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2022 MarsdenLR 2625
COURT OF APPEAL PUTRAJAYA
ZAMZAM ARABIC FOOD HOLDING SDN BHD & ANOR – Appellant
Versus
JOHANJANA CORPORATION SDN BHD – Respondent
[Civil Appeal No: B-02(IM)(NCC)-1649-11-2020]
Companies cannot be held liable under Section 540 of the Companies Act for fraudulent trading; only individuals may be personally responsible for fraud perpetrated through a corporate entity.
Headnote:(A) Companies Act 2016 – Section 540 – Appeal against the High Court's dismissal of the defendants' application to strike out writ of summons claiming fraudulent trading. The Court found that the 2nd defendant, being a company, does not fall under the definition of 'person' in Section 540(1) and thus the plaintiff had no cause of action against it. Claims against the 10th defendant, a director of the 2nd defendant, were similarly unsustainable, as he was not a director of the 1st defendant. (Paras 21, 22, 33)
Issues
: The Court addressed whether the 2nd defendant qualifies as a 'person' under Section 540, liability of the 10th defendant, and sustainability of the plaintiff's claims.
Findings of Court:
Dismissed claims against both defendants due to lack of cause of action and insufficient particulars of fraudulent conduct proved.
Ratio Decidendi:
The Court ruled that a company cannot be held liable under Section 540, and only individuals who directly defraud creditors can be liable.
Result:
Appeal allowed, claims against 2nd and 10th defendants struck out.
JUDGMENT
Introduction
[1] The appeal by the appellants (the 2nd defendant and 10th defendant respectively) is against the decision of the High Court dated 5 October 2020 dismissing the appellants' application to strike out the respondent's writ of summons and statement of claim.
[2] We heard and allowed the appeal on 4 January 2022. Our reasons for the decision are stated below.
[3] In this judgment, the parties will be referred to as they were in the High Court.
Salient Fact
[4] The 1st defendant's company is the tenant of the plaintiff with regard to 7 premises at Oasis 9, Jalan Tengku Ampuan Zabedah G/9, Seksyen 9, 40100 Shah Alam. Tenancy agreements were executed and signed between the plaintiff and the 1st defendant in respect of the 7 premises.
[5] At all material times, the 1st defendant's company operated all 7 premises as an Arabic food restaurant and banquet hall known as "Restoran Zamzam".
[6] The 1st defendant's company defaulted the tenancy agreements by non-payment of rental and refusal to surrender vacant possession upon expiry of the said tenancies.
[7] Via Shah Alam Sessions Court Suit No: B52 NCVC-21-02-2018 (Suit 21), the plaintiff sued the 1st defendant for breach of tenancy agreements, arrears of rental, vacant possession and damages.
[8] On 28 May 2018, the Sessions Court allowed the plaintiff's claim. The Sessions Court's decision was affirmed by the High Court.
[9] It is an undisputed fact that the 2nd defendant and the 10th defendant were never parties to the tenancy agreements. They were also not named as parties in Suit 21.
[10] The 1st defendant vacated the plaintiff's premises on 20 July 2018 and moved its business operation to other premises.
[11] The 2nd defendant is the company which currently runs the business of "Restoran Zamzam" at Seksyen 13 Shah Alam. The 10th defendant is the director and shareholder of the 2nd defendant.
[12] On 26 September 2018, the plaintiff discovered that during the active litigation between the parties, the 1st defendant's business operation and goodwill known as Restoran Zamzam was transferred to the 2nd defendant wherein a new Arabic food restaurant under the same name was in active operation at No 46, Jln Renang 13/26, Seksyen 13, Tadisma Business Park, 40100 Shah Alam.
[13] As the debt remained unpaid, the plaintiff filed a winding up petition against the 1st defendant vide Shah Alam High Court Winding Up Petition No: BA-28 NCC-119-02-2019. The petition was allowed unopposed. The 1st defendant was wound up on 16 May 2019.
[14] As a result of the 1st defendant's failure to satisfy the judgment sum obtained in Suit 21, the plaintiff filed Suit No: BA-22 NCC-147-11-2019 at the Shah Alam High Court against the eleventh defendant. The plaintiff's claims against the defendants are for declarations that fraud or fraudulent scheme under s 540 of the Companies Act 2016 was perpetrated against the plaintiff to evade the 1st defendant from paying its debt to the plaintiff and that the defendants are personally liable to pay the debt and liability of the 1st defendant in the sum of RM1,872,966.49 as at 31 October 2019 and interest at the rate of 5% per annum from the date of filing of the writ to satisfaction.
[15] The reliefs sought against the defendants are as follows:
(a) A declaration that the 2nd, 3rd and 4th defendants have been used by the 1st defendant company to avoid its obligations and responsibilities and with intent to defraud the plaintiff wherein a fraudulent scheme was carried out so that the assets, business and restaurant operations of the 1st defendant are transferred to the ZamZam Group of Companies which consisted of the 2nd, 3rd and 4th defendants in order to avoid paying the 1st defendant's debt to the plaintiff;
(b) A declaration that the 5th, 6th, 7th, 8th, 9th, 10th and 11th defendants as directors, officers and shareholders of the 1st, 2nd, 3rd and 4th defendants have with intent to defraud the plaintiff wherein a fraudulent scheme was car
