The court ruled that to establish liability under Section 540, evidence of actual fraudulent intent and active participation in fraudulent conduct is essential, which the Plaintiff failed to provide.

Introduction

[1] This is the Plaintiff's claim against the Defendants for joint and several liability to pay the sum of RM1,740,000.00 or alternatively RM1,650,000.00, based on allegations of fraud and fraudulent trading under s 540 of the Companies Act 2016 (" CA ").

[2] The Plaintiff alleged that the Defendants employed the 1st Defendant company to perpetrate fraud by issuing a post-dated cheque when they knew they would be applying for a Judicial Management Order ("JMO"), and that they concealed this fact from the Plaintiff.

[3] At the conclusion of the trial, I dismissed the claim as I did not find the Plaintiff having proven a case for a breach of s 540 of the CA .

[4] For purposes of reference, the 2nd to the 4th Defendant will be collectively identified as the Defendants, unless specific reference is made to the individual defendants.

Background

[5] This action arises from a Friendly Loan Agreement dated 10 October 2017 ("the Loan Agreement") between the Plaintiff and the 1st Defendant company. Under the Loan Agreement, the Plaintiff claims to have extended a loan of RM1,650,000.00 ("the Loan Sum") to the 1st Defendant, disbursed through a combination of banker's cheques totalling RM1,500,000.00 and cash of RM150,000.00. The 1st Defendant disputes receiving the cash portion of RM150,000.00, maintaining that only RM1,500,000.00 was advanced.

[6] The Plaintiff's Statement of Claim originally sought two alternative reliefs: first, a sum of RM2,500,000.00 premised on a Deed of Settlement between the parties; alternatively, RM1,740,000.00 based on a dishonoured CIMB cheque dated 27 May 2020 issued by the 1st Defendant. This cheque included the principal sum plus RM240,000.00 described as "interest compensation".

[7] At the outset of trial, the Plaintiff abandoned the claim for RM2,500,000.00, confining her claim to either RM1,740,000.00 per the dishonoured cheque or alternatively, the original Loan Sum of RM1,650,000.00.

Judgment Obtained Against The 1st Defendant

[8] On 29 June 2022, the Plaintiff obtained judgment against the 1st Defendant under O 27 of the Rules Of Court 2012. On 16 February 2023 a further sum of RM1,000,000.00 was obtained for failure to comply with PTCM directions. There was no appeal lodged by the 1st Defendant against the orders granted.

[9] This trial therefore, focuses on the Defendants. The Plaintiff seeks to pierce the corporate veil of incorporation by alleging that there was fraudulent trading perpetrated by the Defendants against the Plaintiff in breach of s 540 of the Companies Act 2016 . (" Section 540 ").

The Issue To Be Determined

[10] The issues to be determined are as follows:

(i) whether the loan granted to the 1st Defendant was for RM1,500,000.00 or RM1,650,000.00;

(ii) whether the loan received by the 1st Defendant was in contravention of the Moneylenders Act 1951;

(iii) whether there existed fraudulent trading; and

(iv) whether personal liability can be attached to the Defendants.

Analysis And Findings

Genesis Of The Friendly Loan

[11] The evidence reveals that at the material time, the 1st Defendant was facing significant financial difficulties and multiple legal challenges which include:

(a) On 26 January 2017, BASF (Malaysia) Sdn Bhd had commenced arbitration proceedings against the 1st Defendant for approximately RM13 million;

(b) On 13 February 2017, MTU Maintenance Berlin-Brandenburg GMBH ("MTU") had obtained judgment against the 1st Defendant in Germany for USD820,700, which was subsequently registered in Malaysia on 12 September 2019; and

(c) By late 2019, MTU had presented a winding-up petition against the 1st Defendant.

[12] Mr Jadagish Chandra ("PW1"), a practicing lawye