1. ) TOPFLOW ENGINEERING SDN BHD 2. ) TEO GEE TECK 3. ) TEO GEE LIAN 1. ) DS CONSTRUCTION & DESIGN SDN BHD 2. ) DAVID KUAH TAH WEI 3. ) DK CONSTRUCTION & DESIGN 4. ) TAN TOH AN

JA-22NCC-73-12/2019 Kand. 109 07/11/2023 09:44:21 DALAM MAHKAMAH TINGGI MALAYA DI JOHOR BAHRU DALAM NEGERI JOHOR, MALAYSIA GUAMAN SIVIL NO. JA-22NCC-73-12/2019 ANTARA 1. TOPFLOW ENGINEERING SDN BHD 2. TEO GEE TECK 3. TEO GEE LIAN ….…PLAINTIF-PLAINTIF DAN 1. DS CONSTRUCTION & DESIGN SDN BHD 2. DAVID KUAH TAH WEI 3. DK CONSTRUCTION & DESIGN 4. TAN TOH AN …..…DEFENDAN-DEFENDAN GROUNDS OF JUDGMENT [After the full trial] Brief background [1] As a brief background of facts, the 1st Plaintiff is a company dealing with trading and maintenance of environment and water treatment. The 2nd and 3rd Plaintiffs are the 1st Plaintiff’s shareholders and directors while the 3rd Plaintiff is its managing director. The 2nd and 3rd Plaintiffs are siblings. 1 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [2] The 2nd Defendant is the 1st Defendant’s sole shareholder and director while the 4th Defendant is its company secretary. The 2nd Defendant is also the 3rd Defendant’s sole proprietor and director. [3] Sometime towards the end of 2018, the 1st Plaintiff was engaged in building of a factory and workers’ hostel (“RHF Project”) in an industrial area known as SILC Gelang Patah in Johor for a company known as RHF Stone Sdn Bhd (“RHF”). Since the 1st Plaintiff did not have enough supply of manpower for the RHF Project, the company appointed the 1st and 2nd Defendants to carry out various aspects of works relating to the Project as they had access to workers from Indonesia and furthermore the 2nd Plaintiff had personal experience in the supervision of such workers together with the carrying out of civil and structural building works. [4] Based on this project, the 1st Plaintiff saw an opportunity to work together with the 1st and 2nd Defendants in respect of other building projects whereby the 1st Plaintiff will secure the work and then pass or sub-contract it to the 1st Defendant which will be carried out by the 2nd Defendant. As such, the Plaintiffs decided to invest in the 1st Defendant. [5] On 17.1.2019, the 2nd and 3rd Plaintiffs and the 1st and 2nd Defendants entered into the Shareholders’ Agreement (“Shareholders’ Agreement”) which contains the following, inter alia: (a) the 2nd and 3rd Plaintiffs’ investment in the 1st Defendant and entitlement to a profit-sharing arrangement; 2 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal (b) the purchase of the 2nd Defendant’s share in the 1st Defendant by the 2nd and 3rd Plaintiffs; (c) the legal relationship and rights between the 2nd and 3rd Plaintiffs and the 2nd Defendant in the 1st Defendant; (d) the internal affairs and operations of the 1st Defendant; and (e) the appointment of the 1st Defendant’s directors. As such, the 2nd and 3rd Plaintiffs are entitled to be appointed as directors in the 1st Defendant alongside the 2nd Defendant. [6] As a result of the Shareholders’ Agreement, the Plaintiffs had paid a sum of RM80,000.00 for the acquisition of the 2nd Defendant’s shares amounting to 40% equity in the 1st Defendant by the 2nd and 3rd Plaintiffs while the 2nd Defendant held the balance. The investment sum of RM80,000.00 was based upon the profit and loss statement prepared by the 1st Defendant’s accountant and presented by the 2nd Defendant to the Plaintiffs. [7] In August 2019, the 2nd Defendant secured a contract from Cuipo Stone Sdn (“Cuipo Stone”) for the construction of a factory in Johor worth of RM1.1 million (“Cuipo Project”). However, according to the Plaintiffs, the 2nd Defendant discreetly concealed and subcontracted the Project to the 3rd Defendant which he is the sole-proprietor instead of the 1st Defendant as to avoid the 40% profit share with the Plaintiffs. [8] The shareholding of the 2nd and 3rd Plaintiffs in the 1st Defendant did not last long. On 