The term 'debenture holder' under section 346 of the Companies Act 2016 does not encompass a commercial lender, thus invalidating their oppression claim due to lack of locus standi.

Ong Chee Kwan JC:

[1] There is no reported decision in Malaysia where a debenture holder filed an action seeking reliefs for oppression under s 346 of the Companies Act 2016 ('the CA 2016'). This judgment deals with whether 'debenture holder' under s 346 of the 2016 means only holders of debt instruments that are tradeable and excludes holders of security given to bankers in consideration of commercial loans granted to the company. The judgment also considers, inter alia, if there must exist a class of debenture holders before one or more of them can apply under s 346 of the 2016 and the approach to be taken in determining whether corporate wrongs can be the basis for an oppression action under s 346 of the 2016.

Background Facts

[2] Pursuant to an Offtake Agreement dated 16 July 2007 ('Offtake Agreement') between Lion DRI Sdn Bhd ('1st defendant') and Megasteel Sdn Bhd ('Megasteel'), the 1st defendant agreed to manufacture and supply hot direct reduced iron ('the Product') to Megasteel for use by Megasteel to manufacture steel products known as hot-rolled coils and cold-rolled coils.

[3] To perform the Offtake Agreement, the 1st defendant needed funds to purchase iron ore which was the raw material to manufacture the Product and to finance the construction of its plant ('the DRI Plant'). The DRI Plant was to be situated on lands belonging to Megasteel and on which Megasteel's manufacturing facility was also located.

[4] The 1st defendant had entered into a long lease of a portion of Megasteel's lands where the DRI Plant was constructed and located.

[5] The 1st defendant looked to the plaintiffs for the funds. It obtained banking facilities ('the Facilities') from the plaintiffs. In return, the plaintiffs were granted various securities for the Facilities. One such securities was a debenture over the assets and undertakings of the 1st defendant ('the Debenture').

[6] The Debenture was held by the 1st plaintiff as security agent for the Facilities on behalf of the 2nd plaintiff. The 1st plaintiff was the sole debenture holder of the 1st defendant.

[7] In mid-2008, the 1st defendant began to manufacture the Product for on- sale to Megasteel. The 1st defendant would drawdown on the Facilities granted by the plaintiffs to purchase the iron ore to manufacture the Products at its DRI Plant on the leased land and the 1st defendant would then sell the Product to Megasteel who in turn, would use the Product to manufacture its steel products for on-sale to its customers.

[8] However, Megasteel did not make the requisite payments to the 1st defendant for the Product in full or on time. In fact, the trade receivables due from Megasteel to the 1st defendant had increased steadily with impairment losses recorded from the 2012 financial year onwards. By the 2016 financial year, the entirety of the Megasteel trade receivables were impaired.

[9] It is not in dispute that the 1st defendant had ceased operation around 31 January 2016 or earlier. It is also not in dispute that no further drawdowns were made by the 1st defendant from the Facilities by the time the 1st defendant ceased its operation in early 2016.

[10] The 2nd and 3rd defendants were the directors of the 1st defendant at the material times. They were also directors of Megasteel.

The Complaints And The OS

[11] On 10 May 2019, the plaintiffs (qua debenture holder of the 1st defendant) filed the present Originating Summons under s 346 of the CA 2016 against the defendants ('the OS').

[12] The thrust of the plaintiffs' complaints in the OS is that the 2nd defendant and the 3rd defendant, as directors of the 1st defendant, had exercised their powers in a manner that was oppressive to the plaintiffs as a debenture holder of the 1st defendant. It is claimed that the 2nd and 3rd defendants had committed acts which unfairly prejudiced, discriminated and/or were detrimental to and/ or in disregard of the plaintiffs' interests as the holder of the Debenture. The acts complained of ar