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2012 MarsdenLR 2069
HIGH COURT MALAYA KUALA LUMPUR
MULTI-CODE ELECTRONICS INDUSTRIES (M) BERHAD & ANOR – Appellant
Versus
GORDON TOH CHUN TOH & ORS – Respondent
[Suit No: D-22-453-2008]
Directors cannot siphon company funds without authorization; doing so constitutes fraud and breach of fiduciary duties, for which they are personally liable to account for losses.
Headnote:(A) Companies Act 1965 - Sections 132 - Fraud and breach of fiduciary duties - Directors acted in breach of fiduciary duties by siphoning off RM44 million from company funds through unauthorized withdrawals - Evidence of fraudulent scheme confirmed by lack of supporting documents and the nature of transactions - Claimants awarded RM41,558,262.82 against one director and RM29,009,917.82 against another director for similar breaches. (Paras 172-173)
(B) Knowing assistance and receipt - Concept clarified by the court, establishing liability for those aiding or receiving benefits from breaches of duty by directors - The third parties received funds without valid explanations for their actions, contributing to illicit activities. (Paras 165-168)
(C) Standard of proof for fraud - Emphasis on the need for clear evidence establishing beyond reasonable doubt fraudulent activities and liabilities - Proof of knowledge or participation in fraud is critical for establishing breach of fiduciary duties. (Paras 132-134)
| Table of Content |
|---|
| 1. unauthorized withdrawal and financial mismanagement (Para 1 , 2 , 3 , 4) |
| 2. identification of parties involved in the case (Para 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17) |
| 3. nature of the lawsuit and the legal claims made (Para 18 , 19 , 20 , 21) |
| 4. court procedures and orders affecting multiple defendants (Para 23 , 24 , 25) |
| 5. methods of unlawful fund handling (Para 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 , 36) |
| 6. fraud definition and requirements for proof (Para 37 , 38 , 39 , 40 , 41 , 42) |
| 7. fraud liability of directors (Para 43 , 44) |
| 8. legal standards for establishing fraud in corporate governance (Para 45 , 46 , 47 , 48 , 49 , 50 , 51 , 52 , 53) |
| 9. understanding conspiracy to defraud (Para 54 , 55) |
| 10. assessment of damages for fiduciary breaches (Para 56 , 57 , 58 , 59 , 60 , 61 , 62) |
| 11. directors' fiduciary duties and the consequences of breaches (Para 63 , 64 , 65 , 66) |
| 12. fiduciary definitions and obligations (Para 67 , 68 , 69 , 70) |
| 13. applications of equitable principles in director conduct (Para 71 , 72 , 73) |
| 14. corporate responsibilities and standards (Para 74 , 75 , 76) |
| 15. evaluation of improper conduct by directors (Para 77 , 78 , 79 , 80) |
| 16. conclusion on d1's conduct and breach of trust (Para 81 , 82 , 83 , 84) |
| 17. director liability extensions (Para 85 , 86 , 87) |
| 18. defendant's argument against fiduciary breaches (Para 88 , 89 , 90 , 91) |
| 19. consolidated analysis of the defendants' testimonies (Para 92 , 93 , 94) |
| 20. judicial findings against allegations of wrongdoing (Para 95 , 96 , 97) |
| 21. final judgment implications for corporate governance and liabilities (Para 98 , 99 , 100 , 101) |
| 22. fiduciary requirements in director transactions (Para 102 , 103 , 104) |
| 23. implications of fiduciary relationships (Para 105 , 106) |
[1] Goh Tong Huat, the founder of the 1st plaintiff (P1), wanted to peacefully retire from the business that he had nursed and nurtured to become a public listed company for he had sold his controlling stake of about 26% in P1 to the 6th defendant (D6), represented in the negotiations by D1 and D10. It was a cash-rich company with easily RM30 over million in Fixed Deposits (FDs) alone. The price for his stake was about RM17.5 million.
[2] The new shareholder came in with D1 on board as the CEO and D2 together with other directors brought in by D10. Change of signatories was effected such that the CEO could sign any amount not exceeding RM300,000.00 and for any amount above that both D1 and D2 must sign. The first thing that both D1 and D2 did on the day of handing over was to uplift some RM31 million from the FDs and transfer them chiefly to D4 and D10. The monies never came back for part of it of RM17.5 million went to pay for D6's stake in P1.
[3] From the date of handing over 23 March 2007 to 4 January 2008, various unauthorised withdrawals were made to the tune of some RM44 million. The AGM of the company was approaching near and the auditors had to finalise the accounts. The auditors wanted to qualify the accounts for there were unsubstantiated transaction and irregularities. Promises were made by D1 that the funds would be returned but it never did. D2 was adamant that the auditors were on a witchhunt against the CEO and wanted the auditors to be responsible for all interest loss arising out of premature recalling of funds from so-called overseas placement in trust funds and bonds. Things came to a hilt when even the FD receipts from RHB Bank supposedly for the return of RM32.8 million were proved to be a forgery. The damage and destruction could no longer be contained and concealed. Call it implosion or explosion, it was a day of reckoning with retribution to come at the AGM on 28 January 2008.
[4] This judgment explores the sinister scheming that led to the siphoning of funds from the company and the role played by various personalities in a web of deceit that is both disturbing and distressing.
Parties
[5] P1 is a Public Listed Company with the Second Board based in Joh
