A share transfer made prior to bankruptcy is valid unless proven fraudulent, stressing the need for the Director General of Insolvency to establish lack of good faith or valuable consideration.

Headnote:(A) Companies Act 1965 - Sections 162 and 158(4) - Bankruptcy Act 1967 - Sections 52(1) and 54 - Declaration of validity of share transfer - Plaintiff's acquisition of shares from 3rd Defendant found valid; DGI's objections regarding timing of transfer and registration deemed insufficient. (Paras 1, 5, 15-18)

(B) Good Faith Transactions - The court reaffirmed that transactions made for consideration prior to a party's bankruptcy are valid unless proven fraudulent, emphasizing the importance of the burden of proof resting on the Director General of Insolvency regarding good faith. (Paras 12, 15)

Facts of the case:
The Plaintiff purchased 180,000 shares from the 3rd Defendant for RM100,000, with the transfer intended as a settlement following the Defendant's marital decisions. Registration was hindered due to the company's failure to file necessary audit documents. (Paras 3-4)

Findings of Court:
The court concluded that the share transfer was valid and upheld Plaintiff's ownership, noting the lack of evidence for insolvency or fraudulent intent from the 3rd Defendant at the time of transaction. (Paras 5, 15)

Issues: The primary issues involved the validity of the share transfer within the context of bankruptcy law, specifically questioning the good faith of the transaction and the appropriateness of the DGI's challenges. (Paras 6-7)

Ratio Decidendi: The court underlined that the transfer took place well before bankruptcy proceedings and lacked evidence of fraud, asserting that the Plaintiff’s transaction was legitimate, and the onus lay with the DGI to prove otherwise. (Paras 12, 15)

Result: Plaintiff's claims allowed; the court ordered the return of shares and payment of costs. (Paras 18-20)

Table of Content
1. plaintiff's sought declarations regarding share transfer. (Para 1)
2. background on share transfer circumstances. (Para 2 , 3 , 4)
3. court's analysis on legality and good faith of share transfer. (Para 5 , 6 , 7)

[1] In the Originating Summons the Plaintiff is applying for the following reliefs:

(1) A declaration that the acquisition/sale of the 180,000 unit of shares in 1st Defendant's company from the Third Defendan to the Plaintiff on 25 May 2007 is valid; and/or

(2) A declaration that the Plaintiff is the legal owner of the 180,000 unit of shares in 1st Defendant; and

(3) The name of the Plaintiff to be entered and/or registered in the Company Register pursuant to s 162 of the Companies Act 1965 ;

(4) A declaration that the 2nd Defendant is not entitled to the 180,000 unit of shares in 1st Defendant that has been transferred/sold by the 3rd Defendant to the Plaintiff pursuant to s 52(1) of the Bankruptcy Act 1967 and/or s 54 of the Bankruptcy Act 1967 ;

(5) An Order that the 180,000 unit of shares of the 1st Defendant that has been transferred to the 2nd Defendant to be delivered and/or returned to the Plaintiff;

(6) Cost for this action; and

(7) Any other reliefs that this Honourable Court deems fit to grant.

Brief Facts

[2] On 31 October 2012 at the hearing of the application to intervene (encl 6) the Official Assignee (DGI) informed the Court that application for an examination pursuant to s 31 of the Bankruptcy Act 1967 (the Act) has been filed and the hearing has been fixed on 26 November 2012. Subsequently the hearing date was rescheduled to 6 February 2013. The purpose of the examination under this section is to ascertain of any dealings or property of the bankrupt. In the instant case the examination will provide more information and details with regards to the transfer of the shares by the 3rd Defendant to the Plaintiff. After the completion of the examination a report will be prepared by the DGI.

[3] The Plaintiff and the 3rd Defendant were married sometime in 1994. Sometime in 2007 they became estranged and lived separately. The 3rd Defendant subsequently told the Plaintiff of his intention to marry and take a third wife. In consideration of her giving her consent for him to take a third wife the Plaintiff requested that the 3rd Defendant transfer his 180,000 units of shares in the 1st Defendant to her. The 3rd Defendant agreed to make the transfer and requested the sum of RM100,000 from the Plaintiff as consideration.

[4] The Plaintiff then approached one Dato' V Alexander Chako who is a family friend to help her raise the sum of money in order for to pay the 3rd Defendant. The Plaintiff then paid the full amount to the 3rd Defendant. The Transfer Form 32A was duly signed by both the Plaintiff and the 3rd Defendant. The 3rd Defendant then informed the Plaintiff that the shares will be registered under the Plaintiff's name. However the 4th Defendant could not proceed with the registration with the Registrar of Company (SSM) as the 1st Defendant did not file the Audit Report for the year 2007-2011 to SSM.

Decision

[5] After considering the Affidavits, written submissions, the Report of the DGI made pursuant section 31 of the Act as well as the oral arguments of all the Counsels I am of the considered view that the transfer of shares from the 3rd Defendant to Plaintiff was for bona fide and for valuable consideration and I allowed the reliefs as prayed in encl 1. My reasons are as stated below.

[6] In order to consider the application, it is necessary to state the provisions of s 52 of the Act which is as follows,

"1) Any settlement of property, not being a settlement made.before and in consideration of marriage or a settlement made in favour of a purchaser or incumbrancer in good faith and for valuable.consideration, or a settlement made on or for the wife or children of the settlor of property which has accrued to the settlor after marriage in right of his wife, shall, if the settlor becomes bankrupt.wit

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2013 MarsdenLR 2364

HIGH COURT MALAYA KUALA LUMPURMARIA ABDULLAH – AppellantVersusINTELLIGENT PARTNER SDN BHD & ORS – Respondent[Suit No: 24NCC-236-07/2012]

A share transfer made prior to bankruptcy is valid unless proven fraudulent, stressing the need for the Director General of Insolvency to establish lack of good faith or valuable consideration.

Cases Referred (4)

HIGH COURT MALAYA KUALA LUMPUR
MARIA ABDULLAH – Appellant
Versus
INTELLIGENT PARTNER SDN BHD & ORS – Respondent
[Suit No: 24NCC-236-07/2012]