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2025 MarsdenLR 5254
HIGH COURT SABAH & SARAWAK KUCHING
CHOON HUA TRADING CORPORATION SDN BHD & ORS – Appellant
Versus
CS MINI MARKET SDN BHD & ORS AND ANOTHER CASE – Respondent
[Originating Summons No: KCH-24NCvC-10/4-2023 & Suit No: KCH-22NCvC-19-6/2023]
Directors' resignations are invalid if they reduce the number of directors below statutory minimums, and parties may refuse to proceed with agreements based on unsatisfactory due diligence results.
Headnote:(A) Companies Act 2016 - Sections 196 and 619 - Originating Summons and Suit concerning the validity of directors' resignations and repayment of loans - Plaintiffs sought declarations regarding resignations and enforcement of a share subscription agreement - Defendants counterclaimed for enforcement of subscription terms - Court found resignations valid for some directors and invalid for others, confirming enforceability of agreements - The Plaintiffs' claim allowed, and the Defendants' counterclaim dismissed. (Paras 188-191)
(B) Corporate Governance - Directors' Resignation - Validity of resignations contingent on statutory minimum director requirement - Resignations deemed ineffective if they reduce the number of directors below the statutory minimum, as per Section 196 of the Companies Act 2016. (Paras 32-34)
(C) Contractual Obligations - Share Subscription Agreement - The Plaintiffs were entitled to refuse to proceed with the agreement based on dissatisfaction with due diligence results, as stipulated in the contract. (Paras 106-107)
Facts of the case:
The case involved disputes over the resignation of directors from a company and the repayment of loans amounting to RM10 million, with claims and counterclaims regarding the validity of agreements and corporate governance issues. (Paras 1-9)
Findings of Court:
The Court upheld the validity of resignations for some directors while declaring others invalid, thereby ensuring compliance with statutory requirements. The Plaintiffs' refusal to proceed with the share subscription was justified. (Paras 188-191)
Issues: The main issues included the validity of directors' resignations, enforceability of the share subscription agreement, and repayment obligations under loan agreements. (Paras 188-189)
Ratio Decidendi: The Court held that resignations must comply with statutory minimum requirements for directors, and contractual terms regarding due diligence must be honored by the parties involved. (Paras 32-34, 106-107)
Result: Plaintiffs' claims allowed; Defendants' counterclaims dismissed.
Introduction
[1] There are 2 actions before the Court viz Originating Summons No KCH-24NCvC-10/4-2023(HC4) (Originating Summons) and Suit No KCH-22NCvC-19-6/2023 (Suit). Both actions were ordered to be heard together by an Order of Court dated 25 January 2024 (Enclosure 30 in the Suit).
[2] At the center of both the actions are 3 loan documents, a share subscription agreement and a supplementary agreement which were signed by the parties (save for the 5th Defendant in the Originating Summons-Companies Commission of Malaysia).
[3] By an Originating Summons dated 13 April 2024, the Plaintiffs are seeking for the following reliefs against the Defendants:
(1) A declaration that Lim Jin Wei (LJW) (NRIC No 751117-13-5409), Lim Jin Kiat (LJK)(NRIC No 800309-13-5487) and Lim Jin Siang (LJS)(NRIC No. 830804-135481) have resigned and ceased to be directors of CS Mini Market Sdn Bhd (CCMM) (Company Registration No 201601034824 (1205765-H)) as at 3rd April 2023;
(2) That consequential to item (1) above, the Registrar of Companies and/or Companies Commission of Malaysia of the 1st Defendant do accept and duly register the resignation of Lim Jin Wei (NRIC No. 751117-13-5409), Lim Jin Kiat (NRIC No 800309-13-5487) and Lim Jin Siang (NRIC No. 830804-13-5481) as directors of CS Mini Market Sdn Bhd (Company Registration No 201601034824 (1205765-H));
(3) A declaration that the resignation of Voon Chun Chiang (VCC)(NRIC No 850824-13-5313) and Karen Kho Qiu Ting (Karen) (NRIC No 860208-13-5482) as directors of CS Mini Market Sdn Bhd (Company Registration No 201601034824 (1205765-H)) dated 5 April 2023 are ineffective and invalid and that Voon Chun Chiang (NRIC No 850824-13-5313) and Karen Kho Qiu Ting (NRIC No 860208-13-5482) are the directors of CS Mini Market Sdn Bhd (Company Registration No. 201601034824 (1205765-H));
(4) That the 1st, 2nd and 3rd Defendants, CS Mini Market Sdn Bhd, and/or Voon Chun Chiang, and Karen Kho Qiu Ting respectively do specifically perform cl 7.1(a) of the Shares Subscription Agreement dated 18 May 2022 in particular, Choon Hua Retail Group Sdn Bhd.(CHRG) do transfer the 1,096,500 ordinary shares in CS Mini Market Sdn Bhd to Voon Chun Chiang at the consideration of RM1.00;
(5) In the event 1st, 2nd and 3rd Defendants, CS Mini Market Sdn Bhd, and/or Voon Chun Chiang, and Karen Kho Qiu Ting respectively fail to cause or effect the transfer of the 1,096,500 ordinary shares in CS Mini Market Sdn Bhd as stated in prayer (4) above within 5 days from the date of the Order, that the Registrar of Companies and/or Companies Commission of Malaysia of CS Mini Market Sdn Bhd do accept and duly register the transfer of 1,096,500 ordinary shares in CS Mini Market Sdn Bhd from Choon Hua Retail Group Sdn Bhd to Voon Chun Chiang;
(6) That 1st, 2nd and 3rd Defendants, CS Mini Market Sdn Bhd, and/or Voon Chun Chiang, and Karen Kho Qiu Ting respectively do specifically perform cl 7.1(b) of the Shares Subscription Agreement dated 18 May 2022 in particular, CS Mini Market Sdn Bhd shall pay to Choon Hua Trading Corporation Sdn Bhd.(CHTC) the loans in the sums of RM1,000,000.00 and RM5,000,000.00 totaling RM6,000,000.00 on or before 21 September 2023;
(7) Interest at the rate of 5% per annum on the sum of RM6,000,000.00 from 22 September 2023 until full and final settlement;
(8) In the event the 1st Defendant, CS Mini Market Sdn Bhd fails to pay the total sum of RM6,000,000.00 on or before 21 September 2023 to Choon Hua Trading Corporation Sdn Bhd., the 2nd, 3rd and 4th Defendants, Voon Chun Chiang, Karen Kho Qiu Ting, and Kho Lian Kuang (KLK) shall jointly and severally pay the sum of RM6,000,000.00 together with all interest thereon to Choon Hua Trading Corporation Sdn Bhd.;
(9) That 2nd and 3rd Defendant, Voon Chun Chiang and Karen Kho Qiu Ting shall be entitled to redeem 632,100 ordinary shares of CS Mini Market Sdn Bhd from Choon Hua Trading Corporation Sdn Bhd after paying the aforesaid sum of RM6,000,000.00 together wi
