HO YAW MING 1. ) HO YAU HONG 2. ) HO BOO CHING 3. ) MHW INDUSTRIAL AUTOMATION SDN BHD 4. ) MHW COMPUTER SERVICES SDN BHD 5. ) EBOOK KEEPING OUTSOURCE SDN BHD PIHAK TERKILAN Tan Poh Tin BUKAN PIHAK-PIHAK WAN IDRIS BIN WAN IBRAHIM

WA-24NCC-388-08/2020 Kand. 142 12/04/2022 09:36:21 IN THE HIGH COURT OF MALAYA AT KUALA LUMPUR (COMMERCIAL DIVISION) ORIGINATING SUMMONS NO. WA-24NCC-388-08/2020 In the matter of MHW Industrial Automation Sdn Bhd (Company No. 253070-U); And In the matter of Section 346and 465(1)(f) of the Companies Act, 2016 And In the matter of Order 7, Order 28, and Order 88 of the Rules of Court 2012 BETWEEN HO YAW MING (NRIC NO. 581020-10-6303) … PLAINTIFF AND 1. HO YAU HONG (NRIC NO. 610923-10-6793) 1 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal 2. HO BOO CHING (NRIC NO. 600623-10-5926) 3. MHW INDUSTRIAL AUTOMATION SDN BHD (COMPANY NO. 253070-U) 4. MHW COMPUTER SERVICES SDN BHD (COMPANY NO. 297502-T) 5. EBOOK KEEPING OUTSOURCE SDN BHD (COMPANY NO. 964933-V) … DEFENDANTS BEFORE YA ADLIN BINTI ABDUL MAJID JUDICIAL COMMISSIONER JUDGMENT (Enclosure 1) A. Introduction [1] The plaintiff filed an originating summons, seeking inter alia, a declaration that the affairs of the 3rd defendant have been conducted in a manner oppressive to the interest of the plaintiff. The 1st, 3rd, 4th and 5th defendants (collectively, the “defendants”) opposed the originating summons. 2 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal [2] The court allowed the prayers in the originating summons, for the reasons set out below. B. Background Facts [3] The plaintiff and the 1st and 2nd defendants are siblings. Their other siblings are Gary Ho Yau Way (“Gary”) and Kevin Ho Yau Kong. [4] The plaintiff and the 1st and 2nd defendants incorporated the following companies: a. The 3rd defendant, incorporated in 1992. The 3rd defendant’s principal business is consultation, and the design and development of computer software, with focus on the concrete manufacturing and construction sectors. The directors and shareholders of the 3rd defendant are the plaintiff, the 1st defendant and Gary. The 1st defendant is responsible for the financial management and the day-to-day management of the 3rd defendant. b. The 4th defendant, incorporated in 1994. The 4th defendant’s principal business is consultancy and the trading of computer, software and information technology-related products, with focus on the property development sector. The directors and shareholders of the 4th defendant are the plaintiff, the 1st defendant, Ng Kim Chai, Goh Yew Chi and Lee Koh Yik. 3 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal [5] Further, the 1st defendant and Gary incorporated the 5th defendant in 2011. The 5th defendant is engaged in bookkeeping, finance and accounting advisory services. Its main customer base is the 3rd and 4th defendants’ customers. The directors and shareholders of the 3rd defendant are the 1st defendant and Gary. [6] The plaintiff claimed that an inspection exercise on the 3rd defendant revealed that the 3rd defendant had contravened requirements under the Companies Act 2016 (“CA”), amongst others, by failing to file income tax returns, annual returns, audited financial statements and to hold annual general meetings (“AGMs”). The plaintiff also claimed that the 3rd defendant had not complied with accounting standards, and that the accounts of the 3rd defendant are unreliable and are subject to serious misstatements. [7] Further, the plaintiff alleged that there are entries in accounting records that show pay-outs made to the 4th and 5th defendants, for purposes unrelated to the 3rd defendant. [8] The plaintiff therefore claimed that the 1st and 2nd defendants had conducted the affairs of the 3rd defendant in a manner that is oppressive to the plaintiff and is in disregard of his interest as a member of the 3rd defendant. The plaintiff filed the originating summons praying for inter alia, a declaration to that effect. C. The Plaintiff’s Claim [9] The plaintiff filed the originating summons pursuant to section 346(1) of the CA. The provision reads: 4 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal “(1) Any member or debenture holder of a company may apply to the Court for an order under this section on the ground – (a) that the affairs of the company are being conducted or the powers of the directors are being exercised in a manner oppressive to one or more of the members or debenture holders including himself or in disregard of his or their interests as members, shareholders or debenture holders of the company; or (b) that some act of the company has been done or is threatened or that some resolution of the members, debenture holders or any class of them has been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to one or more of the members or debenture holders, including