred in his personal capacity and there was no evidence that he had disclosed the meeting with A to D's other directors. B's knowledge therefore could not be imputed to D. Furthermore D as a licensed moneylending company would have no hesitation in approving the loan considering that in the circumstances of this case, D must be aware that P Sdn Bhd's memorandum of association empowered it to enter into the transaction; (8) s 20(1) of the Companies Act 1965 rendered the charge fully effective regardless of the knowledge acquired by B that the charge was created not for the benefit of P Sdn Bhd.

Executive Aids Sdn Bhd v Kuala Lumpur Finance Bhd [1992] 1 MLJ 89 High Court, Kuala Lumpur (Lim Beng Choon J).

D Sdn Bhd executed charges over its land in favour of P to secure the repayment of loans given by P to T Sdn Bhd. T Sdn Bhd failed to repay the loans and P obtained an order for sale of D Sdn Bhd's land ('the order for sale'). D Sdn Bhd subsequently applied ex parte to the High Court to stay 'the order for sale'. D Sdn Bhd relied on the affidavit of X who claimed to be one of the directors and shareholders of D Sdn Bhd. X alleged that Y and Z under the pretext of acquiring all the shares in D Sdn Bhd, had tricked him and the other directors of D Sdn Bhd to resign and to appoint Y and Z in their places. X also alleged that Y and Z as D Sdn Bhd's directors without the knowledge of D Sdn Bhd's secretary and shareholders unilaterally passed a resolution authorizing D Sdn Bhd to create charges in P's favour. X further averred that D Sdn Bhd had no dealing whatsoever with T Sdn Bhd. Y and Z had also failed to pay for the shares of D Sdn Bhd. The High Court granted a stay of 'the order for sale'. P applied to set aside the order granting the stay. D Sdn Bhd firstly argued that the charges were ultra vires its memorandum of association. D Sdn Bhd alleged that the creation of third party charges was outside the borrowing power as conferred by its memorandum because they were created not for the benefit of D Sdn Bhd but for the benefit of a third party. D Sdn Bhd also submitted that even if the charges were intra vires its memorandum, they were created by its directors acting outside and beyond their powers as provided in D Sdn Bhd's articles of association. Held, allowing P's application to set aside the order granting stay of 'the order for sale': (1) a company's objects as stated in its memorandum cannot be departed from. An attempted departure is invalid and cannot be validated by assent of a general meeting of the members or by taking judgment against the company by consent or by estoppel; (2) the ordinary rules applicable to the construing of documents apply equally well to the construction of the object clauses of a memorandum. There is no special rule of interpretation by reference to what are supposed to be the main or principal objects of a company where the question is whether something done or proposed to be done is ultra vires; (3) if a transaction is covered by the objects clause, a party to the transaction is not bound to inquire as to the company's capacity to enter into it or as to any limitation on the directors' powers. The party to the transaction will be presumed to have acted in good faith unless the contrary is proved; (4) in this case the creation of the charges was within D Sdn Bhd's object clauses. It could not also be disputed that D Sdn Bhd had the necessary powers to create the charges; (5) P had no knowledge of the fraud of Y and Z. The fraud committed by Y and Z was a matter only between themselves and D Sdn Bhd's shareholders. P had accepted the charges in good faith and the transactions were prima facie lawful and properly carried out; (6) Y and Z had 'actual' authority under D Sdn Bhd's articles of association to execute the charges; (7) even if 'actual' authority of Y and Z was found wanting, they had at the material time, an 'apparent' or 'ostensible' authority to execute the charges; (8) where a company has a general power to borrow money for the purposes of its business, a lender is not bound to enquire into the purpose for which the money is intended to be applied; (9) even if the charges were ultra vires D Sdn Bhd's memorandum and articles, they could be saved by s 20(1) of the Companies Act 1965 which abolishes the rigorous effect of the ultra vires doctrine.

Public Bank Bhd v Metro Construction Sdn Bhd [1991] 3 MLJ 56 High Court, Kuala Lumpur (Lim Beng Choon J).

The plaintiffs an exempt private company ('the company') were incorporated in Singapore on 5 August 1980. At all material times the company's chairman and managing director was one Djamzu Papan ('Papan') an Indonesian businessman who was also its majority shareholder. In 1984- 1985 Papan also managed and controlled a group of Indonesian companies known as the Putera group and two companies within the group were PT Kertas Berkasi Teguh ('KBT') and PT Putera Adil Utama ('PAU'). The first defendants (the bank) are a Singapore offshore bank with its headquarters in Brussels, Belgium. In 1984- 1985 the bank's credit manager was J Kestemont ('Kestemont') who subsequently in August 1986 became its general manager which position he occupied until his transfer to Australia in March 1989. In 1982 the bank participated (to the extent of US$1m) in a syndicated loan of US$20m to KBT lead by Asian American Merchant Bank Ltd ('AAMB'). This was the bank's first contract with Papan as well as with the Putera group through Kestemont and the bank's account officer Seah Chin Hong ('Seah'). By 1984-1985 KBT had paid less than 40% on the bank's share of the syndicated loan. In 1984 pursuant to the bank's letter of offer dated 28 May 1984 PAU accepted from the bank a facility of US$1m ('the PAU facility') for the opening of letters of credit and/or the refinancing of trust receipts which facility was fully utilized, and as at end December 1984 PAU owed the bank US$954,488.18. By March 1985 the sum outstanding on the PAU facility exceeded US$1m. The trust receipts matured at periods of 180 days despite which PAU failed to make repayment. On or about 24 June 1985 Brussels gave written approval that the company be granted a credit line of US$1m for short term advances/letters of credit/trust receipts and a separate credit line of US$1m for trade bill discounting. Prior thereto the bank had issued its letter dated 27 March 1985 ('the letter of offer') offering US$2m facility to the company marked for the attention of Papan and Ong. The duplicate copy of the letter of offer was duly signed by Papan and dated 29 March 1985 indicating acceptance by the company. Under cover of the company's letter dated 1 April 1985 the required documentation of the bank was returned duly executed. In May 1985 the plaintiffs through their former solicitors (Lee & Lim) informed the bank's solicitors that the plaintiffs no longer required the facility in the letter of offer. However after a meeting between Papan and Seah in the plaintiffs' office on 22 May 1985 Papan changed his mind. Ong and a director of the company Ho Kiat Lim ('HKL') then executed the bank's second debenture, the second mortgage and Forms 33 and 34 for lodgment with the Registry of Companies. On 7 October 1985 Lee & Lim informed the bank that as the company had not proceeded with the KBT agreement and as the bank had also not credited PAU with US$1m as originally arranged, the agreement between the plaintiffs and the bank was no longer binding. On 31 October 1986 DBS Bank appointed receivers and managers to the company under the first debenture and this was followed by the bank's appointment of the second and third defendants as receivers and managers under the second debenture on 10 April 1987. On 24 July 1987, on a petition presented by Banque Nationale De Paris a winding-up order was made against the company and were liquidators appointed. The liquidators looked into the affairs of the company leading to the winding up and learned from the directors that the company purported to pass certain resolutions to accept the bank's facility copies of which were in the minute book. However two resolutions passed on 28 March 1985 were not in the minute book. On 21 July 1988 the liquidators commenced the above suit. The company prayed for a declaration (a) the transaction whereby the company purported to borrow US$1m from the bank to discharge the indebtedness of PAU to the bank and/or the debenture was void and of no effect; (b) the appointment of the second and third defendants on 10 April 1987 as receivers and managers of the bank was void and of no effect.

Held, allowing the claim: (1) as the bank could have but did not call Seah to give evidence and counsel did not offer a credible explanation as to why he was not called, that an adverse inference can be drawn against the bank under s 116(g) of the Evidence Act (Cap 97) that Seah if put in the witness box may well have given evidence prejudicial to the bank; (2) the court found that the bank knew as a fact that the primary purpose of its facility to the company was to discharge PAU's debt to the bank because there was every reason to believe that the KBT agreement was not genuine; (3) on the documentary evidence it was clear that the bank did debit/credit the accounts of the company and PAU respectively with US$1m as per instructions on 24 April 1985; (4) the case-law does not go so far as to say that because some incidental benefit is derived by a company from a loan, that it overrides whatever borrowing restrictions or lack of corporate capacity the company may have; (5) cl 12 of the Third Schedule does not give a carte blanche to the company to borrow without regard to the company's own interests. Neither does s 25 of the Companies Act (Cap 50) ('the Act') make it irrelevant that an act has been done in excess of the capacity of the company, as contended by counsel for the bank; (6) the phrase 'ultra vires' should be confined to describing acts which are beyond the corporate capacity of a company. If an act is beyond the corporate capacity of a company, it cannot be ratified; (7) the appellate court in Rolled Steel [1985] 2 WLR 908 held that the rule in the Turquand case only applied in favour of persons dealing with the company in good faith. Furthermore, even if they do not have actual knowledge that an irregularity has occurred they will be precluded from relying on the rule if the circumstances were such as to put them on inquiry which they failed duly to make. The very nature of a proposed transaction may put a person on inquiry, even if he has no special relationship with the company; (8) the bank had by early April 1985 (before Seah's meeting with Papan) a copy of the company's memorandum and articles of association ('M & A') and knew or should have known the extent of the company's powers and the directors' authority. Indeed in para 8A of the amended defence the bank had pleaded that it had knowledge of art 120 of the M & A. Therefore it must also have knowledge of arts 114 and 115 and that the directors' powers are limited to borrowing 'for the temporary purposes of the company' and/or borrowing 'for the purposes of the company'; (9) s 25 of the Act is subject to the principles of equity and is a saving provision only where the act, conveyance or transfer of property will be null and void for the reason that a company was without capacity to do the act in question. The section does not preclude an act of a company from being challenged on other grounds.

Puvaria Packaging Industries (Pte) Ltd (in liquidation) v Banque Bruxelles Lambert & Ors (1993) CSLR VI[21] High Court, Singapore (Lai Siu Chiu JC).

Paidiah Genganaidu v Lower Perak Syndicate Sdn Bhd & Ors [1974] 1 MLJ 220 Federal Court, Ipoh (Ali, Ong Hock Sim and Raja Azlan Shah FJJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 282.

The plaintiff and the defendant entered into an agreement whereby the plaintiff agreed to provide bankers' guarantee on behalf of the defendant's clients from time to time. It was further agreed that any guarantees issued by the bank in favour of the defendant's customers would be 'counter-guaranteed' by the defendant, whereby the defendant guaranteed the plaintiff payment of the amounts guaranteed by the plaintiff on behalf of the defendant's customer. One such guarantee was issued by the plaintiff on behalf of the defendant's customer, Dirikon, in favour of British American. The defendant in turn issued the plaintiff with a letter of indemnity. Dirikon, in breach of its agreement with British American, failed to repay loan moneys extended by British American, and the plaintiff was called upon to honour its guarantee. The plaintiff, accordingly, paid up on the British American guarantee and in turn demanded payment from the defendant pursuant to the letter of indemnity issued by the defendant. The plaintiff made an application under O 33 r 2 of the Rules of the High Court 1980 for certain issues to be tried as preliminary issues. The four issues were: (1) whether the defendant had, by virtue of s 19(1)(c) of the Companies Act 1965 (Act 125), read together with the Third Schedule to the Act, power to issue the letter of indemnity in favour of the plaintiff; (2) whether the defendant had power under its memorandum of association to issue the letter of the indemnity; (3) whether, by virtue of s 20(1) of the Companies Act 1965, the defendant's act in issuing the letter of indemnity was not valid by reason only that the defendant allegedly did not have capacity or power to issue the same; (4) whether, by virtue of s 20(2) of the Companies Act 1965 and in view of the answers to (1), (2) and (3) above, the defendant was barred from asserting or relying on the matters raised in paras 7, 8 and 9 of its defence stating that the letter of indemnity was not in the ordinary business of the defendant.

Held, deciding the preliminary issues in favour of the plaintiff: (1) it was unarguable that the defendant had the capacity and power to enter into the letter of indemnity as it was doing something within the ambit of its objects as set out in the memorandum of association. In any event, s 20(1) of the Companies Act 1965 abolished the effect of the ultra vires doctrine. The answer to the first three questions was in the affirmative; (2) as regards the fourth question, the defendant could not rely on any of the exceptions under s 20(2) of the Companies Act 1965; (3) (b) the transaction fell within the express objects of the defendant company as set out in its memorandum of association. In the absence of evidence to the contrary, those objects for which a company are established as set out in its memorandum of association set out the ordinary course of business of the company; (4) the transaction was part of the ordinary business of the defendant and art 59(b) had no relevance for the following reasons: (a) the burden of proving that the transaction was not in the ordinary course of business of the defendant was on the defendant as it was asserted by the defendant and the defendant had not sought to prove that the transaction was outside the ordinary business of the defendant;as the disposal of the preliminary issues substantially disposed of the cause of action and rendered a trial unnecessary, pursuant to O 33 r 5 of the Rules of the High Court 1980, the defendant was ordered to pay the plaintiff the amounts covered by the letter of indemnity.

Bumiputra Merchant Bankers Bhd v Supreme-QBE Insurance Bhd [1990] 2 MLJ 247 High Court, Kuala Lumpur (VC George J).

Hew Brothers Holding Sdn Bhd ('Hew') sold a piece of land to the appellant and handed to her the executed instrument of transfer and the document of title to the land for the registration of the transfer. The transfer could not be registered by the appellant because of the entry of a private caveat by the respondent who was the managing director of 'Hew'. The respondent alleged that the appellant's purchase was in fact a moneylending transaction and was a fraud against 'Hew'. The respondent also alleged in his affidavit that he entered the caveat in his capacity as managing director of Hew and as a trustee of its shareholders under s 323(1)(b) of the National Land Code 1965. The appellant's application to the High Court to remove the caveat was dismissed and the appellant appealed to the Supreme Court. The appellant contended that the respondent had no locus standi to enter the caveat. The respondent's Form 19B expressly stated that the caveat was to protect his own personal interest and he did not sign Form 19B in his capacity as managing director of 'Hew'. Nor did the respondent's Form 19B show the address of 'Hew'. The respondent alleged in his affidavit that he entered the caveat on the instruction of Hew's board of directors but no such resolution was produced. Neither 'Hew' nor the respondent had filed any action against the appellant for the alleged fraud.

Held, allowing the appeal: (1) in view of the ambiguity and material inconsistency between the respondent's Form 19B and his affidavit evidence, the resolution of Hew's board of directors ought to have been produced to show that he has the necessary authority to challenge the validity of the sale by 'Hew' to the appellant; (2) on the undisputed documentary evidence, 'Hew' was not the caveator and the caveat was entered for the purpose of protecting the respondent's own interest; (3) to establish a caveatable claim to title or registrable interest in land under s 323(1) of the 1965 Code, it is essential for the caveator to have a claim filed or to be filed within reasonable time for adjudication. Consequently on an application for extension or to set aside a caveat, it is incumbent on the caveator to satisfy the court that he has such a claim to title or registrable interest before he proceeds to show that his claim does raise a serious question to be tried and further on a balance of convenience it would be better to maintain the status quo pending the trial of the action; (4) on the facts in this case, the judge fell into error by placing the duty to satisfy the court for the continuation of the caveat on the appellant instead of the respondent. In reality the respondent's alleged claim against the appellant was for fraud in a land transaction and not a claim to title or registrable interest in land as envisaged by s 323(1) of the 1965 Code. Moreover no action was contemplated against the appellant; (5) under s 210(3) of the 1965 Code an instrument shall in favour of any purchaser be deemed conclusively to have been duly executed by the company. In the face of the instrument of transfer in Form 14A, the onus was on the respondent to prove fraud. The judge had therefore erred in law by concluding that it was for the appellant to prove the absence of fraud and that she was a bona fide purchaser; (6) in the circumstances of this case, it was impossible to envisage how the respondent, either personally or as a shareholder or as an officer of 'Hew', could be said to have a caveatable claim to title or registrable interest under s 323(1)(a) or (b) of the 1965 Code; (7) even if assuming the respondent had a caveatable claim to title or interest, he should not delay in filing his claim in court on his alleged claim. The judge had also erred in law in requiring the appellant instead of the respondent to file a writ; (8) in this case it was unreasonable for the respondent to challenge the bona fides of the sale without first resolving the matter either in the company's boardroom or at the floor of its general meeting. In any event under s 114(f) of the Evidence Act 1950, the court was entitled to presume that the common course of business in 'Hew' had been followed in this transaction. Section 20 of the Companies Act 1965 also provides that no transfer of property by a company shall be invalid by reason only of the fact that the company was without capacity or power to execute the transfer.

Hew Sook Ying v Hiw Tin Hee [1992] 2 MLJ 189 Supreme Court, Malaysia ( Jemuri Serjan CJ (Borneo).

The plaintiff and the defendant entered into a written agreement for the sale and purchase of shares in a private limited company. The defendant defaulted in the payment of the purchase price and the plaintiff applied for summary judgment against it. In opposing the application, the defendant contended, inter alia, that the transaction was ultra vires the plaintiff company.

Held, allowing the application: s 20 of the Companies Act 1965 (Act 125) provides that an outsider, other than a debenture holder or the minister, may not raise ultra vires. The defendant is an outsider and not a debenture holder or the minister.

Pamaron Holdings Sdn Bhd v Ganda Holdings Bhd [1988] 3 MLJ 346 High Court, Kuala Lumpur (VC George J).

Per curiam: a natural person has the capacity to do all things save such as forbidden by law. But the rule is reversed in the case of a corporation, and in relation thereto, what the governing statutory provisions do not expressly or impliedly authorize or permit is to be taken as prohibited by the doctrine of ultra vires.

Public Prosecutor v Datuk Haji Harun bin Haji Idris & Ors [1977] 1 MLJ 180 High Court, Kuala Lumpur (Abdoolcader J).

The petitioner filed two petitions against the same respondents under ss 181 and 218 of the Companies Act respectively (`the s 181 and s 218 petitions respectively'). The respondents filed a summons in chambers to strike out the s 181 petition and a notice of motion to strike out the s 218 petition. The respondents raised several preliminary objections to the s 181 petition. The respondent contended that by the petitioner's conduct, the latter had elected to treat the petition as a petition under the Companies (Winding-Up) Rules (`the 1972 Rules') and as such, r 26 of the 1972 Rules had not been complied with. This is because r 26 of the 1972 Rules stated that the affidavit verying the petition shall be served after and filed within four days after the petition was presented whereas the affidavit verifying the petition was affirmed on 8 September 1995 and the petition itself was filed only on 16 September 1995. This was in contravention of r 26. It was submitted that the petition therefore had to be dismissed in limine. The respondents also contended that even if the court found that the petition was a s 181 petition, it should be struck out as the petition did not comply with O 88 of the Rules of the High Court 1980 (`the RHC 1980') as it was filed as a normal winding-up petition instead of as an originating summons. In relation to the s 218 petition the respondent submitted that this amounted to multiplicity of actions which was an abuse of the process of the court. The petitioner on the other hand, raised a preliminary objection against the notice of motion to strike out the s 218 petition. The petitioner contended that the court had no jurisdiction to grant the reliefs prayed for in the motion as the reliefs prayed were pursuant to the RHC 1980 which did not apply to a s 218 petition. Among the issues for consideration were: (i) whether the petition was a s 181 petition; (ii) whether such petition should comply with r 26 of the 1972 Rules; (iii) whether the s 181 petition should comply with O 88 of the RHC 1980; (iv) the applicability of the RHC 1980 to a s 218 petition; (v) whether the court could strike out a s 218 petition pursuant to its inherent jurisdiction to prevent an abuse of the process of the court; and (vi) whether there was multiplicity of actions.

Held, dismissing the respondent's applications: (1) although r 26 of the 1972 Rules was not complied with, such non-compliance did not render the s 181 petition a nullity. The petitioner ought to be allowed time to re-affirm, re-file and re-serve the affidavit if such an affidavit was required. However since the petition was a s 181 petition, there was no necessity in the first place to file an affidavit to verify the s 181 petition; (2) it was abundantly clear that the 1972 Rules had no place in a s 181 petition. A petition under s 181 ought to be governed by O 88 of the RHC 1980 and the use of the form of the petition in the 1972 Rules did not invalidate the s 181 petition, neither did it mean that by its use, the petitioner had elected to be governed by the 1972 Rules and to turn the s 181 petition into a winding-up petition; (3) the RHC 1980 did not apply to a s 218 petition; (4) since the RHC 1980 had no place in a s 218 petition, the court was unable to rely on O 92 r 4 of the RHC 1980 for inherent jurisdiction to strike out a s 218 petition. However s 221(2) of the Act provided for such right which the court might exercise if there were sufficient grounds to do so; (5) the basis of multiplicity of actions for the motion was devoid of merit since the issues were all different and they were between either of the respondents in the hearing of the petition; (6) the petitioner therefore had every right to present the petitions separately under ss 181 and 218 of the Act respectively and the respondent had failed to establish a clear cut case to warrant a striking off of those petitions.

Lyn Country Sdn Bhd v EIC Clothing Sdn Bhd & Anor [1997] 4 MLJ 198 High Court, Kuala Lumpur (Kamalanathan Ratnam JC).

This was an application under s 273(3) of the Companies Act (Cap 50, 1990 Ed) by the liquidators of Active Building & Civil Construction (Pte) Ltd ('the liquidators') to determine whether the stated 'period of 4 months before the commencement of winding up' in s 328(1)(b) of the Companies Act (Cap 185, 1970 Ed) ('the Act') refers to the period of four months before the date of presentation of the petition for winding-up, or to the period of four months before the date of the making of the winding-up order and/or where provisional liquidators were appointed, the date of appointment of the provisional liquidators. Although s 255 of the Act had defined 'commencement of winding up', the liquidators had been advised that in the light of a decision of the New South Wales court on the interpretation of the equivalent of s 328(1)(b), the phrase 'commencement of winding up' in the said section might not have the same meaning as that given under s 255.

Held, determining the issue as follows: (1) the phrase 'commencement of winding up' in s 328(1)(b) of the Act must be given the same meaning as that given to the phrase under s 255 of the Act. Section 255 is a deeming provision and not an ordinary definition provision which is normally expressed to be subject to the contrary intention of the text. The phrase 'commencement of winding up' is used in at least ten other provisions in Part X of the Act and there is no difficulty in applying the definition in s 255 to the said provisions. There was, accordingly, no justification for not applying the said definition under s 255 to s 328(1)(b); (2) the four reasons given by the New South Wales court for departing from the plain meaning and effect of the equivalent deeming provision in s 255 were unconvincing. The first reason given was based on the practice of computing debts for proof of debts as at the date of the winding-up prevailing in New South Wales, a practice which differed from the practice in Singapore. Parliament was aware of the possible inequity to employees who had already rendered their services between the date of presentation of the winding-up petition and the date of the winding-up order if they were not paid during that period and if their wages and salaries were not given preferential status over other unsecured debts, and any defects in s 328(1) was a matter for Parliament to remedy. The third reason, premised on the desirability of having the same date for determination of priority and computation of proofs of debt, was also without any basis. The fourth reason given was also not applicable as there was no evidence that Parliament had adopted the assumed habit of lawyers of using the expressions 'the commencement of winding up and 'date of the winding-up order' synonymously.

Re Active Building & Civil Construction (Pte) Ltd (in liquidation) [1992] 2 SLR 157 High Court, Singapore (Chan Sek Keong J).

In this case, the learned trial judge had exercised his discretion in dispensing with the advertisements either in the Gazette or in the newspapers of a new date for the hearing of a winding-up petition on the facts of the particular case.

Held: the learned judge had correctly exercised his discretion in dispensing with the advertisements.

NKM Holdings Sdn Bhd v Pan Malaysia Wood Bhd [1987] 1 MLJ 39 Supreme Court, Kuala Lumpur (Seah, Syed Agil Barakbah and Wan Hamzah SCJJ).

[Annotation: Decision of the High Court [1985] 2 MLJ 390 affirmed.]

Chip Yew Brick Works Sdn Bhd v Chang Heer Enterprise Sdn Bhd [1988] 2 MLJ 447 Supreme Court, Johore Bahru (Salleh Abas LP, Mohamed Azmi and Wan Hamzah SCJJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 682.

The company Staghorn Sdn Bhd ('Staghorn') had been ordered to be wound up on 13 June 1991. The applicant, a shareholder of Staghorn, had prior to this application applied for all proceedings relating to the winding up of Staghorn to be stayed so that he could apply to set aside the default judgment forming the basis of the winding-up order on the gorund that it was irregular. However, the court on 16 September 1992 dismissed that application having found no case for setting aside the judgment; that the judgment was regular except only in respect of the interest rate on the amount of the judgment which exceeded 8% pa; and that such fault could be rectified by an amendment without any injustice to Staghorn. The applicant now made a further attempt to save Staghorn from being wound up by applying for various reliefs, ie for the winding-up order to be set aside or stayed and for an order enabling the applicant to oppose on behalf of Staghorn an application of the petitioner, Bank Bumiputra Malaysia Bhd ('BBMB'), for leave to amend the rate of interest stated in the default judgment. The applicant had also raised a new matter in this application: there was no loan agreement between BBMB and Staghorn as a condition precedent of the overdraft facility that Staghorn provide a directors' resolution to BBMB to apply for the overdraft had not been satisfied as the resolution provided had on it the written words 'to prepare a new one' initialled and dated 13 March 1980, which meant that the resolution had not complied with the predisbursement condition for the loan.

