A derivative action requires proof of wrongs done to the company, not personal grievances; approval of directors' remuneration by shareholders negates claims of misconduct.

JUDGMENT

Quay Chew Soon J:

Introduction

[1] The Plaintiff ("P") filed this originating summons on 16 August 2023. By the originating summons, P seeks for leave to commence a derivative action in the name of the 1st Defendant ("Company") against the 2nd Defendant ("D2") and the 3rd Defendant ("D3"). And to obtain the documents set out in prayer (c) of the originating summons.

[2] On 29 March 2024, I dismissed the originating summons. Here are the grounds of my decision.

The Complaints Of The Plaintiff

[3] The complaints of P can be summarised as follows:

(a) Complaint No 1. The RM42.6 million of directors' remuneration and other benefits paid to D2 and D3 for the financial years 2015 to 2020.

This is P's primary complaint. P alleges that the aforesaid directors' remunerations and other benefits were never approved by the shareholders of the Company. As such, art 67 of the Company's constitution and s 230(3) of the Companies Act 2016 have not been complied with.

(b) Complaint No 2. EPF (Employees Provident Fund) contribution to D2.

P alleges that there has been an excessive EPF contribution to D2 on the account of the Company, which exceeds the rate of 19% permissible for tax deduction provided under s 34(4) of the Income Tax Act 1967 . P further complains that the excess of the EPF contribution for D2 in the financial year 2017 was not added back as expenses not deductible for tax submission. This exposes the Company to potential action by the regulatory authorities.

(c) The other complaints of P rest upon the issues relating to the internal management of the Company. Namely:

(i) Complaint No 3. The reclassification of the Company's expenses in the audited accounts for the financial year 2020.

P challenges the reclassification of the costs of sales in 2020, which was reduced from originally RM21,371,593 to RM18,844,363. P suspects the aforesaid reduction of costs of sales was a tactic used by D2 and D3 to increase the Company's gross profit, which in turn increased D2's and D3's remuneration. In other words, P is alleging that D2 and D3 colluded with the Company's auditor to falsify accounts for the purpose of increasing D2's and D3's remuneration.

(ii) Complaint No 4. The list of inventories written off in the audited accounts for the financial year 2021.

The sum of the written off inventory is RM1,130,238.00. P alleges that he did not receive a response as to what inventory had actually been written off, even though he raised the question during the AGM (annual general meeting) in the year 2021 and the year 2022.

(iii) Complaint No 5. Issue on the Company's accelerated capital allowance.

P alleges that D2 and D3 in the 2022 AGM failed to answer his question on the accelerated capital allowance claimed by the Company.

(iv) Complaint No 6. Inconsistency between the tax savings amount recorded in the audited financial statements for the financial years 2015, 2016 and 2019, and the actual tax savings amount.

P questioned the inconsistency.

(v) Complaint No 7. Workmanship charges.

P alleges that the increase of workmanship charges of approximately RM4 million from 2021 to 2022, as recorded in the audited financial statements, is suspicious.

(vi) Complaint No 8. Appointment of P as a director of the Company.

P complains that his request to be appointed as a director of the Company was rejected by the board.

Background Facts

[4] The history of the Company ranges back to decades ago. It was incorporated in 1983 by the late Ewe Oon Teng and D3. Since itsincorporation, there have been numerous changes to the composition of the board of directors and the shareholders of the Company.

[5] P is a shareholder of the Company. Further, P was once a director of the Company, from 1991 to 1999. Further, P has, since 2005 until to - date, occupied the role of an executive director of a public listed company ie MMS Ventures Bhd This evinces P's knowledge and experience as far as corporate governance is concerned.

[6] Since September 2011, the board of directors of the C