Intent to defraud creditors as established under the Companies Act 1965 must be evidenced by fraudulent trading activities.

[1] This is an appeal against the decision of the High Court in which the learned judge allowed the plaintiffs/respondents' claims that certain payments channelled to the 8th defendant/appellant were fraudulent preference payments and void.

[2] We heard this appeal together with another appeal which is W-02-(NCC)(W)-1229-07-2014 ("Appeal 1229"). Both appeals emanated from the same judgment given in Suit No: 22(NCC)-68-68-01-2013.

[3] The appellant in this appeal is the 8th defendant in the aforesaid suit while the appellant in Appeal 1229 is the 1st defendant, one Dato' Prem Krishna Sahgal.

[4] After hearing the parties on 6 May 2015, we reserved judgment and we now give our decision and grounds of the same.

[5] Despite having heard the two appeals together, we see fit that separate judgments be given for each appeal as it concerns different areas of law.

Background Facts

[6] The factual matrix has been succinctly set out by my learned brother, Justice Abang Iskandar Abang Hashim JCA in his judgment for Appeal 1229 and I adopt them with the necessary amendments.

[7] The respondents were employees of CNLT (Far East) Berhad, the 9th defendant ("CNLT"), which carries out the business of manufacturing and sale of yarn. CNLT was wound up on 16 January 2009 and is in liquidation now.

[8] The 1st to 6th defendants were all the directors of CNLT. The 7th defendant, who did not enter an appearance in this action, was at all material times the Human Resources Manager of CNLT. The 8th defendant, JCT Limited, is an Indian incorporated company and is a substantial shareholder in CNLT.

[9] The 1st defendant was at all material times the Executive Managing Director of CNLT and for all intents and purposes, the controlling mind of CNLT. He is of Indian nationality.

[10] The claim of the respondents was for arrears of salary and workers' compensation in the sum of RM2,910,201.78 relying on the cause of action of the tort of conspiracy to injure.

[11] The particulars of the respondents' cause of action were these. CNLT provided the solvency declaration to the Kuala Lumpur Stock Exchange ("BURSA") showing that they were solvent when in fact they were not, hence misleading the respondents who were then creditors, BURSA as well the general public.

[12] It is also alleged that the appellant in Appeal 1229 and the rest of defendants, despite the fact of their knowledge that CNLT was insolvent and a non-going concern, continued to mislead the employees, creditors, investors and general public that CNLT was a going concern so as to enable it to continue to trade and be given credit facilities by unsuspecting creditors and suppliers.

[13] Further, from March 2008 till 16 January 2009 (the date when CNLT was finally wound up), no payment was made to the respondents. However, on 30 April 2008 and 10 May 2008, a memoranda was issued to the respondents placing them on full pay and assuring them that their contracts of employment would continue to be in force.

[14] The memoranda, according to the respondents, amounted to a deception as the appellant in Appeal 1229 and the rest of the defendants knew full well that there would be no payment coming.

[15] Premised on those particulars, the respondents filed this suit seeking a declaration that the business of CNLT had been carried out with intent to defraud the creditors of CNLT and the declaration that the defendants were liable for all the debts or liabilities of CNLT.

High Court Decision

[16] The learned judge sustained the respondents' claims and made the following orders:

(a) The plaintiffs are entitled to a declaration that the business of CNLT (Far East) Berhad was carried on by Sahgal with the intent to defraud the creditors of CNLT, including plaintiffs, pursuant to s 304 of the Companies Act 1965 ;

(b) The plaintiffs are hereby granted a d