Held, dismissing the application: (1) as for staying the winding-up order, if what was meant was for a stay of the proceedings relating to the winding up of Staghorn, that application had already been made and dismissed on 16 September 1992 and could not be entertained again; (2) as for setting aside the winding-up order, the applicant had no locus standi to make such an application. It was not even clear in what capacity the applicant had applied for setting aside the order. The party qualified to apply was the Official Receiver who had shown no interest in making the application. The applicant would not have been able to make the application even as a director of Staghorn for the powers of directors came to an end with the appointment of a permanent liquidator and thereafter the directors have no power to conduct proceedings on behalf of the company; (3) even if the court was wrong on the issue of locus standi, there was no merit to the application. The applicant had said that the notice of demand under s 218(2)(a) of the Companies Act 1965 was defective as it was based on an irregular judgment but the court had already decided otherwise that the judgment was regular except for the interest rate therein; (4) the mistake made on the interest rate had no effect on the ability of Staghorn to settle its debts: the failure of Staghorn to settle the demand was not due to any confusion as to the actual debt owed but because Staghorn in fact was insolvent; (5) as for the application for an order enabling the applicant to oppose on behalf of Staghorn an application of BBMB for leave to amend the rate of interest stated in the default judgment, the same reasons on locus standi as abovestated would apply: the party qualified to represent Staghorn was the Official Receiver and there was no reason for the applicant to take over the role of the Official Receiver; (6) it was incorrect to conclude that the written words meant that the resolution could not be accepted by BBMB as fulfilling the said predisbursement condition as the circumstances in which the words were written were not known. If the resolution had not been accepted, BBMB would not have allowed use of the overdraft. Even if BBMB had found the resolution unsatisfactory, BBMB had the right to make an exception of the portion found unsatisfactory and yet accept the resolution as fulfilling the condition. Thus the court rejected the contention that no loan agreement existed between BBMB and Staghorn; (7) a default judgment obtained in an irregular manner is not a default judgment which contains an irregularity. The default judgment against Staghorn, although containing an irregularity regarding interest, was obtained in a regular manner and in order to have it set aside, there must be established a prima facie defence or a defence on merit, which had not been shown.

Re Staghorn Sdn Bhd Companies Winding up No D1-28-7-1990 High Court, Kuala Lumpur (Abdul Aziz J).

The petitioner obtained a winding-up order ('the order') against the respondent on 11 November 1994. The respondent filed a notice of motion for the setting aside and/or rescission of the order or, in the alternative, a stay of the winding-up proceedings. At the hearing of the motion, the petitioner's counsel raised a preliminary objection to the motion on the ground that the court has no jurisdiction to set aside and/or rescind the order after it had been perfected. The petitioner submitted that the respondent should have appealed against the order under s 253 of the Companies Act 1965 ('the Act'). The respondent's counsel, on the other hand, argued that since the respondent had no knowledge of the winding-up petition against it, it was an order made in default and may be set aside just as in the case of a judgment in default of appearance.

Held, upholding the petitioner's preliminary objection and dismissing the respondent's notice of motion: (1) the Act or the Companies (Winding-Up) Rules 1972 ('the Rules') make no express provision enabling the High Court to set aside or rescind a winding-up order after it had been perfected. The scheme of the Act is such that an aggrieved party may under s 253 of the Act appeal against a winding-up order, or apply to stay the proceedings under s 243 of the Act altogether or for a limited time, under terms and conditions which the court thinks fit; (2) while there are provisions in the Rules of High Court 1980 ('the RHC') which provide for the setting aside of judgments, O 1 r 2(2) of the RHC operates to exclude these provisions from applying to winding-up proceedings which are essentially governed by the Act or Rules made thereunder. As the court cannot fill in the gaps left by the legislature, the court therefore does not have the jurisdiction to set aside or rescind a perfected winding-up order.

Perdana Merchant Bankers Bhd v Maril Rionebel (M) Sdn Bhd [1996] 4 MLJ 343; (1996) CSLR XX[4650] High Court, Kuala Lumpur (Abu Samah JC).

The petitioners had commenced winding-up proceedings against the fifth respondent which was a company and applied for an order that interim receivers and managers be appointed in respect of the company until the hearing of the petition. It was contended for some of the petitioners that the immediate and pressing problem facing the company was that its funds were being siphoned off by the third and fourth respondents who were the executive deputy chairman and the finance director respectively of the company for the benefit of the first and second respondents which were companies of which they were also the executive directors. It was contended that a financial conflict of interest had arisen thereby and as a result, the company's assets were in jeopardy. There was also an issue regarding the sums of M$2,184,501 and M$783,214 owing by the second respondent to the company. It was alleged by one of the petitioners that the company was unlikely to take steps to recover the sum of M$2,184,501 as the board of directors of the company was dominated and controlled by the first, second, third and fourth respondents. The petitioners alleged that the third and fourth respondents would accelerate the depletion of the assets of the company pending the hearing of the petition.

Held, allowing the petitioners' application: (1) before the court can make an order for the appointment of an interim receiver, it must be satisfied that the plaintiff has established a good prima facia claim to title, that the property was in jeopardy, and, at the very least, that the party applying would be in a worse situation if the appointment of the receiver was delayed. These three factors were present in the instant case; (2) there was no reason for the respondents to be upset by the appointment of the interim receivers and managers who would only be there temporarily until the hearing of the petition to oversee the financial dealings of the company as a neutral third party.

Hwang Chin Hor & Ors v Song Seng Sdn Bhd & Ors [1990] 2 MLJ 105 High Court, Ipoh (Abdul Malek J).

3 [641] COMPANIES AND CORPORATIONS Winding up – Attachment of property – Dispute by claimant on ownership of property seized – Claimant a limited company-- Whether bona fide incorporation – Separate legal entity of limited company – Sigma Air Conditioning Sdn Bhd v World Wide Agencies (M) Sdn Bhd [1980] 1 MLJ 179 (distd); Salomon v Salomon & Co Ltd [1895-9] All ER Rep 33 (folld); Chih Lim Neo v Sit Hoon Neoh (1889) 4 Ky 492 (folld); Woon Ngee Yew & Ors v Ng Yoon Thai & Ors [1941] MLJ 37 (refd); Low Teck Cheng v Leong Wah [1964] MLJ 372 (refd); Overseas Investment Pte Ltd v Anthony William O'Brien & Anor [1988] 3 MLJ 332 (refd); Max Hilckes & Anor v Lee Choon Guan 1 MC 17 (refd)

This is an appeal by Num Tjuan Sdn Bhd ('the claimant') against the decision of the learned senior assistant registrar dismissing its claim for the property attached by the plaintiff in execution of judgment obtained in default of appearance against the defendant. The property had been attached at No 76, Jalan Sultan Iskandar, Ipoh ('the premises') on 27 January 1988 which at the time of the attachment was occupied by the claimant but which at the time of the judgment was occupied by the defendant. The defendant was wound up on 16 April 1987. The claimant had been incorporated on 14 April 1987. The managing director of the claimant and four others had purchased from the defendant chattels and cloth materials amounting to $50,000 for the purpose of contribution of their respective capital in the claimant. The claimant had also purchased from 28 suppliers more cloth materials totalling approximately $459,735.49. As from 1 May 1987, the claimant became the tenant of the said premises at $1,900 per month. The hearing before the learned senior assistant registrar took a number of days with the claimant having called not less than 15 witnesses, 12 of whom testified that it was the claimant who had bought the said goods attached from it on different dates, the details of which were amply supported by invoices, account books, delivery orders and other documents. The plaintiff and execution creditor objected that the directors and shareholders of the claimant were related or connected to the managing partner of the defendant. In the process, the court was urged to infer that the setting up of the claimant was actually to defraud the execution creditor in realizing the fruits of their litigation.

Held, allowing the appeal with costs: (1) the only real issue here is whether the goods belonged to the claimant or the defendant and judgment debtor at the time of the attachment; (2) it is for the execution creditor to prove that the judgment debtor was the actual lawful owner of the goods attached but this it had failed to do. The learned judge was of the view that based on the evidence taken before the senior assistant registrar, the affidavits and authorities cited, the claimant had in fact and in law succeeded in establishing that it was the actual lawful owner of the attached property seized on the premises; (3) in the circumstances, the learned judge was satisfied that the claimant had been lawfully incorporated and was clearly a separate legal entity from the defendant on 14 April 1987, that it had been the tenant in the said premises from 1 May 1987 at $1,900 rental per month and that the goods attached were its goods; (4) the plaintiff was given leave to appeal. The learned judge also allowed a stay as regards the release of the goods attached to the claimant to maintain the status quo of the parties pending the disposal of the appeal to the Supreme Court in view of the fact that should the appeal succeed, the plaintiff might not be able to obtain the fruits of this litigation whereas being a bank, it was in a position to secure the payment of all costs and expenses incurred by the claimant together with damages to be sustained.

Development & Commercial Bank Bhd v Lam Chuan Company & Anor [1989] 1 MLJ 318 High Court, Ipoh (Abdul Malek J).

[Annotation: Affirmed on appeal. See [1989] 1 MLJ 475.]

P had obtained final judgment against D1 for a refund of a sum of money paid by her in respect of future commodities trading transactions. P had also sued D2 for recovery of the said amount under the provisions of the Commodities Trading Act 1985 being moneys paid by D1 as statutory deposit and held by D2. On the same day final judgment was obtained against D1, P applied in her capacity as the judgment creditor for a garnishee order against D2 as garnishee. The registrar granted the order under O 49 r 1(2) of the Rules of the High Court 1980 whereby all debts due or accruing from D2 to D1 as judgment debtor may be attached to satisfy the judgment obtained by P against D1. The basis of P's claim against D2 as garnishee was that the latter was in custody of the sum of M$750,000, being the statutory deposit paid by D1 under the 1985 Act. P's application to have the garnishee order made absolute was refused by the registrar. Hence, the present appeal by P to High Court.

Held, dismissing the appeal: (1) in the instant case, a winding-up petition had been commenced against D1. Under s 219(2) of the Companies Act 1965, in the case of a winding up by the court, the winding-up date shall be deemed to have commenced from the presentation of the petition and under s 224 any attachment against the property of a company after the commencement of a winding up is void. Accordingly, as the winding-up petition against D1 had commenced well before the garnishee proceeding was taken, the garnishee order made ex parte was therefore void. The court was also of the opinion that there was no basis for it to exercise its powers under s 298(1)(c) of the Companies Act 1965; (2) O 49 r 1 did not apply in the instant case as D2 was never indebted to D1.

Tye Chwee Hoon v Cayman Commodities (M) Sdn Bhd & Anor [1990] 2 MLJ 23 High Court, Penang (Mohamed Dzaiddin J).

In this originating motion, the applicant prayed, inter alia, for an order that the respondent, the liquidator of Rich's Supercentre ('the company') which was the applicant's tenant, do pay the applicant the sum of RM339,000 being arrears of rental due to the applicant. Under a clause in the tenancy agreement between the applicant and the company, the company had given three months' deposit amounting to RM90,000 to the applicant. On 7 December 1989, the High Court made a winding-up order against the company. When the premises was surrendered to the applicant by the respondent, certain rental was outstanding. On 7 November 1990, the applicant claimed the arrears at double rent and purported to 'adjust' for the deposit sum of RM90,000. The two issues which arose for the consideration of the court were: (a) whether the applicant was entitled to forfeit the deposit of RM90,000 towards the payment of the arrears of rental; and (b) whether the applicant could claim the arrears of rental from the respondent by way of this originating motion.

Held, dismissing the motion: (1) the deposit was the money of the company. The use of the word 'adjust' in respect of the deposit was is actual fact a forfeiture to cover the arrears of rental due to the applicant; (2) according to s 4(1) of the Civil Law Act 1956, bankruptcy rules under the law of bankruptcy with respect to the estates of persons adjudged bankrupt shall apply to a winding up of any company as to the respective rights of secured and unsecured creditors. Under s 2 of the Bankruptcy Act 1967, 'secured creditor' means 'a person holding a mortgage, charge or lien on the property of the debtor ... as a security for a debt due to him from the debtor ...' and 'property' 'includes money ...'. As the sum of RM90,000 was a deposit under the tenancy agreement, it could not properly come within the meaning of 'mortgage, charge or lien' and therefore the applicant could not be considered as a 'secured creditor'. Thus the applicant did not come within s 108 of the Companies Act 1965 ('the Act'); (3) as the disposition of the deposit was made after the commencement of the winding up, such disposition was void unless the court ordered otherwise. Therefore the applicant had no right to forfeit the deposit as to do so would amount to undue preferential payment to creditors under s 293 of the Act; (4) the claim of the arrears of rental at double rent amounted to a claim for damages for breach of contract. The moment the applicant claimed for damages, it became a creditor and should be in the same rank as any other creditor. The applicant could claim arrears of rental from the respondent like any other creditor by proving its debt. Under r 79 of the Companies Act (Winding-Up) Rules 1972, the applicant could do so by delivering or sending to the respondent an affidavit verifying the debt together with the prescribed fee; (5) in any event, it was clear that this originating motion was filed after the winding-up order was made by the court and thus would require the leave of the court under s 226(3) of the Act.

Chi Liung Holdings Sdn Bhd v Ng Pyak Yeow Originating Motion No 25-35-1993 High Court, Johor Bahru (Haidar J).

The appellant in this case ('the petitioner') had filed a winding-up petition against the respondent company under s 218(1) of the Companies Act 1965 ('the Act') on the ground that the respondent was unable to pay its debts, ie RM18,260.70, being the balance of the purchase price of goods sold and delivered together with interest. An order for winding up was eventually granted by the court. However, by consent of the parties, the winding-up order was set aside, and the petition was set down for full hearing. Meanwhile, the respondent filed an application by way of a notice of motion pursuant to O 18 r 19(1)(b), (c) and (d) of the Rules of the High Court 1980 ('the RHC'), for an order to strike out the petition. The respondent further claimed for damages in the notice of motion on the basis that its bank accounts was frozen and that it was unable to carry on its business activities following the issuance of the winding-up petition against it. The High Court judge found that the presentation of the winding-up petition by the petitioner was an abuse of the process of the court under O 18 r 19 (1)(d). He went on to order, inter alia, that the winding-up petition be struck out, and that damages be paid to the respondent to be assessed by the senior assistant registrar. The appellant appealed, and leave to appeal to the (then) Supreme Court in respect of the judge's decision in awarding damages to the respondent was granted. The issue before the Supreme Court was therefore, whether the judge was right in awarding damages against the petitioner.

Held, allowing the appeal: (1) it is not within the contemplation of O 18 r 19(1) of the RHC to grant damages to the successful applicant, in addition to its powers under the rule or under its inherent jurisdiction. Clearly, the policy of O 18 r 19 RHC is to prevent the improper use of the court's machinery, and therefore in a proper case, it will summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation; (2) an application for winding up, even if subsequently dismissed as being ill-founded, can damage a solvent company's reputation. However, it has been established that any action for damages against a petitioner, whose petition for winding up has been struck out, can only be brought by an entirely separate suit founded on a tort of malicious prosecution or for abuse of process; (3) in the circumstances of the case, the judge was wrong, upon striking out the appellant's petition for winding up of the respondent as being an abuse of process, to grant damages to the respondent. There had to be a separate action for damages.

Si & Si Sdn Bhd v Hazrabina Sdn Bhd [1996] 2 MLJ 509; (1996) CSLR XX[4654] Supreme Court, Johor Bahru (Chong Siew Fai CJ (Sabah & Sarawak).

Peer Mohamed bin Abdul Aleez v Pahang Investments Public Ltd Co Companies (Winding-up) Petition No 42-67-86 High Court, Kuala Lumpur (Ajaib Singh J).

See COMPANIES AND CORPORATIONS, Vol 3, para 817.

On 14 August 1987, Bank Bumiputra Malaysia Bhd filed a petition to wind up the appellant company ('Kredin') in the High Court. However, up until the date of this judgment the winding-up petition was still pending hearing. On 23 January 1988, the respondent bank ('D & C') sued Kredin on a loan agreement in the High Court and judgment was entered against it. In order to execute this judgment, D & C registered a prohibitory order on a few parcels of land belonging to the Kredin on 31 March 1992 and also applied for a writ of seizure and sale of the land in the High Court ('the execution proceedings'). Following the execution proceedings, Kredin made applications, inter alia, to set aside the prohibitory order on the ground that it was void under s 224 of the Companies Act 1965 ('the Act'), as it was filed after the commencement of the winding up under s 219(2) of the Act. The application was, however, dismissed on the ground that the prohibitory order could only be rendered void after a winding-up order had been made under s 224 and since a winding-up order may ultimately not be made, the execution was not void. [See [1995] 1 MLJ 441.] Kredin has appealed to the Court of Appeal. The issue before the court is the interpretation to be given to s 219(2) of the Act, and its practical effect when read together with s 224.

Held, allowing the appeal: (1) (per Siti Norma Yaakob JCA) s 224 of the Act provides that any attachment, sequestration, distress or execution put in force against the estate or effects of a company after the commencement of the winding up by the court shall be void. Pursuant to s 219(2), a compulsory winding-up is deemed to commence at the time when the winding-up petition is presented; (2) the intention of Parliament in enacting ss 219(2) and 224 of the Act is to ensure that no creditors, particularly the unsecured creditors, who execute their claims against the company would be enriched at the expense of other unsecured creditors, between the date when the winding-up petition is presented and when the winding-up order is made by the court ('the interim period'); (3) it follows that the execution which was put in force during the interim period was void, and the fact that a winding-up order may not ultimately be made was irrelevant. However, in the event that a winding-up order is made, it will relate back to the date when the winding-up petition was presented, under the doctrine of relation back.

Kredin Sdn Bhd v Development & Commercial Bank Bhd [1995] 3 MLJ 304; (1995) CSLR XX[1131] Court of Appeal, Kuala Lumpur (Shaik Daud, Siti Norma Yaakob and Abu Mansor JJCA).

Asia Commercial Finance (M) Bhd v JB Precision Moulding Industries Sdn Bhd (In liquidation) [1996] 2 MLJ 1; 91996) CSLR XX[5879] Federal Court, Kuala Lumpur, (Chong Siew Fai CJ (Sabah & Sarawak).

See COMPANIES AND CORPORATIONS, Vol 3, para 884.

In an action against the defendant, the plaintiff had on 14 April 1989 obtained a judgment for the payment of a substantial sum of money. However, on 14 August 1987, Bank Bumiputra Malaysia Bhd had presented a petition to wind up the defendant. On or about 31 March 1992, with the petition still pending, the plaintiff, with the intention of executing the judgment, had registered a prohibitory order in respect of various lands belonging to the defendant. The defendant applied for a declaration that the prohibitory order was void, contending that the execution put in force was void according to s 224 of the Companies Act 1965 ('the Act') as the winding up was deemed, pursuant to s 219(2) of the Act, to have commenced on the presentation of the petition on 14 August 1987 prior to the putting in force of the execution.

Held, dismissing the defendant's application: (1) the winding up of a company only commences upon the making of a winding-up order. It is then that the provisions of s 219(2) of the Act come into play, whereby the commencement of the winding up is deemed to have commenced earlier, ie on the presentation of the petition; (2) the putting into force of execution after the presentation of the petitition will not be void if ultimately the petition is withdrawn, struck off or dismissed. In that situation, the statutory fiction that the winding up had commenced on presentation of the petition will not apply because in fact the winding up never commenced; (3) in this case, there was a contingent future possible winding up. Therefore, the defendant's application for a declaration that the prohibitory order is void was obviously premature and must be dismissed.

Development & Commercial Bank Bhd v Kredin Sdn Bhd [1995] 1 MLJ 441; (1994) CSLR XX[1130] High Court, Kuala Lumpur (VC George J).

Sections 158(v), 222, 226 and 241 of the Companies Enactment 1917 should be read together and their general combined effect is that notwithstanding a resolution of a company for a voluntary winding up the court has discretion to make a compulsory order if satisfied that it is the wish of the general body of creditors. When the claim of the petitioning creditor far exceeds the aggregate of all the others the order can be made although opposed by all the other creditors.

Re Seremban General Agency Ltd [1922] 3 FMSLR 3 High Court, Federated Malay States (Woodward CJC).

BSN Commercial Bank (M) Bhd v River View Properties Sdn Bhd and another action [1996] 1 MLJ 872 High Court, Johor Bahru (Abdul Malik Ishak J).

See COMPANIES AND CORPORATIONS, Vol 3, para 895.

P had presented a winding-up petition against D pursuant to s 218 of the Companies Act 1965. On the day fixed for the hearing of the petition, counsel for D informed the court that the matter had been fully settled and applied for the petition to be struck out. Counsel for P did not dissent but asked for the costs of the petition. Counsel for D objected to D having to pay costs and argued that what she was asking for was not a dismissal of the petition by consent but for the petition to be struck out because the matter had been settled.

Held, striking out the petition with no order as to costs: (1) in the instant case, settlement had actually been reached by the parties when their counsel appeared on the date fixed for the hearing of the petition. P was estopped by the conduct of their solicitors from denying that they had accepted the payment of the sum in question in full settlement of the claim and as a condition for the withdrawal of the petition at the date of the hearing; (2) that being the case, the petition could not be maintained and P was not entitled to costs. The petition was, accordingly, struck out with no order as to costs.

Batu Bata Hupe Soon Sdn Bhd v Dubon Construction Sdn Bhd (1990) CSLR XX[251] High Court, Johore Bahru (LC Vohrah J).

P filed a winding-up petition against D. P subsequently informed the court that the parties had agreed that the petition be dismissed. The only issue for determination by the court was who should bear the cost of the petition. D contended that the costs should be borne by P as the petition was filed prematurely. D alleged that P had abused the process of the court since the amount due to P was paid before the petition was presented.

Held, finding in favour of D: (1) in the instant case, it was not necessary for P to file the petition for the reason that they could have waited for the post-dated cheques they had duly accepted from D to be cleared and would have found that the claim would have been satisfied. Accordingly, it was unreasonable that the petition should have been presented after payment was tendered. The court was of the view that the process of the court had been abused as to warrant the court to award costs against P; (2) the court, however, refused to award solicitor and client costs to D as on the date of the filing of the petition, the action was maintainable because the cheques were post-dated. Accordingly, it was not a case where the action was conspicuously unmaintainable.

Malayan Thread Co Sdn Bhd v Kawan Supermarket Sdn Bhd [1990] 1 MLJ 62 High Court, Johore Bahru (Abu Mansor J).

Abdul Samad bin Hj Alias v The Government of Malaysia & Ors [1996] 3 MLJ 581; (1996) CSLR [4309] Federal Court, Kota Bharu (Mohd Azmi, Wan Adnan FCJJ and Shaik Daud JCA).

See COMPANIES AND CORPORATIONS, Vol 3, para 859.

See bankruptcy, para III [11].

Sime Diamond Leasing (M) Sdn Bhd v JB Precision Moulding Industries Sdn Bhd (In liquidation) [1997] 1 MLJ 499 Court of Appeal, Kuala Lumpur (Siti Norma Yaakob, Abu Mansor and Abdul Malek Ahmad JJCA).

The company was originally put in members' voluntary liquidation. Subsequently, it became clear to the liquidators that the debts of the company could not be paid off in full because of an increased tax assessment. They accordingly summoned a meeting of the creditors in accordance with s 295(1) of the Companies Act (Cap 50) to have the winding-up converted into a creditors' voluntary winding-up. No creditors turned up at the meeting and at the subsequent meeting called by the liquidators. The liquidators therefore applied to court for a declaration that the liquidation should proceed as a creditors' voluntary liquidation and for consequential orders.

Held, granting the application: (1) although the Companies Act does not specify a quorum for the creditors' meeting, liquidators normally take three to be the proper quorum relying on the Companies (Winding Up) Rules; (2) the notice sent out by the liquidators under s 295(1) drew the creditors' attention to their right to appoint a new liquidator in order to carry on the liquidation as a creditors' voluntary liquidation; (3) this was sufficient compliance with s 295(1) and the fact that the creditors' meeting was not in fact held did not affect the result, viz that the winding up should continue as a creditors' voluntary liquidation.

Re Anrite Aviation Co Pte Ltd [1990] SLR 762 High Court, Singapore (Karthigesu JC).

Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd & Ors and another application [1994] 2 MLJ 789; CSLR X[651] High Court, Kuala Lumpur (Anuar J).

See COMPANIES AND CORPORATIONS, Vol 3, para 652.

The trustees of a charge in favour of debenture holders are not entitled to deal with their security as if they were English mortgagees. The Official Receiver is the proper person to liquidate the assets.

Re Papan Ltd [1906] 2 FMSLR 1 Court of Appeal, Federated Malay States (Hyndman-Jones CJC and Berrington JC).

In this case, it was

Held: (1) if a declaration of solvency is not made, the winding-up proceeds as a members' voluntary winding up. The omission of or delay in making a declaration of solvency is incurable; (2) in a creditor's voluntary winding up the court has no power to confirm the nomination of a liquidator by the company so as to make it effective as regards creditors.

Re Sin Teck Hong Oil Mills Ltd [1950] MLJ 232 High Court, Federation of Malaya (Taylor J).

In this case, a petition was presented by four individuals for the winding up of Senson Auto Supplies Sdn Bhd ('the company') under s 181 of the Companies Act 1965 (Act 125), on the ground that the affairs of the company were being conducted in a manner oppressive to them. During the argument, however, counsel for the petitioners also relied upon the just and equitable ground under s 218(1)(i) of the Act.

Held, dismissing the appeal: (1) the words 'just and equitable' in s 218(1)(i) of the Companies Act enable the court to subject the exercise of legal rights to equitable considerations, that is to say, considerations of a personal character arising from one individual and another which may render it unjust or inequitable to insist on legal rights or to exercise them in a particular way; (2) even if the directors or majority shareholders have been guilty of improper or unreasonable conduct so that there appears to be a prima facie case for relief, it will be refused if the real purpose of the petitioners is to obtain payment of a money owed by the company; (3) it is settled law that delay by petitioners in initiating proceedings after they have realized that they have been victims of a scheme of oppression will induce the court to refuse relief, since this indicates that they have acquiesced in the conduct complained about and their complaints are not therefore made in good faith; (4) in the present case there was inordinate delay in the presentation of the petition sufficient to debar the petitioners from relief by way of an order for winding up; (5) the court was not satisfied that the charges of oppression or discrimination were made out and neither was it satisfied that it would be just and equitable to wind up the company.

Re Senson Auto Supplies Sdn Bhd [1988] 1 MLJ 326 High Court, Penang (Edgar Joseph Jr J).

Re Petrotech Logistics Pte Ltd 1982 High Court, Singapore (Abdul Wahab Ghows J).

See COMPANIES AND CORPORATIONS, Vol 3, para 294.

