The court reinforced that validation orders under s 223 must be made in good faith for the benefit of the company, with full transparency.

[1] This is an application by the 2nd Respondent for a validation order pursuant to s 223 of the Companies Act 1965 to validate the payment of a sum of RM4,798,200.00 in the 1st Respondent's current account with Public Bank Berhad ("PBB") towards the overdraft granted by United Overseas Bank (M) Bhd ("UOB") to the 1st Respondent. I have dismissed the validation application. These are the reasons for my decision.

Salient Background Facts

[2] The Petitioner, a contributory and contingent creditor and director of the 1st Respondent has filed the winding up petition to wind up the 1st Respondent on the just and equitable ground.

[3] The Petitioner (Tan Poh Lee), the Supporting Contributories (Tan Poh Hui and Tan Poh Yee) and the 2nd Respondent (Tan Boon Thien) are the children of the Contributory, Tan Kim Choo @ Tan Kim Choon ("TKC") and one Madam Chang Ying (deceased).

[4] The particulars of the Company's shareholdings are as follows:

[5] The particulars of the Company's current board of directors are as follows:

[6] The 1st Respondent owns a hotel known as Cairnhill Hotel together with the land on which it is situated. Pursuant to a tenancy agreement, the 1st Respondent collects rent from Cairnhill Hotel (M) Sdn Bhd ("Cairnhill Hotel") as its primary source of income. The 1st Respondent's only long-term liability is the RM10 million financing facilities from UOB which comprises a RM5 million overdraft and a RM5 million fixed loan.

[7] The guarantors for the UOB financing are Tan Kim Choo and the Petitioner. The facilities were to be utilised for the construction and renovations carried out to the land and Cairnhill Hotel.

[8] The 1st Respondent is solvent and had previously been using the rental income from Cairnhill Hotel to service the UOB outstanding loans and the monthly expenses of the company.

[9] The 1st Respondent was the registered and beneficial owner of a piece of land held under Lot 47-41 GM 5204 Mukim Batu which was the subject of compulsory acquisition on 21 February 2017. The compensation sum payable to the 1st Respondent for that acquisition was RM4,798,200.00 which was credited into the PBB current account on 17 May 2018.

[10] A letter from PBB dated 19 May 2017 informed the 1st Respondent that the PBB current account has been frozen on the basis of the pending winding up petition against the company, based on a letter sent to PBB dated 18 May 2017 by the Petitioner's solicitors.

[11] On 28 November 2017, this Court allowed an application filed by Tan Kim Choo to stay the winding up proceedings in its entirety pending disposal of an action vide Kuala Lumpur High Court Suit No WA-22NCVC-58-01/2017 ("Suit 58") also filed by Tan Kim Choo. The stay order granted any party liberty to apply for a validation order or other relief from time to time as may be necessary.

[12] Despite the 2nd Respondent's solicitors' letter to PBB dated 9 February 2018 requesting it to unfreeze the account in light of the stay order, PBB vide their letter dated 21 February 2018 had refused to entertain any such request unless there was a validation order granted by the Court.

[13] On or about 19 March 2018, vide a legal demand letter, UOB demanded for payment from the 1st Respondent of the outstanding loan as at March 2018 in the sum of RM270,344.05.

[14] Due to the above facts, the 2nd Respondent has filed the application herein for a validation order to validate the payment of the compensation sum towards