MEGAFEST SDN BHD (DALAM LIKUIDASI) 1. ) SIVANANTHAM A/L MUTHU KARPAN 2. ) LIM KUI YONG 3. ) LIM KWEE GEE 4. ) Ketua Pengarah Insolvensi Selaku Wakil Sah Dan Pengurus Dan Penerima Estet Lim Thian Hock @ Lim Thiam Hock, Simati (Dalam Kebankra

J-02(NCvC)(W)-761-05/2023 Kand. 85 05/03/2026 15:04:43 IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO.: J-02(NCvC)(W)-761-05/2023 BETWEEN MEGAFEST SDN BHD (IN LIQUIDATION) (COMPANY NO.: 189153-H) …APPELLANT AND 1. SIVANANTHAM A/L MUTHU KARPAN (NRIC NO: 751008-08-5799) 2. LIM KUI YONG (NRIC NO.: 790924-71-5057) 3. LIM KWEE GEE (NRIC NO.: 730420-01-5781) 4. KETUA PENGARAH INSOLVENSI SELAKU WAKIL SAH DAN PENGURUS DAN PENERIMA ESTET LIM THIAN HOCK @ LIM THIAM HOCK, SIMATI (DALAM KEBANKRAPAN) …RESPONDENTS [In the High Court of Malaya at Muar (Civil Division) Civil Suit No. JB-22NCvC-09-01/2017 Between Megafest Sdn Bhd (In Liquidation) (Company No.: 189153-H) …Plaintiff And 1. Sivanantham A/L Muthu Karpan (NRIC No: 751008-08-5799) 2. Lim Kui Yong (NRIC No.: 790924-71-5057) 3. Lim Kwee Gee (NRIC No.: 730420-01-5781) 4. Ketua Pengarah Insolvensi Selaku Wakil Sah Dan Pengurus Dan 1 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal Penerima Estet Lim Thian Hock @ Lim Thiam Hock, Simati (Dalam Kebankrapan) …Defendants] (HEARD TOGETHER WITH) IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO.: J-02(NCvC)(W)-763-05/2023 BETWEEN MEGAFEST SDN BHD (IN LIQUIDATION) (COMPANY NO.: 189153-H) …APPELLANT AND 1. CEMERLANG COKE INDUSTRIAL SDN BHD (COMPANY NO.: 545750-T) 2. SIVANANTHAM A/L MUTHU KARPAN (NRIC NO: 751008-08-5799) 3. LIM KWEE GEE (NRIC NO.: 730420-01-5781) …RESPONDENTS [In the High Court of Malaya at Muar (Civil Division) Civil Suit No. JB-22NCvC-45-07/2017 Between Megafest Sdn Bhd (In Liquidation) (Company No.: 189153-H) …Plaintiff And 1. Cemerlang Coke Industrial Sdn Bhd (Company No.: 545750-T) 2. Sivanantham A/L Muthu Karpan (NRIC No: 751008-08-5799) 3. Lim Kwee Gee (NRIC No.: 730420-01-5781) …Defendants] 2 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal (HEARD TOGETHER WITH) IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO.: J-02(NCvC)(W)-764-05/2023 BETWEEN MEGAFEST SDN BHD (IN LIQUIDATION) (COMPANY NO.: 189153-H) …APPELLANT AND 1. LIM KUI YONG (NRIC NO.: 790924-71-5057) 2. SIVANANTHAM A/L MUTHU KARPAN (NRIC NO: 751008-08-5799) 3. LIM KWEE GEE (NRIC NO.: 730420-01-5781) …RESPONDENTS [In the High Court of Malaya at Muar (Civil Division) Civil Suit No. JB-22NCvC-10-01/2017 Between Megafest Sdn Bhd (In Liquidation) (Company No.: 189153-H) …Plaintiff And 1. Lim Kui Yong (NRIC No.: 790924-71-5057) 2. Sivanantham A/L Muthu Karpan (NRIC No: 751008-08-5799) 3. Lim Kwee Gee (NRIC No.: 730420-01-5781) …Defendants] 3 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal (HEARD TOGETHER WITH) IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO.: J-02(NCvC)(W)-765-05/2023 BETWEEN MEGAFEST SDN BHD (IN LIQUIDATION) (COMPANY NO.: 189153-H) …APPELLANT AND 1. KETUA PENGARAH INSOLVENSI SELAKU WAKIL SAH DAN PENGURUS DAN PENERIMA ESTET LIM THIAN HOCK @ LIM THIAM HOCK, SIMATI (DALAM KEBANKRAPAN) 2. SIVANANTHAM A/L MUTHU KARPAN (NRIC NO: 751008-08-5799) 3. LIM KWEE GEE (NRIC NO.: 730420-01-5781) …RESPONDENTS [In the High Court of Malaya at Muar (Civil Division) Civil Suit No. JB-22NCvC-08-01/2017 Between Megafest Sdn Bhd (In Liquidation) (Company No.: 189153-H) …Plaintiff And 1. Ketua Pengarah Insolvensi Selaku Wakil Sah Dan Pengurus Dan Penerima Estet Lim Thian Hock @ Lim Thiam Hock, Simati (Dalam Kebankrapan) 2. Sivanantham A/L Muthu Karpan (NRIC No: 751008-08-5799) 3. Lim Kwee Gee (NRIC No.: 730420-01-5781) …Defendants] 4 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal (HEARD TOGETHER WITH) IN THE COURT OF APPEAL OF MALAYSIA (APPELLATE JURISDICTION) CIVIL APPEAL NO.: J-02(IM)(NCvC)-775-05/2023 BETWEEN MEGAFEST SDN BHD (IN LIQUIDATION) (COMPANY NO.: 189153-H) …APPELLANT AND CEMERLANG COKE INDUSTRIAL SDN BHD (COMPANY NO.: 545750-T) …RESPONDENT [In the High Court of Malaya at Muar (Civil Division) Company (Winding Up) No.: 28NCvC-19-05/2012 Between Malayan Banking Berhad (Company No.: 3813-K) …Petitioner And Megafest Sdn Bhd (Company No.: 189153-H) …Respondent And Cemerlang Coke Industrial Sdn Bhd (Company No.: 545750-T) …Intervener] 5 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal CORAM: AZHAHARI KAMAL BIN RAMLI, JCA. AHMAD KAMAL BIN MD. SHAHID, JCA. ONG CHEE KWAN, JCA. JUDGMENT OF THE COURT Introduction 1. These five conjoined appeals arise from a series of impugned transactions undertaken by the Appellant company in the period preceding and following the presentation of a winding-up petition. Three appeals concern allegations of undue preference, premised on voluntary settlements said to have been made without valuable consideration and not in good faith. The fourth appeal relates to an alleged fraudulent preference, involving payments within 6 months prior to the presentation of the petition. The final appeal concerns an application for a validation order in respect of a payment rendered void as the payment was made after the presentation of the winding-up petition. 2. The central issues for determination are: (i) the distinct statutory requirements governing undue preference as opposed to fraudulent preference; (ii) whether proof of a dominant intention to prefer remains a necessary element for fraudulent 6 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal preference; (iii) the scope of the recognised exceptions where payments are made under genuine commercial pressure to avert the imminent collapse of the company; (iv) the scope of the directors’ duties and (iv) the circumstances in which the court may properly grant validation of payments otherwise void against the liquidator. The appeals, therefore, call for a clear articulation of the applicable principles and their application to the facts of each transaction in question. Background Facts 3. The Liquidator of Megafest Sdn Bhd (in Liquidation) (“Megafest”) commenced 4 civil suits at the High Court to recover monies paid out by the directors of the company within 2 years prior to the presentation of a winding-up petition filed on 2.5.2012 by Malayan Banking Berhad. 