himself.” (emphasis added) [10] The plaintiff claimed that: a. In failing to file audited accounts and hold AGMs, the affairs of the 3rd defendant are being conducted in a manner that is oppressive to or is in disregard of the plaintiff’s interest as a member of the 3rd defendant. This allegation falls within section 346(1)(a) of the CA. 5 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal b. In making pay-outs to the 4th and 5th defendants, for purposes unrelated to the business of the 3rd defendant, the 3rd defendant had acted in a manner that unfairly discriminates against or is otherwise prejudicial to the plaintiff. This allegation falls within section 346(1)(b) of the CA. D. Considerations By This Court The Plaintiff’s First Allegation: The 3rd Defendant’s Failure To File Audited Accounts And Hold AGMs [11] The plaintiff’s first allegation is that no audited accounts for the 3rd defendant had been prepared and no AGMs had been held since 2005. [12] The plaintiff argued that the requirements to file audited accounts and hold AGMs are statutory obligations that must be complied with. There is nothing incorrect with this argument. The 3rd defendant is required to comply with the CA, including to keep its accounts (section 245), to comply with accounting standards (section 244), to prepare financial statements which must be laid before an AGM (section 248), to circulate financial reports to members, persons entitled to receive the reports, auditors and debenture holders (section 257) and to lodge financial statements with the registrar of companies (section 259). [13] Further, under the articles of association of the 3rd defendant, the 3rd defendant is required to, inter alia, hold AGMs (Article 42) and cause proper accounting and other records to be kept (Article 97). 6 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal [14] The plaintiff contended that the 1st defendant, who controlled the business of the 3rd defendant, is aware of the obligations of the 3rd defendant to file audited accounts and to hold AGMs, but had not attended to these obligations. [15] There has been no outright denial on the 3rd defendant’s non- compliance with its obligations under the CA. Instead, the position taken by the 1st defendant is that he had been busy attending to the 3rd defendant’s business, and had little time to manage the accounting records of the 3rd defendant. [16] The 1st defendant stressed that there was no intentional non- compliance by the 3rd defendant with its statutory obligations. Neither was there any intention to cause injury to the plaintiff or to the 3rd defendant. Thus, the non-compliance would not amount to oppression towards the plaintiff as a minority shareholder of the 3rd defendant. Whilst acknowledging that the 3rd defendant and its directors could be liable to fines and penalties under the CA, the defendants argued that these risks are not sufficient to constitute oppression. [17] It was further argued that the plaintiff must show, but had failed to show how the conducts of the 1st defendant would cause injury or prejudice to the plaintiff as the minority shareholder of the 3rd defendant. [18] What constitutes oppression was examined in Re Khong Thai Sawmill (Miri) Sdn Bhd & Ors v Ling Beng Sung [1978] 2 MLJ 227. The Privy Council, in assessing the application of section 181(1)(a) of the (then) Companies Act 1965 (which is similar to section 346(1) of the CA), held as follows: 7 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal “… for the case to be brought within section 181(1)(a) at all, the complaint must identify and prove "oppression" or "disregard". The mere fact that one or more of those managing the company possess a majority of the voting power and, in reliance upon that power, make policy or executive decisions, with which the complainant does not agree, is not enough. Those who take interests in companies limited by shares have to accept majority rule. It is only when majority rule passes over into rule oppressive of the minority, or in disregard of their interests, that the section can be invoked. As was said in a decision upon the United Kingdom section there must be a visible departure from the standards of fair dealing and a violation of the conditions of fair play which a shareholder is entitled to expect before a case of oppression can be made ( Elder v Elder & Watson Ltd 1952 SC 49): their Lordships would place the emphasis on "visible". And similarly "disregard" involves something more than a failure to take account of the minority's interest: there must be awareness of that interest and an evident decision to override it or brush it aside or to set at naught the proper company procedure (per Lord Clyde in Thompson v Drysdale 1925 SC 311 315). Neither "oppression" nor "disregard" need be shown by a use of the majority's voting power to vote