Directors and employees owe fiduciary duties and must act in the best interests of the company, failing which they may be liable for damages.

Abang Iskandar Abang Hashim JCA:

Brief Facts Of The Case

[1] Redmax Sdn Bhd ("the plaintiff") is a construction and engineering company with Class A and a Grade 7 certification from the Construction Industry Development Board and has undertaken a variety of building works for both the public and private sectors.

[2] Zaharen Haji Zakaria ("the 1st defendant") was a Director of the plaintiff for the period from 1 June 1999 until 11 January 2010. He was also the Managing Director of the plaintiff at all material times until he was sacked by the plaintiff on 11 January 2010.

[3] Abdul Rahman Mohd Tahir ("the 2nd defendant") was a Director of the plaintiff from 6 August 2007 until 21 December 2009. He was also the Finance Director of the plaintiff at all material times until his resignation on 14 December 2009.

[4] One Dato' Mohamed Sulaiman ("Dato' Mohamed") had become acquainted with the 1st defendant sometime in 1992. In 1996, Dato' Mohamed decided to acquire the plaintiff as a vehicle through which his children could gain experience in the business world. He asked the 1st defendant to mentor and to train his children. In return, the 1st defendant was given 40% of the plaintiff's shares without any monetary payment. Dato' Mohamed had appointed the 1st defendant as Managing Director of the plaintiff.

[5] The 1st defendant's role was to oversee the day-to-day operations and management of the plaintiff under Dato' Mohamed's supervision. The 1st defendant informed Dato' Mohamed that there was a requirement for a qualified and registered Engineer to be appointed as a Director and shareholder of the plaintiff. Eventually, based on the representation of the 1st defendant, one Mohd Radzman bin Ohman ("Radzman") was appointed to fulfill that purpose.

[6] It was agreed that Radzman's shareholding in the plaintiff would be derived from the 1st defendant's 40% shareholding in the plaintiff. However, it was later discovered that the transfer of shares to Radzman was instead, taken from the 60% shareholding owned by Dato' Mohamed's children, without the knowledge of Dato' Mohamed.

[7] After the acquisition of the plaintiff, Dato' Mohamed brought projects and finances into the plaintiff through his efforts, business contacts, and relationships, as at that time he had the requisite expertise, exposure, relationships, and contacts to bring in projects for the plaintiff.

[8] On 13 July 2002, Dato' Mohamed was appointed as a Director to the plaintiff. Through Dato' Mohamed and the 1st defendant's efforts, the plaintiff managed to secure various government projects including flood mitigation projects in Penang and Kedah.

[9] In December 2008, the plaintiff, through its wholly-owned special purpose vehicle company, Makro Utama Sdn Bhd, was to apply for a bond issue of RM100 million, whereby part of it was to repay the plaintiff's existing term loan which was incurred in relation to the expenses of one of the flood mitigation projects in Sungai Muda, Kedah awarded by Jabatan Pengairan dan Saliran ("JPS"). The bond was critical to the plaintiff's well-being because without the bond issue, the plaintiff would not have sufficient funds to proceed with the said project.

[10] The 1st defendant was responsible for the submission and approval of the bond as he was aware of the procedure involved in the bond issue. However, Dato' Mohamed then realised that the plaintiff was short of about RM6 million which was needed to pay the plaintiff's suppliers and subcontractors.

[11] After due enquiries, he discovered that the 1st defendant failed