4. Three of the civil suits involved payments made in breach of section 293 of the Companies Act 1965 (“CA 1965”) read together with section 52 of the Insolvency Act 1967 (“IA 1967”). These payments constitute undue preference, being voluntary settlements that are void because they were made within 2 years prior to the presentation of a winding-up petition and made without valuable consideration or not in good faith (“the Undue Preference Claims”). 5. The other civil suit involved payments made in breach of section 293 of the CA 1965 read with section 53 of the IA 1967. These 7 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal payments constitute fraudulent preference as they were paid within 6 months prior to the presentation of a winding-up petition and made with the intention to prefer the creditor, Cemerlang Coke Industrial Sdn Bhd (“Cemerlang Coke”) over the other creditors (“the Fraudulent Preference Claims”). The same civil suit also includes a payment made in breach of section 223 of the CA 1965, being a payment made after the presentation of the winding-up petition (“Void Payment Claim”). In response to the Void Payment Claim, Cemerlang Coke had filed an application to validate the payment (“the Validation Application”) 6. The four civil suits and the Validation Application were heard together, and a single composite judgment was issued by the learned High Court Judge, who, in the judgment, dismissed the 4 civil suits and allowed the Validation Application. 7. This judgment shall first deal with the Undue Preference Claims which formed the subject matter of Appeals 765, 761 and 764. Background Facts to Appeals 765, 761 and 764 8. The Appellant, Megafest was wound up on 2.7.2012 (“Winding Up Date”) based on a winding up petition that was presented on 2.5.2012 by Malayan Banking Berhad (“Presentation Date”). 8 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 9. Pursuant to a private examination under section 249 of the CA 1965, the Liquidator of Megafest discovered that within 2 years before the Presentation Date: a) a sum of RM 2,513,924.00 was received by Lim Thian Hock (“LTH”), a director and majority shareholder of Megafest; b) a sum of RM 178,344.15 was received by Sivanantham a/l Muthu Karpan (“Siva”), a director of Megafest; c) a sum of RM 573,500.00 was received by Lim Kui Yong (“LKY”), an alternate director to LTH in Megafest and a son of LTH. 10. Following the aforesaid, the Liquidator filed the following claims: a) a claim for the sum of RM 2,513,924.00 against LTH as the recipient of the money and against Siva and Lim Kwee Gee (“LKG”), the directors of Megafest, respectively, who had paid out the money to LTH in breach of their directors’ duty. This is the subject matter of Appeal 765; b) a claim for the sum of RM 178,344.15 against Siva as the recipient of the money and against Siva, LKG, LKY and LTH as the directors of Megafest, who had paid out the 9 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal money to Siva in breach of their directors’ duty. This is the subject matter of Appeal 761; c) a claim for the sum of RM 573,500.00 against LKY as the recipient of the money and against Siva, LKG and LKY as the directors of Megafest, who had paid out the money to LKY in breach of their directors’ duty. This is the subject matter of Appeal 764. 11. The learned High Court Judge dismissed the Liquidator of Megafest’s claims in the aforesaid three claims on the ground that the payments made therein were all made outside the twilight period. More specifically, at para [13] of the Grounds of Judgment, the learned High Court Judge held as follows: “[13] … Juga di perhatikan, tempoh transaksi adalah di luar tempoh senja (twilight period). Pembayaran oleh Lim Kwee Gee kepada Lim Thian Hock adalah antara 19.1.2011 dan 29.4.2011, juga kepada Sivanantham a/l Muthu Karpan adalah antara Tarikh 5.5.2011 dan 27.5.2011. Juga pembayaran oleh Lim Kwee Gee kepada Lim Kui Yong dibuat antara 15.3.2011 dan 17.3.2011.” 12. In coming to her decision, the learned High Court Judge had relied on the case of Sime Diamond Leasing (Malaysia) Sdn Bhd v. JB Precision Moulding Industries Sdn Bhd [1998] 4 CLJ 554 (“Sime Diamond”). 10 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 13. When the Appeals 765, 761, and 764 came up before us, the Respondents, who were the directors of Megafest who had received the monies and who had issued the payments, were not present in Court, and neither were they represented by any solicitors. 14. Having heard the submissions of learned counsel for the Appellant, we are unanimous in our view that the learned High Court Judge had erred in applying the law and that there are merits to the appeals. Court’s Deliberations for Appeals 765, 761 and 764 15. We find that the learned High Court Judge had, with respect, applied the wrong twilight period of 6 months instead of the correct period of 2 years in arriving at her decision. The claims in the three civil suits are not based on fraudulent preference but are claims for void voluntary settlements made within 2 years from the Presentation Date. 16. The Liquidator’s claims forming the subject matter of Appeals 765, 761 and 764 against the recipients of the monies are based on section 293 of the CA 1965 read with section 52 of the IA 1967 (formerly known as Bankruptcy Act 1967). More specifically, section 52 provides that: “Any settlement of property, not being a settlement … made in favour of a purchaser or incumbrancer in good 11 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal faith and for valuable consideration … shall, if the settlor becomes bankrupt within two years after the date of the settlement, be absolutely void against the Director General of Insolvency …” 17. The claims against LTH, Siva, and LKY are not claims for fraudulent preference under section 53 of the IA 1967 where the twilight period is 6 months. This is because Megafest did not consider LTH, Siva, and LKY as creditors of the company at all. Instead, the claims are treated as voluntary settlements made without valuable consideration or made not in good faith. 