Derivative actions require showing misconduct rather than mismanagement for leave under the Companies Act; failure to meet this threshold leads to dismissal of the application.

Liza Chan Sow Keng JC:

Introduction

[1] The Plaintiff by the Originating Summons ("OS"), sought leave pursuant to s 347(1) of the Companies Act 2016 (" CA 2016") to commence a derivative action ("the Proposed Action") on behalf of Subhome Management Sdn Bhd (interchangeably referred as "the 2nd Defendant" or "Company") against the sole director of the Company named as the 1st Defendant for corporate wrongs committed against the Company as well as sued in his personal capacity as a shareholder for expropriation of his shares.

[2] On 10 January 2022, this court declined leave to for the Proposed Action but granted relief in respect of the Plaintiff's complaints in his capacity as a shareholder. Dissatisfied, both Plaintiff and Defendants have appealed against the decision. These are the reasons for my decision.

Background

[3] The Company was incorporated on 5 August 2013 and carries on the business of property management.

[4] The Plaintiff and the 1st Defendant are shareholders of the Company with the Plaintiff owning 121,250 shares.

[5] The 1st Defendant as the sole director of the Company oversees the day to day management and operations of the Company.

[6] The Plaintiff in summary asserted the 1st Defendant's wrongdoings as follows:

6.1 The 1st Defendant being the director of the Company have breached his fiduciary and statutory duties owed to the Company and him on the following grounds:

(i) The 1st Defendant failed to exercise and discharge his duty as the director of the Company with reasonable care, skill and diligence in the best interests of the Company to the extent that a Judgment In Default of Appearance dated 15 September 2020 was entered against the Company;

(ii) The 1 st Defendant denied the Plaintiff access to 3 years of the Company's Financial Reports i.e 2018, 2019 and 2020 despite repeated oral and written requests from the Plaintiff and thereby breached ss 257 and 258 of the Companies Act 2016 ("the Act"). These sections inter alia provide that every company shall send a copy of its financial statements and reports for each financial year to every member of the company within six months of its financial year end; and by failing to do so has exposed the Company to a punishable and continuing offence under the Act which upon conviction might cause the Company a maximum fine of RM50,000.00 for each conviction;

(iii) The 1st Defendant failed, defaulted and neglected his duty as an officer/director to lodge financial reports of the Company with the Registrar since June 2019, in breach of s 259 of the Act which requires the Company within thirty days from the financial statements and reports are circulated to its members under s 258 to lodge the same with the Registrar;

6.2 The 1st Defendant had convened an illegal and unlawful Extraordinary General Meeting ("EGM") of the Company on 14 May 2020 without any proper and valid notice, without legitimate authority, without proper and adequate quorum, without the attendance of the Company Secretary, in contravention of the Shareholder's Agreement dated 25 May 2018 ("SHA") and in blatant disregard and breach of various provisions of the Act;

6.3 The 1st Defendant attempted to disguise the illegal and unlawful EGM as a "First Round Bidding Process" purportedly convened pursuant to an alleged deadlock situation under cl 11 of the SHA when there was no deadlock as defined in the SHA;

6.4 Under the guise of a share bidding exercise conducted on 14 May 2020, illegally, unlawfully and fraudulently transferred the Plaintiff's shares in the Company;

6.5 The 1st Defendant dishonestly arrangedfor an imposter by the name Aravind Sinniah to masquerade as a proxy of the Plaintiff during the illegal EGM when in fact the Plaintiff was not aware of the EGM and do not even know who Aravind Sinniah is;

6.6 the Plaintiff has fulfilled all the requirements under s 348 for leave to commence derivative action against the 1st Defendant on behalf of the Company;

6.7 the Plaintiff is entitled to file