The petitioners were appointed directors of King Heng Glass Pte Ltd ("the company') by Tan and Koh ('the opposing directors') when two other directors resigned. On 12 September 1991, new shares were issued. The petitioners and opposing directors subscribed and were allotted these shares. Shortly, disagreements arose between the two sets of directors. The petitioners were unhappy with the management of the company. They claimed that there were no proper accounts of stock resulting in major under-declaration of the company's profitability, that workers' salaries were under-declared to reduce amounts payable as Central Provident Fund ('CPF') contributions. There was also friction with regard to the involvement of one Vivian Te in the affairs of the company. On 30 May 1992, there was a meeting which spelled the end of the relationship between the petitioners and the opposing directors. Negotiations then took place for the sale of the petitioners' shares to the opposing directors. Agreement, however, could not be reached on the price per share. The petitioner then brought this petition alleging that there was a deadlock in the management of the company and that this had arisen because of the differences between the petitioners and the opposing directors.

Held, granting the petition: (1) the petitioners had been promised at the time they joined that as directors they would have equal say in the running of the company. However, because the opposing directors deferred to Vivian Te with regard to management decisions, the petitioners were denied an effective say in the management and were, subsequently, excluded from management functions; (2) the court found that the company had flouted CPF regulations. On a balance of probabilities, the company did, at least from time to time if not consistently, under-declare its employees' salaries to the CPF Board; (3) the opposing directors had not treated the petitioners fairly with regard to the payment of $30,000 directors' fees. They clearly had acted in their own interests rather than in the interest of the members as a whole; (4) the buy-out process showed a want of probity on the part of the opposing directors. They had ignored the company's articles when they made a new issue of shares on 12 September 1991. Later, they tried to rely on the articles and claim that the shares had been invalidly issued in order to buy out the petitioners more cheaply; (5) the company had consistently under-declared its stock levels and had not kept proper records; (6) there has been a lack of probity in the conduct of the company's affairs. Lies by the opposing directors in the evidence establish the petitioners' contention that the petitioners could not have any confidence in the opposing directors' conduct of the affairs of the company. The opposing directors had used the petitioners when they needed them and did not have any sincere intention of making them part of the company; (7) although the petitioners had not been able to prove all the allegations in their petition and they had exaggerated some of their complaints, under the circumstances, it would not be correct to lock both parties into the company. Therefore, it would be just and equitable to wind up the company; (8) however, there was not at any time an effective deadlock, in that the opposing directors as the majority shareholders were always in a position to override the petitioners as minority shareholders. Thus, deadlock was not a basis for winding up the company.

Re King Heng Glass Pte Ltd (1994) CSLR XX[1671] High Court, Singapore (Judith Prakash JC).

On 30 December 1988, a lease agreement ('the agreement') was entered into between the applicant company and the respondent whereby the respondent agreed to lease to the applicant a plastic injection moulding machine. A security deposit and a prepaid rent deposit totaling RM68,458 ('the deposit') was placed with the respondent. A memorandum of deposit which stated that the security deposit was refundable free of interest at the expiry of the agreement and only on complete satisfaction of each and every term and condition was also executed. On 2 December 1989, a winding-up petition was presented against the applicant company. On 27 March 1990, the respondent's solicitors gave notice of termination of the agreement and demanded payment of the unpaid balance of the total lease rentals after deducting the deposit on the ground that the presentation of a winding-up petition constituted a breach of the lease agreement. On 4 April 1989, the applicant company was wound up and a liquidator was appointed. The liquidator demanded the deposit from the respondent but met with no response. The liquidator then applied to court for the return of the deposit on the ground that s 293 of the Companies Act 1965 ('the Act') prohibited the respondent from giving themselves an undue preference over other unsecured creditors. The question to be decided was: (i) whether the transaction was caught by ss 223, 233 and 293 of the Act; and (ii) whether the respondent could set off the deposit from the amount owing by the applicant company to the respondent on the total unpaid lease rentals when the agreement was terminated.

Held, allowing the application: (1) according to cl 4 of the agreement, the security deposit 'should not be treated as payment of rental' and was to be returned to the applicant company free of interest on the termination of the agreement less such sums as may be due to the respondent. The security deposit was, therefore, merely a security, and when it was paid, the respondent merely had possession but not ownership of the machine. Unless there had been a default under the provisions of the agreement which entitled the respondent to apply the deposit or any part thereof against all moneys, damages and/or arrears of rental as the respondent deemed fit, the property in the deposit remained with the applicant company. Thus, on 30 December 1989, when the winding-up petition was presented against the applicant company, the property in the deposit remained with the applicant company; (2) the respondent had set off the deposit after the date of the presentation of the petition. Such conduct was void under s 293 of the Act as it amounted to an 'act relating to property' which belonged to the applicant company against whom a winding-up petition had been presented; (3) the respondent could not be in a better position than other creditors after the presentation of the winding-up petition against the applicant. The respondent was neither a preferred creditor under s 292 of the Act nor a secured creditor as defined in s 2 of the Bankruptcy Act 1967. Under s 233 of the Act, the liquidator was required to take into custody or under his control all the property to which the applicant was or appeared to be entitled, and the respondent could not prevent him from carrying out his duty. Accordingly, the respondent stood in the shoes of a general creditor only; (4) the word 'disposition' in s 223 of the Act was wide enough to cover the act of setting off by the respondent which took into account the deposit when the lease was terminated on 27 March 1990. That act of taking into account the deposit which was made after the commencement of the winding up of the applicant was a 'disposition' contemplated by s 223 and hence, void; (5) s 108(3)(k) of the Act which took effect on 25 September 1993, requiring registration of 'a charge on the credit balance of the company in any deposit account', was not applicable to a transaction prior to that date since that section did not operate retrospectively.

JB Precision Moulding Industries Sdn Bhd (In liquidation) v Sime Diamond Leasing (Malaysia) Sdn Bhd [1995] 3 MLJ 718; (1995) CSLR XX[6959] High Court, Johor Bahru (Mohd Ghazali JC).

The petitioner, a substantial shareholder and former director of the first respondent company, had filed a winding-up petition against the first respondent on the ground that the company had been conducting its affairs in a manner oppressive and prejudicial to the petitioner. In this application, the first respondent applied for an order under s 223 of the Companies Act 1965 that: (a) it be authorized to make payments under the existing contracts as and when due and to defray all expenses as may be reasonably necessary for the day-to-day running of the first respondent until such order may be made in the winding-up petition; (b) all payments when so made be deemed valid and good dispositions of the first respondent's property.

Held, dismissing the application: (1) the first respondent is clearly in breach of r 7(1) of the Companies (Winding-Up) Rules 1972 which provides that every application in court, other than a petition, shall be made by a motion. However, as the petitioner and the other respondents who are served with the application could not have been embarrassed or prejudiced in any way by the said non-compliance, the court shall treat it as a mere irregularity and exercise its powers under O 92 r 4 to allow the summons to proceed and be considered on its own merit; (2) payments to be made to the contractors as and when they are due pursuant to contractual obligations contracted before the commencement of winding up, and payments which have to be made for the day-to-day running expenses of the first respondent company do not come within the contemplation of s 223 of the Companies Act 1965. The disposition is not the act of making the payments but the act of entering into the contracts which had been concluded before the commencement of winding up; (3) even assuming that the payments constitute disposition of property, a validation order should not be made in respect of the payments to the first respondent's contractors. In the event that the allegation of impropriety against the second and third respondents as directors of the first respondent company is substantiated in the hearing of the petition and the court is minded to make a winding-up order, a prospective order ahead of the winding-up petition validating any payments to the first respondent's contractors would put the disposition of its property in so far as it relates to payments which they are not entitled to, beyond the reach of the liquidators thereby defeating the objective of the winding-up; (4) as for payments to defray all the expenses as may be reasonably necessary for day-to-day running of the first respondent, they are necessary and expedient in the interest of the first respondent company and should therefore be validated provided they come within the ambit of s 223.

Kok Fook Sang v Juta Villa (M) Sdn Bhd & Ors Petisyen No 28-35-1995 High Court, Ipoh (Kang Hwee Gee J).

This was an application by the plaintiffs to impeach the title of the second and third defendants ('D2' and 'D3' respectively) to a piece of property ('the property') in Johor Bahru, Johor. The plaintiffs had, in 1984, entered into a sale and purchase agreement ('SP1') with the first defendant ('D1') for the purchase of the property from the latter. However, the plaintiffs failed to settle the purchase price that was due and owing under SP1 and D1 thus treated SP1 as being repudiated by the plaintiffs. Thereafter, D1 entered into another sale and purchase agreement ('SP2') with D2 and D3 for the sale of the property to the latter. The plaintiffs then sued D1 and obtained a default order for specific performance in respect of SP1 and an ex parte injunction to restrain D2 and D3 from taking possession of the property in 1989, which was well after D1 had been compulsorily wound up in 1988. In 1990, D1 transferred the title to the property to D2 and D3 without the knowledge of the Official Assignee. The plaintiffs contended that the disposition was null and void because D1 had no authority to effect any disposition of the property as it had already been wound up and the Official Assignee had not given his consent to such a disposition. As such, it was contended that the disposition was void under s 223 of the Companies Act 1965 ('the CA'), and this, in turn, rendered the instrument of transfer void under s 340(2)(b) of the National Land Code 1965 ('the NLC'). On the other hand, D2 and D3 claimed that they were bona fide purchasers for value without notice and that they had paid the purchase price of the property that was payable under SP2 to D1.

Held, dismissing the plaintiffs' application and validating the disposition of the property to D2 and D3: (1) the fact that there was a lack of evidence in the form of receipts to show that D2 and D3 had paid the purchase price to D1, when considered in the light of the instrument of transfer in which D1 acknowledged its receipt of the full purchase price from D2 and D3, did not render the transfer form void; (2) similarly, the fact that D2 and D3 did not obtain vacant possession of the property prior to the transfer of the title to them did not render the transfer form void; (3) there was no evidence that D2 and D3 were aware of the existence of SP1 when they entered into SP2 with D1. Nor was there evidence that D2 and D3 had acted fraudulently or in concert with D1 to effect the said disposition whilst they had knowledge that D1 had no authority to effect such a disposition; (4) the plaintiffs were in breach of SP1 when they failed to settle the purchase price that was due and owing under it. D1 was thus entitled to treat, as it did, SP1 as being repudiated by the plaintiffs, and was justified in annulling the sale of the property to the plaintiffs and terminating SP1. It thus followed that there was no longer any binding contract between D1 and the plaintiffs when D1 entered into SP2 with D2 and D3; (5) D2 and D3 are the registered proprietors of the property under s 340(1) of the NLC and their title is indefeasible. The plaintiffs had failed to establish that D2 and D3's title to the property was defeasible under s 340(2)(b) of the NLC by reason that the said title was transferred to them by means of an insufficient or void instrument; (6) the plaintiffs had no cause of action against D2 and D3 and could not sue them on SP1 as they were not parties to it. Nor could the plaintiffs sue D2 and D3 on SP2 as the plaintiffs themselves were strangers to SP2; (7) nevertheless, the disposition of the property to D2 and D3 was effected well after D1 had been wound up, and this, would render the said disposition void under s 223 of the CA unless the court validated it; (8) D2 and D3 were bona fide purchasers for value without notice and their title to the property is indefeasible by virtue of s 340(1) of the NLC. In such circumstances, the court exercised its discretion under s 223 of the CA and validated the disposition of the property to D2 and D3 so as to confirm that the title to the property had passed to them.

Seek Lai Neo & Anor v Cheng Chuan Development Sdn Bhd (in liquidation) & Ors (1994) CSLR XX[5755] High Court, Kuala Lumpur (Siti Norma Yaakob J).

Lian Keow Sdn Bhd & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 Supreme Court, Kuala Lumpur (Seah, Hashim Yeop A Sani and Syed Agil Barakbah SCJJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 665.

T Sdn Bhd owned a piece of land. T Sdn Bhd was wound up in 1981 and the Official Receiver (OR) was appointed as its liquidator. The OR made several unsuccessful attempts to sell T Sdn Bhd's land. In 1991 the OR entered into an agreement to sell T Sdn Bhd's land to S Sdn Bhd for M$940,000 conditional upon the approval of the court. The Government Valuation Department had estimated the market value of T Sdn Bhd's land to be M$900,000. The OR applied to the High Court for approval of the agreement with S Sdn Bhd. A, as the administrator of X's estate, applied to intervene in the OR's application under O 15 r 6(2)(b)(i) and (ii) of the Rules of the High Court 1980. A also applied to stay the OR's application. X's estate purported to have a claim against T Sdn Bhd. A had offered to purchase T Sdn Bhd's land several times. A's highest offer was M$980,000. The OR rejected A's offers because part of A's payment was by way of a set-off against the purported claim of X's estate. A alleged that he would not object if the purchase price of T Sdn Bhd's land was more than M$980,000. A argued that the OR should hold a creditors' meeting to consider A's offers. None of the other creditors of T Sdn Bhd had applied to intervene.

Held, allowing the OR's application, dismissing A's application: (1) in view of the fact that the sale of T Sdn Bhd's land had protracted for too long, the OR had exercised his discretion to negotiate the sale of T Sdn Bhd's land at a fair price; (2) A's application to intervene was dismissed because his rights are already adequately protected by the OR; (3) the OR's application was allowed and the OR must convene a creditors' meeting within a reasonable time to brief all the creditors regarding the sale of T Sdn Bhd's land.

Ex p The Official Receiver and Liquidator of Taulani Sdn Bhd Companies Winding up No 4 of 1978 High Court, Kota Kinabalu (Syed Ahmad Idid JC).

3 [667] COMPANIES AND CORPORATIONS Winding up – Disposition of property – Prohibitory order entered against company's land after presentation of petition to wind up company – Whether prohibitory order was valid – Companies Act 1965, ss 219(2) & 224 – American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504, 510-511 (folld); Associated Tractors Sdn Bhd v Chan Boon Heng & Anor [1990] 2 MLJ 408 (refd); Re Overseas Aviation Engineering (GB) Ltd [1963] 1 Ch 24 (folld); Re Leitch Collieries Ltd [1926] 1 DLR 1183 (folld); Thye Chwee Hoon v Cayman Commodities (M) Sdn Bhd & Anor [1990] 2 MLJ 23 (folld); Re Barrier Reef Finance and Land Pty Ltd (1988) 6 ACLC 827 (folld); Fleet Motor & General Insurance Co (Australia) Pty Ltd v Tickle (1984) 2 ACLC 282 (refd); Re Miles Aircraft Ltd [1948] 1 All ER 225 (distd); Ayerst (Inspector of Taxes) v C & K (Contractors) Ltd [1975] 2 All ER 537 (distd); E Pitchard v Westminster Bank Ltd [1969] All ER 999 (folld); D Wilson (Birmingham) Ltd v Metropolitan Property Developments & Anor [1975] 2 All ER 814 (folld); Rainbow & Anor v Moorgate Properties Ltd [1975] 2 All ER 821 (folld); Lian Keow Sdn Bhd (In Liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 (folld).

P agreed to construct a building on D1's land. D1 failed to pay P and judgment was obtained against D1 by P. Subsequently P agreed to complete the construction provided D1 would pay the construction cost within a stipulated time. D1, however, did not pay P despite the completion of the construction. P therefore obtained judgment against D1. An agreement was entered whereby D1 sold its land to D2. Petitions to wind up D1 by P and other parties were then presented to the High Court. P subsequently entered two prohibitory orders against the land. P also applied to the High Court, inter alia, for a declaration that D1's transfer of the land to D2 was void. P obtained an ex parte interlocutory injunction to restrain D1-D2 from dealing with the land. D2 applied to the High Court to set aside P's interlocutory injunction on the ground that once the winding-up petitions had been presented against D1, P had no right to enter the prohibitory orders according to s 224 read with s 219(2) of the Companies Act 1965. P argued that s 224 of the 1965 Act should be read in conjunction with s 298 of the 1965 Act.

Held, allowing D2's application: (1) ss 224 and 219(2) of the 1965 Act are mandatory not only because the word 'shall' is used but also because, unlike s 223 of the 1965 Act, no power is given to the court to validate the acts stated in s 224 of the 1965 Act; (2) prohibitory orders are in the nature of an execution of the judgment of the court relating to land. P's prohibitory orders accordingly fall within s 224 of the 1965 Act; (3) English cases based on the interpretation of s 523(1) of the Companies Act 1985 [UK], which is not in pari materia with s 224 of the 1965 Act, are not appropriate in construing the scope of s 224; (4) there is nothing in ss 224 and 298 of the 1965 Act to state that both sections should be read in conjunction with each other. To construe s 224 as dependent on or subject to s 298 will not only render s 224 redundant but will also obliterate the purpose for which s 224 is enacted. Section 224 of the 1965 Act is to ensure that between the date of presentation of the winding-up petition and the date of the winding-up order, the company's property should not be dissipated to enrich one or more unsecured creditors at the expense of the other unsecured creditors. The purpose of s 298 of the 1965 Act is, however, to empower the liquidator to recover any dissipation of the company's assets which had been wrongly acquired by a creditor through an evasion of s 224 of the Companies Act 1965. Both ss 224 and 298 of the Companies Act 1965 deal with completely different situations; (5) P therefore had no right to enter the prohibitory orders. P's prohibitory orders are thus null and void under s 224 of the 1965 Act.

Pembinaan KSY Sdn Bhd v Lian Seng Properties Sdn Bhd & Anor [1992] 1 MLJ 571 High Court, Kuala Lumpur (Lim Beng Choon J).

3 [668] COMPANIES AND CORPORATIONS Winding up – Disposition of property – Undue preference – Disposition of property by company while winding-up petition pending before court – Whether disposition void – Discretion of court to validate transaction – Companies Act 1965, ss 223 & 293 – Re Miles Aircraft Ltd [1948] 1 Ch 188 (refd); Re AI Levy (Holdings) Ltd [1964] 1 Ch 19 (folld); Re Wiltshire Iron Co [1868] 3 Ch App 443 (folld); Re Clifton Place Garage Ltd [1970] 1 Ch 477 (folld); Re Gray's Inn Construction Co Ltd [1980] 1 All ER 814 (folld); Commonwealth Industrial Cases Ltd v Dorean Construction Pty Ltd (1988-89) 14 ACLR 201 (folld); Lian Keow Sdn Bhd & Ors (In Liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 (folld); Datin Hajjah Zaleha & Ors v Perkasa Trading Sdn Bhd & Anor [1984] 1 MLJ 372 (refd)

P petitioned for D to be wound up on the ground that D was unable to pay its debts. F Sdn Bhd, one of the creditors of D, gave notice of its intention to support the petition. At the commencement of the hearing of the petition, F Sdn Bhd sought to withdraw itself as a supporting creditor in the petition. P objected to F Sdn Bhd doing so. P alleged that D had paid a sum of M$50,000 to F Sdn Bhd in settlement of D's debt to the latter and that D had also transferred a peice of property to F Sdn Bhd in addition to the amount paid. P submitted that this was an undue preference of one creditor over another after the petition had been presented and was therefore contrary to ss 223 and 293 of the Companies Act 1965.

Held, declaring the dispositions null and void: (1) under s 223, the disposition of the property of the company after a winding up petition has been presented is void unless the court makes a validating order. The purpose of the section is to protect the interests of creditors when a petition for winding up is presented. The court, however, has the discretion whether or not to make a validating order. The court cannot exercise its discretion to make a validating order if the result of the order is to make one or more creditors being paid in full; (2) in the instant case, the payment of M$50,000 and the transfer of the property to F Sdn Bhd were dispositions after the winding-up petition had been presented and as such, were contrary to s 223 and therefore void; (3) in the instant case, there was no application for a validating order. Even if there is such an application, it was not a proper case for the court to make such an order. If a validating order is made, F Sdn Bhd would be paid a substantial sum of money at the expense of the other creditors; (4) for the above reasons, the court declared the transfer of the property to F Sdn Bhd null and void and ordered that the money paid to F Sdn Bhd be returned to D.

Kimoyama Electrik (M) Sdn Bhd v Metrobilt Construction Sdn Bhd [1990] 3 MLJ 309 High Court, Kuala Lumpur (Zakaria Yatim J).

BSN Commercial Bank (M) Bhd v River View Properties Sdn Bhd and another action [1996] 1 MLJ 872 High Court, Johor Bahru (Abdul Malik Ishak J).

See COMPANIES AND CORPORATIONS, Vol 3, para 895.

The only issue here is whether the respondent is liable to pay the petitioner RM39,243.34, as stated in the petition, or RM6,078.79, as alleged by the respondent in his affidavit in op-position to the said petition. On 14 July 1988, the petitioner had obtained final judgment against the respon-dent in the sum of RM322,125.71 together with interest thereon at the rate of 11.5%pa with monthly rests from 1 March 1988 until the date of full realization and costs of RM225. On 16 December 1992, the petitioner's solicitors had served a demand dated 11 December 1992 on the respondent by leaving it at the respondent's registered office. The demand was for RM39,243.34 only, being the balance then due and owing to the petitioner as at 31 October 1992. Despite the lapse of three weeks, the respondent had neglected to pay and on the basis of insolvency and the inability to pay its debts, the petitioner had applied to wind up the respondent. By affidavit filed on 2 October 1993, the director of the respondent had affirmed that, after judgment was obtained, the petitioner had proceeded to obtain an order for sale of a piece of property, which they were holding as security, which was subsequently sold by private treaty for RM378,073.40. To support this averment, he had produced the statement of account issued by the petitioner in the name of the respondent dated 30 November 1990 which showed the original balance of RM384,152.19, a credit entry of RM378,073.40 and an outstanding balance of RM 6,078.79. This was followed by similar statements over the years including the standard letter on the confirmation of balance of minus RM6,078.79 dated 31 July 1992. However, 18 days earlier, the petitioner's solicitors had sent the notice under s 218 of the Companies Act 1965 ('the Act') demanding RM74,486.89, inclusive of RM225 costs, as the amount owing as at 30 June 1992. This was subsequently followed by a similar notice as stated in the petition for RM39,243.34.

Held, dismissing the petition: (1) in the light of the unchallenged averment of the respondent's director that the respondent have a paid-up capital of RM5m in equity holdings in several other companies which are expected to generate profits and that they are ready and willing to pay the RM6,078.79, there is not an iota of evidence that the respondent is insolvent or unable to pay its debts. At the most, they can only be said to have refused to pay the amount owing because of the discrepancies and refusal is not the same as inability to pay; (2) even if they had neglected to pay, this cannot amount to being unable to pay; (3) the delay of four years and four months by the petitioner in issuing the petition combined with the disparity of the accounts kept by the petitioner in relation to the respondent vitiates the petition itself as one is not in a position to know what is the correct amount due, including the petitioner themselves. In these circumstances the doctrine of estoppel applies.

Re Sobri Holdings Sdn Bhd; United Malayan Banking Corp Bhd v Sobri Holdings Sdn Bhd (1994) CSLR XX[1665] High Court, Kuala Lumpur (Abdul Malek J).

Zenecon-Kumagai Sdn Bhd ('the first respon-dent') was incorporated as a joint venture between Kumagai Gumi Co Ltd ('the petitioner') and Zenecon Sdn Bhd ('the second respondent'), on 9 October 1984. The third and fourth respondents were the original subscribing shareholders of the company. Later, 490,000 shares were issued to the petitioner and 510,000 shares were issued to the second respondent. On 18 July 1989, a formal shareholders' agreement was entered into between the petitioner and the second, third and fourth respondents, whereby the management control of the first respondent was transferred from the relevant respondents to the petitioner. Prior to the shareholders' agreement, it was alleged by the respondents that the petitioner had represented and undertaken that in consideration of the change of control, the petitioner would inject funds into the first respondent. The petitioner denied ever giving such an undertaking. It was common ground that after the petitioner took over control of the first respondent's management, no funds were injected into the first respondent. On 2 May 1991, the petitioner filed an oppression petition and obtained several orders in the nature of injunctions. After filing the petition, there was some correspondence between the two parties and the letters show that an agreement had been reached that the oppression petition would be withdrawn. However, this fell through on 19 June 1991, when the respondents took out an application to discharge the orders. The petitioner then presented the winding-up petition on 4 March 1992 and on 25 June 1992, obtained an order that the two petitions be heard together.

Held, dismissing both the petitions: (1) whether cross-examination should be ordered in a matter like this was within the discretion of the court and in this case, the approach of the court should be to examine the contemporaneous documents and the conduct of the parties. Here, the matter could be decided without reference to any cross-examination since there was abundant documentary evidence that was not disputed which would enable any court to arrive at a decision on the matter; (2) where a fully paid-up shareholder presents a petition to wind up the company, he must both allege in his petition and show by evidence that there are assets of the company of such an amount that in the event of a winding-up, he would have a tangible share of the surplus to receive. If this is not done, the petition is liable to fail in limine. Here, there was no allegation in the winding-up petition that there would be a surplus available for distribution among the shareholders and there was also no evidence in support of such a contention. Therefore, the petitioner had no locus standi to present the winding-up petition and on this ground alone, the winding-up petition was dismissed; (3) there exists a bona fide dispute as to the existence of the debt, owed by the company to the petitioner, based on substantial grounds. Therefore, the winding-up petition should be dismissed; (4) where oppression is alleged, then whether it be a case heard on s 181 or on the just and equitable provision, the considerations are more or less the same. The court must, in either case, consider the background and all the circumstances of the case, including the relationship between the parties and their conduct towards each other when coming to a decision. Consequently, cases decided under the law of contract that deal with the admissibility of extrinsic evidence, when construing the terms of a written document, are not applicable when considering a case based on a relationship between parties that is governed by considerations of fairness and justice; (5) on a balance of probabilities, the petitioner did give the undertaking to inject funds into the first respondent. Therefore, the petitioner acted in breach of its undertaking which was a serious matter as the obligation itself was fundamental in nature; (6) on a balance of probabilities, the basis on which the petition had been presented was material, occasioned by the petitioner's own misconduct. If the petitioner had kept its word and acted in accordance with the undertaking to inject funds into the first respondent, the matters complained of would not have occurred; (7) considering the case as a whole, the petitioner had not only failed to make out a case of oppression but was in fact the true oppressor. Therefore, the petitioner was not entitled to an order for winding up due to his misconduct. Accordingly, the petitioner was ordered to sell its shares to the second, third and fourth respondents and the respondents were ordered to purchase the petitioner's shares at a price to be determined on an inquiry; (8) a party should not be entitled to have the benefit of any transaction whereby a public authority had been misled; (9) the lack of candour or frankness may, in certain circumstances, constitute oppression. In this case, the petitioner acted without frankness or candour and such conduct constituted oppression; (10) the Rules of the High Court 1980 ('the RHC') do not contain any specific pro-visions for the presentation or prosecution of a cross-petition but that did not prohibit the court from entertaining such an application. There is nothing in the RHC prohibiting the presentation of a cross-petition. A code of civil procedure cannot foresee and provide for every eventuality. Where it does not, O 92 r 4 of the RHC may be invoked to prevent injustice; (11) (obiter) where a matter is being adjudged on affidavit evidence, a mere assertion without more will not make the issue raised triable viva voce evidence. The duty of a judge does not end as soon as a fact is asserted by any one party and denied or disputed by the other in an affidavit; (12) (obiter) even if the directors or majority shareholders of a company had been guilty of improper or unreasonable conduct so that there appeared to be a prima facie case for relief on just and equitable grounds, such relief would nevertheless be refused if the real purpose of the petitioners was to obtain payment owed by the company.

Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd & Ors and another application [1994] 2 MLJ 789; CSLR X[651] High Court, Kuala Lumpur (Anuar J).

P petitioned for the winding up of D. D asked for an order that the hearing of the petition be stayed or alternatively it be struck out or dismissed. D contended that the disputes between the parties relating to the debt alleged to be due to P ought to be referred to arbitration in pursuance of an arbitration clause contained in a contract made between the parties. In other words, D contended that the petition of P was premature.

Held, striking out P's petition: (1) in the instant case, P had avoided the arbitration proceedings which they ought to have resorted to in the first place before seeking to recover the debt alleged to be owing by D. Further, instead of claiming and proving the alleged debt viva voce in an ordinary court, P had resorted to a companies court primarily dealing with affidavit evidence and the winding up of companies; (2) in view of the disputes between the parties, it was not just and equitable that D be wound up. Even assuming that the parties should not be held to their arbitration agreement, the petition of P should be dismissed on the ground that a companies court should not be used to resolve disputes between the parties hereto and that viva voce evidence would be required to resolve them.

Liew Yin Yin Construction Sdn Bhd v Yata Enterprise Sdn Bhd Winding Up No 42-33-88 High Court, Ipoh (Peh Swee Chin J).

Vasudevan v Icab Pte Ltd [1987] SLR 201 High Court, Singapore (Chan Sek Keong JC).

See COMPANIES AND CORPORATIONS, Vol 3, para 753.

The first appellants carried on the business of manufacturing and repairing computer and data processing equipment and accessories. All the shares in the first appellant company were owned by the second appellants and steps had been taken to wind up the first appellants pursuant to a members' voluntary winding-up. At all material times, the first appellants employed one Heng as a planner and her duties included the collation of information on the usage requirements of materials, raising purchase requisitions and scheduling delivery of the materials required to the first appellants' production plants. The respondent was the sole proprietor of a business and had been a supplier of materials to the first appellants since 1983. In late 1986, Heng requested the respondent, as a personal favour, to help her uncle in the United States of America, who was in financial difficulties, clear his business stocks of Alpha Texwipe (AT) and Lint Free Swabs (LFS). Heng asked the respondent to buy the stocks from Heng's uncle and sell them to the first appellants for a commission of S$3 per packet sold. Upon receiving payment from the appellants, the respondent would make payment to her after deducting what was due to him as commission. The respondent agreed to the venture. Two detailed schemes were devised by Heng to cheat the first appellants. The effect of both schemes was such that based on altered documents, the first appellants paid the respondent for AT and LFS which were not actually delivered to them. As a result of the schemes, the respondent received various sums from the first appellants totalling S$1,984,740. After deducting his commission, he paid the balance to Heng. The first appellants commenced an action against Heng and the respondent claiming S$1,984,740 for conspiracy to defraud and/or as moneys had and received. The respondent resisted the claim and counterclaimed the sum of S$366,864.71 being the price of goods supplied by him to the first appellants. Heng was prosecuted and convicted for cheating the first appellants of a total sum of S$1,984,740 and attempting to cheat them of S$347,300 and was sentenced to imprisonment. The first appellants obtained judgment in default against Heng but the judgment was partially satisfied as only S$942,940.93 was recovered by the police and paid to the first appellants. The action against the respondent proceeded to trial for the balance sum of S$1,041,799.07. Before the case came to trial, the second appellants' holding company recovered US$259,876.82 from their insurers under a policy of insurance protecting them against loss resulting from the dishonesty of an employee. By an agreement dated 13 January 1993, the holding company and the insurers agreed that the payment made should be in full and final settlement. The trial judge found that no agreement existed between the respondent and Heng to defraud the first appellants and accordingly, the first appellants' claim against the respondent for conspiracy to defraud failed. On the alternative claim for moneys had and received, the trial judge noted that the S$80,850 retained by the respondent as his commission for the transactions had been returned to the first appellants. As for his liability in respect of the balance of the moneys he had received and passed on to Heng, the trial judge found that the defence of change of position was available to the respondent. Thus, the claim for money had and received also failed. (See [1994] 1 SLR 534.) The appellants appealed against the trial judge's findings that the respondent had not been a party to the conspiracy to defraud the first appellants and that the respondent was not liable to the appellants for moneys had and received. The respondent conceded on appeal that a further sum of S$46,390 had been retained by the respondent as his commission and that the appellants were entitled to claim it from the respondent as money had and received. However, with respect to the remaining sum of S$995,409.07, the respondent urged that the trial judge's decision be affirmed. Two additional grounds were relied upon, namely, that the appellants were estopped from recovering any money from the respondent by virtue of the settlement of their insurance claim and that there was no party capable of maintaining the action below.

Held, allowing the appeal in part: (1) the appellants had to prove that there was in existence an agreement or at least some arrangement between the respondent and Heng to defraud the first appellants. A high degree of proof was required. On the evidence, it was not proved by the appellants that there was any agreement or arrangement between the respondent and Heng to defraud the first appellants. In the event, the claim based on conspiracy to defraud was rightly dismissed; (2) the action for money had and received will lie where the defendant has received money of the plaintiff under such circumstances that he is obliged by the ties of natural justice and equity to refund it. In the present case, the first appellants had paid out moneys under mistakes of fact to the respondent who had clearly received the moneys as principal. In the premises, the respondent was prima facie liable on the claim for moneys had and received; (3) he could not be said to have acted in bad faith or with knowledge of the facts entitling the first appellants to restitution. In all the circumstances, it would be inequitable to require him to make restitution. The defence of change of position succeeds; (4) it is only upon the final dissolution of a company that a cause of action vested in it ceases to exist. A company is finally dissolved only when the requirements in s 308 of the Companies Act (Cap 50, 1990 Ed) are satisfied. On the facts, the first appellant company had not been finally dissolved and could maintain the action through the liquidator; (5) payment by the insurer under the insurance policy did not bar the first appellants' claim against the respondent. The respondent, not being privy to the contract of insurance, acquired no rights under it. The respondent could not seek to rely on the payment out by the insurer to bar or offset the claim by the first appellants against him; (6) the essence of conspiracy is an agreement;the defence of a bona fide change of position is available in this jurisdiction to a claim for money had and received. It is available when the defendant's position has so changed that it would be inequitable in all the circumstances to require him to make restitution or restitution in full to the plaintiff. It is plain that the defence is not open to a defendant who changed his position in bad faith, with knowledge of the facts entitling the plaintiff to restitution. On the facts, the respondent had changed his position since receipt of the moneys from the first appellants by making payments to Heng before the discovery of the fraudulent schemes. The respondent was not dishonest when he paid out the moneys to Heng;the sum of S$46,390 should be paid to the first appellants as conceded by the respondent and to this extent the appeal was allowed. The claim for the remaining balance was dismissed.

Seagate Technology Pte Ltd & Anor v Goh Han Kim [1995] 1 SLR 17; (1995) CSLR XX[877] Court of Appeal, Singapore (Karthigesu and LP Thean JJA and Goh Joon Seng J).

Supreme Holdings Ltd v The Sheriff, Supreme Court of Singapore & Anor [1986] SLR 202 High Court, Singapore (Thean J).

See COMPANIES AND CORPORATIONS, Vol 3, para 916.

The plaintiff and defendant are the children of Low Yok Kay, deceased ('LYK'). Under cl 9 of his will, all his shares in Hup Choon Kim Kee (Pte) Ltd ('HCKK') are to be held upon trust for the benefit of certain beneficiaries, and in cl 12 of the will the residue of his estate is to be held upon trust to be divided equally amongst his wives and sons. LYK appointed the plaintiff and the defendant as his executors and trustees. They were also common beneficiaries under cll 9 and 12 of the will. The plaintiff and defendant were in disagreement on certain events which occurred before the death of LYK in relation to the assets of HCKK and the effect of such events on cl 9 of the will. LYK was, at the date of the will, the registered shareholder of 1,005 shares in HCKK. On 17 October 1983, the shareholders resolved to voluntarily wind up HCKK and appoint Tan Beng Joo ('TBJ') and Tan Hong Bak ('THB') as liquidators, and empower them to distribute the assets of HCKK to the members of HCKK. The shareholders signed an agreement ('the shareholders' agreement') to give effect to the distribution. The shareholders' agreement listed the properties of HCKK and agreed values of these properties in the event that the agreed value of a property was greater or lesser than the entitlement of a shareholder, the difference would be made up by a payment in cash ('the equality money') by HCKK to the shareholders or vice versa. The equality money payable by LYK to HCKK was $19,691. LYK passed away in hospital on 31 May 1985. The facts in dispute were: (a) the date when LYK signed the shareholders' agreement: (b) the date or dates when LYK, the liquidator and HCKK executed certain assurances of properties allocated to LYK ('the said properties'); and (c) the date when LYK paid the equality money. The court made the following findings on the factual position at LYK's death; (1) LYK owned the same shares in HCKK he had bequeathed under cl 9; (2) HCKK was still in liquidation; (3) LYK had executed the assurances but HCKK had not; and (4) LYK had not paid the equality money. The legal issues arising on the undisputed facts as well as the facts found by the court were whether, at the date of LYK's death, the said properties formed part of (a) LYK's shares specifically bequeathed under cl 9 of the will or (b) LYK's residuary estate under cl 12 as property not specifically disposed of under the will. On the finding of fact that LYK had no legal title to any of the said properties prior to his death, the question is whether he had equitable ownership of the said properties before he died. This depended on what rights a shareholder had in the assets of a company in liquidation, whether there was a gift created under the principle in Milroy v Lord 45 ER 1185, whether the shareholders' agreement had the effect, under the equitable doctrine of conversion, of vesting the beneficial ownership of the said properties in LYK before he died, and whether the shares were adeemed by the signing of the shareholders' agreement or execution of the assurances by LYK.

Held, that the said properties were part of the assets to be distributed to the cl 9 beneficiaries: (1) it is the general rule that in a winding up of a company, the company retains the legal ownership (and no differentiation needs to be made with respect to its equitable ownership) of all its assets and that the shareholders are only entitled to an aliquot part of the assets of the company. In a dispute between revenue and the company/shareholders as to liability for stamp duty, income tax and other duties, it will be necessary to differentiate between the legal and equitable ownership of the company's assets because the operation of the relevant statute requires such a differentiation. It is not the law that the dualism of estates and rights in property is applicable or should be applied or recognized in every case. A person who owns the legal estate also has the beneficial ownership unless it is vested or may vest in someone else; (2) and had the effect of an unanimous resolution on the part of the shareholders; (3) as regards the rights of a shareholder in a winding up of a company, the general principle is that the shareholder is entitled beneficially in specie to a particular property held by the company where he is in a position to demand that it be transferred to him. The company is merely a bare trustee in such a situation. However, there was insufficient evidence that LYK was in a position to demand that the transfer of the said properties be effected in his favour. His rights were conditional upon the fulfilment of certain conditions. There was sufficient evidence to show that these conditions had not been satisfied when the purported assurances were executed. HCKK could not be considered a bare trustee of the said properties for LYK, at any time before his death; (4) as between them, the legal titles of the said properties remained vested in HCKK until they were actually and effectively distributed to LYK or his estate after his death. Until distribution, there was no need to distinguish between HCKK's legal and beneficial titles in the properties; (5) as regards the plaintiff's argument that the shareholders' agreement has brought the doctrine of conversion into play as analogous to a contract for the sale of land, the analogy would only be appropriate if the shareholders' agreement is enforceable. However, the shareholders' agreement was not enforceable by the shareholders against the liquidators or HCKK as a contract. It did not impose nor was it intended to impose, a new contractual obligation superseding his statutory obligation to distribute the immovable properties of HCKK in specie under the terms of the special resolution. The shareholders' agreement merely bound the shareholders inter se as to the specific properties they would be entitled to by way of distribution and the conditions on which they would be distributed;even if the shareholders' agreement had become unconditional, it could not be said that the beneficial title and legal title in the properties had been severed and the beneficial title thereby became irrevocably vested in the respective shareholders. This is because the shareholders' agreement was no more than a revocable resolution of the shareholders. Whilst an agreement amongst shareholders confers rights amongst themselves, it confers no rights whatever on the liquidator in relation to the distribution of assets in specie. Until the properties were actually distributed, the shareholders had the right to require the liquidator to do otherwise. The right of revocation, therefore, remained as part of LYK's right of ownership of shares at the date of his death. At most, there was a revocable trust in respect of the said properties;ademption of a specific gift occurs (a) when the subject matter of the gift is disposed of or destroyed bparticular case is a question of construction. The present case does not fall within any of the established categories of cases where the courts have held that ademption has occurred. At the date of the death of LYK, the shares remained the same as before and ademption had not taken place.

Low Gim Har v Low Gim Siah [1992] 2 SLR 593 High Court, Singapore (Chan Sek Keong J).

3 [677] COMPANIES AND CORPORATIONS Winding up – Distribution of company's property – Insolvent liquidation – Principle of pari passu distribution – Building contract – Employer making payment directly to nominated sub-contractor – Main contractor in insolvent liquidation – Whether contravention of principle of pari passu distribution – Re Wilkinson, ex p Fowler [1905] 2 KB 713 (not folld); Re Tout and Finch Ltd [1954] 1 All ER 127 (not folld); Re CG Monkhouse Pty Ltd (1968) 88 WN (NSW) 238 (not folld); British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 2 All ER 390 (folld); Administrator, Natal v Magill, Grant & Nell (Pty) [1969] 1 SALA 660 (cited); Re Jeavons, ex p Mackay (1873) LR 8 Ch App 643 (cited); Re Johns Worrell v Johns [1928] Ch 737 (cited).

P was the main contractor under a building contract with G. D1 to D4 were nominated sub-contractors. P went into liquidation. At the time a sum was owed by G in respect of work done by D1 to D4. Clause 20(e) of the building contract provided that G, as employer, could make payment directly to the nominated sub-contractors in the event that P, the main contractor, failed to pay them on certificates issued by the superintending officer or if P was put into liquidation. The liquidator of P sought the court's guidance as to whether cl 20(e) was enforceable.

Held: (1) upon the liquidation of an insolvent company, its property must be applied in settlement of its liabilities pari passu among the unsecured creditors (subject to the rights of the secured and preferred creditors). Any contract made by the company which provides for a distribution of any of its property for the benefit of one or more of its unsecured creditors which runs counter to this rule is contrary to public policy and unenforceable. The liquidator of an insolvent company is obliged to disregard such a contract; (2) there is no privity of contract between the employer G and the nominated sub-contractors. If a payment is made to a nominated sub-contractor by G under cl 20(e), that payment is made on behalf of P, the main contractor; (3) all moneys to be paid for works done and materials supplied are payable to P under the contract. Any payment to a person other than P can only be made with the consent or authority of P. Clause 20(e) operates as such an authority to G to effect payment directly to the nominated sub-contractors. Whatever moneys G pays to the nominated sub-contractors are in fact moneys which would otherwise be payable to P, the main contractor; (4) accordingly, payment by G directly to the nominated sub-contractors of sums owing under the contract amounts to a breach of the principle that P's property must be distributed pari passu among its unsecured creditors. Clause 20(e) was therefore not binding on the liquidator of P. Any payment to the sub-contractors under that clause would be void as against the liquidator.

Joo Yee Construction Pte Ltd v Diethelm Industries Pte Ltd & Ors [1990] SLR 278 High Court, Singapore (LP Thean J).

In winding-up proceedings, an ex parte injunction was granted to restrain the respondent company from raising any form of capital and/or loan stocks and/or altering its paid-up capital. The respondent applied to set aside the injunction, raising a preliminary objection that the petition should be heard by the Penang High Court. The respondent also objected to the injunction on the ground that it had the effect of prohibiting the holding of a meeting of a body corporate contrary to O 29 r 1(2c) of the Rules of the High Court 1980.

Held, dismissing the application: (1) by virtue of the definition of 'local jurisdiction' in s 3 of the Courts of Judicature Act 1964, the plaintiff was entitled to file an action in any branch of the High Court in Malaya. A branch of the High Court located in any state has concurrent jurisdiction to entertain any civil proceedings; (2) the injunction was to be construed by reference to the intention as expressed in the injunction itself. If the words contained in the injunction were precise and unambiguous, there was no room for any construction other than the one expounding those words in their ordinary and natural meaning; (3) upon proper construction, the injunction did not restrain the respondent from holding a meeting at all.

Goh Boon Kim v Taman Sungai Dua Development Sdn Bhd [1995] 4 MLJ 553; (1994) CSLR IX[1627] High Court, Kuala Lumpur (Low Hop Bing JC).

China Insurance was a company incorporated in Hong Kong. It was registered as a foreign company in Singapore. In 1981, the ownership and control of the company was acquired by the Carrian group of companies. When the Carrian group of companies collapsed, China Insurance was wound up in Hong Kong and the plaintiff was appointed as the liquidator of the company. However, the company was not wound up in Singapore. In the course of investigating the affairs of the company, the plaintiff discovered that two loans totalling $25 million obtained from the third defendant were used not for the benefit of China Insurance but for some other companies. The plaintiff therefore instituted the present proceedings against the third defendant and the first defendant, who was alleged to be the deputy general manager of the third defendant at all material times. The plaintiff's application was for a court-ordered examination of the defendants under s 285 of the Companies Act (Cap 50, 1985 Ed). At the hearing, the first defendant and the third defendant raised a preliminary issue that the court has no jurisdiction under s 285 of the Companies Act to order an examination as China Insurance, being a foreign company and not being wound up in Singapore, is not a company to which that section could apply. The plaintiff, however, contended that the court has jurisdiction or power under s 285 by virtue of s 377(2) of the Act.

Held, dismissing the application: (1) the argument that the expression 'liquidator' in s 377(2)(b) of the Companies Act means the Official Receiver is patently unsound. The Official Receiver becomes a liquidator only when no approved liquidator is appointed in a winding up by the court. Section 377(2)(b) refers to a situation where a foreign company has not been wound up by the court in Singapore. The expression 'liquidator' in s 377(2)(b) refers to the liquidator in s 377(2)(a), the appointment of whom is required to be notified to the Registrar of Companies. That liquidator is the foreign liquidator; (2) the jurisdiction of the court in relation to the winding up of companies and unregistered companies is derived from Part X of the Act. The court has no jurisdiction under Part X in respect of corporations not wound up thereunder. It has jurisdiction over foreign companies which are wound up in their respective places of incorporation or elsewhere under Division 2 of Part XI of the Act to the extent that it is provided for therein. That this is the position is reinforced by s 350(2) which gives the court jurisdiction to exercise any powers in the case of unregistered companies wound up under Part X which might be exercised by it in winding up companies; (3) the present application did not purport to invoke the inherent jurisdiction or power of the court to order the private or public examination of relevant persons in connection with the affairs of a company in winding up. The court does not have such jurisdiction or power. The jurisdiction or power of the court in this respect is statutory in origin and must therefore be exercised within the ambit of such legislative intent; (4) it therefore follows that it has no jurisdiction to exercise such power in respect of the affairs of the winding up of a foreign company; (5) s 285 gives to the court an extraordinary power. This power is given expressly to the court in respect of matters within its jurisdiction, ie the winding up of Singapore companies and unregistered companies;this court had no jurisdiction under s 285 to order the examination of persons in connection with the affairs of a foreign company which is not wound up by the court under Part X of the Act.

Re China Underwriters Life and General Insurance Co Ltd; Official Receiver, Hong Kong v Kao Wei Tseng & Ors [1988] SLR 217 High Court, Singapore (Chan Sek Keong JC).

[Annotation: Affirmed on appeal. See [1990] SLR 29; [1990] 2 MLJ 321.]

Upon the application of the appellants, the liquidators of Lee Wah Cane Furniture Pte Ltd (the company), under s 249 of the Companies Act (Cap 185, 1970 Ed), the assistant registrar ordered that the respondent, advocate and solicitor of Singapore, 'be examined on oath concerning the promotion, formation, trade dealings, affairs or property of the company'. The respondent's appeal against the assistant registrar's order was allowed by the High Court (see [1984] 1 MLJ 156) on the ground of legal professional privilege. The liquidators appealed against the said order.

Held, allowing the appeal: (1) having acted for the company, the solicitor could not set up a plea of professional privilege as against the liquidators. The company continued to exist despite the winding-up order, and the liquidators stood in the place of the directors, who became functus officio; (2) the court was completely satisfied that the proposed examination was requested by the liquidators because it was necessary for them to investigate the matter and discharge their duties.

Peter Chi Man Kwong & Anor v Ronald Lee Kum Seng 1989 Court of Appeal, Singapore (Wee Chong Jin CJ, Lai Kew Chai and Rajah JJ).

[Annotation: Re Lee Wah Cane Furniture Pte Ltd [1984] 1 MLJ 156 reversed.]

Re Ken Bina Sdn Bhd; Evergrip Prestressing Sdn Bhd v Ken Bina Sdn Bhd (1993) CSLR XX[6089] High Court, Kuala Lumpur (Selventhiranathan J).

See COMPANIES AND CORPORATIONS, para 885.

Re Lee Wah Bank Ltd [1926] 2 MC 81 High Court, Straits Settlements (Murison CJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 211.

Tong Aik (Far East) Ltd v Eastern Minerals & Trading (1959) Ltd [1965] 2 MLJ 149 Federal Court, Singapore (Barakbah CJ (Malaya).

See COMPANIES AND CORPORATIONS, Vol 3, para 210.

In June 1982, the respondents extended to the first appellants, a stockbroking company, a short term revolving facility of S$4m, secured by a hypothecation of shares in its possession and joint and several guarantees of all the directors of the first appellants. Credit facilities were also obtained by the first appellants from 20 other banks and similar letters of hypothecation were executed in favour of all these banks. The first appellants would submit to the banks weekly certificates stating the quantity, counter, unit price and value of the shares held in their possession and charged to the respective banks but not the numbers of the certificates of the shares charged. Possession of all the shares were retained by the first appellants. However, these shares were not set aside separately and demarcated, for each of the banks, and the first appellants, in fact, charged the same shares to various banks simultaneously. In November 1985, a dramatic downturn in the stock markets of Singapore and Malaysia resulted in a substantial decrease in the value of the first appellant's assets, as represented by the shares in their possession. The first appellants also suffered huge irrecoverable debts from the default of its clients in failing to make payment to and take delivery of the shares from them. In consequence, the first appellants were clearly insolvent in December 1985. The banks started to demand delivery of the shares charged to them but the first appellants managed to resist all such demands. On 17 January 1986, the managing director and the executive director of the respondents met Lin Tah Hwa (Lin), the managing director of the first appellants, and requested for an arrangement whereby the shares charged to the respondents were to be handed to them each afternoon when trading closed, to be kept in their custody and returned the following morning to the first appellants when the share market opened. Lin agreed and the arrangement was duly carried out. No similar arrangement was entered by the first appellants with the other banks and no share certificates were delivered to them either, save for one other bank. Pressure on the first appellants continued to be exerted by its creditors. On 22 February 1986, the first appellants notified the banks that they had decided to discontinue the practice of hypothecating the shares to them. Two days later, on 24 February 1986, the respondents refused to release to the first appellants the shares delivered to them under the arrangement. The first appellants subsequently went into liquidation. The liquidators challenged the delivery of the shares to the respondents as a fraudulent preference under s 329, Companies Act (Cap 50, 1994 Ed) read with s 53 of the Bankruptcy Act (Cap 20). In the court below, the trial judge held that the liquidators had failed to establish that the first appellants had, in delivering the shares to the respondents, intended to prefer the respondents over the other creditors of the first appellants (see [1994] 2 HKC 168). The appellants appealed.

Held, dismissing the appeal: (1) the onus was on the appellants to prove that possession of the shares were given to the respondents with a view to giving the latter a preference over all the other creditors. The mere fact of a preference is not, without more, tantamount to proof that the debtor had acted 'with a view' to prefer; (2) the circumstances in which the arrangement came about on 17 January 1986 showed that there was pressure exerted on Lin. It was not made at the instance of the first appellants or on their own volition. The respondents were clearly determined to put the security arrangement on a firmer and more secured basis. 'The request' by the respondents would not have been acceded to by Lin, if he could avoid or resist it. It was also clear that had the respondents made 'the request' in the form of a letter in lieu of the personal call by the respondent's managing director and executive director, the first appellants would not have acceded to such request; (3) the first appellants did what they could in the circumstances to avoid their imminent collapse. The arrangement with the respondents allowed the first appellants to carry on trading without any interruption, and at the same time enabled them to have the benefit of the facility from the respondents; (4) in delivering the shares to the respondents on the afternoon of 21 February, the first appellants did not intend that those shares should be kept by the respondents to satisfy the latter's debts. The first appellants did not expect the respondents to exercise their right to retain the shares when trading resumed on the morning of Monday, 24 February 1986. There was therefore no intention on their part to prefer the respondents over the other creditors.

Lin Securities Pte (in liquidation) & Ors v Royal Trust Bank (Asia) Ltd [1995] 1 SLR 97; CSLR XX[6958] Court of Appeal, Singapore (Yong Pung How CJ, Karthigesu and LP Thean JJA).