18. In this regard, the learned High Court Judge also erred in applying the case of Sime Diamond, which was a case dealing with fraudulent preference to claims based on void settlements. The applicable case should be Silver Corridor Sdn Bhd v. Gallant Acres Sdn Bhd & Anor [ 2016] 5 MLJ 1 (“Silver Corridor”), where the Federal Court held that for a claim under section 52 of the IA 1967, the following elements are required to be proved: a) the payments are paid within 2 years prior to the presentation of the winding-up petition; b) the payments were made either in bad faith or without valuable consideration. 12 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 19. In the Appeals 765, 761, and 764 before us, there is no dispute that the payments were all made within the twilight period of 2 years prior to the Presentation Date. 20. Furthermore, we find that there was no valuable consideration at all for the payments that were made to LTH, Siva and LKY. In particular: a) the payments of RM 2,513,924.00 to LTH that were made between January 2011 and January 2012, purportedly as repayment of loans granted by LTH to Megafest, are not supported by any credible documentary evidence at all. Whilst the audited account dated 31.1.2007 stated that “loans from directors are unsecured, interest-free and have no fixed terms of repayment”, it cannot be determined who the directors were who had provided the loans, and more significantly, whether any loans were subsisting at the time of the payments, as the audited account was dated 31.1.2007. In any case, such payments, even if made towards repayment of loans, do not count as valuable consideration since these were existing debts with no new value given to the company [See: Living the Link Pte Ltd (in creditors’ voluntary winding-up) and others v. Tan Lay Tin Tina and others [2016] 3 SLR 621; Liquidators of Progen Engineering Pte Ltd v. Progen Holdings Ltd [2010] 4 SLR 1089]; 13 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal b) the payment of RM 178,344.15 to Siva that was purportedly for reimbursement of RM 105,000.00 that Siva had advanced towards Megafest’s employees’ salaries, a sum of RM 52,684.50 purportedly for renewing Megafest’s foreign workers, levies, and salaries, and RM 20,659.65 purportedly for payment of compound, flight tickets, foreign workers, and Siva’s Deepavali ‘ang pau’ - none of these payments was supported by any documentary evidence at all; c) the payment of RM 530,000.00 to LKY purportedly for advances that he had made to the company, and the payment of the sum of RM 43,000.00 purportedly being his remuneration as alternate director, were also not supported by any documentary evidence at all. In fact, LKY himself had failed to testify at the trial. 21. The Court treats payments made to directors in the twilight period with inherent distrust because the directors are in control of the company’s finances and therefore are in a position to arrange the timing of payments to favour themselves. Payments made to ‘reimburse’ themselves when the company is already in financial distress will result in a disadvantage to the other unsecured creditors as the assets will be depleted in favour of the directors or insiders. As such, the Court will require the directors to prove that the loans or advances existed and were actually made. The directors must satisfy the Court that the payments were not intended to prefer them over the other 14 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal unsecured creditors. Mere bare assertions without cogent documentary evidence will not suffice. 22. Similarly, when directors issue company funds to themselves and to other directors during the twilight period without proper documentation or proper basis, they would be acting in breach of their common law fiduciary duty and also in contravention of their statutory duty. Directors owe duties to the company to act in good faith, for a proper purpose, and to avoid any conflict of interest. By authorizing payments to themselves or to their fellow directors without a legitimate reason, they breached the duty to act in the company’s best interest and must account for the full amount to the company personally. 23. In the present Appeals, Siva and LKG in Appeal 765, Siva, LKG, LTH, and LKY in Appeal 761, and Siva, LKG and LKY in Appeal 764 have all acted in breach of their directors’ duty when they issued the payments to LTH, Siva, and LKY respectively without any documentary evidence and without any valuable consideration. Accordingly, they are liable to personally repay the company for the payments made. 24. For the reasons above, we allow the Appeals 765, 761 and 764. 15 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal Appeal 763 and Appeal 775 Background Facts 25. The Liquidator also discovered that Cemerlang Coke was a coal supplier to Megafest. Between December 2005 to October 2006, Megafest had purchased coal supply from Cemerlang Coke for its operations. 26. Cemerlang Coke delivered the coal. Megafest made part payments but by October 2006, a sum of RM 459,828.00 remained outstanding. 27. On 24.4.2007, Cemerlang Coke issued a notice of demand to Megafest. When no response was received, on 23.7.2007, Cemerlang Coke filed a claim at the Muar High Court vide Suit No. 22-87-2007. 28. On 7.3.2011, Cemerlang Coke’s claim was allowed after a full trial. Judgment was entered against Megafest for the sum claimed (“the Judgment Debt”), and Megafest’s counterclaim was dismissed. 29. When Megafest did not respond to Cemerlang Coke’s demand for payment of the Judgment Debt on 20.9.2011, Cemerlang Coke’s solicitors served a winding-up notice under section 218 of the CA 1965 demanding the Judgment Debt to be paid within 16 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 21 days, failing which a winding-up petition would be filed (“the Statutory Demand”). 30. To avoid the winding-up petition, Megafest agreed to pay RM 600,000.00 as satisfaction of the Judgment Debt vide 12 equal monthly instalments of RM 50,000.00 each commencing from December 2011. 