down the minority: either may be demonstrated by a course of conduct which in some identifiable respect, or at an identifiable point in time, can be held to have crossed the line.” [19] Guided by Re Khong Thai Sawmill (supra), the court must now consider whether the business of the 3rd defendant, which was under the 8 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal control of the 1st defendant, was carried out in a way that was oppressive and disregarded the plaintiff’s interest, in a manner that is a visible departure from the standards of fair dealing and a violation of fair play that the plaintiff is entitled to expect. Borrowing the words of Lord Wilberforce in Re Khong Thai Sawmill (supra), the 1st defendant must be aware of the interest of the plaintiff, and must have made an evident decision to override it or brush it aside. [20] What then is this interest of the plaintiff and had the 1st defendant overridden it or brushed it aside? The plaintiff argued that as a member of the 3rd defendant, he had no visibility on the financial position and the financial performance of the 3rd defendant. He had been deprived of knowing and being able to question the state of the 3rd defendant. This, he argued, is prejudicial to his interest as a member of the 3rd defendant. [21] To support his argument, the plaintiff relied on Re a company (No 00789 of 1987), ex parte Shooter, ; Re a Company (No 3017 of 1987) Ex parte Broadhurst and others [1990] BCLC 384. In this case, a controlling shareholder who was the chairman of the board and the secretary of the company ran the company without regard to formalities, with accounts not prepared, AGMs not held and extraordinary general meetings held without sufficient notices having been given. In assessing whether the company’s affairs were being conducted in a manner which is unfairly prejudicial to the interest of some members, the court held that the repeated failure to hold AGMs or to lay accounts before members, had resulted in members being wholly deprived of any opportunity to consider the affairs of the company, to vote on the election or re-election of directors, or to know what was going on. The court held that these conducts, which would deprive members of their right to know and 9 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal consider the state of the company and its directorships, and to ask questions of its directors, are conducts prejudicial to the interests of members of the company. [22] The defendants also raised the distinction between oppressive conduct under section 346(1) of the CA and a wrong to the 3rd defendant, for which the appropriate remedy is the commencement of a derivative action under section 347 of the CA. The Bank of Nova Scotia Bhd & Anor v Lion Dri Sdn Bhd & Ors [2021] 9 MLJ 473 was cited. In that case, Ong Chee Kwan JC explained with clarity the distinction between a wrong done to the company and a wrong done to the minority shareholder. His Lordship made the following observations: “[90] Hence, the authorities suggest that the correct approach in determining whether the claim is a personal claim of oppressive conduct or a corporate claim, one must look at the ‘gist’ of the complaint in the nature of the complaint and the appropriate remedy necessary to meet it as was stated in Re Charnley Davies Ltd (No 2) [1990] BCLC 760. [91] In Re Charnley Davies Ltd (No 2) [1990] BCLC 760, Millett J (as he then was) articulated the distinction between unlawful conduct and conduct that is unfairly prejudicial to the petitioner’s interest at p 783 of the judgment as follows: An allegation that the acts complained of are unlawful or infringe the petitioner’s legal rights is not a necessary averment in a s 27 petition. In my judgment it is not a sufficient averment either. The petitioner must allege 10 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal and prove that they are evidence or instances of the management of the company’s affairs by the administrator in a manner which is unfairly prejudicial to the petitioner’s interests. Unlawful conduct may be relied on for this purpose, and its unlawfulness may have a significant probative value, but it is not the essential factor on which the petitioner’s cause of action depends. [92] At p 784, Millet J further discussed the application of this principle to the issue of distinguishing between an action for relief from oppression and a derivative action: The very same facts may well found either a derivative action or a s 459 petition. But that should not disguise the fact that the nature of the complaint and the appropriate relief is different in the two cases. Had the petitioners’ true complaint been of the unlawfulness of the respondent’s conduct, so that it would be met by an order for restitution, then a derivative action would have been appropriate and a s 