JUDGMENT

FACTS

The plaintiff is in the business of manufacturing inter alia wooden doors and frames and possesses various assets. It was also the lawful assignee of a lease of a piece of land known as Lot No. 6532, Batu 5 1/2, Jalan Kapar, 42000 Klang, Selangor. This was also its place of business. Form 49 of the Companies Act 1965 (the Act) in the Common Agreed Bundle of Documents (CABD) showed that the 1st defendant became a director of the plaintiff as of 3.1.86 and his letter of resignation dated 17.11.90 showed that he had resigned as a director cum secretary of the plaintiff as of 17.11.90. It is not in dispute that during his tenure of office the 1st defendant was the director primarily responsible for the financial management of the plaintiff.

The 2nd defendant had bought over the plaintiff in 1980 and was its director from 1980 to 2.1.86. There were only 2 shareholders in the plaintiff between 1980 to 2.1.86, namely the 2nd defendant and his brother, Yam Chok. It is clear that the two of them injected much money in respect of the building and towards the running of the plaintiff. It is also not in dispute that the 2nd defendant had pledged four of his own properties to UMBC Bank to enable the plaintiff to benefit from overdraft facilities and term loans. In addition, the 2nd defendant and Yam Chok also granted directors' loans to the plaintiff.

However, since the plaintiff was running at a loss, and the 2nd defendant having lost heavily, the 1st defendant and one Duncan Yeong (Duncan) who were employees of the plaintiff wished to take over the company.

The lease-back agreement

An agreement dated 2.1.86 (the lease back agreement) was entered into between the parties whereby it was agreed inter alia:

(a) that the 2nd defendant and Yam Chok should transfer all their 1,000,000 shares (being all the shares in the plaintiff) to the 1st defendant and Duncan Yeong (PW3);

(b) the 2nd defendant and Yam Chok should settle in full all the liabilities of the plaintiff with UMBC Bank;

(c) the 2nd defendant and Yam Chok should settle in full all loans given to the plaintiff by the directors of the company;

(d) the 2nd defendant and Yam Chok agreed that no new share or loan capital of the company will or will be agreed to be created or issued or transferred and no charge or other encumbrances be created or agreed to be created;

(e) the 2nd defendant and Yam Chok agreed that the business of the company had been and would be carried on in the normal course and that no unusual or onerous contracts or engagement had been entered into by the company;

(f) the 2nd defendant and Yam Chok also agreed that nothing had been or would be done in the conduct or management of the affairs of the company which would be likely to prejudice the interests of the purchasers directly of the shares and indirectly of the company;

(g) and in consideration of (a), (b), (c), (d), (e) and (f) above, the plaintiff agreed to assign and transfer to the 2nd defendant and Yam Chok:

(i) the assets described under "Asset I and II" of the First Schedule" which only included the factory building, kiln dry room, plant and machinery. Assets which were not included were the floating asset, stock in trade and those assets which were, as of the date of this agreement, under leasing or hire purchase facilities;

(ii) the lease of land held under CT No. 26680 for Lot 6532 on which the plaintiff's factory is situated;

(iii) the tenancy of the plaintiff's office at the ground floor of No. 57 Jalan SS15/41B Subang Jaya for which the 2nd defendant is the owner of the building;

(h) the 2nd defendant and Yam Chok thereafter agreed to:

(i) lease back the assets under (g)(i) above and the lease of the factory under (g)(ii) above to the plaintiff for a sum of RM3,000.00 per month from 1st January 1986 to 31st December 1986 and a sum of RM3,500.00 per month from 1st January 1987 to 31st December 1987 and thereafter the parties were to negotiate on the monthly sum; and

(ii) assign and tra