31. Pursuant thereto, on 9.12.2011, Megafest’s solicitors sent 12 post-dated cheques to Cemerlang Coke’s solicitors. The director of Megafest also provided a personal guarantee to Cemerlang Coke as further security for the post-dated cheques (“the Personal Guarantee”). 32. Cemerlang Coke’s solicitors deposited the cheques when due. More specifically, the first seven cheques were paid viz. on: 12.12.2011, 9.1.2012, 20.2.2012, 1.3.2012, 2.4.2012, 2.5.2012, and 12.6.2012, amounting to RM350,000.00. 33. Cemerlang Coke did not present the remaining cheques for payment. Cemerlang Coke claimed that the reason was that it had found out after presenting the 7th cheque on 12.6.2012 that a winding-up petition had been filed against Megafest on 2.5.2012 by another creditor, (“the Creditor’s Winding-Up Petition”), and that a winding-up order was made on 2.7.2012. 34. In short, Cemerlang Coke received only RM350,000 from the RM600,000 payable via the 12 post-dated cheques. 17 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 35. Based on the above facts, sometime in July 2017, the Liquidator of Megafest filed this claim against Cemerlang Coke for the sums paid under the 7 post-dated cheques totalling RM350,000 because: a) the 1st to 6th payments totalling RM300,000.00 were paid during the twilight period of 6 months preceding the Presentation Date and hence were caught under the fraudulent preference provision of the CA 1965 under section 293 read together with section 53 of the IA 1967; b) the 7th payment of RM 50,000.00 on 12.6.2012 was made after the Creditor’s Winding-Up Petition was filed and hence, was caught under section 223 of the CA 1965, rendering the payment void. 36. In resisting the Liquidator’s claims, Cemerlang Coke contended that the payments were made pursuant to the Statutory Demand, which was premised on the Judgment Debt that it had obtained after a full trial before the presentation of the Creditor’s Winding-Up Petition. The payments were not intended as undue or fraudulent preference at all. The payments were, in fact, made for the benefit of Megafest. Cemerlang Coke also contended that it did not know of Megafest’s insolvency at the material time nor of the presentation of the Creditor’s Winding- Up Petition. Further, regarding the 7th payment, Cemerlang 18 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal Coke claimed that the same can be validated by the Court. The Validation Application was filed for that purpose. Court’s Considerations Appeal 763 37. In the present case, the impugned payments constituting the Fraudulent Payment Claims took place on 9.12.2011 when Megafest’s solicitors sent the 12 post-dated cheques to Cemerlang Coke’s solicitors as full and final settlement of the Judgment Debt. At that time, the operative statute was the CA 1965 and not the Companies Act 2016 (“CA 2016”), which only came into force on 31.1.2017. This is because fraudulent preference is a time-based transaction, where the question is whether the payments were void when made. 38. In fact, this Court judges that the relevant date in this case is the date of the giving of the post-dated cheques and not the date each of the post-dated cheques was encashed. This is because the preference, if any, occurs when the debtor gives the security and not when the security is later honoured or realised. In other words, the date the post-dated cheques were given was the date when Cemerlang Coke was placed in a better position than other creditors of Megafest. 39. Accordingly, notwithstanding that both counsel had during oral submissions made references to both the CA 1965 and CA 2016 for the respective provisions therein for fraudulent 19 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal preference and void disposition, in our judgment, only the provisions in the CA 1965, being the operative statute, should be considered. The CA 2016 does not have retrospective effects. The CA 1965 continues to govern events and transactions that happened while the CA 1965 was in force. Fraudulent Preference – requirement of dominant intention 40. The CA 1965 was essentially based on the UK Companies Act 1948 (“the UK CA 1948”) with some minor modifications and localisation. More specifically, our section 293 is derived and adopted from section 320 of the UK CA 1948, which itself was derived from section 44 of the UK Bankruptcy Act 1914. (“UK BA 1914”) These sections read as follows: 320 Fraudulent preference. (1) Any conveyance, mortgage, delivery of goods, payment, execution or other act relating- to property made or done by or against a company within six months before the commencement of its winding up which, had it been made or done by or against an individual within six months before the presentation of a bankruptcy petition on which he is adjudged bankrupt, would be deemed in his bankruptcy a fraudulent preference, shall in the event of the company being wound up be deemed a fraudulent preference of its creditors and be invalid accordingly: Provided that, in relation to things made or done before the commencement of this Act, this subsection shall have effect with the substitution, for references to six months, of references to three months. 20 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal (2) Any conveyance or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void to all intents. (3) In the application to Scotland of this section, the expression “fraudulent preference” includes any alienation or preference which is voidable by statute or at common law on the ground of insolvency or notour bankruptcy, the expression “bankruptcy petition” means petition for sequestration and for the words “three months” there shall be substituted the words “sixty days”. UK Bankruptcy Act 1914 44 (1) Every conveyance or transfer of property, or charge thereon made, every payment made, every obligation incurred and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, or of any person in trust for any creditor, with a view of giving such creditor, a preference over the other creditors, shall, if the person making, taking, paying or suffering the same is adjudged bankrupt on a bankruptcy petition presented within three months after the date of making, taking, paying or suffering the same, be deemed fraudulent and void as against the trustee in the bankruptcy. (2) This section shall not affect the rights of any person making title in good faith and for valuable consideration through or under a creditor of the bankrupt. (3) Where a receiving order is made against a judgment debtor in pursuant of section one hundred and eight of this Act, this section shall apply as if the debtor had been adjudged bankrupt on a bankruptcy petition presented at the date of the receiving order. 