Directors can be held personally liable for fraudulent trading under Section 540 of the Companies Act 2016 when they knowingly incur debts without the prospect of payment, constituting intent to defraud creditors.

Arziah Mohamed Apandi JC:

(Relating To Enc 228)

Introduction

[1] This is my decision on the Defendants' application filed in Enc. 228, seeking a declaration that the First, Third, Fourth and Fifth Defendants have been misjoined as parties to this suit. The application was filed on 17 April 2024 and served on the Plaintiffs on 18 April 2024, just before the trial commenced on 22 April 2024. I reserved my decision until the completion of the trial. The parties filed written submissions to the application and supporting affidavits.

[2] The Plaintiffs' claim is for the principal sum of RM2,702,500.00 for 46 containers of sugar supplied to the Defendants. It is undisputed that payment was made for 35 containers, but payment for the remaining 46 containers is still outstanding.

[3] The Defendants contend that Logix World (M) Sdn Bhd (the First Defendant)(Logix) is not a party to the contract for the sale of sugar and that the Directors (the Third, Fourth and Fifth Defendants) cannot be personally liable as the corporate veil has not been lifted.

Factual Background

[4] This action concerns a claim for goods sold and delivered, specifically 46 containers of refined sugar sold by the Plaintiffs to the First and Second Defendants for which payment remains outstanding. The Plaintiffs also seek to hold the Third, Fourth and Fifth Defendants (the Directors) personally liable under s 540 of the Companies Act 2016 ( CA 2016) for fraudulent trading.

[5] The dispute arises from Contract No AH187/17 dated 30 August 2017 (Contract) where the Second Plaintiff (Hamshi) agreed to sell and the Second Defendant agreed to buy 2000 metric tonnes of refined sugar at RM2,350.00 per metric tonne. The First Plaintiff (Ancom) was named "guarantor"and was designated to receive payments. The Second Plaintiff (Hamshi) held the necessary sugar trading license.

[6] Under this arrangement, 81 containers of refined sugar were delivered to the Defendants. Payment was received for 35 containers, amounting to RM2,056,250.00. The present claim concerns payment for the remaining 46 containers, totalling RM2,702,500.00.

[7] The Third, Fourth and Fifth Defendants namely Rokiyah binti Adnan (Rokiyah), Mohd Syafiq bin Muhammad (Syafiq) and Nur Salwani binti Muhammad (Salwani) were Directors of Logix. Rokiyah was also the Director of the Second Defendant, Citra Semerbak Sdn Bhd (Citra).

[8] The Plaintiffs filed this suit on 12 February 2018 against the First and Second Defendants. On 30 May 2019, pursuant to an application under Enc. 102, the Third, Fourth and Fifth Defendants (Directors of the First Defendant) were joined as additional parties to the suit.

[9] Although Logix was not explicitly named in the Contract, all the invoices and delivery orders were issued to Logix. The WhatsApp conversations between Rokiyah and the Plaintiffs' representative on 22 August 2017, clearly show that Rokiyah instructed that invoices be issued to "LOGIX WORLD (M) SDN BHD C/O CITRA SEMERBAK SDN BHD" because "yg bayar nanti logix world."

[10] On 31 July 2018, while this lawsuit was pending, the Directors applied to the Companies Commission of Malaysia (SSM) to strike off Logix from the register of companies. In the Declaration submitted to SSM, the Directors stated that Logix was not involved in any impending legal proceedings, had not carried on business since 2 July 2008, and had no assets or liabilities.

[11] SSM struck off Logix on 16 January 2019. The Plaintiffs subsequently filed an Originating Summons to reinstate Logix, which the Court allowed on 4 April 2019.

[12] On 25 October 2018, the First and Second Defendants had also filed a striking out application (Enc. 45) to remove the First Defendant from this suit, which this Court dismissed on 13 February 2019.

Issues

[13] The main issues for determination are:

(a) Whether the application is barred by res judicata, given the previous Court decisions;

(b) Whether the application is academic, having been filed after the trial had already comm