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2021 MarsdenLR 3495

HIGH COURT MALAYA KUALA LUMPUR
DATO SHUN LEONG KWONG & ANOR – Appellant
Versus
MENANG CORPORATION (M) SDN BHD & ORS – Respondent
[Originating Summons No: WA-24NCC-95-03-2021]



Petitioner Advocates:Michael Chow,Wong Zhi Khung ,Respondent Advocate: Yap Boon Hau,Yeap Chi Cheng

A company cannot suspend its directors without express provisions in the Companies Act or its articles, making any decisions taken post-suspension invalid and subject to ratification.

Headnote:(A) Companies Act 2016 – Section 206 – Directors' duties and powers – Plaintiffs sought declarations regarding their alleged suspension as directors and exclusion from board meetings as unlawful. The court found that the 1st Defendant did not have express or implied power to suspend the Plaintiffs, thus ruling their suspension and subsequent decisions made in their absence were invalid. The reasoning emphasized the necessity for express provisions within the corporate articles for such actions and reaffirmed the necessity for compliance with statutory duties. (Paras 57, 137)

(B) Validity of Decisions – The court affirmed that any invalidity due to irregularities can be ratified by valid board resolutions. The decisions at the board meeting, including the EGM requisition, were deemed lawful despite the Plaintiffs' claims of exclusion. (Paras 119, 137)

Facts of the case: The 1st Plaintiff, a significant shareholder and director, along with the 2nd Plaintiff, faced suspension purportedly without lawful ground, leading to the submission of Originating Summons for declarations of their status and the nature of board decisions. (Paras 1-3)

Findings of Court: The court ruled against the 1st Defendant’s claim of power to suspend, citing the lack of express provision in the Companies Act 2016 and the company’s articles. The alleged unlawful suspension and decisions in the plaintiffs' absence were considered ratifiable. (Paras 57, 137)

Issues: The main issues were whether the 1st Defendant had the power to suspend directors and the legal implications of subsequent board decisions made in their absence. (Paras 19, 58)

Ratio Decidendi: The court concluded that the absence of express or implied power to suspend directors under the Companies Act led to the nullification of the judicial actions taken against the Plaintiffs, countering arguments of implied authority derived from constitution and statute. (Paras 46, 56)

Result: The court allowed the plaintiffs’ claims regarding their unlawful suspension and the concurrent decisions made by the board were ruled as invalid based on the lack of statutory backing. (Para 139)

JUDGMENT

Wan Muhammad Amin Wan Yahya JC:

[1] The Plaintiffs in this Originating Summons (encl 1) ("Originating Summons") essentially sought for the following reliefs:

1. a declaration that the suspension of the 1st Plaintiff and the 2nd Plaintiff as directors of the 1st Defendant pursuant to the notices issued by the 1st Defendant and signed by the 2nd Defendant is null and void;

2. a declaration that the exclusion by the 1st Plaintiff and the 2nd Plaintiff from the meetings of the board of directors of the 1st Defendant including the board of directors meeting on 25 February 2021 is unlawful;

3. a declaration that all and any decision of the 1st Defendant, whether taken at the board of directors' meetings or otherwise, where the Plaintiffs or any of them have been excluded or otherwise not been informed of, including any decision to convene any meetings of the 1st Defendant or the placement of shares of the 1st Defendant, are null and void in law;

4. an injunction to restrain the Defendants or any of them from adopting or in any way giving effect to any decision of the 1st Defendant, whether taken at the board of directors'meetings or otherwise, which have been arrived at without the involvement of the Plaintiffs or where the Plaintiffs or any of them have been excluded from participating including any decision to convene any meetings of the 1st Defendant or the placement of shares of the 1st Defendant;

5. damages to be assessed against the Defendants or such of the Defendants as the Court deems appropriate;

[2] There were originally 4 separate applications filed by parties as follows:

i) Enclosure 6 - the Plaintiffs' application for an ex parte injunction against all the Defendants which I had converted to an inter partes application. Enclosure 6 was filed with a Certificate of Urgency. The main relief prayed for in encl 6 is as follows:

"an order for injunction to restrain the Defendants from giving effect to any decision purportedly made by or on behalf of the board of directors of the 1st Defendant without the knowledge or participation of the Plaintiffs including any decision to convene any meetings of the 1st Defendant or the placement of shares of the 1st Defendant."

ii) Enclosure 14 - the Plaintiffs' Order 14A of the Rules of , 2012 ("ROC") Application for the Court to determine 2 main questions. Enclosure 14 was also filed with a Certificate of Urgency.

iii) Enclosure 17 - the 2nd to 7th Defendants application under, inter alia, to strike out the Originating Summons against the 2nd to 7th Defendants.

[3] The Plaintiffs' urgency to have encl 14 heard expeditiously (which would essentially dispose of the Originating Summons) was due to an Extraordinary General Meeting ("EGM") scheduled on 30 March 2021 which agenda is to remove the Plaintiffs as directors of the 1st Defendant.

[4] Due to the Plaintiffs' urgency to have encls 6 and 14 heard quickly, I had raised this issue with both learned counsel for the Plaintiffs, Mr Michael Chow, and the Defendants, Mr Yap Boon Hau, and highlighted to them that that it would appear to the Court that the Plaintiffs' main questions for the Court to determine in their Originating Summons are confined to 2 issues. I further highlighted that if parties are able to limit the issues for the Court to determine in respect of the Originating Summons this would save time and effort and the Originating Summons could be heard before 30 March 2021. Then encls 6 and 14 would no longer be necessary. Learned counsel for the Defendants was open to this suggestion but wanted the Plaintiffs to withdraw the suit as against the 2nd to 7th Defendants as the main reliefs prayed for in the Originating Summons did not concern the 2nd to 7th Defendants.

[5] As a compromise to having the Originating Summons disposed before 30 March 2021, parties had entered into an agreement and a Consent Order was entered to that effect on 12 March 2021 which includes the questions for the Court's determination. The terms of the Consent Or


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