21 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 41. There is no doubt that under section 44 of the UK BA 1948, a dominant intention is required to establish fraudulent preference. Indeed, the dominant intention test had been part of the UK’s fraudulent preference jurisprudence when interpreting section 44 of the UK BA 1914, which was discussed fully by Millet J in Re MC Bacon Ltd (No. 2) [1991] Ch 127. Millet J clarified that under section 44, a payment is a fraudulent preference only if the dominant purpose of the debtor was to put the creditor in a better position than others. Mere incidental preference or payments for bona fide commercial reasons do not suffice. 42. Although our section 293 does not contain the phrase “with the view to prefer”, it does not mean, as contended by learned counsel for the Appellant, that the need for a dominant intention has been dispensed with in Malaysia. It must be noted that in place of the phrase “with the view to prefer”, section 293 cross- refers instead to the law of bankruptcy, in this instance, the relevant provision being section 53 of the Bankruptcy Act 1967 (“BA 1967”). Section 53 of the BA 1967 is descended directly from section 44 of the UK BA 1914. More specifically, section 53 of the BA 1967 provides: Avoidance of preferences in certain cases 53. (1) Every conveyance or transfer of property or charge thereon made, every payment made, every obligation incurred and every judicial proceeding taken or suffered by any person unable to pay his debts, as they become due, from his own 22 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal money in favour of any creditor or any person in trust for any creditor shall be deemed to have given such creditor a preference over other creditors if the person making, taking, paying or suffering the same is adjudged bankrupt on a bankruptcy petition presented within six months after the date of making, taking, paying or suffering the same and every such act shall be deemed fraudulent and void as against the Director General of Insolvency. (2) This section shall not affect the rights of any person making title in good faith and for valuable consideration through or under a creditor of the bankrupt. (3) For the purposes of this section, “creditor” includes a surety or guarantor for the debt due to that creditor. 43. Again, whilst section 53 of our BA 1967 also does not include the words “with a view to prefer” as stipulated in section 44 of the UK BA 1914, nevertheless, the provision still refers to a transaction “… that is in favour of any creditor” and “… have given such creditor a preference over other creditors”. These words suggest that intention is required. This is consistent with the fact that the policy of fraudulent preference mandates a fault-based test. The requirement of a dominant intention is, in fact, the element that separates section 293 from section 223 of the CA 1965. 44. Learned counsel for the Appellant referred us to the Federal Court judgment of Sime Diamond, in particular to the following passage by Edgar Joseph Jr at p. 4155 where His Lordship stated as follows: “ … it is clear that the court has no power to make an order to setting aside payments and transfers made in the run-up to 23 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal bankruptcy in favour of a particular creditor which were designed to prefer him over other creditors unless the following five conditions are satisfied: 1) that the transaction in question took place within six months prior to the commencement of winding up; 2) that it satisfies the description of one of the types of transactions mentioned in s. 53(1) of the Bankruptcy Act; 3) that it took place at the time when the Company was insolvent; 4) that the person in whose favour the transaction was effected stood in relation of a creditor to the Company; and 5) the effect of the transaction was to confer on the person a preference, priority or advantage over other creditors in the winding up.” 45. It was contended that the 5 conditions outlined by Edgar Joseph Jr, FCJ do not include the element of dominant intention at all. Learned counsel for the Appellant contended that by the aforesaid, the dominant intention test is not applicable under section 293 of CA 1965 read with section 53 of the BA 1967. Instead, the Court should follow the Australian approach, where “unfair preference” is defined by reference to the effect and not the intention or motive. In other words, as long as the transaction has the effect of the creditor being put in a better position than they would have been in a winding up, this should suffice. 