459 petition would not. But that was not the true nature of the petitioners’ complaint. They did not rely on the unlawfulness of the respondent’s conduct to found their cause of action; and they would not have been content with an order that the respondent make restitution to the company. They relied on the respondent’s unlawful conduct as evidence of the manner in which he had conducted the company’s affairs for his own benefit and in 11 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal disregard of their interests as minority shareholders; and they wanted to be bought out. They wanted relief from mismanagement, not a remedy for misconduct.” (emphasis added) [23] Similarly, in this case, the contention of the plaintiff is that there had been misconduct of the 1st defendant who had management control over the 3rd defendant. This misconduct arises in the failure to prepare audited accounts and hold AGMs of the 3rd defendant. The court finds that this misconduct may give rise to a claim for derivative action under section 347 of the CA, but this does not mean that an action for oppression under section 346 of the CA has not arisen. This misconduct had resulted in the plaintiff being deprived of his legitimate interest to be made aware of and to consider the affairs of the 3rd defendant. [24] It is also to be noted that the remedies sought in the originating summons include that the 1st defendant be ordered to purchase the shares of the plaintiff, which is consistent with a relief for mismanagement of the 3rd defendant, as opposed to a remedy for misconduct of the 1st defendant. [25] As a final point on this first allegation, the defendants also argued that their conducts had not caused any prejudice to the plaintiff. Re Coroin Ltd [2013] 2 BCLC 583 is instructive. On the question of whether a company’s affairs were conducted in a manner that is unfairly prejudicial to the interests of members, Arden LJ held at pages 747 and 748 that: 12 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal “[15] The expression ‘unfairly prejudicial’ has been subject to extensive judicial interpretation. There needs to be both prejudice and unfairness. [16] Prejudice does not mean that there has to be financial loss. It may be enough to show that the rights of the petitioning member have been infringed without showing that that led to any financial loss. [17] In order to show unfairness, Mr McKillen had to demonstrate unfairness stemming from the breach of a legal right conferred by the Articles or shareholders’ agreement: O’Neill v Phillips ]1999] 2 BCLC 1 …” (emphasis added) [26] Applying the assessment in Re Coroin (supra) to the facts of this case, I find that the conducts of the 1st defendant in not filing audited accounts and not holding AGMs were unfair to the plaintiff as he was deprived of his rights as a shareholder. [27] Based on the considerations above, the court finds that these conducts are oppressive to or are in disregard of the plaintiff’s interest as a member of the 3rd defendant. These actions deprived the plaintiff of his statutory rights as a shareholder, including his right to have access to or assess the accounts of the 3rd defendant, and ultimately, to know the financial position and performance of the 3rd defendant. 13 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal The Plaintiff’s Second Allegation: Pay-Outs Made By The 3rd Defendant To The 4th And 5th Defendants For Purposes Unrelated To The 3rd Defendant [28] The plaintiff alleged that the 3rd defendant had made pay-outs to the 4th and 5th defendants, for purposes unrelated to the business of the 3rd defendant. Such pay-outs were the decision of the 1st defendant, and were carried out without the consent or approval of the plaintiff. [29] The 1st defendant did not deny that the funds of the 3rd defendant were applied towards the 4th and 5th defendants. He instead argued that the transfers of funds between entities were commonly carried out to assist in the cashflow of these entities. They were not intended to prejudice the plaintiff. [30] It is the plaintiff’s claim that these conducts unfairly discriminate against or are otherwise prejudicial to the plaintiff. The funds of the 3rd defendant should not be diverted to the 4th or 5th defendants, and should be utilised for the 3rd defendant, which the plaintiff is a shareholder. This is especially so as the 1st defendant had claimed that the 3rd defendant had insufficient profits to declare dividends to its shareholders. Further, the plaintiff argued that the application of the 3rd defendant’s funds in favour of the 4th and 5th defendants is prohibited under section 225 of the CA, as the 4th and 5th defendants are persons connected to the 1st defendant. [31] The court takes note of the 1st defendant’s admission that funds are commonly transferred between the 3rd, 