Upon a petition by the Government of Malaysia presented on 13 November 1978, the appellant company was ordered to be wound up under the provisions of the Companies Act 1965 (Act 125). The Official Receiver, the second appellant, was constituted provisional liquidator of the affairs of the company. The case concerned three portions of a piece of rubber estate measuring a total of 893 acres owned by the first appellant. The first respondent was a licensed finance company controlled by Amos William Dawe. The third respondent was the main shareholder of the first appellant. The central figure in the case was Dawe who controlled the first appellant when the third respondent agreed to sell the whole of the share capital of the first respondent to Dawe on 6 December 1972. On 12 December 1972, the third respondent (on the direction of Dawe) caused the first respondent to execute a charge of the first portion (503 acres) of the estate in favour of the first respondent to secure a loan of $2,500,000 with interest. On 27 February 1973, the third respondent (on the direction of Dawe) caused the first appellant to execute a transfer of the second portion (87 acres) of the estate to Chelliah Paramjothy (the fourth defendant at the trial) for $174,000 although no money was in fact paid or intended to be paid. On 17 March 1973, the third respondent (on the direction of Dawe) caused the first appellant to execute a transfer of the third portion (303 acres) of the estate to one Wong Peng Fun, who executed a deed of trust. No money was paid or intended to be paid by Wong. On 15 December 1975, Wong executed a charge of the third portion in favour of the first respondent. On 28 December 1975, Chelliah Paramjothy (the fourth defendant) executed a charge in respect of the second portion of the estate in favour of the first respondent. On 21 November 1978 the transfer of the first portion of the estate from the first appellant to the first respondent was presented and eventually registered. The transfer by Chelliah Paramjothy of the second portion to the first respondent on 30 November 1978 was registered; and the transfer of the third portion by Wong to the first respondent was also registered with effect from that date. By an agreement dated 19 March 1979, the first respondent agreed to sell the whole estate to Gwei Wang Kiat, a director of the second respondent, for some $5 million. By an agreement dated 6 July 1979 between Gwei and one Low Eng Heng (acting on behalf of the third defendant), Gwei agreed to sell to Low or his nominee the whole of the estate for some $10 million. Eventually, the second respondent sold the whole of the estate to the first respondent and the full purchase money had been paid or retained when the agreement was completed on 29 November 1979. On 12 April 1980, the Official Receiver, as liquidator, commenced the proceedings. The appellants sought declarations that the transactions consisting of the charges, transfers and sales of the rubber estate belonging to the first appellant which were executed before or after the presentation of the petition for winding up of the first appellant were null and void.

Held, allowing the appeal: (1) the registered owners of the second and third portions of the estate held the properties upon trust for the first appellant at all material times before November 1978; (2) the bankruptcy rules as to fraudulent preference apply to the winding up of a company by the court by virtue of s 293(1) of the Companies Act 1965. In this case, the first appellant company was ordered to be wound up by the court on a petition presented before the end of the six months after the making of the fraudulent preferential transfers to the first respondent. It followed that the transfers of the first, second and third portions of the estate to the first respondent were therefore void as against the second appellant by reason of s 53(1) of the Bankruptcy Act 1967 (Act 55/1967) (as amended) read with 293(1) of the Companies Act 1965; (3) all three dispositions were void under s 223 of the Companies Act 1965. The court should in this respect adopt the practice of the courts in England that no validation order would be made if the transfer was proved to be a fraudulent preference and therefore void as against the Official Assignee under s 53(1) of the Bankruptcy Act 1967. The validation order made by the learned judge pursuant to s 223 of the Companies Act 1965 should be set aside; (4) since the transfers were fraudulent preferences and therefore void as against the second appellant under s 53(1) of the Bankruptcy Act 1967 read together with s 293(1) of the Companies Act 1965, it was ordered that (a) the first respondent pay to the second appellant the sum of $2,036,090 within 30 days from the date of the judgment; and (b) the second respondent pay to the second appellant the sum of $3,009,062.13 within 30 days from the date of the judgment.

Lian Keow Sdn Bhd & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 Supreme Court, Kuala Lumpur (Seah, Hashim Yeop A Sani and Syed Agil Barakbah SCJJ).

[Annotation: Lian Keow Sdn Bhd v Overseas Credit Finance (M) Sdn Bhd [1987] 1 MLJ 56 (High Court) reversed.]

In this case, the winding up of Taulani Sdn Bhd (the company) commenced on 12 June 1978. The company, as transferor, and the plaintiff and three others, as transferees, executed the memorandum of transfer on 5 July 1979. It was presented for registration on 9 July 1979. The High Court held that the disposition of the land (the property of the company) was void ab initio under s 223 of the Companies Act 1965 (Act 125) and ordered that the registration of transfer be cancelled. The plaintiffs applied for an order to set aside the said order of court.

Held, dismissing the plaintiffs' application: even if the date of executing the sale and purchase agreement (24 April 1978) was taken to be the date of disposal of the land, the disposal or the transfer of the said land by the company was void by virtue of s 293 of the Companies Act.

Datin Hajjah Zaleha & Ors v Perkasa Trading Sdn Bhd & Anor [1984] 1 MLJ 372 High Court, Kota Kinabalu (Wan Mohamed J).

The applicant in this case who is the liquidator of a private limited company applied for an order that the first respondent do refund to the applicant a sum of RM115,000 placed on fixed deposit with the first respondent together with appropriate interest. The company was awarded a contract to construct superstructural works for the Urban Development Authority ('the UDA'). A performance bond was obtained by the company from the second respondent in favour of the UDA. As consideration the second respondent obtained, inter alia, the deposit of the fixed deposit. The company executed a memorandum of deposit cum letter of guarantee/authority dated 13 May 1987 in favour of the second respondent which was registered as a charge with the Registrar of Companies. The company was subsequently wound up by the High Court and the applicant was appointed its liquidator and thereupon demanded the return of the sum in fixed deposit from the first respondent. Meanwhile, the UDA claimed from the second respondent the performance bond due to the breach of contract by the company. The second respondent then took steps to realize the fixed deposit from the first respondent which is the subject matter of a separate civil suit. The applicant claimed that the fixed deposit with the second respondent was not a secured debt, that there was undue preference created by the company in depositing the fixed deposit, and that the fixed deposit was placed after the commencement of the winding-up proceedings and therefore void. The second respondent claimed that the fixed deposit was a fixed charge and they therefore had priority over it. There was no undue preference as at that time the company was in a sound financial position. The fixed deposit was placed before the commencement of the winding-up proceedings.

Held, dismissing the motion with costs: (1) the fixed deposit is a debenture and was properly registered as a charge. It is a secured debt and does not fall within the distribution priorities of unsecured debts. It is not a floating charge as it was created over a fixed property which was the fixed deposit; (2) the definition of debentures should be given a more liberal outlook to meet the modern day needs and should include besides 'debt', any obligation, covenant, undertaking or guarantee to pay or any acknowledgment thereof; (3) there was no undue preference created in favour of the second respondent as the fixed deposit was deposited with them in a normal commercial transaction which was the usual course of such business. The transaction took place six months before the winding-up petition was presented to court, thus annulling the presumption of adverse intention. The company was also solvent at the time the transaction took place; (4) the transaction was not void under s 223 of the Companies Act 1965 as it was completed before the commencement of the winding-up process. The fixed deposit had been in the possession of the second respondent before the commencement of the winding up of the company; (5) counsel for the applicant has no locus standi in these proceedings as no authority was granted by the court or the committee of inspection under s 236(1)(e) of the Companies Act. The motion brought by the applicant is not void under s 236(2) and (3) as the applicant can commence proceedings subject to the approval of the court.

Bensa Sdn Bhd (in liquidation) v Malayan Banking Bhd (Damansara Utama Branch) & Anor [1993] 1 MLJ 119 High Court, Johore Bahru (James Foong J).

The plaintiff let out its premises to Maharani Supermarket Sdn Bhd ('Maharani'). The tenancy agreement provided that if 'Maharani' terminated the tenancy before its expiry, the plaintiff was entitled to forfeit Maharani's deposit of M$100,000. In February 1987 the plaintiff alleged that it had received a letter from 'Maharani' stating that the latter wished to terminate the tenancy. The plaintiff then purported to forfeit Maharani's deposit. On 5 March 1987 a winding-up petition was filed against 'Maharani' and the first defendant was appointed its provisional liquidator. The first defendant claimed for the return of Maharani's deposit on the ground that the plaintiff's purported forfeiture amounted to a payment by 'Maharani' to preferential creditors and was therefore void under s 293(1) of the Companies Act and s 53(1) of the Bankruptcy Act 1967. The plaintiff however contended that at the time of the alleged termination of the tenancy, the relationship between the plaintiff and 'Maharani' was not that of a creditor and debtor but was instead that of a landlord and tenant. The plaintiff accordingly argued that s 53(1) of the 1967 Act did not apply in this case. In March 1987 the plaintiff instituted proceedings under the Distress Act 1951 against 'Maharani' for distress of arrears of rental in respect of, inter alia, the month of March 1987. The senior assistant registrar gave summary judgment for the first defendant against the plaintiff and the plaintiff appealed to the High Court.

Held, dismissing the appeal: (1) when the tenancy was terminated, the landlord-tenant relationship between the plaintiff and 'Maharani' ended and the plaintiff was entitled to claim liquidated damages under the tenancy agreement. The moment the plaintiff claimed damages, it became a creditor; (2) the plaintiff's act of forfeiture was therefore a payment by 'Maharani' to preferential creditors; (3) since the plaintiff also claimed in its distress suit for the arrears of rental for the month of March 1987, the tenancy would still be in existence for the month of March 1987. The plaintiff's forfeiture could therefore only take place after the winding-up petition was filed and it was accordingly void under s 223 of the 1965 Act.

Ban Heng Hong Sdn Bhd v The Provisional Liquidator, Choong Shin Cheong & Anor (1992) CSLR XX[6952] High Court, Johore Bahru (James Foong J).

On 22 August 1986 a petition was presented for the winding up of Kim San Engineers Pte Ltd ('the company') and on 9 January 1987 an order was pronounced on the petition for winding up the company. The company had an account with the respondent bank. The company was granted overdraft and other banking facilities which were secured by a joint and several guarantee dated 23 August 1984 given by three persons, including two directors of the company, T and K. In May 1986 the account was overdrawn and by letter dated 9 May 1986, the respondent bank demanded payment of sums said to be owing on the account. After 9 May 1986 the company's account was credited with four sums of S$30,000, S$35,107.85, S$779.47 and S$10 entered on 30 May, 1 July, 30 July and 1 August respectively which extinguished the overdrawn balance. This application by summons issued on 11 January 1992 is by the liquidator for a declaration that the payments made by the company to the bank between May and August 1986 are deemed fraudulent and void by virtue of s 329 of the Companies Act and s 53 of the Bankruptcy Act ('BA').

Held, dismissing the liquidator's application: (1) it is not sufficient for the purpose of s 53 BA that the company should be unable to pay its debts as they become due from its own money, but such inability must be present at the time when the payment impugned is made; (2) on the materials before the court, the court is satisfied that the company was unable to pay its debts as they became due at the time of each of the four payments; (3) on the evidence before the court, the court is not satisfied that the payment of S$30,000 on 30 May 1986 was made with a view to giving a preference either to the bank or to the guarantors. That payment may have had and did in fact have the effect of giving a preference but that is not the question. It was just as likely, if not more than likely, that the payment made on 30 May 1986 was made to relieve the threat of winding up; (4) after 30 May 1986 the situation changed. Having regard to all the circumstances and evidence, the court's finding is that the payments of 1 July, 30 July and 1 August 1986 were made with a view to giving the bank a preference over the other creditors of the company; (5) however, there have been mutual credits, mutual debts and other mutual dealings between the company and the bank and what the bank has done by set-off on the company's account is no more than what it would been required to do by virtue of s 41 BA.

Re Kim San Engineers Pte Ltd [1992] 2 SLR 749 High Court, Singapore (Lim Teong Qwee JC).

Re City Securities Pte; Don Ho Mun-Tuke & Anor v Oslo Finans AS [1990] 3 MLJ 84 High Court, Singapore (Thean J).

See COMPANIES AND CORPORATIONS, Vol 3, para 672.

3 [691] COMPANIES AND CORPORATIONS Winding up – Fraudulent preference – Securities company in liquidation – Whether transfer of client's money from trust account prior to liquidation was with a view to preferring over other creditors – Companies Act (Cap 50, 1985 Ed), s 329 – Re Cutts (A Bankrupt), ex p Bognor Mutual Building v Trustee of TW Cutts [1956] 1 WLR 728 (folld); Sharp (Official Receiver) v Jackson & Ors [1899] AC 419 (folld); Sir William Henry Peat v Gresham Trust Ltd [1934] AC 252 (folld)

CS Pte was a company of stockbrokers and dealers in securities. In June 1985, the defendant placed $1m with CS Pte for investment in the Singapore and Malaysian stock markets. In February 1986, CS Pte was in financial difficulties and appointed a public accountant firm, PMM, to provide assistance in the management, administration and custody of scripts. PMM were authorized to open an 'escrow account' with TL Bank to receive proceeds from delivery of scrips, collection of receivables and disposal of CS Pte's assets. On 31 March 1986, CS Pte entered into a 'standstill agreement' with 18 financial institutions which agreed to withhold enforcement of rights against CS Pte, principally for the purpose of preserving and protecting the assets of CS Pte for the benefit of the financial institutions. On 29 April 1986, CWT, a director of CS Pte, instructed one FC of the accountants PMM to open a trust account with a non-creditor bank, BOC, and to transfer into those accounts the amounts of $121,587.64 and $43,720 which belonged to the defendant and one RS, which were deposited with CS Pte in the TL Bank account. Subsequently, the defendant's moneys were again transferred on 14 May 1986 to SL Finance Ltd which bore interest for the deposits. From 26 May 1986 to 1 August 1986, CS Pte, on instructions from the defendant, purchased various shares in four lots from moneys in the SL Finance Ltd account. On 3 July 1986, a winding-up petition was presented against CS Pte and on 4 July 1986, provisional liquidators were appointed. On 31 October 1986, a winding-up order was made against CS Pte and the plaintiffs were appointed liquidators. The shares were handed to the defendant partly by the plaintiffs and partly by CWT, but without the plaintiffs' knowledge that they were bought with the money from the SL Finance Ltd account. The balance sum of $69,310.19 remained in the SL Finance Ltd account. The plaintiffs claimed this balance amount and interest and the return of the shares from the defendant, but the latter point was not argued on appeal. The plaintiffs argued that the sum of $121,587.64 transferred from the escrow account of CS Pte with TL Bank to the BOC trust account was made within three months prior to commencement of liquidation of CS Pte and was done so with a view to giving the defendant preference over the other creditors of CS Pte, and was therefore void under s 53(1) of the Bankruptcy Act (Cap 20, 1985 Ed), applicable by virtue of s 329 of the Companies Act (Cap 50, 1985 Ed). The defendant asked for an order that it was entitled to the balance standing in the SL Finance Ltd account and retention of the shares. The assistant registrar held in favour of the defendant in respect of both the moneys and the shares, stating that the defendant was entitled to keep both. The plaintiffs appealed only in respect of the order for return of the moneys.

Held, dismissing the plaintiffs' appeal: (1) the burden was on the plaintiffs to prove that the payment or transfer was made with a view to giving a preference to the defendant over the other creditors of CS Pte and the word 'view' was synonymous with 'intention' or 'object'; (2) the main fact that at the material time the SL Finance Ltd account was set up and the transfer of money into it was effected per se could not give rise to an inference that the dominant intention of CS Pte was to give preference to the defendant over other creditors and such intention could not be inferred from the facts; (3) there was no direct evidence both oral or documentary that the setting-up of the trust account with BOC and transfer of funds to that account were effected with the dominant or principal intention on CS Pte's part to prefer the defendant over the other creditors.

Re City Securities Pte; Ho Mun-Tuke Don & Anor v Oslo Finans AS [1990] 3 MLJ 84 High Court, Singapore (Thean J).

By a settlement agreement ('the agreement') between Saipem (M) Sdn Bhd ('the first plaintiff'), Saipem SPA (a company incorporated in Italy), and AG & P (M) Sdn Bhd ('the first defendant'), the parties to the agreement settled certain 1egal disputes involving themselves. By the agreement, the first plaintiff was to take over the obligations of the first defendant in exchange for the first plaintiff obtaining certain benefits provided in the agreement. By the agreement, the first plaintiff was also to place a certain sum of money in an interest-bearing account in the joint names of the solicitors acting for the first plaintiff and the first defendant. The money was to be held on trust for paying debts owing to the identified creditors of the first defendant, and the remainder, if any, on trust for the first plaintiff. Later, further disputes arose between the first plaintiff and the first defendant regarding some payments to certain identified creditors. At that time, there was a balance sum of RM573,340.92 in the interest-bearing account, and RM43,435.64 in another current account. The first plaintiff with the support of the first defendant, applied by originating summons for an order from the court, inter alia, that: (i) the sums in the deposit and the current accounts be returned to the first plaintiff; and (ii) the solicitors to the first plaintiff and the first defendant, who were the joint account-holders in respect of the money, should release to the first plaintiff all money remaining in the deposit account, upon the payment to all the identified creditors. By the time the originating summons was filed, the first defendant had been wound-up upon a petition presented by the third defendant, who was a creditor of the first defendant. It was the contention of the plaintiffs that a trust had been established for the sole purpose of paying third party creditors, and that upon fulfilment of that trust, any money left in the accounts was to be held in trust for the first plaintiff. However, if such an argument was accepted, the remaining money would not have been available to meet the claims of unsecured creditors of the first defendant who had not been identified in the agreement, and had proven in the winding up the debts owing to them. The third defendant had opposed the application, but later withdrew all claims in respect of the said money.

Held, dismissing the application: (1) there was no trust in favour of the first plaintiff in respect of money remaining in the accounts after payment of sums due to the identified creditors; (2) the money advanced by the first plaintiff to the first defendant for the purpose of paying identified creditors of the first defendant was money to which the identified creditors could make no claim in law. The money could not be said to be held on trust for the identified creditors; (3) the settlement agreement constituted a conveyance, or transfer of property, of the first defendant within the meaning of s 53 of the Bankruptcy Act 1967 at a time when it was unable to pay its debts, and it was made within a period of less than six months before the commencement of the winding up. It was, therefore, void as against the official receiver who was the provisional liquidator of the first defendant; (4) the withdrawal of the claim by the third defendant was invalid as the leave of the court to such withdrawal had not been obtained.

Saipem (M) Sdn Bhd & Anor v AG & P (M) Sdn Bhd (In liquidation) & Ors [1996] 1 MLJ 239; (1996) CSLR XX[6961] High Court, Kuala Lumpur (Richard Talalla J).

The plaintiffs seek a declaration that the de-livery of certain shares to the defendants by Lin Securities (Pte) ('Lin') on 21 February 1986 was void because it is a fraudulent preference under s 329 of the Companies Act (Cap 50), and/or the Memorandum of Deposit dated 21 January 1986 pursuant to the terms of which the shares were allegedly handed over, is void and/or invalid and unenforceable. By letter dated 29 June 1982, the defendants extended to Lin a short term revolving facility of S$4m to be secured by firstly a hypothecation over a portfolio of quoted shares acceptable to the lender. The shares were to be held by the borrower in trust for the lender; and secondly, joint and several guarantees of Mr Lin Tah Hwa, Mrs Kathryn Tan nee Lin Shun Ching, Miss Lin Ai Ling, Mr Lin Cheang Hwa, Mr Ho Weng Meng and Mr Lin Jo Yan. As required by the facility letter the defen-dants on 3 August 1982 executed a Letter of Hypothecation and from 4 August 1982 began to utilize the facility. Clauses 7.1 and 8.1 of the Letters of Hypothecation empowered the bank to sell or otherwise dispose of the shares for breach of any of the terms of the facility letter and to apply the proceeds towards the discharge of sums due to the defendants from Lin. Up to 21 January 1986, Lin, as required by the defendants, submitted to the defendants a Weekly Certificate of Hypothecation stating the quantity, counter, unit price and value of the shares held in their possession and hypothecated to the defendants. From the outset Lin was allowed by the defendants to retain possession of the shares and to deal with the shares. The Letter of Hypothecation was a device relied upon not only by the defendants but by 21 other banks which had extended facilities to Lin. The Letters of Hypothecation with all these banks were broadly in similar terms. Each asserted that shares which were in the physical custody of Lin, were 'hypothecated' to that bank. The banks did not interfere with Lin's practice of retaining the shares and freely trading in the shares so said to be hypothecated. Indeed, it eventually came to light that Lin had even 'hypothecated' the shares given as security to one bank, to various banks simultaneously. On 2 December 1985, trading on the Stock Exchange of Singapore was suspended owing to the Pan Electric crisis. The value of shares at this time fell sharply. As a result, the value of Lin's assets, as represented by the shares in its possession was adversely affected. Lin became saddled with immense debts. As a result Lin became insolvent and was so from December 1985 onwards. This was not in dispute. From December 1985 to late February 1986, the creditor banks, one after another, began to demand immediate delivery of the hypothecated shares. Of the 21 banks that had Letters of Hypothecation with Lin, only two banks, namely, the defendants herein and United Malayan Banking Corporation obtained physical delivery of the hypothecated shares. By a letter dated 22 February 1986 which appears to have been sent to the banks on 24 February 1986, Lin unilaterally discontinued the practice of hypothecating shares. Between 24 February 1986 and 27 February 1986, banks commenced proceedings against Lin seeking the delivery of the shares hypothecated to the banks. In each of these proceedings, although the respective plaintiffs obtained almost immediately ex parte interim injunction for the delivery of the shares, they were not able to obtain physical possession of the shares. It was not in dispute that at the time the delivery of the shares to the defendants took place, Lin was insolvent and the delivery of the shares took place within three months of the presentation of the winding-up petition. The only issue before me was whether Lin, in delivering the shares to the defendants, did so 'with a view' to giving the defendants preference over other creditors.

Held, dismissing the claim: (1) in other words, the onus is on the person alleging a fraudulent preference (normally, as here, the trustee in bankruptcy) to prove the fact of the debtor's requisite state of mind, that is, his intention; (2) whether it can be said that the dominant intention of Lin in agreeing to and handing the shares to the defendants at the close of every trading day and collecting them before trading commenced the next day was to prefer the defendants is a question of fact. As there is no direct evidence as to Lin's intention, the court can only gather what the intention was by way of inferences from the surrounding facts. Looking at all the facts, the court felt that Lin agreed to the defendants' request for overnight custody of the shares, not because Lin intended to prefer the defendants over the other creditor banks, but because the arrangement enabled Lin to maintain good relations with the defendants so that its credit facilities would not be withdrawn and because it enabled Lin to carry on trading and dealing with the hypothecated shares; (3) the onus is on the person alleging a 'fraudulent preference' to prove to the satisfaction of the court that the payment impugned was made by the debtor 'with a view of' preferring the payee over his other creditors;it was found on the facts that there was neither direct evidence nor any proper inference that delivery was made with the dominant view of preferring the defendant.

Lin Securities (Pte) (in liquidation) & Ors v Royal Trust Bank (Asia) Ltd [1994] 2 SLR 168; CSLR XX[6957] High Court, Singapore (S Rajendran J).

T, a shareholder creditor of P Sdn Bhd, presented a winding-up petition against P Sdn Bhd. The court ordered P Sdn Bhd to be wound up and appointed A the provisional liquidator. In the course of going through the affairs of P Sdn Bhd, A discovered that the company had two months before the presentation of the petition made a payment of M$70,000 to D in settlement of part of a debt due. A applied to declare the payment as void, being made fraudulently in preference to D over other creditors of P Sdn Bhd.

Held, allowing the application: (1) in the instant case, it was not disputed that P Sdn Bhd had other creditors but yet preferred D and this coupled with the fact that both P Sdn Bhd and D had a common director at the material time could only mean that such payment was intended to defraud the other creditors of P Sdn Bhd. Further, the payment was made at the time the company had the necessary funds to meet such payment; (2) on the facts of the instant case, the learned judge was more than satisfied that there had been an ulterior motive to prefer D to other creditors. The learned judge accordingly declared that the payment to D constituted a fraudulent preference and was therefore void as against A under s 293(1) of the Companies Act 1965. D was ordered to repay A the sum of M$70,000 and all costs in the proceedings.

Abdul Samad bin Haji Alias (Liquidator) v Apex Engineering Sdn Bhd Originating Summons No D2-31-152-1988 30 December 1988 High Court, Kuala Lumpur (Siti Norma Yaakob J).

This was an appeal from an order made in a winding-up petition. The respondents, the liquidator of Mosbert Acceptance Ltd had written to the appellant demanding payment of a debt of HK$529,054.97. The first appellant by its solicitors' letter admitted the debt and asked for two months to pay. Subsequently the first appellant's solicitor wrote a 'without prejudice' letter asking for particulars of the debt. The respondent through his solicitors refused to grant the two months' extension and demanded payment. No reply was given to the first appellant's further request for particulars. The respondent subsequently filed a petition for winding up and an order was made accordingly. The appellants appealed.

Held, dismissing the appeal: (1) having regard to the clear and unequivocal admission of the petitioner's debt contained in the first letter the learned judge was entitled to come to the conclusion that there was no bona fide dispute; (2) as the company had failed to pay or give security for the debt for which a statutory demand had been made, it was insolvent and may be wound up.

Re Sunshine Securities (Pte) Ltd; Sunshine Securities (Pte) Ltd & Anor v Official Receiver and Liquidator of Mosbert Acceptance Ltd 1975 Court of Appeal, Singapore (Wee Chong Jin CJ, Chua and Rajah JJ).

3 [696] COMPANIES AND CORPORATIONS Winding up – Inability to pay debts – Bona fide cross-claim – Cross-claim disputed by petitioning creditor – Indebtedness admitted by respondent company – Whether petitioning creditor entitled to winding-up order against company – Companies Act 1965, s 218 – K & G Bradica Pty Ltd v Audi Constructions Pty Ltd (1977-78) 3 ACLR 112 (cited); Re LHF Wools Ltd [1970] 1 Ch 27 (cited); Jurupakat Sdn Bhd v Kumpulan Good Earth (1973) Sdn Bhd [1988] 3 MLJ 49 (consd); General Welding & Construction Co (Qld) Pty Ltd v International Rigging (Aust) Pty Ltd (1983) 8 ACLR 307 (apprvd); Frank Hermens (Wholesale) Pty Ltd v Palma Pty Ltd (1985) 10 ACLR 257 (consd); Re Portman Provincial Cinemas Ltd (1964) 108 SJ 581 (cited)

P presented a winding-up petition for D to be wound up under s 218 of the Companies Act 1965. P claimed that D was indebted to it for a sum of money in respect of work done and services rendered to D. P had, pursuant to s 218(2)(a) of the Companies Act 1965, sent a letter of demand to D in respect of the said sum. P alleged that D was unable to pay its debt and should therefore be wound up. D admitted that it owed P a sum of money but submitted that it had a defence of set-off and counterclaim against P. The cross-claim was for damages for breach of contract and misrepresentation.