24 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 46. With respect, we are unable to agree. Unlike in Australia and in the UK, where the dominant intention test has been abolished, Malaysia has not changed its position, even though the UK has moved to the effect-based statutory test under the UK Insolvency Act 1986. In fact, what learned counsel for the Appellant had missed when he quoted the passage by Edgar Joseph Jr, FCJ, in Sime Diamond is the use by His Lordship of the phrase “… designed to prefer him over other creditors …” just before alluding to the 5 conditions. The word “designed” in particular denotes purpose or intention – the phrase, when read in the context of the passage by His Lordship Edgar Joseph Jr, FCJ can only be understood to mean that “the payments and transfers” that are made with the intention to prefer the creditor over other creditors, can only be set aside when the 5 conditions are satisfied. That this was what His Lordship had meant is made clear at the subsequent passage at p. 4157 of the judgment when His Lordship held as follows: “It was, therefore, a serious misdirection to have treated the relevant time for the purposes of s.223 of the Companies Act as the date of the set-off. In the consequence of this misdirection, both the High Court and the majority in the Court of Appeal took a wrong turning and , as a result, failed to take into account the fact that as the time of the transaction concerned, that is to say, on December 30, 1989, when the deposits had passed into the hands of the Lessor, no evidence had been adduced to show that the Lessee was insolvent or unable to pat the debts or that the intention of the parties was to confer a preferential priority or advantage over the other creditors. Indeed, it could not be gainsaid that the transaction 25 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal bore all the badges of a normal straightforward transaction carried out in the normal course of the Lessor’s business, and wholly consistent with the industry.” [emphasis added] 47. In fact, this Court of Appeal, in Lee Chao Yong v. Siteman Construction Sdn Bhd (in liquidation) [2017] 3 MLRA 37; [2016] 5 MLJ 663 had adopted and followed the decision of the High Court of Singapore in Ho Mun-Tuke Don & Anor (Liquidation if City Securities Pte) v. Oslo Finans As [1990] 1 SLR 398; [1990] 1 SLR(R) 326 which in turn had followed the decision in Re TW Cutts [1956] 1 WLR 728 where it held as follow: “The decision in Re TW Cutts was followed by the High Court of Singapore in Ho Mun-Tuke Don & Anor (Liquidation if City Securities Pte) v. Oslo Finans As [1990] 1 SLR 398; [1990] 1 SLR(R) 326. At p. 17, the court summarised the position as follows: From the judgment of Lord Evershed it is clear that, first, the onus is upon the person who seeks to avoid the payment to prove that the payment was made with a view to preferring the recipient over the other creditors; secondly, the word ‘view’ was construed as synonymous with ‘Intention’ or ‘object’; thirdly, where there is no direct evidence, it is open to the court to infer such intention from the facts, but such inference should only be drawn if it is the true and proper inference, and it will not be drawn from the mere fact that the creditor was paid when others were not, and lastly, the intention to prefer must be the dominant or principal intention”. 26 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 48. The requirement for dominant intention was also applied by His Lordship Justice Vazeer Alam (now FCJ) in Neoh Kien Teng v. L & L Aluminium Trading Sdn Bhd; Aston Star Sdn Bhd (Intervener) [2018] MLRHU 1072 at para [34] where His Lordship held that the mere fact there was ‘preference’ is insufficient, there must be evidence that the motive was to prefer the creditor over others: “[34] ... to determine whether the arrangement was to confer the Intervener a priority or advantage over other creditors in the winding-up, the court needs to be satisfied that the dominant intent to prefer was present. ..... the mere fact that a preference is shown is not sufficient to enable the court to draw the inference that preference was fraudulent. Before that inference can be drawn the court must be satisfied that the dominant motive of the debtor was to prefer the particular creditor. The inference of dominant motive must be drawn from the facts proved ...” [emphasis added] 49. Accordingly, it is the judgment of this Court that the requirement for the existence of a dominant intention to support the allegation of fraudulent preference is too entrenched to permit any room for contending otherwise. Whether there was a dominant intention 50. Having determined that a dominant intention is required under section 293 of the CA 1965 read with section 53 of the IA 1967, 27 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal it is necessary to now determine if the learned High Court Judge was right in holding that there was no such dominant intention when the post-dated cheques were issued to Cemerlang Coke on 9.12.2011 (“the Relevant Date”). 51. There is no dispute that the Relevant Date falls within the twilight period set out in section 53 of the IA 1967, namely, within 6 months prior to the presentation of the Creditor’s Winding-Up Petition filed on 2.5.2012. There is also no dispute that the onus is on the Appellant who is alleging fraudulent preference to prove that the payments were made with “an intention to prefer” and that this was the “dominant” intention [See: Re TW Cutts [1956] 1 WLR 728, Re M Kushler Ltd [1943] 1 Ch 248] 52. Learned counsel for Cemerlang Coke contended that the dominant intention at the time the post-dated cheques were issued to them was not to prefer Cemerlang Coke over the other creditors but to avoid the presentation of a winding-up petition to be filed against the company. In other words, the intention was to keep the company alive as a going concern. Reference was made to the Hong Kong case of BNP v Sam Wah Hing [1985] 2 HKC 499, HC, where it was held that the sums paid by the defendant did not amount to fraudulent preference, although the payment gave the creditor a preference. This was because the Court found that the dominant intent was not to confer preference but to keep the company alive. The Court held: 28 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal “A payment become voidable if there are other circumstances which establish that although the bankrupt has made a payment which in fact gives a creditor a preference, the transaction complained of was not done with the dominant intention to prefer but with some other intent. This was a question of fact to be derived from the circumstances of the case. In the present case, the dominant purpose of the first defendant was to pay off the bank in order to preserve the company as a going concern and to keep itself alive. The repayment of the bank was seen by the first defendant as the only means of achieving this objective. Even if the payments were made with an intention to prefer, it would not be fraudulent if they were not voluntary. The letter written by the plaintiff to the defendants threatening legal proceedings unless the debt due was satisfied amounted to pressure of such a nature as to make the subsequent payments by the first defendant involuntary. Therefore, the plaintiff was not obliged to repay such sums received from the first defendant after 9 November 1981.” 