Directors can be held personally liable for fraudulent trading under the Companies Act when they fail to make adequate explanations regarding company assets.

Introduction

[1] These are two Appeals which were heard together against the decision of the Learned Judicial Commissioner ["LJC"] of the Kuala Lumpur High Court ["KLHC"] made after a full trial of the suit before the LJC. The 1st appeal is against the order holding the Defendants jointly and severally liable to pay the sum of RM5,907,500.00 and the sum due to the Government of Malaysia under the judgment dated 5 May 2010 to the Liquidator of the Company as contribution to the assets of the Company.

Background Facts

[2] The Defendants are brothers and were the former Directors of a company known as Bistari Land Sdn Bhd ['BL']. Both the Defendants were mandatory signatories to the bank accounts of BL.

[3] Sometime in 2010, the Plaintiff was engaged by BL to render legal services in respect of various litigations involving certain pieces of land belonging to BL.

[4] For the legal services rendered, sometime on 2 July 2014, the Plaintiff issued a bill for its services to the BL for an amount of RM5,907,500.00.

[5] As no payment was received from BL, the Plaintiff initiated a civil suit against BL under Kuala Lumpur High Court Suit No 22NCC-288- 08/2014 in August 2014 to recover the sum due thereunder ["Suit 288"].

[6] On 12 September 2014, the Plaintiff entered judgment in default of appearance against BL in Suit 288 ["Judgment in Default"].

[7] In December 2014, BL filed a petition against the Plaintiff seeking to tax the Bill. At about the same time, BL applied to set aside the Judgment in Default.

[8] Subsequently, the Plaintiff and BL agreed for the Bill to be taxed and by consent, the Judgment in Default was set aside and Suit 288 was withdrawn on 7 July 2015.

[9] In the said taxation proceedings of the bill, the Plaintiff had on or about August 2015 then applied for a mandatory injunction against BL to earmark/hold the sum of RM6,000,000.00 until the disposal of the taxation. The Plaintiff made such an application as they were aware that BL had entered into a sale and purchase transaction of its only asset (lands in Johor) with Mah Seng Group, and will come into the final payment of the said transaction sometime on or before 30 September 2015. The 2nd Defendant, as Director of BL, then affirmed an affidavit to state that BL would not dissipate its assets (the proceeds of sale) to avoid paying the Plaintiff and will satisfy all its debts, and had also stated that BL was solvent at all material times.

[10] However, before the Petition was heard on its merits, BL's solicitors wrote to the Court to inform that BL had been wound up on 29 January 2016 by the Government of Malaysia.

[11] With the winding up of BL, BL then did not proceed with its application to tax the Plaintiff's bill, with the then application for taxation being struck out. The Plaintiff subsequently filed its Proof of Debt against BL, which has been received and admitted by the Insolvency Department.

[12] BL had not informed the Court or the Plaintiff in Suit 288 or in the Petition that the Government of Malaysia had obtained a summary judgment against BL on 5 May 2010 for the sum of RM4,042,272.28 ("the Summary Judgment") in Suit No: S5-21-64- 2008 ["Suit 21"] and that the Government of Malaysia had served BL with a statutory demand dated 21 April 2015 for the sum of RM5,651,663.48 as at 20 April 2015 under the then s 218 of the Companies Act 1965 pursuant to the