Held, dismissing P's petition: (1) where a company against whom a winding-up petition is filed admits its indebtedness to the petitioning creditor but asserts that it has a bona fide cross-claim, the petitioning creditor is not entitled to a winding-up order against the company; (2) having considered all the evidence and circumstances in the instant case, the court found that although D admitted the debt, it had a genuine cross-claim and even though the cross-claim was disputed by P, it was not proper for the court, in the exercise of its discretion, to make a winding-up order against D as the matter in respect of the cross-claim should be decided at a trial. Furthermore, D was not insolvent.

Viking Consultants Pte Ltd v Syarikat Jaya Utara Construction (Kedah) Sdn Bhd (1989) CSLR XX[1633] High Court, Kuala Lumpur (Zakaria Yatim J).

D applied for the winding-up petition of P to be struck out under O 18 r 19 of the Rules of the High Court 1980 on the ground that it disclosed no reasonable cause of action and/or that it was an abuse of the process of the court. P had earlier filed an action for the recovery of the sum in question from D. P subsequently applied for summary judgment but the application was dismissed by the senior assistant registrar. No appeal was lodged by P. P's solicitors filed a notice of discontinuance of the action without leave of the court contrary to O 21 r 2(1). Negotiations were held between the parties with a view to settlement. When no settlement was reached, P's solicitors sent a notice pursuant to s 218 of the Companies Act 1965 requiring D to pay up the sum in question. D disputed the amount claimed and drew the attention of P's solicitors to the dismissal of P's earlier application for summary judgment in the discontinued suit. P subsequently filed its petition for the winding up of D. Counsel for D contended that the debt alleged to be owned by D to P was in fact subjudice as the civil suit initiated by P was in effect still pending because the notice of discontinuance was defective as it was filed in breach of O 21 r 2(1).

Held, allowing D's application: (1) in the instant case, the application to strike out P's petition was properly brought by D as it came within O 18 r 19(3) which specifically provides that the rule applies to a petition which must include a winding-up petition; (2) on the evidence presented, there was a bona fide dispute as to the amount that was owing to P. That dispute was the subject of the civil suit of P which had not been properly discontinued for want of leave of the court under O 21 r 2(1) so that the civil suit could be considered as still pending between the parties; (3) the filing of the notice of discontinuance and the subsequent presentation of the winding-up petition were acts calculated to circumvent the normal course of going to trial after the dismissal of P's application for summary judgment and to embarrass D. In the circumstances, the learned judge held that P's petition was an abuse of the process of the court and allowed D's application to strike out the petition.

Ansa Teknik (M) Sdn Bhd v Cygal Sdn Bhd [1989] 2 MLJ 423 High Court, Johore Bahru (LC Vohrah J).

P petitioned for the winding up of D on the grounds that D was indebted to it in the sum of M$478,440.49 for subcontract works which P did for Y Sdn Bhd which amount D had agreed to pay to P on behalf of Y Sdn Bhd. P produced three letters exchanged between the parties as evidence that they had all agreed to D paying all the moneys due to Y Sdn Bhd direct to P. In its petition for winding up, P relied on ss 217 and 218(1)(e), (2)(a) of the Companies Act 1965. D contended that no judgment or garnishee order had been obtained by P against D to suggest any debt due from D to P. It was also contended that there was no assignment of the debt from Y Sdn Bhd to D.

Held, dismissing the application: (1) in the instant case, the purported assignment of the debt from Y Sdn Bhd to D had not been conclusively established by P. It followed that there was a bona fide dispute as to whether the debt should be paid by D or Y Sdn Bhd. Furthermore, no judgment had been obtained by P against either D or Y Sdn Bhd to suggest any debt due to P; (2) for the above reasons, the learned judge was of the opinion that this was not a proper case to grant the creditor's petition against D and accordingly, dismissed P's application.

Liew Yin Yin Construction Sdn Bhd v Talam Corporation Berhad Companies Winding-up No 2-31-88 High Court, Ipoh (Abdul Malek J).

The petitioning bank granted to the company overdraft facilities secured by charges on three lots of land and a deposit of title deed on another lot. Upon default by the company the bank issued a statutory notice under s 218(2) of the Companies Act 1965 (Act 125) to the company for payment of the debt within 21 days. The debt was not paid, and the petition was filed and advertised, attracting the attention of the company's other creditors who gave notice of their intention to appear at the hearing which eventually took place on 24 September 1986. A large number of the company's creditors supported the petition, which was opposed only by the company which advanced three grounds why the petition should be dismissed, viz (a) the debt was disputed, (b) in these times of depressed economic circumstances and acute recession, the courts should no longer permit lenders a free hand in enforcing their legal remedies, and (c) to permit the petition to proceed would be to allow a multiplicity of proceedings which was tantamount to abuse of process.

Held, granting the petition: (1) there were no merits in the submissions made on behalf of the company; (2) evidence of commercial and actual insolvency in this case was overwhelming; (3) a creditor is not bound to give the debtor time to pay. This was not a case where the court would intervene to adjourn or dismiss the petition, since the bank had not acted oppressively; (4) the onus of punctually repaying a debt lies on the debtor. The submission that the bank was guilty of inactivity was without merit.

Re Hong Huat Realty (M) Sdn Bhd; United Asian Bank Bhd v Hong Huat Realty (M) Sdn Bhd [1987] 2 MLJ 502 High Court, Johore Bahru (Shankar J).

The petitioning bank served a statutory demand on the company demanding repayment of debts owing. The company failed to pay. The debt was admitted, but it was contended that the court should have rejected the petition. The trial judge made a winding-up order, which was affirmed by the Court of Appeal.

Held: (1) the court had a wide discretion in granting a petition; (2) a cross-claim of substance or serious dispute about the debt were proper grounds to reject a winding-up petition; (3) there are other grounds which, consonant with the statutory provisions, may lead the court to the same conclusion, but none of them existed in this case.

Malayan Plant (Pte) Ltd v Moscow Narodny Bank Ltd 1980 Privy Council Appeal from Singapore (Lord Wilberforce, Lord Edmund-Davies, Lord Fraser of Tullybelton, Lord Scarman and Sir William Douglas).

[Annotation: Decision of the Court of Appeal [1978-1979] SLR 58; [1978] 2 MLJ 81 affirmed.]

In this case, the appellant had served a notice on the respondent company demanding payment of a sum of $127,159 and notifying that action for the winding up of the respondent company would be taken in the event that payment was not made within the stated time. The sum was for the cost of bricks supplied. No payment was made and the appellant filed a petition for winding up. The respondent company then applied for an injunction to restrain the appellant from advertising the petition and this was granted by the High Court. The appellant appealed. It appeared that the respondent company disputed the appellant's claim but admitted that it owed the appellant a sum of $60,580.

Held, allowing the appeal: (1) the amount of the admitted and unpaid debt was substantial and therefore the appellant should not be prevented from pursuing its petition so that the court would be able to consider all the evidence and determine whether it should exercise its discretion to order winding up or not; (2) the evidence so far placed before the court did not establish that the purpose of the appellant in bringing the petition was to put pressure on the respondent company and thereby to induce it to pay a sum which was not due and owing and to cause irreparable damage to the respondent company by advertisement of the petition; (3) the Companies (Winding-up) Rules 1972 require that every petition should be advertised and it is immaterial whether the effect of such advertisement in a particular case would result in damage being caused to the company proposed for winding up. Even if the advertisement would in fact cause such damage, this is not a ground to prevent a bona fide petitioner from advertising.

Chip Yew Brick Works Sdn Bhd v Chang Heer Enterprise Sdn Bhd [1988] 2 MLJ 447 Supreme Court, Johore Bahru (Salleh Abas LP, Mohamed Azmi and Wan Hamzah SCJJ).

The petitioner applied for the winding up of the respondent company ('the company') on the ground that the company owed a sum of RM6,430.24 to it. The company was a local company with a paid-up capital of RM144,500. A statutory notice of demand under s 218 of the Companies Act 1965 ('the Act') dated 11 April 1994 was served on the company but no payment was made. The petitioner thus averred that the company was unable to pay the debt and that it was just and equitable that the company be wound up. At the hearing, the company was unrepresented and the petitioner's counsel prayed for an order in terms.

Held, dismissing the petition: (1) it was not just and equitable to wind up the company as the debt in issue was small and the petitioner had failed to adduce any evidence such as the company's latest annual return to support the allegation that the company was unable to pay its debts; (2) the petitioner did not explain in its petition or in its affidavit the background of the existence of the loan and whether it was disputed. The petitioner also did not adduce evidence in the form of a copy of the statutory notice of demand under s 218 of the Act to support its contention that such a notice had been issued and served on the company; (3) while s 218(2)(a) of the Act deemed that a company was unable to pay its debts if it failed to settle the debt within three weeks after a statutory notice was served on it, it was clear at law that the issuance of a winding-up order was subject to the discretion of the court. Before the court made any such order, it was necessary for the petitioner to prove the insolvency of the company and that the alleged debt was undisputed and certain; (4) the petitioner also did not explain why it had not instituted a common law claim to recover the debt. The court was of the view that the appropriate action for the petitioner to recover the sum owed was through a civil action in the subordinate court.

Martogg Singapore Pte Ltd v Syarikat Tek Heng Plastic & Mould Manufacturing Sdn Bhd Companies (Winding-up) No 28-48-9 High Court, Johor Bahru (Mohd Ghazali J).

[Annotation: The judgment was delivered in Bahasa Malaysia.]

The company failed to settle the judgment debt of the sum of $71,570.13 due to the respondents as a result of which the latter obtained an order for winding up against the appellants. It was not disputed that the company's total liabilities were about $3 million owing to 150 creditors. An amount of $1,881,601.13 was owed to the company by nine debtors. Of these nine debtors there were three whose total debts amounted to $1,300,000. Of these three debtors a receiving order had been made against the first debtor for the sum of $266,932 and a winding-up order was made against the second firm which was alleged to owe the appellants the sum of $27,817. The third debtor claimed that only a sum of $28,000 was owing to the appellant and not $1,087,083 as alleged. The company's immovable properties were still mortgaged to the finance company.

Held: (1) the mortgaged properties could not be regarded as assets of the company as the mortgagees were preferred creditors, the unsecured creditors being entitled only to the balance, if any, after payment of the mortgage debt and interest; (2) in exercising its discretion, the court will have regard for the wishes of the majority of the creditors if they have good reason for opposing the petition; (3) in the exercise of its discretion it is the duty of the court to weigh all the relevant matters and decide whether the prima facie right of the petitioning creditors to an order should give way to the wishes of some creditors who assign no reason for their opposition or who merely state that in their view the company might be in a position to pay their debts if allowed to continue to operate; (4) in this case, there was abundant evidence that the company was insolvent and the opposing creditors had failed to show any good reason for their objection to the winding-up order being made.

Wei Giap Construction Co (Pte) Ltd v Intraco Ltd 1978 High Court, Singapore (D'Cotta J).

This was an appeal from a winding-up order made by the Chief Justice on a winding-up petition brought by the respondent bank. The respondent bank claimed that the appellant company was indebted to the bank in the sum of $8,092,088.96 together with interest thereon until date of payment in respect of loans and advances made by the bank. The company claimed that its current assets totalled $18,665,916.99 and its current liabilities totalled $17,183,039.81.

Held, dismissing the appeal: where a debt was due and owing on which a winding-up petition could properly be founded the onus of persuading a judge not to make a winding-up order was on the debtor company and this was entirely a matter within the discretion of the judge, whose discretion would not be interfered with on appeal unless he had erred on principle.

Malayan Plant (Pte) Ltd v Moscow Narodny Bank Ltd 1978 Court of Appeal, Singapore (FA Chua, Choor Singh and AP Rajah JJ).

The petitioners petitioned the court to wind up the respondent company under s 218(1)(e) of the Companies Act 1965 which provided that the court may wind up a company if it was unable to pay its debts. The petitioners contended that the respondent was indebted to them in the sum of $250,000, being a loan due to them as evidenced the respondent company's voucher. The respondent took out a motion to have the petition struck off, on the ground provided by O 18 r 19(1)(d) of the Rules of the High Court 1980 that the petition was an abuse of the process of court. The respondent contended that the petition was founded not only on a disputed debt, but on a debt which was untrue as shown in the petitioner's own statement of claim in a related civil suit. It argued that as in fact there was no debt the company did not make any payment to the petitioners and it could not be said that the company had neglected to pay within the meaning of s 218(2)(a) of the Companies Act.

Held, dismissing the petitioners' petition: the court was more than satisfied that the alleged debt on which the petition was founded was disputed and on substantial grounds.

NKM Development Sdn Bhd v Irex Sdn Bhd Companies Winding-Up No 157 of 1984 High Court, Malaysia (VC George J).

In this case, the respondent, Tai Kit Enterprise Sdn Bhd, a housing developer, entered into a contract with the petitioner, a building contractor for constructing certain housing units for the company. The work executed was to be certified by the architect from time to time for payment. The architect had issued certificates estimating the total value of work executed at $626,000. The company made part payment to the extent of $304,538. Subsequently it was agreed by both the parties to terminate the contract. The company contested the certificates of the architect and it was agreed that a quantity surveyor be appointed to estimate the value of the work so far executed. The surveyor estimated the value to be only $396,036. The contractor further alleged that a sum of $200,000 in cash was paid to the company through one of its directors, Mr SI Rajah. The company denied having ever received this amount. The contractor then served a statutory notice under s 218 of the Companies Act 1965 (Act 125) demanding payment for the works executed as well for $200,000 alleged to have been paid to the company. The company disputed both the claims. The contractor then filed a petition for winding up of the company on the ground that the company was unable to pay its debts. No other creditor joined the petition while the petition was opposed by a number of shareholders.

Held, dismissing the petition: (1) a petition for winding up of a company is a serious matter as it affects the reputation of the company; (2) the debt must be liquidated and undisputed; (3) the company must be insolvent in the sense relevant to winding up; (4) the petition for winding up cannot be resorted to to settle disputed debts. The proper course for the petitioner is to file a civil suit for determining the disputed claims.

Ng Ah Kway v Tai Kit Enterprise Sdn Bhd [1986] 1 MLJ 58 High Court, Johore Bahru (Shankar J).

This was a petition brought under s 166 of the Companies Ordinance 1940 by Messrs Harrisons & Crosfield (Malaya) Ltd (hereinafter referred to as the 'petitioners'), as creditors, for the compulsory winding up by the court of Messrs Ban Hong Co Ltd (hereinafter referred to as 'company') on the grounds that the said company was indebted to the petitioners to the extent of $89,673.75, that the petitioners had demanded payment, that the company had failed to pay, and that it was insolvent and unable to pay its debts. Counsel on both sides agreed that there were only three main issues for consideration: (i) was there a bona fide dispute between the parties as to the liability of the company to pay this alleged debt? (ii) assuming this was a debt due from the company, was it in a position to pay its debts at the time of the presentation of this petition? and (iii) was it otherwise just and equitable that the company should be wound up?

Held: (1) it is well settled law that a winding-up petition is not to be used as machinery to try a common law action, and that the presentation of a petition for winding up simply with a view to enforcing payment of a disputed debt is an abuse of the process of the court and should be dismissed with costs. But in this case there was no bona fide dispute as to the liability of the company for the amount claimed between the parties prior to the institution of these proceedings, and there is still no bona fide dispute; (2) the company was unable to pay its debts at the time of the presentation of the petition; (3) in all the circumstances of the case, it is just and equitable for the court to order the winding up of this company. Observations on the conduct of the company.

Re Ban Hong Co Ltd [1959] MLJ 100 High Court, Federation of Malaya (Rigby J).

The petitioner brought the petition under s 218 of the Companies Act 1965 (Act 125) to wind up the respondent on the ground that the respondent was unable to pay its debt of $44,180 due to the petitioner, being balance of the construction price of a bus body and labour supplied at the request of the respondent. After service of the statutory notice and petition, the respondent gave formal notice of its intention to appear at the hearing to oppose the petition. The respondent by affidavit dated 16 June 1984 disputed the claim as the coach bus had not been built to specifications. Although the debt was disputed, the petitioner asked the court to proceed to make the winding-up order.

Held, dismissing the petition: (1) a winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed by the company; (2) there is a substantial dispute which should have been apparent to the petitioner at the very least when they received the respondent's affidavit. The continuation of the winding-up proceedings after they had that knowledge was not a permissible exercise of the process of the court. The proper course for the petitioner was to establish its debt by filing an action to have the matter adjudicated upon in the usual way; (3) order granted to the respondent to tax its costs but payment shall not be enforced until final disposal of the action.

Re Nima Travel Sdn Bhd; Sun Soon Heng Coach Works Sdn Bhd v Nima Travel Sdn Bhd [1986] 2 MLJ 374 High Court, Johore Bahru (Shankar J).

[Annotation: For subsequent proceedings, see [1986] 1 MLJ 252.]

P was a sub-contractor under a building contract. S was the main contractor. The owner of the building was PPCD. Under the terms of the sub-contract P was to have completed the works by 25 July 1986, but this was extended to 25 January 1987 by the architect. On 29 August 1986 PPCD was wound up by the court. Because of this S terminated the sub-contract with P in October 1986. The architect had certified that over $4 million was owed to P. P served a statutory demand under s 254(2)(a) of the Companies Act (Cap 50) claiming this sum from S. S declined to pay. P petitioned for the winding up of S based on S's failure to pay after the statutory demand was made and also on the ground of S's general inability to pay its creditors. S resisted on several grounds: firstly, it disputed that payment was due under the architect's certificates. Secondly, it was contended that the architect had stated that the works were 163 days behind schedule, and that as a result they were entitled to liquidated damages from P, the total of which would over-top P's claim. Thirdly, it was contended that the matter should have been referred to arbitration.

Held, (granting the petition): (1) the learned judicial commissioner found that payment was due to P under the architect's certificates, notwithstanding S's arguments to the contrary. P's right to payment under the sub-contract was not dependent on S getting payment from PPCD; (2) as regards S's alleged entitlement to liquidated damages, it was held that this did not arise until the architect had certified that the works ought to have been completed. On the date of termination of the sub-contract the completion date had not arrived, so the liquidated damages clause did not apply. The issue of the architect's certificate was a condition precedent to S's right to claim liquidated damages for delay; (3) the delays in completion were due to variations in the plans made by PPCD. Where delays are the fault of the owner, the contractor is not bound to pay liquidated damages; (4) the winding-up petition was not a proceeding that fell within the arbitration clause since it was not a dispute arising from the building contract, but a class remedy based on S's inability to pay its debts. In any case, S by filing affidavits to resist the petition and taking other steps had barred itself from obtaining a stay of proceedings; (5) although a winding-up petition should not be used as a means of litigating a disputed debt, where the debt is not disputed on substantial grounds the court may make a winding-up order. Similarly, where non-payment of a debt is justified on the basis of a counterclaim, the counterclaim must also be based on substantial grounds. On the facts, there were no substantial grounds on which S could dispute the debt or raise the counterclaim. S had not responded to the statutory demand by either disputing liability or raising the counterclaim; (6) apart from the failure of S to comply with the statutory demand, it had been proven to the satisfaction of the court that S was insolvent. Its accumulated losses exceeded its capital and its only assets were book debts. Payment to P had been long delayed. The long delay in payment of debts might in appropriate circumstances assist in establishing a company's insolvency apart from any statutory demand; (7) it was stated obiter (though not finally decided) that if a debt claimed in a statutory demand is only disputed as to quantum, the statutory demand is effective if the undisputed portion is in excess of the minimum prescribed by s 254(2)(a). A winding-up order was accordingly made.

Re Sanpete Builders (S) Pte Ltd [1989] SLR 164 High Court, Singapore (Chao Hick Tin JC).

P applied for an order of the court to restrain D from proceeding with its winding-up petition on the ground that the petition was based on a disputed debt and was therefore an abuse of the process of the court. P submitted that its application to set aside the judgment in default of appearance obtained by D against it had yet to be heard in open court by way of further argument.

Held, dismissing P's application: (1) in the instant case, the judgment in default of appearance was a regular judgment. There was therefore a judgment debt and D was a creditor as envisaged in s 217 of the Companies Act 1965. P's contention that the debt was disputed had no basis at all; (2) there was no evidence to show that D had filed the winding-up petition merely to put pressure on P to pay the debt. As the winding-up petition was a genuine one and as there was no evidence to indicate that the petition was an abuse of the process of the court, the court was of the opinion that D should not be restrained from proceeding with the winding-up petition.

Banfoong Sydney (JM) Sdn Bhd v MIFC Credit & Leasing Sdn Bhd [1990] 2 MLJ 120 High Court, Kuala Lumpur (Zakaria Yatim J).

P petitioned for the winding up of D on the ground of its alleged inability to pay its debt. P had served the statutory notice under s 218 of the Companies Act 1965 on D to pay the amount owing but no payment was received by P within the statutory period. Hence, the present petition filed by P. D opposed the petition on the ground, inter alia, that the statutory notice was invalid as it was for an uncertain sum because of the inclusion of the demand for interest and costs.

Held, dismissing the petition: (1) D had misread the notice of demand served on it. What P meant was that in the event the demand was not met by D in due time, P would be claiming for the items of interest and costs which D would certainly be incurring. This did not make the statutory notice in-valid; (2) in the instant case, the evidence was overwhelming that D was unable to pay its debts. The learned judge took into consideration the contingent and prospective liabilities of D and was of the opinion that it was just and equitable that D be wound up. P's application was accordingly allowed by the learned judge.

Kampat Timber Industries Sdn Bhd v Bensa Sdn Bhd [1990] 2 MLJ 46 High Court, Johore Bahru (Abu Mansor J).

Jurupakat Sdn Bhd v Kumpulan Good Earth (1973) Sdn Bhd [1988] 3 MLJ 49 High Court, Johore Bahru (Zakaria Yatim J).

See COMPANIES AND CORPORATIONS, Vol 3, para 769.

P petitioned for D to be wound up on the ground that D was unable to pay its debts. Six other creditors of D supported the petition while one creditor opposed the petition. Counsel for D submitted that the sum owed to p was paid with a bank draft in response to a letter written by P's solicitors. Counsel also referred to a number of 'without prejudice' letters written between the solicitors of both parties which showed that the parties were negotiating a settlement. Counsel for P contended that these letters were inadmissible as they were privileged documents. In any event, counsel for P contended that no settlement was reached between the parties and that the bank draft, enclosing the sum owed and which was sent after the expiry of the period stipulated in the notice of demand, was returned to D.

Held, allowing P's petition: (1) privileged documents are admissible if both parties have reached a settlement. On the other hand, if the parties have not reached a settlement, the privileged documents are inadmissible. In the instant case, as no settlement was reached between the parties, the letters were not admissible as evidence; (2) in the instant case, under s 218(2) of the Companies Act 1965, D was deemed to be unable to pay its debts since it failed to pay P the amount demanded in the statutory notice within the period stipulated. Having regard to the evidence, the court found that D had no sufficient funds to pay its creditors. Taking into consideration the wishes of the majority of the creditors, the court ordered that D be wound up and that the official receiver be appointed as the provisional liquidator.

Styrobilt Sdn Bhd v Kumpulan Kim Huat (Sin Kee) Sdn Bhd Companies (Winding-Up) No D4-28-366-89 High Court, Kuala Lumpur (Zakaria Yatim J).

P applied for the winding up of D when D failed to comply with a notice issued under s 218 of the Companies Act l965. D was not able to settle the amount due on a judgment obtained earlier by P against it. D applied to set aside the winding-up petition on the ground that it had realizable assets to pay the amount due to P.

Held, dismissing the application: (1) the phrase 'unable to pay its debts' in s 218(1)(e) of the Companies Act 1965 means insolvency in the commercial sense, that is, inability to meet current demands irrespective of whether the company is possessed of assets which, if realized, would enable it to discharge its liabilities in full; (2) as the test of the solvency of D did not depend on the presence of their realizable assets, the learned judge considered that D had not given her any basis on which she could exercise her discretion to have the petition set aside. D2 was ordered to be wound up under the provisions of the Companies Act 1965.

Hotel Royal Ltd Bhd v Tina Travel & Agenices Sdn Bhd (No 2) [1990] 1 MLJ 21 High Court, Kuala Lumpur (Siti Norma Yaakob J).

D obtained judgment against A Sdn Bhd. D then sent a letter dated 24 December 1988 demanding A Sdn Bhd to pay the judgment sum within 21 days from the date of the letter. The letter was served on A Sdn Bhd on 27 December 1988. On A Sdn Bhd's failure to pay the debt as demanded, D presented a petition to wind up A Sdn Bhd on 17 January 1989 on the ground that it was unable to pay its debt. The High Court ordered A Sdn Bhd to be wound up and it appealed to the Supreme Court. A Sdn Bhd firstly argued that under s 218(2)(a) of the Companies Act 1965, it was entitled to have three weeks from the date of receipt of the demand to pay the debt. A Sdn Bhd thus contended that since D's demand gave it three weeks from the date of the demand to pay the debt, such a shorter period vitiated the demand. A Sdn Bhd secondly argued that it had rebutted the presumption of inability to pay its debts under s 218(2)(a) of the 1965 Act because it had landed assets worth more than the judgment sum due to D. A Sdn Bhd contended that it was capable of paying all its debts by a realization of its assets. A Sdn Bhd finally argued that, inter alia, D's solicitors had no authority to issue the notice of demand.