53. However, learned counsel for the Appellant cautioned against adopting ‘commercial pressure’ as insulation against claims for fraudulent preference, citing that this will open a floodgate for creditors to rush into threatening an insolvent company with winding up action to have their debts paid in full to the detriment of other creditors. 29 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 54. Whilst we acknowledged the concern raised, nevertheless, it must be stated that ‘commercial pressure’ is very much a fact- based defence and is certainly not a blanket safe harbour. Just because a creditor threatens to sue or issue a statutory demand does not automatically make a payment ‘non-preferential’. The Court is to determine if the debtor’s dominant intention to pay was because he intended to prefer or because he was trying to avoid a worse commercial consequence. If the debtor’s intention was made purely to buy time to keep the company as a going concern, it is commercial. On the other hand, a payment made to deliberately elevate one creditor over the general body is preferential. A creditor cannot convert an intended preference into a ‘compelled’ payment merely by asserting pressure. The circumstances leading to the payment must be carefully evaluated. 55. In the present case, Cemerlang Coke had already obtained a judgment after a full trial on 7.3.2011, a good 14 months before the Creditor’s Winding Up Petition. This was not an opportunistic or collusive claim, as the liability had been formally adjudicated. Cemerlang Coke thereafter served a statutory demand on 20.9.2011 when the company had failed to respond to its demand for the payment of the Judgment Debt. It therefore activated a real prospect of winding up as the same was based on the Judgment Debt. Thus, when the company entered into a settlement by agreeing to issue the 12 post-dated cheques, there is nothing to indicate that the intention was nothing more than to avoid the winding up and to work out the threat to its 30 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal continuation as a going concern. Significantly, a director of the company also gave his personal guarantee. This Court can infer that both the company and the director were under pressure and were trying to avoid the collapse of the company. More specifically, the fact that the director himself gave his personal guarantee and therefore has ‘skin in the game’ so to speak, goes against the inference that the company’s dominant intention was to benefit Cemerlang Coke. 56. Accordingly, we are unanimous in our view that the learned High Court Judge did not err when she found that there was no fraudulent preference in respect of the Fraudulent Preference Claims. Appeal 775 57. Cemerlang Coke also filed a Validation Application under the proviso of section 223 to validate the 7th instalment of RM 50,000.00 that was paid on 12.6.2012 after presentation of the winding up petition on 2.5.2012. This payment was in respect of the 7th post-dated cheque that Cemerlang Coke had presented for payment after the 6 post-dated cheques referred to in Appeal 763 above. 58. Under section 223 of the CA 1965, any disposition of the company’s property made after the commencement of the winding-up by the Court shall be void unless validated by the Court. 31 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal “Any disposition of the property of the company, including things in action and any transfer of shares or alteration in the status of the members of the company made after the commencement of the winding up by the Court shall, unless the Court otherwise orders, be void.” 59. Once a winding-up petition is filed, the company’s assets are deemed to be under the Court’s control. Any payment made after the petition is filed would be preferring one creditor over the others. However, in some instances, the Court may validate the payment. 60. In Wong Wee Kheong v Daya Bersama Sdn Bhd [2013] 3 AMR 93, the Federal Court held as follows when discussing section 223 of the CA 1965: “ [13] It is to be noted that s 223 of the Act makes no mention as to time. It is our view validation can be made by the court at any time… Here the purchasers had no knowledge at all of the winding up order at the material time…. case laws that have distilled the principles involved in validating transactions after the commencement of winding up, and even after a winding order has been granted based on two broad considerations: a. If the transaction(s) are beneficial to the general body of creditors; or b. If it was just and fair to allow the transaction(s) with particular regard to the good and honest intention of the persons concerned. 