The court exercises discretion to grant security for costs under the Companies Act, balancing the potential injustices to both plaintiff and defendant, reducing the initially requested sum based on fairness.

[1] Enclosure 62 is the plaintiff's application for security for costs from the 1st defendant pursuant to s. 351 of the Companies Act 1965 . The plaintiff prays for the following orders:

1) that the 1st defendant pays RM250,000 as security for costs within seven days from the date of the order of the court;

2) that all proceedings in this suit is stayed pending the payment of the security for costs; and

3) in the event the security for costs is not paid the defence and counter claim dated 20 September 2010 is dismissed/struck out with no order as to cost.

[2] The application is supported by an affidavit in support affirmed on 27 October 2010.

[3] Grounds For The Application

i. The 1st defendant was wound up by an order dated 4 February 2010;

ii. The 1st defendant's liabilities more than its asset; and

iii. The defendant had filed a defence and a counter claim dated 20 September 2010.

Brief Facts

[4] The defendant was incorporated in 1982 and its principal activity was property development. The defendant undertook the development of 454 low and medium cost semi-detached houses in 1991. The project was initially a joint venture however the joint venture was aborted shortly after the commencement of the project. The defendant faced cash flow difficulties as costs were increasing whereas revenue was not generated as quickly. A term loan of RM4 million was obtained from Rakyat Merchant Bank Berhad (RMBB) to finance the project.

[5] By way of a letter of offer dated 11 May 1993 and Facility Agreement dated 20 May 1993 at the 1st defendant's request RMBB agreed to grant and make available a RM4 million Term Loan Facility to the 1st defendant (TL1). The purpose of the TL1 was for the redemption of titles and to part finance the working capital to complete the housing scheme project in Desa Surada Seksyen 9 Mukim Bangi Daerah Ulu Langat Selangor ("the project") as follows:

a) 52 units of low cost housing; and

b) 174 units medium low cost housing.

[6] Terms and Conditions Of Term Loan 1 (TL1)

[7] The personal guarantee was executed in 20 May 1993 by 2nd and the 3rd defendants. A deed of debenture was also executed on 12 May 1993.

[8] Subsequently at the request of the 1st defendant a Second Term Loan ("TL2") was granted. This loan was described as a Special Short Term Loan and was for the amount of RM500,000 (the 2nd facility). The terms and conditions of the TL2 is set out in a letter of offer dated 15 October 1996 and facility agreement dated 12 November 1996. The TL2 was secured by debenture and a personal guarantee dated 12 November 1996 signed by the 4th defendant and the 5th defendants. Pursuant to a vesting order dated 22 July 1995 the assets and liabilities of RMBB were transferred from RMBB and vested in BSN Merchant Bank Berhad (BSN). By way of a letter of offer dated 15 October 1996 and another facility agreement dated 12 November 1996 the BSN granted another term loan of RM500,000 to the 1st defendant (2nd TL). The 2nd TL was secured by the following securities:

a) Guarantee and indemnity dated 12 November 1996 by the 4th and 5th defendants (2nd guarantee);

b) Debenture dated 12 November 1996 between the 1st defendant and BSN over the fixed and floating assets of the 1st defendant (2nd debenture); and

c) Assignment of contract proceeds dated 12 November 1996 between the 1st defendant and BSN.

[9] By a vesting order dated 7 November 1996 the assets and liabilities of RMBB in BSN were transferred and vested in DCB Bank Berhad. DCB then changed its name to RHB Bank Berhad on 1 July 1997.

[10] A dispute arose relating the appointment