Directors can be personally liable for debts if a company is found to be trading with intent to defraud creditors under subsection 304(1) of the Companies Act 1965.

[1] This is an appeal against the decision of the learned High Court Judge who allowed the respondent's claim against the appellant who was the 1st defendant in the Court below. The respondent had sued the appellant as the 1st defendant and his mother as the 2nd defendant under subsection 304(1) of the Companies Act 1965 . The 2nd defendant passed away before the trial got underway. The action was however not withdrawn; the 2nd defendant's estate was represented by one Chin Chee Loy.

Some Background Facts

[2] These are the facts as set out in the decision of the learned High Court Judge. For easier understanding, the parties will be referred in their capacities before the High Court.

[3] The plaintiff is a company which supplies plastic resin used in the manufacture of plastic products. It supplied resin to a company called Pacific Plastic Industries Sdn Bhd ("the company") for the period between 9 October 2003 and 24 February 2004 amounting to RM588,093.00 ("the debt"). When the company failed to pay for the supply, the plaintiff sued the company vide Penang High Court Civil Suit No: 22-45-2006 filed on 4 October 2006. The plaintiff obtained judgment in default against the company. That judgment for the sum of RM588,093.00 remains unsatisfied till this date.

[4] The plaintiff subsequently sued the defendants who were Directors of the company seeking a declaration that the defendants be personally liable without any limitation of liability for the payment of the debt of RM588,093.00.

[5] The plaintiff's claim was based on subsection 304(1) of the Companies Act 1965 . The plaintiff claimed that the defendants are personally liable for the debt because as Directors of the company at the material time, the defendants had carried on the business of the company with intention to defraud the plaintiff as the company's creditor. The plaintiff further alleged that the defendants in fact had no intention of paying the debt from the outset. The details of the allegations appear at para 8 of the statement of claim:

i. the business of the company was carried out under the direction and control of the defendants as its Directors;

ii. the 1st defendant had requested the plaintiff to supply raw materials to the company from the months of October 2003 till February 2004 without any intention of paying for it;

iii. the 2nd defendant who at all times knew and should have known the business dealings of the company which was carried out by the 1st defendant had condoned and allowed the 1st defendant to carry out such activities;

iv. the defendants' company had not paid any portion of the debt owed;

v. sometime in August 2005, after the plaintiff's solicitors had issued a letter of demand dated 10 August 2005 asking for payment of the debt due and owing, the defendants had removed its business signboard at its business premises at No 3 Persiaran Perindustrian Silibin 2, Kawasan Perindustrian Ringan, Silibin, 30100 Ipoh, Perak and replaced it with Bakti Emas Industries Sdn Bhd;

vi. the new business, Bakti Emas Industries Sdn Bhd, was owned by Chee Kam Chan and Ng Sook Hua who are also Directors of the said company; and

vii. the 1st defendant and Ng Sook Hua are business partners in a partnership firm called "Finger Touch Body Care".

[6] The plaintiff sought a declaratory order that the defendants be personally liable for the company's debt and that the defendants be ordered to pay the debt together with interest and costs.

[7] From the joint defence and further and better particulars provided pursuant to an order of Court dated 23 August 2011, the defendants denied carrying on the business of the company with intent of defrauding the