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2013 MarsdenLR 356
HIGH COURT MALAYA KUALA LUMPUR
HAJI AFIFI HAJI HASSAN – Appellant
Versus
NORMAN DISNEY & YOUNG SDN BHD & ORS – Respondent
[Companies (Winding Up) No: D-28-216-2009]
Court must act on the illegality of business practices even if the petitioner is complicit; continued operation of an illegal company contravenes public policy and statutory law.
Headnote:(A) Companies Act 1965 - Sections 218(1)(f) and 218(1)(i) - Registration of Engineers Act 1967 - Company wound up due to illegal business practices circumventing statutory requirements, including deception by directors and management deadlock - Agreements facilitating share ownership found illegal ab initio under statutory provisions. (Paras 1, 4, 13, 25)
(B) Legality of agreements - Courts have a duty to act on illegality ex proprio motu, regardless of party's involvement in unlawful arrangements - Maintenance of illegal entities undermines public policy and statutory law. (Paras 20, 22, 23)
(C) Just and equitable grounds for winding up - The concept captures scenarios where a company operates unlawfully, warranting dissolution to uphold the law. (Paras 17, 25)
Facts of the case:
The petition was initiated to wind up a company due to unfair actions by its directors and illegal shareholding arrangements which circumvented legal requirements for professional engineering firms.
Findings of Court:
The court concluded that the elaborate scheme established to enable illegal ownership and control over shares rendered the company's operations unlawful, thus justifying the winding up.
Issues: Whether it is just and equitable to wind up the company given the illegal nature of its operations and if the petitioner’s involvement in illegality affects the petition.
Ratio Decidendi: The court emphasized that it must act on illegality even if the petitioner is a fraudulent party, affirming that the continuation of illegal business contradicts public interest and statutory compliance.
Result: Company wound up.
| Table of Content |
|---|
| 1. petition to wind up based on company mismanagement. (Para 1 , 1 , 4 , 5 , 6) |
| 2. arguments concerning legality of shareholder agreements. (Para 8 , 9) |
| 3. court's analysis of statutory requirements and agreements. (Para 10 , 11 , 12 , 13 , 14 , 15 , 16) |
| 4. court's obligation to address issues of illegality. (Para 17 , 18 , 19 , 20) |
| 5. just and equitable grounds for winding up based on law. (Para 21) |
[1] The petition seeks to wind up the 1st respondent company ('the company') under s 218(1)(f) and 218(1)(i) of the Companies Act 1965 (Act 125) on the basis that:
(i) the directors have acted unfairly or unjustly in the affairs of the company and acted in their interests rather than the interests of the members as a whole; and
(ii) it is just and equitable that the company be wound up.
[2] The respondents opposed the petition and upon reading the petition, the affidavits filed and the submissions of parties, I had allowed the application on 18 March 2013 and the company was accordingly wound up.
[3] The respondent has since filed a notice of appeal against the said decision and I now give my full grounds.
The Grounds Of The Petition
[4] The petition to wind up the company is premised on the following grounds:
(i) Deception and misrepresentation by the Directors of the company to the authorities, clients and public by presenting the company as owned and controlled by a Bumiputra;
(ii) Failure of substratum of the company;
(iii) Unjustifiable removal of the petitioner as the Director of the company under the guise of non attendance of Board Meetings;
(iv) Unjustified failure to pay dividends and/or profits;
(v) Breach of common law and/or statutory duties by the 2nd, 3rd and 4th respondents as the Directors of the company;
(vi) Unauthorised continual re-election of the 2nd respondent as the Director and Chairman of the company;
(vii) Unauthorised appointment of the 3rd and 4th respondents as Directors at Board Meetings and unauthorised re-appointment of 3rd respondent as Director at subsequent Board Meetings;
(viii) Splitting of shares by 2nd respondent to 3rd and 4th respondents for improper and collateral purposes;
(ix) Management deadlock;
(x) Justifiable loss of confidence in management;
(xi) Irretrievable breakdown of mutual trust and confidence between the petitioner, 2nd, 3rd and 4th respondents; and
(xii) Receipt of excessive Directors' remuneration by the 2nd, 3rd and 4th respondents.
The Salient Facts
[5] The company carried on business as a professional engineer and is registered under the Registration of Engineers Act 1967 . Under s 7A(3) of the , the Board of Engineers may allow a company to practice as consulting engineers if the company has a Board of Directors comprising Professional Engineers. Under s 10(4) of the same Act, only citizens or permanent residents of Malaysia may be registered as Professional Engineers.
[6] In order to meet these statutory requirements under the Registration of Engineers Act 1967 , an elaborate scheme was implemented which resulted in the petitioner holding 65% of the issued capital of the company. This elaborate scheme involves the petitioner, the company and the 2nd respondent.The said scheme comprised the following agreements:
(i) a sale and purchase agreement between Liew Yan Sin ("LYS") and the petitioner for the sale of 60,000 ordinary shares ("60,000") held by LYS to the petitioner;
(ii) a loan agreement between the petitioner (as borrower) and LYS, as the lender in respect of the 60,000 shares;
(iii) a shareholders agreement between LYS, the petitioner and the 2nd respondent;
(iv) a call and put option agreement between the petitioner and Norman Disney & Young of Australia ('NDYA') which gives NDYA an option to purchase the 60,000 shares;
(v) a deed of novation executed by LYS, the petitioner and NDYA whereby LYS assigned all his rights under the loan agreement to NDYA, with the petitioner as the debtor;
(vi) power of attorney given by the petitioner appointing NDYA as the petitioner's lawful
