DATO' SERI TIMOR SHAH RAFIQ NAUTILUS TUG & TOWAGE SDN BHD

DATO' SERI TIMOR SHAH RAFIQ NAUTILUS TUG & TOWAGE SDN BHD

The Court of Appeal held that the appellant satisfied the threshold for leave under s.348 by acting in good faith and showing a prima facie case in the company's best interest: independent Crowe Horwath reports raised sufficient concern that USD19.9m of shareholders' advances were unsubstantiated, auditors' unqualified reports and Shin Yang acknowledgements were not determinative, and majority management control does not immunise directors from accountability; consequently leave to commence derivative proceedings was granted and High Court order set aside.

Citation
W-02(NCC)(A)-1980-10/2019 (Mahkamah Rayuan)
Parties
Appellant / Plaintiff (minority Director): Dato’ Seri Timor Shah Rafiq; Respondent / Defendant (jv Company): Nautilus Tug & Towage Sdn Bhd; Minority Shareholder (nssb): Nautilus Supreme Sdn Bhd; Majority Shareholder (amsb): Azimuth Marine Sdn Bhd; Shipbuilder / Alleged Payee: Shin Yang Shipyard Sdn Bhd; Financier: EXIM Bank Berhad; Independent Auditor Appointed Under Inspection Order: Crowe Horwath
Court
NCC
Jurisdiction
Malaysia
Judgment Date
21 September 2021
Case Number
W-02(NCC)(A)-1980-10/2019 (Mahkamah Rayuan)
Procedural Posture
Civil Appeal Concerning Leave to Commence Derivative Action Under Companies Act 2016 S.348 / Court of Appeal Judgment on Leave Application (appeal From High Court Dismissal)
Outcome
Appeal allowed; High Court order dismissed; leave granted to plaintiff to commence derivative proceedings on behalf of the company
Legal Topics
Derivative Action (leave), Directors' Statutory and Fiduciary Duties, Shareholders' Advances and Interest, Validity of Audited Financial Statements, Good Faith Test, Inspection of Company Records
Source Language
Malay/English
Company Law Corporate Governance Equity and Fiduciary Duties Auditing and Accounting Law Civil Procedure Derivative Action (leave) Directors' Statutory and Fiduciary Duties Shareholders' Advances and Interest +3 more

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Parties

Dato’ Seri Timor Shah Rafiq

Appellant / Plaintiff (minority Director)

Nautilus Tug & Towage Sdn Bhd

Respondent / Defendant (jv Company)

Nautilus Supreme Sdn Bhd

Minority Shareholder (nssb)

Azimuth Marine Sdn Bhd

Majority Shareholder (amsb)

Shin Yang Shipyard Sdn Bhd

Shipbuilder / Alleged Payee

EXIM Bank Berhad

Financier

Crowe Horwath

Independent Auditor Appointed Under Inspection Order

Procedural Posture

Civil Appeal Concerning Leave to Commence Derivative Action Under Companies Act 2016 S.348 / Court of Appeal Judgment on Leave Application (appeal From High Court Dismissal)

Legal Issues

  1. 1 Whether the applicant acted in good faith to seek leave under s.348 Companies Act 2016
  2. 2 Whether the proposed derivative action is prima facie in the best interest of the company
  3. 3 Whether auditors' unqualified reports and third-party acknowledgement (Shin Yang letters) preclude inquiry into the source of funds

Ratio Decidendi

The Court of Appeal held that the appellant satisfied the threshold for leave under s.348 by acting in good faith and showing a prima facie case in the company's best interest: independent Crowe Horwath reports raised sufficient concern that USD19.9m of shareholders' advances were unsubstantiated, auditors' unqualified reports and Shin Yang acknowledgements were not determinative, and majority management control does not immunise directors from accountability; consequently leave to commence derivative proceedings was granted and High Court order set aside.

Court Disposition

Appeal allowed; High Court order dismissed; leave granted to plaintiff to commence derivative proceedings on behalf of the company

Orders

  • Leave granted under s.348 Companies Act 2016 for plaintiff to commence derivative proceedings against the named putative defendants as per Enclosure 59 (prayer 1)
  • Plaintiff authorised to control the conduct of the derivative proceedings and to seek directions from the High Court as necessary (prayers 2(a) and 2(b))