32 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal [14] The general rule in s 223 of the Act is that it does not shut out bona fide transactions…. each must be dealt with in its own facts and particular circumstances (special regard being had to the question of the good faith and honest intention of the persons concerned), and that the court is free to act according to the judge’s opinion of what would be just and fair in each case… The discretion is an unfettered one…” 61. Further, the Court of Appeal in Augustine a/l TK James v. Liew Chong Min & 2 Ors [2024] 2 AMR 502 also opined that the absence of knowledge by the transferee is a factor in favour of validation: “[56] Dispositions are said to be void under s 223 of the Companies Act 1965 “unless the Court otherwise order”. Thus each case must be approached and dealt with on its own facts and circumstances. No two cases are alike. It revolves on the good faith and honesty of the personalities……in deciding the existence of good faith and honest intention, the absence of knowledge by the transferee of the winding-up petition was a very powerful factor in favour of validation…” 62. In this case, Cemerlang Coke contended that in determining the bona fide of the transaction, the Court is to look at the transaction as a whole with a common-sense approach of what is just and fair, and the time of the transaction, and that any act subsequent to it must be considered as arising out of it. 63. Based on the aforesaid, Cemerlang Coke contended that the 7th payment was in respect of goods sold that were transacted 4 33 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal years before the presentation of the winding-up petition. More specifically, the payment was pursuant to a Judgment Debt and thereafter a settlement agreement, where post-dated cheques were handed over to Cemerlang Coke about 7 months before the presentation of the winding-up petition. 64. In other words, the presentation of the 7th cheque for payment on 12.6.2012 was an act arising out of the settlement agreement to satisfy a lawful Judgment Debt. At the time when the post-dated cheques were given, there was no winding-up petition. The winding-up petition was only filed on 2.5.2012, after the first 6 post-dated cheques were presented and paid. When the 7th instalment was paid on 12.6.2012, Cemerlang Coke did not know about the winding-up petition. This was not rebutted. There is also no evidence to the contrary. Based on the aforesaid, it was contended that the payment should be treated as a bona fide transaction. The Court should not shut out bona fide transactions and was urged to follow the Federal Court decision in Wong Wee Kheong that “the general rule in s 223 (now s 427) is that it does not shut out bona fide transactions”. 65. With respect, we are not persuaded by the submissions. 66. In the present case, the post-dated cheques issued were to satisfy a pre-existing Judgment Debt and were not trading payments at all. At the time of the presentation of the 7th cheque, the payment was not necessary to preserve the company as a 34 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal going concern at all. It was also not a payment made to support the continued operation of the company. Whilst Cemerlang Coke’s lack of knowledge of the winding-up petition may suggest that it had acted in good faith, such a lack of knowledge itself per se does not justify validation of the payment. Good faith is relevant where the recipient of the payment gives value after the winding-up petition but not in this case to Cermerlang Coke who received the payment for the 7th cheque for past debts. 67. The granting of a validation order would allow Cemerlang Coke to be preferred over other unsecured creditors, permitting Cemerlang Coke to recover a part of the Judgment Debt when other creditors get nothing. A validation order, if made, will alter creditor priorities and drain assets available to the general pool. The fact that the previous 6 post-dated cheques were presented and paid does not mean that the Court will extend the protection to the 7th cheque presented after the winding-up petition was filed, simply because they are part of the same settlement arrangement. There is no evidence at all that a validation order will benefit the general body of creditors of the company. Put it differently, the payment was not required to keep the company business running or to preserve its assets. It was also not for goods or services supplied post-winding-up petition. On the contrary, the payment diminishes the estate with no benefit to the other creditors. 35 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal 68. Accordingly, and for the reasons set out above, we are of the view that the learned High Court judge was wrong in allowing the Validation Application and we hereby allow the appeal in respect thereof and set aside the decision of the learned High Court Judge. Conclusions 69. In the premises, we are unanimous in our decision to allow Appeals 765, 761, and 764 with costs fixed at RM 20,000.00 each here and below subject to payment of allocator and with interest at 5% p.a from 19.4.2023 to full realisation. 70. In respect of Appeal 763, we dismiss the same save and except for the sum of RM50,000.00 being the payment made post the winding up petition with interest at 5% p.a from 19.4.2023 to full realisation with costs fixed at RM 30,000.00 here and below subject to payment of allocator. 71. As regards Appeal 775, we allow the appeal with costs fixed at RM 20,000.00 here and below subject to payment of allocator. DATE: 27th FEBRUARY 2026 -sgd- ONG CHEE KWAN JUDGE COURT OF APPEAL 36 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal For Appeal No.: J-02(NCvC)(W)-761-05/2023 For the Appellant : 1. Raj Shankar a/l Rajahram; and 2. Tina Francis (Messrs. Raj Shankar) For the 4th Respondent : SFC Mohamed Shah Reza Jabatan Insolvensi Malaysia (JIM) For Appeal No.: J-02(NCvC)(W)-763-05/2023 For the Appellant : 1. Raj Shankar a/l Rajahram; and 2. Tina Francis (Messrs. Raj Shankar) For the 1st Respondent : 1. Jayabalan a/l Raman Kutty; and 2. Tan Legend (Messrs. R. Jayabalan) For Appeal No.: J-02(NCvC)(W)-764-05/2023 For the Appellant : 1. Raj Shankar a/l Rajahram; and 2. Tina Francis (Messrs. Raj Shankar) For the Respondents : - For Appeal No.: J-02(NCvC)(W)-765-05/2023 For the Appellant : 1. Raj Shankar a/l Rajahram; and 2. Tina Francis (Messrs. Raj Shankar) For the 1st Respondent : SFC Mohamed Shah Reza Jabatan Insolvensi Malaysia (JIM) 37 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal For Appeal No.: J-02(IM)(NCvC)-775-05/2023 For the Appellant : 1. Raj Shankar a/l Rajahram; and 2. Tina Francis (Messrs. Raj Shankar) For the Respondent : 1. Jayabalan a/l Raman Kutty; and 2. Tan Legend (Messrs. R. Jayabalan) 38 S/N rZjJNfUA4UiptsF49zDF3Q **Note : Serial number will be used to verify the originality of this document via eFILING portal