Held, dismissing the appeal: (1) although the demand need not be in a special form, it must comply strictly with the requirements of s 218(2)(a) of the 1965 Act. The whole purpose of a demand is to warn the debtor of an impending petition; (2) a demand does not fall within s 218(2)(a) of the 1965 Act if the amount demanded exceeds the sum actually due; (3) the presumption of a company's inability to pay its debts only arises under s 218(2)(a) of the 1965 Act if that company has for three weeks after service of the demand, neglected to pay the sum demanded. D had stated incorrectly in the demand that the debt must be paid within 21 days of the date of the demand but this would not affect the validity of the demand; (4) there was compliance with s 218(2)(a) of the 1965 Act in this case because the interval between the day when the demand became effective and the presentation of the petition was 21 full days; (5) the presumption of A Sdn Bhd's insolvency arose when the requirements of s 218(2)(a) of the 1965 Act had been satisfied and it was for A Sdn Bhd to prove that it was able to pay its debts; (6) it is not necessary under s 218(2)(a) of the 1965 Act for the petitioner to prove that a company is unable to pay its debts by taking into account the contingent and prospective liabilities of the company. A company may have wealth locked up in investments not presently realizable but if it does not have assets available to meet its current liabilities, it is commercially insolvent; (7) in this case, the High Court had exercised its discretion correctly in ordering A Sdn Bhd to be wound up; (8) there was ample evidence in this case to show that D's solicitors were lawfully authorized by D to issue the notice of demand to A Sdn Bhd.

Sri Hartamas Development Sdn Bhd v MBF Finance Bhd [1992] 1 MLJ 313 Supreme Court, Malaysia (Hashim Yeop A Sani CJ (Malaya).

The petitioning creditor presented a winding-up petition for D to be wound up. It was stated in the petition that D was unable to pay its debt and in the circumstances it was just and equitable that D be wound up. D applied for the winding-up petition to be set aside. D contended that the notice of demand of the petitioning creditor was bad as the sum claimed therein exceeded the amount stated in the petition. D, accordingly, contended that it could not be said to be unable to pay its debt in not complying with the notice.

Held, allowing D's application: (1) s 218(2)(a) of the Companies Act 1965 should be given a literal interpretation. A notice of demand must strictly comply with the requirements of s 218(2)(a); (2) in the instant case, the notice of demand did not strictly comply with the requirements of s 218(2)(a). Since the amount stated in the notice of demand was far in excess of the debt due, It did not follow that the failure on the part of D to pay the sum claimed would give rise to any deemed inability on the part of D to pay its debt. The notice of demand was therefore bad and the court could not presume that D was unable to pay its debt; (3) in the circumstances, the petition was set aside by the court. The petitioning creditor was given the liberty to file a fresh petition.

Re Perusahaan Jenwatt Sdn Bhd [1990] 2 MLJ 178 High Court, Kuala Lumpur (Zakaria Yatim J).

D applied for an order that P's winding-up petition be set aside on the ground that the notice of demand sent by P pursuant to s 218(2)(a) of the Companies Act 1965 was invalid. D, accordingly, contended that it could not be said to be unable to pay its debt in not complying with the notice. P had petitioned for the winding up of D on the ground that D was unable to pay its debt and that it was just and equitable that D be wound up.

Held, allowing D's application: (1) there is no prescribed form for a letter or notice of demand either in the Companies Act 1965 or in the Companies (Winding-Up) Rules 1972. The purpose of the demand is to warn the debtor of an impending petition. The letter or notice of demand must, however, comply strictly with the requirements of s 218(2)(a) of the Companies Act 1965. Accordingly, the demand must be made in writing and signed by the creditor or his authorized agent and it must specify the sum due. The demand must be served at the registered office of the company. The normal practice is for the creditor to also state in the notice that the company must pay the sum due within 21 days from the date of the service of the demand, failing which the company will be deemed to be unable to pay its debt and action will be taken to wind up the company; (2) in the instant case, the notice of demand was bad. First, it was sent to D before P instituted the civil suit against D. The amount stated in the notice was disputed by D at the O 14 stage. Secondly, the notice was not signed and it was not stated who the solicitors were who wrote the notice. Thirdly, the notice demanded immediate repayment contrary to s 218(2)(a). Fourthly, the notice threatened legal proceedings against D and not a winding-up proceeding. Fifthly, the amount demanded in the notice exceeded that stated in the petition. No statutory presumption of insolvency will arise from a failure to pay in response to a demand which was in excess of the amount stated in the petition. Since the notice was bad, D could not be presumed to be unable to pay its debt. As there was no other evidence to show that D was unable to pay its debt or that it was insolvent, the petition of P was set aside by the court.

Re Yap Kim Kee & Sons Sdn Bhd [1990] 2 MLJ 108 High Court, Kuala Lumpur (Zakaria Yatim J).

Sri Hartamas Development Sdn Bhd v MBF Finance Bhd [1992] 1 MLJ 313 Supreme Court, Malaysia (Hashim Yeop A Sani CJ (Malaya).

See COMPANIES AND CORPORATIONS, Vol 3, para 696.

Hongkong & Shanghai Banking Corp Ltd v Kemajuan Bersatu Enterprise Sdn Bhd [1992] 2 MLJ 370 High Court, Kuala Lumpur (VC George J).

See COMPANIES AND CORPORATIONS, Vol 3, para 757.

The petitioner filed winding-up proceedings against the respondent under s 218 of the Companies Act 1965 (the Act) alleging a debt to them of more than about RM120,000 and stating they believed the respondent to be insolvent under s 218(1)(e) read with 218(2)(a), (b) and (c). The respondent applied to strike out the proceedings.

Held, striking out the petition: (1) the petition was incurably defective as the petitioner had proceeded to file the petition against the respondent before the expiry of the period of the statutory notice under s 218(2)(a); (2) the wording of s 218(2)(b) did not cover an order for attachment before judgment obtained by another creditor and levied against the respondent as the former provided only a security for the purpose of execution of a judgment, decree or order of any court. There was on the facts of this case no evidence at the time of presentation of the petition, of any judgment of the court which was unsatisfied in whole or in part. An order for attachment before judgment did not fall within the provision; (3) for the purpose of s 218(2)(c), it was not sufficient for the petitioner to submit that subsequent to the filing of the petition other creditors had filed notices of intention to appear on the petition to show the insolvency of the respondent; (4) the petitioner was also wrong to have included the debt of another legal entity in their petition even if that company and the petitioner belonged to the same persons; (5) as regards the respondent's prayer for damages in their application, this should be the subject of a separate action.

Morel Fruits & Vegetables Trading (a firm) v Silver Touch Sdn Bhd Company Winding-Up No 28-63 of 1996 High Court, Johore Bahru (Haidar J).

Re Shangri-La Cruise Pte Ltd [1990] SLR 799 High Court, Singapore (Yong Pung How CJ).

See COMPANIES AND CORPORATIONS, Vol 3, para 475.

By a sale and purchase agreement executed between the parties, the plaintiff agreed to sell and PTI agreed to purchase the plaintiff's lands. Bumi Armada Navigation Sdn Bhd ('Bumi Armada') was then nominated to act on behalf of PTI in this matter. A fixed loan from the defendant was arranged by Bumi Armada to settle the balance of the purchase price, a portion of which was paid to the plaintiff. Subsequently a third party charge ('the charge') was created over the lands in favour of the defendant as security for the loan. Bumi Armada then defaulted in payment and the defendant proceeded with foreclosure proceedings on the charge. As a result of the sale of the lands as ordered by the court, there was a shortfall of RM566,277.73 ('the sum'). The defendant issued a notice under s 218(1)(e), Companies Act 1965 ('the Act') demanding that unless the sum was paid to the defendant, winding-up proceedings would be instituted against the plaintiff. The plaintiff, upon receiving the notice of winding up, wrote to Bumi Armada seeking indemnity. The plaintiff, however, did not proceed further but filed this originating summons seeking for an injunction to prevent the defendant from filing a petition for winding up of the plaintiff company and the advertisement of such petition against the plaintiff company. The defendant relied on cll 14 and 19 of the charge agreement where it would appear that the liability of the plaintiff and Bumi Armada was co-extensive. The issue before the court was whether there is a debt due within the meaning of s 218(1)(e) of the Act in order to get an order for winding up of the plaintiff by the defendant.

Held, granting the plaintiff's application: (1) the presumption under s 218(2)(a) of the Act is rebuttable. In this case, apart from the s 218(2)(a) presumption there is nothing else to suggest that the plaintiff is anything but solvent; (2) in the circumstances, for the defendant to contend that the shortfall arising out of the foreclosure proceedings would constitute a debt in which the defendant is entitled to proceed for a winding-up proceedings would not be correct; (3) as the debt is disputed by the plaintiff, the defendant should proceed by way of a separate action against the plaintiff to recover the shortfall.

Leong Yick Realty Co Sdn Bhd v Asia Commercial Finance (M) Bhd [1994] 2 MLJ 308; CSLR XX[1668] High Court, Johor Bahru (Haidar J).

3 [723] COMPANIES AND CORPORATIONS Winding up – Inability to pay debts – Statutory demand – Existence of bona fide counterclaim – Counterclaim not related to debt on which petition is based – London & Paris Banking Corp (1874) 19 Eq 444 (folld); Re Douglas Griggs Engineering Ltd [1963] 1 Ch 19 (not folld); Re Fildes Bros Ltd [1970] 1 All ER 923 (folld)

P presented a petition to wind C up on the ground that C was unable to pay its debts. The petition was based on C's failure to comply with a statutory demand for payment under s 254(2)(a) of the Companies Act (Cap 50). P had already obtained judgment on their claim, which C admitted. However, C alleged that they had a counterclaim against P which would overtop P's claim against them. At a late stage after the hearing of the petition had commenced, P put in a further affidavit deposing that C had ceased business with accumulated debts of over S$3m.

Held, staying the petition: (1) the presumption of inability to pay debts only arises under s 254(2)(a) if a company neglects to pay after the service of a statutory demand. 'Neglects' implies some element of fault. Mere omission to pay does not constitute neglect under the subsection; (2) the counterclaims against P were bona fide and based on substantial grounds. Either of them would exceed the debt due to P; (3) the fact that the counterclaims were independent of the debts was immaterial and there is no distinction between a counterclaim that arises out of the same transaction as the debt and one that does not. C was justified in not complying with the statutory demand for payment served by P; (4) if after a petition is presented the petitioner wants to broaden his attack, the petition should be amended. The last-minute affidavit filed by P raised a new point which C had inadequate opportunity to rebut. The affidavit was accordingly disregarded. The petition was stayed pending the determination of the counterclaims.

Ng Tai Tuan & Anor v Chng Gim Huat Pte Ltd [1990] SLR 903 High Court, Singapore (Chao Hick Tin JC).

A petition was presented to wind up the debtor company D on the ground of its inability to pay its debts. P relied upon D's failure to comply with a demand for payment contained in a letter written to D. D disputed the amount due to P.

Held, dismissing the petition: (1) considering all the circumstances, the proper course would be for P to commence an action to establish the debt due rather than a winding-up petition; (2) it is an abuse of the process of court to petition to wind up a company upon the basis of a debt which is bona fide disputed; (3) P was not entitled to rely on D's failure to comply with the statutory demand. Section 254(2)(a) of the Companies Act contemplates a creditor being able to point to a debt of a specified sum that cannot be seriously questioned either as to existence or quantum; (4) it is a well-established principle that a winding-up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed;in the present case, on the date of the statutory demand, there was a clear dispute between the parties as to the amount owing. The petition was dismissed.

Re Mechanised Construction Pte Ltd [1989] SLR 533 High Court, Singapore (Chao Hick Tin JC).

The petitioning creditors applied for an order that AS Pte Ltd ('the company') be wound up. The petition stated that the company was indebted to the petitioning creditors in the sum of S$38,759.63 and that the petitioners had obtained a judgment for the debt. The petitioners further declared that an application to the company for payment of the debt was made by a letter of demand dated 16 July 1991. The letter was sent by 'AR Registered' post. The grounds stated in the petition were that the company was unable to pay its debts and that it was just and equitable that the company should be wound up. No facts in support of the grounds relied on were stated in the petition. The Official Receiver of the company drew to the attention of the court the fact that the statutory demand in s 254(2)(a) of the Companies Act had been sent by 'AR Registered' post and submitted that it might not have been 'served by leaving it at the registered address of the company'. The petitioners relied on an advice of delivery issued by Singapore Telecoms, showing that the envelope had been received by an organization called Computer Secretarial Service.

Held, dismissing the petition: (1) it is settled law that a petitioner may not rely on an unparticularized ground at the hearing of a petition to wind up a company. In consequence the petitioners were precluded from relying on the 'just and equitable' ground. In any event, in practice the just and equitable ground is essentially for the benefit of dissatisfied contributors and not creditors; (2) inability to pay debts may be actual or presumed. In this case actual inability to pay debt was not particularized in the petition. What was pleaded was presumed inability under s 254(2)(a). As the failure to satisfy the statutory demand implies the very serious consequence of the company being wound up it is a matter of essential justice that the provisions are strictly complied with; (3) it is not necessary for the creditor to personally convey the statutory demand and leave it at the registered address of the company. It would suffice if someone directed by or representing the creditor effects the service. If proof by direct but not hearsay evidence is given that the postal authority conveyed the letter of demand and left it at the registered office, there would be satisfactory service; (4) in this case there was an acknowledgement of the letter not by the company but a stranger named Computer Secretarial Services. Therefore, it has not been proved that the statutory demand was served on the company by leaving at the registered office of the company; (5) the purpose for the application of the petitioners for leave to amend the petition was to introduce facts in support of actual inability of the company to pay its debts. Every winding-up petition after it is filed entails certain peremptory steps to be taken by the petitioners before the petition is heard. The petitioners should not be allowed to circumvent these steps by allowing a new ground to be added by way of an amendment.

Re Adrich Shipping Pte Ltd (1992) CSLR XX[6085] High Court, Singapore (GP Selvam JC).

It is not the neglect to meet the demand of the creditor that gives the jurisdiction to the court to order that the company be wound up but the inability of the company to pay its debts. It is the presumption arising from the neglect to meet the demand that gives the court the jurisdiction. This presumption is rebuttable.

Securicor (M) Sdn Bhd v Universal Cars Sdn Bhd [1985] 1 MLJ 84 High Court, Kuala Lumpur (George J).

3 [727] COMPANIES AND CORPORATIONS Winding up – Inability to pay debts – Statutory demand overstating quantum of debt – Whether statutory presumption of insolvency applies – Just and equitable rule – Incorporated partnership – Acrimony between major shareholders – Cardiff Preserved Coal and Coke Co v Norton (1867) LR 2 Ch App 405 (folld); Re Pardoo Nominees Pty Ltd (1987) 11 ACLR 573 (folld); Processed Sand Pty Ltd v Thiess Contracting Pty Ltd [1983] NSWLR 384 (not folld); Re Fabo Pty Ltd (1988) 14 ACLR 518 (folld); Re Perusahaan Jenwatt Sdn Bhd [1990] 2 MLJ 178 (not folld); Re Sanpete Builders (S) Pte Ltd [1989] 1 MLJ 393 (folld).

P petitioned for the winding up of the company on the ground of its inability to pay its debts and on the ground that it was just and equitable to have the company wound up. P was at one time managing director of the company and was also a shareholder. The company opposed the petition. Firstly, as a preliminary point, it was argued that the statutory demand for payment on which the petition was based was ineffective, because it overstated the debt due by S$600. The company also alleged that there was a bona fide dispute regarding the debt and that they had counterclaims against P which would overtop the debt.

Held, granting the petition: (1) the statutory presumption of insolvency in s 254(2)(a) operates if a petitioning creditor can establish that a sum exceeding S$2,000 is due to him from the company and he has made a demand in accordance with the section (a statutory demand). Therefore, where inaccuracies in the statutory demand did not reduce the sum claimed below the S$2,000 limit, such inaccuracies did not affect the validity of the demand or the presumption of insolvency; (2) the court was satisfied that there were no grounds for a counterclaim against P. He was further satisfied that a sum of approximately S$45,000 was payable to P by the company, which it had neglected to pay because it was unable to do so; (3) furthermore, the two main shareholders in the company had reached such a state of acrimony that they could no longer work together. As the company was in substance a partnership, it was in the interests of all the parties that the company be wound up. The winding-up order was accordingly made.

Re Inter-Builders Development Pte Ltd [1991] SLR 405 High Court, Singapore (Rajendran J).

The company was incorporated in 1969 and its only substantial asset was a hotel. The major shareholders in the company were A Co, which was owned by the family of the company's managing director, O Co and P. In 1979, the company had problems with its bankers and sought a new banker. BOC became the company's banker. BOC advanced money to the company secured by mortgages over the hotel and over a restaurant owned by OA Ltd, another company in which A Co and O Co were shareholders. The consideration for this assistance was a promise to allot 2.5 million shares to OA Ltd. P, who had been inactive for many years, increased his stake in the company in 1981. He queries several payments and transactions entered into by the company. P complained, inter alia, about an allotment of shares to OA Ltd. His requests for information were not satisfied. P subsequently petitioned for the winding-up of the company on the grounds that he was being oppressed or alternatively that the company was unable to pay its debts.

Held, dismissing the petition: (1) the learned judicial commissioner held that P had failed to establish oppression. P's allegations of misconduct were all either unsubstantiated or explicable. The allotment of shares to OA Ltd did not amount to oppressive conduct. Even if there had been a technical breach of the articles (which the learned judicial commissioner found had not happened), this did not amount to oppression of P. 'The high standard of turpitude that is required to establish oppression ... was not made out'; (2) P's alternative ground was that the company was not able to pay its debts. It was submitted that if a company cannot pay its debts out of its own money it is insolvent within the meaning of s 254(2)(e). This submission was rejected by the learned judicial commissioner, who held that there were two tests of insolvency: (a) has the company failed to meet a current demand of a debt already due? or (b) on an overall balance of assets and liabilities, is there a deficit? The company had failed neither of these tests. As long as its bankers had not called in its overdrafts, the company was not insolvent even though it was paying one loan by taking out another; (3) as oppression had not been made out for the purpose of winding up, the learned judicial commissioner declined to make an alternative order under s 216. The petition was dismissed.

Re Great Eastern Hotel (Pte) Ltd [1988] SLR 841 High Court, Singapore (Grimberg JC).

Tan Ah Teck t/a Plumcon Plumbing & Construction Co v Coffral (M) Sdn Bhd [1992] 1 MLJ 553 High Court, Shah Alam (Wan Yahya J).

See COMPANIES AND CORPORATIONS, Vol 3, para 794.

P petitioned for a court order that D be wound up under the provisions of the Companies Act 1965 and for the Official Receiver to be appointed as provisional liquidator of D. P had issued two banker's guarantees in favour of two banks at the request of D. P had paid the respective parties pursuant to the banker's guarantees and had demanded the sum from D. As D had neglected to pay or satisfy the sum in whole or in part or to make any offer to P to secure or compound the same, P had petitioned for D to be wound up. Counsel for D asked for the petition to be stood over a period of 18 months. Counsel stated that D was still carrying on business worth about M$500,000 a month. D had earlier been placed under receivership by two banks pursuant to two separate debentures.

Held, allowing P's petition: (1) in the instant case, D was already under receivership and admitted owing P the sum demanded. From the evidence, the prospects of D recovering and paying its debts to all its creditors under the present situation did not appear to be good at all. The promise that D might increase its production was a mere speculation; (2) in the circumstances, as it was evident that D was unable to pay its debts, the court made an order for the winding up of D.

Societe General v Public Feedmill (M) Sdn Bhd (1989) CSLR XX[1642] High Court, Kuala Lumpur (Zakaria Yatim J).

P petitioned for a court order that D be wound up under s 218(1)(e) of the Companies Act 1965 and that the Official Receiver be appointed as provisional liquidator of D. P had earlier obtained final judgment against D which D had failed to satisfy. According to P, D was insolvent and unable to pay its debts. On the date of the hearing of the petition, counsel for D asked the court to adjourn the hearing of the petition for a period of three months to enable D to sell its assets and goodwill and to pay its debt to P.

Held, allowing P's petition: (1) in the instant case, it was clear that D was insolvent and unable to pay its debt. D did not dispute the amount of the judgment debt outstanding as stated in the petition. The fact that D had assets which, if and when realized, would exceed M$1m did not disprove D's insolvency. Furthermore, there was no evidence of other creditors opposing the petition; (2) in the circumstances, the court was of the opinion that P was entitled to a winding-up order ex debito justitiae under s 218(1)(e) of the Companies Act 1965.

Sarabjit Singh v Tamil Malar Sdn Bhd (1989) CSLR XX[1641] High Court, Kuala Lumpur (Zakaria Yatim J).

This was an application by the petitioner for the winding up of the respondent company. A creditor, the landlord of the premises, objected to the application. It was alleged that the company was indebted to the petitioner for M$4,093. The objector had levied distress after the commencement of the petition for winding up, and the distress realized a sum of M$61,000. The amount due to the objector was M$45,000.

Held, granting the petition: (1) the objector had interest in the subject matter of the winding up and has locus standi; (2) the evidence in this case is overwhelming that the respondent company is unable to pay its debt. The petitioner has proved to the satisfaction of the court that the respondent was unable to pay its debt and in so determining, the court is allowed to do so by taking into account the contingent and prospective liabilities of the respondent company; (3) the notice under s 218(2)(a) of the Companies Act 1965 (Act 125) is in the circumstances unnecessary, and the court ordered that it be dispensed with as the petition is not wholly founded on s 218(2)(a) of the Companies Act 1965. Section 218(2)(a), (b) and (c) are mutually exclusive, and on the facts and in the exercise of its discretion, a company can be wound up by the court on any of the grounds (a), (b) or (c); (4) in this case, the petitioner has published in the gazette and once in two local newspapers and this was sufficient publication; (5) as the company is unable to pay its debts, there is sufficient ground to enable the court to exercise its discretion to order winding up of the company. As it also appeared that the directors of the company had absconded and a provisional liquidator had already been appointed, it is just and equitable that the company be wound up.

Teck Yow Brothers Hand-Bag Trading Co v Maharani Supermarket Sdn Bhd [1989] 1 MLJ 101 High Court, Johore Bahru (Abu Mansor J).

P applied for the winding up of D. P alleged that D was unable to pay its debts owned to him. H, a director of D, however, alleged that D was in fact owed a sum of money by P. H alleged that D had advanced various sums of money to the partnership business run by P.

Held, dismissing the petition: (1) having regard to the evidence, the learned judge was not satisfied that it was a case of D being unable to pay its debts. The learned judge was satisfied that there was more to it than meets the eye regarding D's alleged debt to P; (2) the petition for winding up was accordingly dismissed.

Tan Beng Loke v Shim Him Sdn Bhd Companies Winding-Up No 42-85 of 1987 High Court, Johore Bahru (LC Vohrah J).

The respondent was a manufacturer of instant noodles and the petitioner was the supplier of seasoning to the respondent for which US$705,714 as at 3 August 1993 was claimed to be due and owing to the petitioner. The petitioner brought a winding-up petition against the respondent pursuant to s 218 of the Companies Act 1965 ('the Act') on the grounds that the respondent was unable to pay its debts. The respondent's balance sheet as at 30 April 1994 showed that it had accumulated losses of about RM4.7m. Pending the disposal of the petition, the petitioner filed an application ('this application') for a provisional liquidator to be appointed and alleged that the respondent had continued to make payments to certain creditors after the presentation of the petition in contravention of ss 223 and 293 of the Act. The respondent applied to strike out the petition and opposed this application on the grounds, inter alia, that it had a counterclaim against the petitioner for about RM2.4m due to breach of contract arising from the supply of unmerchantable seasoning and loss of profits arising from non-supply of seasoning by the petitioner. The respondent also submitted that it had been insolvent for many years due to its policy of deliberate undercapitalization and if its shareholders' advances were converted to capital, it would not be insolvent.

Held, allowing the application for the appointment of a provisional liquidator pending disposal of the winding-up petition: (1) the respondent had failed to rebut the presumption which arose under s 218(1)(e) of the Act that it was unable to pay its debts since it had failed to pay the debt within 21 days of service of the notice of demand. The counterclaim alleging loss of profits and unmerchantable quality was unsupported by evidence and mala fides, made for the sole purpose of blocking this application; (2) the submission on undercapitalization was purely suppositional and the argument did not assist the respondent in establishing that it was able to pay its debts; (3) it was clear that the respondent had been making preferential payments to some creditors in contravention of ss 223 and 293 of the Act and no application for a validation order had been made. Such payments would be void or voidable in the event of the respondent's winding up; (4) with a history of continuous and continuing trading losses, the creditors' rights should not be further eroded by the respondent continuing to trade, in all probability at a loss, to the disadvantage of the creditors. The petitioner would be in a worse position if the appointment of a provisional liquidator was delayed and that consideration outweighed the consequences to the respondent.

PT Anekapangan Dwitama v Far East Food Industries Sdn Bhd [1995] 1 MLJ 21; (1994) CSLR XX[2841] High Court, Kuala Lumpur (Richard Talalla J).

The petitioner had presented a petition against the respondent under s 218(1)(e) of the Companies Act 1965 to the effect that the company was unable to pay its debts in the sum of RM32,269.85. Two of the respondent's shareholders cum directors filed a notice of intention to appear at the hearing of the petition to oppose the said petition. They asserted that the amount claimed by the petitioner had been bona fide disputed by the respondent all along even prior to the presentation of the petition. The respondent had written to the petitioner requesting the latter to rectify the incomplete and defective works which the latter had failed to do, ultimately necessitating the former to appoint two other contractors to carry out the works.

Held, striking out the petition: (1) and (b) that the respondents must be unable to pay its debts; (2) and only then may rely on that neglect as a basis to show that the company is unable to pay its debts; (3) as the respondent had a reasonable excuse for not paying or complying with the notice, it could not be said to have 'neglected' to pay and was not deemed unable to pay its debts; (4) for the purpose of invoking s 218 of the Companies Act, the petitioner must show (a) that there is a debt due and payable; that means it must be due at the time of the demand; and due means it must have been possible to enforce payment of the debt by legal proceedings at the time of service of the demand;in order to prove that a company is unable to pay its debts, it is not sufficient for a creditor to show that a statutory demand has been served on the company. The creditor must in addition thereto show that the debtor has neglected to comply with the said notice upon service;in this case, the respondent, immediately upon the receipt of the statutory notice, responded by seriously disputing the debt. Therefore, the petitioner could not come before the court and say that the statutory demand had been neglected;from the evidence, there was a serious dispute on the liability to pay and it could not in the circumstances be said that the respondent was indebted to the petitioner until such time the disputed debt was crystallized into a liquidated ascertained sum. Thus, the court was satisfied that there was no neglect and there was no debt then due and payable at the material time.