4th and 5th defendants, as these entities are family-owned businesses. The lack of audited accounts 14 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal has resulted in difficulties in determining the net effect of these transfers. Nonetheless, the fact remains that there had been transfers out from the 3rd defendant to the 4th and 5th defendants, which the plaintiff claims to be prejudicial to him as a member of the 3rd defendant. [32] Further, the 1st defendant had admitted that his focus has been on the business of the 5th defendant. Dividends were declared for the 5th defendant, but had never been declared for the 3rd defendant since inception. Yet, funds of the 3rd defendant had been applied to the benefit of the 5th defendant. [33] The effect of a director conducting the affairs of a company to favour another company in which that director has a shareholding was highlighted in Scottish Co-operative Wholesale Society Ltd v Meyer and another [1959] AC 324. In that case, a co-operative society formed a subsidiary company, and the controlling shareholder had taken steps that favoured the society against the company, to the detriment of the company. The oppressing shareholder was a shareholder of both the society and the company, and as such, the court held that the transaction of the society could not be separated from that of the company. It was held that the actions of the society were oppressive towards the minority shareholders of the company. [34] Further, in Ford Motor Company of Canada, Ltd v Ontario Municipal Employees Retirement Board and others [2004] 6 ITLR 776, a case relied on by the plaintiff, it was held that the policy of causing one company (Ford Canada) to consistently suffer losses to benefit the other related company (Ford USA) was oppressive conduct with regard to the affairs of the Canadian company. 15 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal [35] Having considered the actions of the defendants and cases above which are of guidance to this court, I find that the pay-outs made by the 3rd defendant (where the plaintiff is a shareholder) to the 4th and 5th defendants (where the plaintiff is not a shareholder) for purposes unrelated to the business of the 3rd defendant to be acts that unfairly discriminate against or is otherwise prejudicial to the plaintiff, within the meaning of section 346(1)(b) of the CA. [36] The court also takes note of the defendants’ reliance on Wong Yin Yong v Notre Dame Nursery Sdn Bhd & Ors [2016] MLJU 1535, where it was held that the plaintiff had failed to prove that transfers of funds from one entity to another constitute oppression. However, the case is distinguishable, as the court had accepted the defendants’ position that companies within the Notre Dame group were managed in accordance with sound corporate and commercial practices, and in a fair and reasonable manner. [37] In this case, the issue of transfer of 3rd defendant’s funds to the 4th and 5th defendants was coupled with the mismanagement of the 3rd defendant, with audited accounts not filed and AGMs not held. This has led to prejudice to the plaintiff, who has not had access to information including accounts of the 3rd defendant. It is on the basis of a holistic review of the overall conducts of the defendants that the court finds that the pay-outs made to the 4th and 5th defendants are oppressive to the plaintiff. 16 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal E. Decision [38] Based on the considerations above, the court allowed the originating summons with costs, and ordered, inter alia, that the 1st defendant purchase the shares of the plaintiff in the 3rd defendant. Dated 28 January 2022 - sgd - Adlin binti Abdul Majid Judicial Commissioner High Court of Malaya Commercial Division (NCC6) Kuala Lumpur Counsel: Plaintiff : Mak Lin Kum (together with Layyin Teh Hassan) of Messrs. Syed Ibrahim & Co 1st, 3rd, 4th and 5th : Isa Aziz Ibrahim (together with Mohamad Farid Defendants Abdul Rahim) of Messrs. Najib Hisham Isa Legislation referred to: Companies Act 2016, section 346(1) Cases referred to: Ford Motor Company of Canada, Ltd v Ontario Municipal Employees Retirement Board and others [2004] 6 ITLR 776 17 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal Re a company (No 00789 of 1987), ex parte Shooter, ; Re a Company (No 3017 of 1987) Ex parte Broadhurst and others [1990] BCLC 384 Re Coroin Ltd [2013] 2 BCLC 583 Re Khong Thai Sawmill (Miri) Sdn Bhd & Ors v Ling Beng Sung [1978] 2 MLJ 227 Scottish Co-operative Wholesale Society Ltd v Meyer and another [1959] AC 324 The Bank of Nova Scotia Bhd & Anor v Lion Dri Sdn Bhd & Ors [2021] 9 MLJ 473 Wong Yin Yong v Notre Dame Nursery Sdn Bhd & Ors [2016] MLJU 1535 18 S/N y4whMgh7iUm6x4yggeP2sg **Note : Serial number will be used to verify the originality of this document via eFILING portal