Directors can be held personally liable for a company's debts under Section 540 of the Companies Act 2016 when engaged in fraudulent trading, justifying the lifting of the corporate veil.

JUDGMENT

(Enclosure 1)

Hayatul Akmal Abdul Aziz J:

[1] Introduction

1.1 This case concerns an uncomplicated issue involving goods sold and delivered by the plaintiff to Maser Chemical Berhad (Maser), a company in the Maser Group of Companies (Group Enterprise) at the time of the transaction:

(a) The plaintiff, as pleaded, is a foreign investment company established in Malaysia that, amongst other things, supplies Barite Powder for use in the oil and gas industry.

(b) An official company search with SSM: CBOD Vol 1 (Part A), encl 40, pp 40-48, revealed that:

(1) The first defendant (D1), a Maser shareholder, was appointed board member on 24 June 2004.

(2) The second defendant (D2), also a shareholder, was appointed to the board of Maser on 1 April 2010. He was also appointed as the manager of Maser on 29 April 2013, and

(3) The third defendant (D3), also a shareholder, was appointed to Maser's board on 17 January 2013.

D1 and D2 were the board members in control of Maser during the commercial transaction between the plaintiff and Maser, which involved a subsequent default in payment.

1.2 In the plaintiff's case:

(1) The Ds, who were directors of Maser, had conducted the company's affairs to defraud the plaintiff by denying payment for goods ordered and supplied.

(2) It is trite law that a company, being a legal persona, can only act through its duly appointed agents depending on the nature and extent of their given authority.

(3) Management power is bestowed upon the board of directors to manage the company's affairs. They constitute the will and the mind of the company and may, in justifiable circumstances, be held personally accountable for their actions when dealing with outsiders.

[2] The plaintiff anchored this suit on s 540 of the Companies Act 2016 (s 304 Companies Act 1965) in targeting the Ds directly as directors and the controlling will and mind of Maser to be held personally accountable for the acts or conduct of Maser for fraudulent and insolvent trading.

2.1 The plaintiff asserts:

(1) At the time of the transaction, the Ds were fully aware that Maser was in no position to meet its financial obligations to the creditors or the suppliers. Still, they assured the plaintiff that Maser would 70 meet its financial obligations to the plaintiff, leading the plaintiff to agree to the transaction and to grant Maser credit terms for the purchase.

(2) It is also the plaintiff's case that in addition to Maser defaulting in the payment for the order placed, the Ds, in their capacity as directors and officers of Maser, had dissipated the assets of Maser by emptying its bank account to avoid paying the plaintiff once a civil recovery suit was taken against Maser in 2016. The Ds were directors running Maser at the time. Unable to recover the judgment sum from Maser, the plaintiff now pursues the Ds personally for facilitating fraudulent trading by Maser and seeking the lifting of the veil of incorporation to that end.

(3) Judgment if default (JID) had been entered against the third defendant (D3) on 30 December 2020, and there is no evidence that D3 acted to set aside the JID and challenge the action against him.

(4) My determination will now focus only on D1 and D2 (the Ds).

[3] On 29 January 2024:

3.1 In my considered judgment, on the balance of probabilities, I found that the plaintiff succeeded in proving its claim and entered final judgment against the defendant as claimed in the Statement of Claim (SoC).

3.2 Cost of RM20,000.00 was awarded to the plaintiff payable by the Ds within forty-five (45) days from the date hereof.

3.3 Aggrieved, the defendant appealed against my decision, and these are my reasons.

[4] Witnesses

4.1 Plaintiff:

(1) SP1: Paramaguru a/l Thambyrajah: Director

4.2 The First and Second Defendants (the Ds):

(2) SD 1: Ibrahim Bin Mat Seddek (D1): Director and Shareholder of Maser

(3) SD2: Mohammad Azahan Bin Mat Seddek (D2): Director and Shareholder of Maser

[5] Salient Facts:

5.1 The claim by the plaintiff is personally against the thre