Question

Empire Sdn Bhd has five shareholders, May, Ivy, James, Norman, and Penny, all of whom are also directors of the company. May, Ivy and James together hold 70% of the company’s issued capital. ISSUES: For some time now, May, Ivy and James have used their majority power to pursue activities which have resulted losses to the company. For instance, they have purchased a (1) holiday bungalow in Bukit Tinggi at a cost of RM5 million is which is used on weekends largely by the three of them and their families. They have also (2) invested RM10 million in the purchase of shares in company which May’s father is the major shareholder where the company is not doing well and is likely to go into liquidation. Besides that, (3) loans have been approved in favour of Ivy and James to the tune of RM2 million each in which they have never been repaid. Norman and Penny had objected on the above transaction but they were both outvoted at the board as well as the general meeting. Advise Norman and Penny as to whether they would be able to obtain any remedy under sections 346 or 465 of the malaysian Companies Act 2016.

Answer 1

Facts of the case: In ths scenario May , Ivy, James , NOrman and Penny all are directors of the company. It is Private Limited Company. As per circumstances May , Ivy and James collectively hold 70% shares and control the majority of the power of management of the organisation, whereas other Norman and Penny hold balance to the extent of 30% of the shareholding in the company.

Due to majority of decision is taken by May, Ivy and James

- Personal Bunglow purchased for RM 5 Milion

- Invested in Shares of May's Father Business which is about to liquidate to the extent of RM 10

- Loan to the extent of RM2 which is not repaid by James and Ivy

Complete mismanagement of the funds invested by the NOrman and Penny.

Section 346 having Sub section (1) clause (a) deals with disregard whereas clause (b) deals with unfairness and prejudicial takes place. As here in the given case it is apparent that directors are misusing their rights and act unlawful towards their conducts. It means conduct of directors May, Ivy an dJames is totally unfavourable to the company as well as other two directors Norman and Penny. If as per Article of the company , Norman and Penny hold right to file a case against the unlawful conduct of the May, Ivy and James. Then Comapnies act 2016 gives complete right to do so unless AOA( Article of Association) upheld such right in favour of Norman and Penny. If it held good they can file case in court.  

Secondly, Section 465 deals with the circumstances bring the winding up / liquidation of the company on the 12 listed grounds. and due ot shareholder dispute as well as unable to pay off the debt is one of the listed grounds for the same, and here in the given scenario, Ivy and James are not able to repay the debts as well as management decision is not taken in appropriate manner. So, they can apply for liquidation and winding up of the company due to such acts.