Chang Chan Thong t/a Express Aluminium Works & Trading Co v Kemajuan Sri Segera Sdn Bhd (1996) CSLR XX[1679] High Court, Kuala Lumpur (Rekhraj JC).

P had earlier obtained default judgment against D. When D failed to satisfy the judgment, P filed a petition for the winding up of D on the ground that it was insolvent and unable to pay its debt, and that in the circumstances of the case, it was just and equitable that D be wound up. D applied to stay the proceedings in respect of the petition pending the disposal of its application to set aside the default judgment. The application was granted. Subsequently, D's application to set aside the default judgment was dismissed but the rate of interest on the judgment sum was varied. As a result, D opposed the winding-up petition on the ground that as the interest rate had been varied, the precise amount of the judgment sum had not been quantified.

Held, (allowing P's application for winding up): (1) there was no merit in D's contention as the fact that the interest amount would now be reduced and which amount had not been quantified, did not bar the court from making a winding-up order. A dispute as to the precise sum owed was not a sufficient answer to the petition; (2) having regard to the evidence as a whole, P had shown that D was unable to pay its debts under s 218(1)(e) of the Companies Act 1965. D was insolvent and it was just and equitable that it be wound up.

Oriental Bank Bhd v CSJ Peng-Angkutan Sdn Bhd Companies (Winding-Up) 42-30-87 High Court, Penang (Mohammed Dzaiddin J).

Teng Foh t/a Teng Foh Construction Liwu Realty Sdn Bhd [1989] 2 MLJ 425 High Court, Johore Bahru (LC Vohrah J).

The plaintiff owed the defendants a certain amount of money. The defendants demanded payment and the plaintiff was unable to pay the money. The defendants petitioned the court to wind up the plaintiff claiming that the plaintiff was unable to pay its debts. The plaintiff sought an injunction to restrain the defendants from petitioning the court to wind up the plaintiff. The defendants submitted on a preliminary point, namely, that the power to grant the injunction sought was not founded upon statute but an inherent jurisdiction which power had been excluded by statutory prohibition, namely, s 54(b) of the Specific Relief Act 1950 (Rev 1974) (Act 137).

Held, overruling the preliminary objection: (1) s 54(b) should be read as having reference to only perpetual injunctions. In the present case, the injunction sought was a temporary injunction; (2) s 54(b) relates to injunctions imposed on other courts and not to injunctions imposed on the parties to the litigation. The injunction sought in the present case was to restrain the defendants and not the court.

Bina Satu Sdn Bhd v Tan Construction [1988] 1 MLJ 533 High Court, Kuala Lumpur (VC George J).

This is a joint application by Standard Chartered Bank ('SCB') and Standard Chartered Merchant Bank Asia Ltd ('SCMBA'), who are very substantial creditors in these winding-up proceedings, for court orders to permit them to inspect the books and papers of Pan Electric Industries Ltd ('Pan El'). The affidavit in support disclosed, inter alia, that SCB and SCMBA have commenced proceedings against M/s Coopers & Lybrand ('Coopers') for damages for breach of duty of care owed to SCB and SCMBA in connection with the accounts of Pan El and that the liquidators of Pan El have also commenced proceedings against Coopers claiming damages for breach of contract. The applicants contended that as Pan El may benefit from the discovery, the court should exercise its discretion to allow discovery under s 284 of the Companies Act (Cap 50). The applicants further contended that the discovery will lead to the beneficial winding up of Pan El if the discovery should enable the applicants to succeed in their action against Coopers as any damages recoverable will go to reduce the applicants' claim in the winding-up of Pan El. The liquidators objected to this application on the ground that as the sole object of the application is to obtain discovery of documents to advance the applicants' case against Coopers, it does not come within the purposes for which s 284 was enacted.

Held, allowing the application: (1) the discovery is directly for the purpose of the action against Coopers but indirectly for the beneficial winding-up of Pan El. Any damages which the applicants are able to obtain in their action against Coopers will reduce their claims against Pan El, and hence increase its distributable assets to other creditors; (2) there is likely to be a great deal of overlapping of evidence relied upon by both the liquidators and the applicants in their respective actions against Coopers. Thus, the giving of discovery may also be of benefit to Pan El as the applicants will be able to provide a second opinion or assessment on the probative value of the documentary evidence now in the possession of the liquidators and also the chances of success on the basis of such evidence.

Re Pan Electric Industries [1992] 2 SLR 437 High Court, Singapore (Chan Sek Keong J).

On a petition for winding up under the Life Assurance Companies (Compulsory Liquidation) Act 1962, the case for the petitioner was that the company was one that at the beginning of October 1961 was carrying on life assurance business and that it had failed to comply with a notice served on it under s 2(1) of the Act. The company contended that it was not so carrying on life assurance business and that consequently it was not competent to serve a notice on it and it was not required to comply with any such notice.

Held: (1) on the evidence the activities of the company did not come within the definition of 'life assurance business' contained in s 2 of the Life Assurance Companies Ordinance 1948 (which definition was incorporated into the 1962 Act by s 8 of the said Act); (2) the expression 'issue' in s 2 of the ordinance must be read as implying the completion of a contract and accepting contractual liability.

Re Poh Thye Co Ltd [1963] MLJ 320 High Court, Federation of Malaya (Thomson CJ).

The appellants by way of summons-in-chambers applied for the determination of the following questions: (a) whether the liquidators should wind up the affairs of the company as in an ordinary voluntary winding up and/or whether the provisions of the Life Assurance Company (Compulsory Liquidation) Act 1962, apply to the said winding up; (b) whether policy holders of the company whose policies had lapsed before the coming into operation of the Life Assurance Act 1961, should still be regarded as creditors of the company; (c) on what basis should those persons whose policies did not lapse on 15 October 1961, be paid; and (d) how should the validity of the claims received by the liquidators be ascertained and whether some representatives of the contributories or the creditors or some other independent person should be associated in the inspection and determination of the validity of such claims. The trial judge held that (a) the provisions of the Life Assurance (Compulsory Liquidation) Act 1962, applied to the winding up of an insurance company; (b) policy holders of the company whose policies had lapsed before the coming into operation of the Act were not creditors of the company; (c) those persons whose policies did not lapse on 15 October 1961, were to be paid for an amount equal to the aggregate of the premiums paid and claimed by them under the policies; and (d) the validity of claims received by the liquidators were to be ascertained by the liquidators alone. He also ordered the costs of the liquidators to be paid by the applicants. On appeal it was contended that some representative of the contributories or some other independent person should be associated with the liquidators in the inspection and determination of the validity of each claim. The appellants also appealed against the order for costs.

Held: (1) under s 5(1) of the Life Assurance Companies (Compulsory Liquidation) Act 1964, only the liquidators could ascertain the validity of claims received by them; (2) the liquidators appointed by the court under the Act are officers of the court and as such should maintain an even balance between all persons whose interests are involved in the winding up; they are not appointees or agents of the competent authority and are not obliged to take directions from the competent authority nor to act on any direction from the competent authority and therefore the appeal as far as the order for costs was concerned should be allowed and the costs of all parties should be taxed and paid out of the assets of the company.

Yap Phan Kooi & Anor v Niblock & Ors [1966] 1 MLJ 33 Federal Court, Kuala Lumpur (Barakbah CJ (Malaya).

This was an appeal from the decision of the High Court reported at [1984] 1 MLJ 204. The learned trial judge had made a winding-up order on just and equitable grounds under s 218(1)(i) of the Companies Act 1965 (Act 125). He held that the respondent had joined the company as a shareholder on the basis that he and his son would be given an equal share in the management of the business and that the other shareholders would not use their majority to outvote him on major issues. On appeal it was argued that such an underlying obligation had not been proved and was denied by the appellants.

Held: (1) in the face of the denial that the agreement was ever made, the trial judge should have heard oral evidence before deciding whether the alleged agreement was ever made; (2) even if the trial judge had been right in his decision to make an order on mere affidavit evidence, he should have so indicated to the parties and given them an opportunity to reach an agreement among themselves and also ascertain the wishes of the creditors and contributories in accordance with s 289(1) of the Companies Act 1965.

Tahansan Sdn Bhd v Tay Bok Choon [1985] 1 MLJ 58 Federal Court, Kuala Lumpur (Salleh Abas LP, Wan Suleiman and Seah FJJ).

[Annotation: Reversed on appeal. See [1987] 1 MLJ 433.]

This was an appeal against the decision of the High Court judge, who ordered that the seventh appellant company (`the company') be wound up upon the petition of the respondent, who was a shareholder and director of the company at all material times. The respondent claimed that a quasi-partnership existed between the respondent, the first appellant and the second appellant, who represented the main shareholders of the company. The respondent also claimed that he was excluded from the management of the company around May 1991. He contended that the appellants had attempted to remove and would have him removed as director if not restrained by an ex parte injunction order obtained by the respondent in August 1992. It was argued that this was evidence not only of the appellants' intention to exclude the respondent from management participation but also it was evidence of the breakdown in confidence and personal relationship between the parties. The appellants disputed the question of quasi-partnership and contended that the company had been run according to its memorandum and articles of association. Further, the appellants in their respective affidavits seriously disputed the allegation of the respondent that he was excluded from management around May 1991. The first appellant's affidavit exhibited copies of resolutions signed by the respondent to show that he was never excluded from management. Counsel for the appellants submitted that since the respondent was appointed a director in 1984, he had never been removed as a director. He submitted that to be excluded from management, the respondent had to show that he had been removed as a director. The parties did not adduce oral evidence and the judge did not order any oral evidence to be taken to resolve any material dispute. The two principal issues for determination at the trial were whether: (i) the company was a quasi-partnership company; and (ii) the petitioner was excluded from management of the company from May 1991. The judge found both issues in favour of the respondent and ordered that the company be wound up under the just and equitable rule, hence this appeal by the appellants.

Held, allowing the appeal: (1) looking at the entire affidavit evidence filed in these proceedings, it was clear that the allegation of the respondent that the company was a quasi-partnership had been credibly denied or otherwise seriously disputed by his two alleged quasi-partners, and by the other two directors and shareholders. In such a situation, the only way to resolve the dispute was the calling of the deponents of the affidavits for examination and cross-examination, where their credibility could be tested and assessed, and when the judge had the advantage of seeing the witnesses and observing their demeanour, bearing in mind that the burden of proving his case lay on the petitioner. The judge was wrong in deciding the issue of quasi-partnership on disputed facts in favour of the respondent, when the undisputed facts did not prove quasi-partnership; (2) from the undisputed evidence, the allegation by the respondent that he was excluded from the management of the company around May 1991 was totally unfounded. He was never removed as director from the day of his appointment in 1984 up to the hearing of this appeal. He had participated in the management of the company by attending the board meetings and signing resolutions before and after May 1991. The court was unable to comprehend how - in the face of the undisputed evidence - the respondent could claim that he had been excluded from management in the company. Further, a proposed resolution to remove a director could not be equated with his actual removal. The appellants dutifully complied with the ex parte injunction order and never removed the respondent as a director. The natural consequence was that the respondent was at all material times not excluded from management. The judge erred in law and fact in holding that the respondent was excluded from management when the undisputed evidence showed that he was a director and had actually participated in the management at all material times. The judge misdirected himself in finding that the respondent would have been removed if not for the injunction order; (3) (obiter) if the court was wrong in its primary opinion, there was ample evidence on record to find that it was not just and equitable to wind up the company for the reasons which were stated in the written submissions of counsel for the appellants, which the judge had not considered adequately. Whether to wind up a company on the just and equitable rule was a matter of judicial discretion to be exercised on what was just and equitable, having regard to the circumstances of the case and the interest of all the shareholders (including the petitioner) and the company. In the present case, the court had borne in mind that it would be very drastic to wind up the company. All the other shareholders did not want to wind up the company. There were no creditors supporting the petition. The company was a very profitable and successful going concern. There were also no allegations of mismanagement or misuse of the company's funds. There was therefore no reason to wind up the company; (4) a petitioner who came to court to wind up a company on the just and equitable rule had to always come with clean hands. Considering the fact that the respondent had suppressed the material evidence relating to his actual participation in the management of the company, the court was of the opinion that the respondent had not come to court with clean hands to justify the winding up of the company on the just and equitable rule.

Yai Yen Hon & Ors v Lim Mong Sam @ Lim Ah Tee [1997] 2 MLJ 190 Court of Appeal, Kuala Lumpur (Shaik Daud, Ahmad Fairuz and Mokhtar Sidin JJCA).

This is a petition by two shareholders of Iniaga Building Supplies (S) Pte Ltd ('the company'), Yang Kwong Nyen Jack ('Jack') and Yang Thye Nyen Frederick ('Frederick'), who are brothers, to wind up the company on just and equitable grounds. The petition was opposed by the other shareholders, Tan Kian Chye ('Tan'), Lai Sooi Kheng ('Lai') and Kok Chee Moon ('Kok'). The company was incorporated on 7 February 1987 with an authorized capital of S$200,000 divided into 200,000 ordinary shares of S$1 each of which 100,000 shares have been issued and are fully paid. These shares are held in equal proportions by the five shareholders. All five of them at all material times were the only directors of the company. In August 1991, differences arose between the Yang brothers and the other three shareholders of the company. These differences centred on the management of Iniaga (Sdn) Bhd but the precise nature of their disagreement was not clear. The undisputed fact remained that at about that time the petitioners were not in good terms with the rest of the shareholders. There were verbal discussions between the petitioners and Tan, and probably the other shareholders also, for the sale of the petitioners' shares to Tan and the other shareholders. On 5 December 1991, there was a meeting of the five of them, and following that on 6 December 1991 all of them signed a 'Memorandum of Understanding' which provided, inter alia, that the petitioners would dispose of their shares in the company to the remaining shareholders at a price based on the value or net worth of the company's assets as at 30 November 1991. Subsequently there was a variation to this agreement and at a directors' meeting held on 21 January 1992 presided by Tan, an agreement was reached between the petitioners and Tan whereby the petitioners would sell to Tan all their shares in the company for a total sum of S$75,000, payable by six instalments. About two months later, an elaborate draft agreement was prepared by Tan's solicitors and handed to the petitioners. In response, the petitioners' solicitors on 27 March 1992 proposed certain amendments to the draft. It took another two months or thereabouts for Tan's solicitors to reply. On 20 May 1992, Tan's solicitors, who then also acted for the company, wrote to the solicitors for the petitioners rejecting the proposed amendments, alleging breaches of duties by the petitioners as directors of the company and maintaining that Tan had no obligation to purchase the petitioners' shares of the company and that there was no concluded agreement. Obviously by then the differences between the petitioners and their fellow members had come to a head. On 10 June 1992 a notice was issued, which appeared to have been initiated by Tan, calling for an extraordinary meeting of the company to be held on 24 June 1992 for passing two ordinary resolutions: one for the removal of the petitioners as directors of the company and the other for increasing the monthly salary of Tan from S$3,200 to S$5,000 with retrospective effect from 1 January 1992. Legal proceedings were taken by the petitioners to restrain Tan, Lai and Kok from holding the extraordinary general meeting but were unsuccessful. The resolutions were passed and the petitioners were removed as directors of the company. Since January 1992 no salaries were paid to the petitioners by the company. On 28 September 1992, the petitioners presented this petition to wind up the company on the basis that Tan, Lai and Kok as majority shareholders excluded the petitioners from the management of the company, managed the company as if it were their own in disregard of the rights and interests of the petitioners and acted in breach of the mutual understanding that the petitioners should be allowed to participate in the management of the business of the company.

Held, dismissing the petition: (1) and (iii) there were restrictions upon the transfer of shares of the company with the result that as confidence was lost and the petitioners were removed from management, they could not take out their stakes and go elsewhere; (2) on the facts, what the five of them had formed was an entity in which all had equal shares and equal participation in the conduct of the business. There was certainly present at that stage mutual trust and confidence in the venture. The obvious inference must be that there was an understanding that all of them would participate or be involved in the conduct of the business of the company. The petitioners have therefore established the first two elements; (3) as for the restrictions of transfer of shares, there are none in the articles of association, although the company is a private company. But the absence of any restrictions on transfer of shares is immaterial in this case as, considering the matter from a practical point of view, it would be extremely difficulty for the petitioners to take their stakes out of the company at a fair and reasonable price; (4) the petitioners had also to show that they had been expelled or ousted from participation in the conduct of the business of the company by their fellow members, in breach of the latter's basic obligations. The evidence showed that, as from the date when the agreement was reached in January 1992, the petitioners' interest in the company was the value of their shares and they had been prepared to transfer their shares and resign from their directorship. For all practical purpose, the petitioners and their fellow members must have considered that they had parted company. In the circumstances, the petitioners could not complain that they had been excluded or expelled from the management of the company. They were therefore not entitled to the relief prayed for. Having regard to the material facts which the court found, the petitioners have not made out a case for winding-up of the company on just and equitable grounds; (5) the petitioners must establish one or more of the three elements propounded by Lord Wiberforce in Ebrahimi v Westbourne Galleries [1973] AC 360 in order to wind up the company on just and equitable grounds: (i) the company was formed on the basis of personal relationship between the five of them involving mutual confidence; (ii) there was an agreement or understanding, express or implied, that all of them would participate in the conduct of the business of the company;(obiter) had the petitioners resorted to s 216 of the Companies Act (Cap 50), a remedy under s 216(2)(d) might well be available. In the circumstances, it would be highly unfair that the petitioners should be mulcted in heavy costs in these proceedings which were substantially contributed by Tan.

Re Iniaga Building Supplies (S) Pte Ltd [1994] 3 SLR 359; CSLR XX[1673] High Court, Singapore (LP Thean JA).

The company was incorporated on 16 June 1969 at the instance of one Boey. The petitioner and Boey were named in the articles as the first directors. At the time of the incorporation of the company, Boey was the sole proprietor of a business of general building and renovation contractor under the name and style of Ah Yee Contractors. Boey practically left the day to day running of the business to the petitioner. Though the company was incorporated in 1969, it did not commence carrying on any business until 1975, when it took over the business of Boey then carried on under his sole proprietorship. On 1 January 1975, Madam Goh, the second wife of Boey, was appointed a director of the company. Boey was the chairman and managing director. Boey died in August 1983. After Boey's death Madam Goh assumed the position of chairman of the company and the petitioner continued to take care of the day to day management. In 1984 and 1985 the company suffered losses. It was during this time that differences between the petitioner, who was in charge of the day to day management, and Madam Goh, who was the chairman, soon emerged. On the basis of these differences the petitioner contended that there was a complete deadlock between him and Madam Goh in the management of the company and that it was just and equitable that the company should be wound up.

Held, dismissing the petition: (1) a petitioner for the winding up of a company, in which he is a fully paid shareholder, must show that he has a tangible interest in relief sought, ie the winding up and where it is not shown that upon the winding up, after full payment of all debts and liabilities of the company, there is a surplus divisible among the shareholders, then he has no interest 'sufficient to induce the court to interfere in his behalf'; (2) the petitioner in the present case was a creditor of the company and therefore had locus standi to present this petition; (3) the company was formed, essentially so that he and his family could have shares in it, and since the petitioner had been working for him for a considerable period of time, he was allowed to have a minority stake in the company. It was never meant to be a partnership between Boey and his wife on the one hand and the petitioner on the other; (4) there was no attempt made by Madam Goh to exclude the petitioner from participation in the management of the company or oust him from the board. Nor was there sufficient evidence to show any breach of good faith or a lack of probity on the part of Madam Goh; (5) the petitioner had not made out his case that it was just and equitable that the company should be wound up.

Re Ah Yee Contractors (Pte) Ltd [1987] SLR 383 High Court, Singapore (Thean J).

This was a petition to wind up a private company incorporated in 1952 with a fully paid-up capital of $1,000,000 divided into 1,000 shares of $1,000 each. The petitioner and one NCS, the subscribers to the memorandum of association, together with members of their respective families, held the shares equally. Differences arose between the petitioner and NCS in 1957 and strained relationship between the parties gave rise to further grounds of dissatisfaction which have been assigned as additional reasons in support of the petition. The petitioner submitted that for these reasons it had become impossible to conduct the business of the company according to law and the regulations of the company and that in the circumstances it was just and equitable that the company should be wound up.

Held: (1) on the facts of the case, the petitioner had been more unreasonable than co-operative, and any deadlock so-called was one created entirely by himself; (2) wounded pride on the part of the petitioner over fancied slights could not make it 'just and equitable' that the court should make the order which was sought; (3) the interests of the shareholders must be considered, and in the circumstances of the case the court was not satisfied that it would be just and equitable to wind up the company in so far as they were concerned; (4) even regarding the private company as a partnership, the court will never permit a partner by rendering it impossible for his partners to act in harmony with him, to obtain a dissolution on the ground of the impossibility so created by himself; (5) in the circumstances the company could carry on with advantage and profit to all its shareholders; (6) the question whether a deadlock exists in the management of a company as makes it just and equitable to wind up the company is a question predominantly of fact in each case. The jurisdiction of the court will only be exercised if the court is satisfied that complete deadlock exists in the management of a company. In this case the discretion of the courts below had been properly exercised and there were no grounds upon which such discretion could properly be interfered with.

Ng Eng Hiam v Ng Kee Wei & Ors [1965] 1 MLJ 238 Privy Council Appeal from the Federation of Malaya (Lord Donovan, Lord Hodson and Lord Guest).

[Annotation: Decision of the High Court in [1962] MLJ 285 and the Court of Appeal in [1963] MLJ 73 affirmed.]

3 [747] COMPANIES AND CORPORATIONS Winding up – Just and equitable rule – Directors having lost confidence in working with each other – Substratum of company ceasing to exist – Companies Act (Cap 50, 1990 Ed), s 254 – Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (folld); Re Toronto Finance Corp [1930] 3 DLR 883 (refd); Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 (refd); Ng Eng Hiam v Ng Kee Wei & Ors [1965] MLJ 238 (distd); Re Semantan Estate (1952) Ltd [1962] MLJ 285 (refd); Ng Eng Hiam v Ng Kee Wei & Ors [1963] MLJ 73 (refd); Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 (refd); Loch v John Blackwood Ltd [1924] AC 783 (folld)

One of two directors of a company petitioned to have the company wound up on the ground that it was just and equitable to do so. The company's restaurant business had ceased and the petitioner's relationship with the only other director and shareholder had deteriorated to such a state that they were no longer talking to each other. The other shareholder opposed the petition and at a board meeting of the company which was attended only by the opposing shareholder, solicitors were appointed to represent the company. The company then, through its solicitors, filed a motion to strike out the petition.

Held, dismissing the motion and allowing the petition: (1) the appointment of the company's solicitors was irregular, and this irregularity could not be cured by s 392 of the Companies Act. The section is applicable to save proceedings at a meeting where the lack of a quorum is of little or no consequence, and no shareholders' interest are prejudiced by any decision taken at the meeting. The provision would not be applicable in the instant case where it would result in disputed decisions being taken by one of two shareholder groups in a company to the exclusion and possible disadvantage of the remaining shareholder. The appointment of the company's solicitors was therefore invalid. The firm of solicitors had no locus standi to further attend the proceedings and were excused; (2) the company had ceased to carry on its restaurant business, and consequently, the substratum of the company had disappeared. A company's substratum was the main object which it was formed to achieve. If it was no longer able to carry out its main object, its substratum was gone and any member may petition for a winding-up order on the just and equitable ground; (3) the fact that the majority of shareholders may wish to keep the company in existence, and to exercise the powers to carry on a different kind of business, or even a similar business, will not prevent a dissenting shareholder from petitioning for a winding-up order. This would be so even if the company's memorandum specifically provided that each of its objects should be a principal object, because a court must determine the real object for which the company was formed, and would allow a winding-up petition if that object had to all intents and purposes been abandoned; (4) in a situation as in the instant case where the company's substratum had disappeared, and there was opposition by one of the two shareholder groups to continuing in business with the other, it was clearly just and equitable that the company be wound up, so that the cash assets could be distributed and each of the two groups could go his own way.

Re Goodwealth Trading Pte Ltd [1990] SLR 1239 High Court, Singapore (Yong Pung How CJ).

[Annotation: Affirmed on appeal. See [1992] 2 SLR 296.]

The petitioners claimed that they were induced to purchase and contribute to the shareholding of a company by misrepresentations of the majority shareholders of the company. The petitioners alleged that the majority shareholders had conducted the affairs of the company for their personal interests and to the detriment of the company and the petitioners. They further alleged that the majority shareholders had breached their fiduciary duty as directors of the company by misappropriating and siphoning off funds of the company. The majority shareholders denied these allegations and counter alleged, inter alia, that the petitioners tried to siphon off the company's funds without proper sanctions of the board of directors. All allegations were in affidavits. No oral evidence was adduced. The petitioners contended that it would not be necessary to prove their allegations and that it would be sufficient to show that mutual trust and understanding had been lost. They argued that since the disputed evidence had shown that that was the case, it would be 'just and equitable' to wind up the company.

Held, dismissing the petition: (1) if allegations are made in affidavits by the petitioners and those allegations are credibly denied by the respondents' affidavits, then, in the absence of oral evidence or cross-examination, the judge must then decide the fate of the petition by consideration of the disputed facts. If the court was to disregard the disputed facts in this case, there is nothing left on which the court could decide in favour of the petitioners. Tay Bok Choon v Tahansan Sdn Bhd [1987] MLJ 433 followed; (2) there was no evidence for the court to make a definite finding whether it would be 'just and equitable' that the company be wound up. A party wishing to ask the court to make such an order on this ground must satisfy the court that their allegations of facts which form the basis of their petition are true.

Ng Eng Huat & Ors v Pin Eu Enterprises Sdn Bhd (1994) CSLR XX[1666] High Court, Penang (Abdul Hamid J).

See companies and corporations, para V [36].

Yai Yen Hon & Ors v Lim Mong Sam @ Lim Ah Tee [1997] 2 MLJ 190 Court of Appeal, Kuala Lumpur (Shaik Daud, Ahmad Fairuz and Mokhtar Sidin JJCA).

Re Inter-Builders Development Pte Ltd [1991] 3 MLJ 259 High Court, Singapore (Rajendran J).

See COMPANIES AND CORPORATIONS, Vol 3, para 708.