22.8.2019, the 2nd and 3rd Plaintiffs exited from being the 1st Defendant’s shareholders. Not long after, the 1st Defendant made a 3 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal claim vide a statutory notice of demand pursuant to s. 466(1)(a) of the Companies Act 2016 dated 21.10.2019 (“Winding-up Notice”) against the 1st Plaintiff for an amount of RM511,734.80 relating to the construction works in RHF Project. [9] On 23.12.2019, the 1st Plaintiff filed the present suit for the following reliefs, inter alia: (a) a declaration that the Winding-up Notice is invalid; (b) a declaration that the Plaintiffs are entitled to keep a sum of RM200,000.00 paid by RHF to the Plaintiffs; (c) an order that the 2nd Defendant is to prepare an account of profits which to be filed within 14 days from the order to show – (i) all monies received from Cuipo Stone by the 1st, 2nd and 3rd Defendants; (ii) particulars of cost for the Cuipo Project; and (iii) profits earned by the 1st, 2nd and 3rd Defendants; (d) a declaration for a breach of fiduciary obligation by the 2nd Defendant towards the Plaintiffs and the 1st Defendant; (e) a declaration for a breach of fiduciary obligation by the 4th Defendant towards the Plaintiffs; and (f) the Plaintiffs’ loss to be assessed. 4 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [10] On 10.2.2020, the 1st, 2nd and 3rd Defendants filed their Statement of Defence and Counter Claim in which they also sought the following reliefs, inter alia: (a) a declaration that the Statutory Notice dated 11.11.2019 issued by the 1st Plaintiff to the 1st Defendant is invalid; (b) a declaration for a breach of oral agreement by the 1st and 3rd Plaintiffs when the 1st Plaintiff failed to pay the sum of RM511,734.80 to the 1st Defendant vide a cheque dated 21.8.2019 and as such the 1st Defendant or the 2nd Defendant is not responsible to pay or give a discount of RM200,000.00 to the 1st Plaintiff; and (c) the 1st Plaintiff is to pay the 2nd Defendant a sum of RM200,000.00. [11] A full trial for this suit was conducted for six days where the Plaintiffs and the Defendants brought five and three witnesses, respectively to give evidence in this court. Whether the Winding-up Notice issued by the 1st Defendant is invalid [12] It is pertinent to note that s. 466(1)(a) of the Companies Act 2016 allows a creditor to serve a notice of demand (normally known as “winding-up notice”) to a company which is indebted to the creditor requiring the company to pay the sum due within 21 days of the notice failing which the creditor may file a petition to wind-up the company. S. 466 says – Definition of “inability to pay debts” 5 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal 466. (1) A company shall be deemed to be unable to pay its debts if — (a) the company is indebted in a sum exceeding the amount as may be prescribed by the Minister and a creditor by assignment or otherwise has served a notice of demand, by himself or his agent, requiring the company to pay the sum due by leaving the notice at the registered office of the company, and the company has for twenty-one days after the service of the demand neglected to pay the sum or to secure or compound for it to the satisfaction of the creditor; (b) execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) it is proved to the satisfaction of the Court that the company is unable to pay its debts and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company [13] In the present case, before the 1st Defendant sent the Winding-up Notice to the 1st Plaintiff, the former had served the latter with three Statements of Account (“Statements of Account”) which stated the alleged debt as follows: (a) construction works at Factory SILC Gelang RM122,140.00 Patah (RHF Stone Sdn Bhd) 6 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal (b) Construct works at Factory SILC Gelang RM343,794.80 Patah (c) Floor slab & water tank structure work RM45,800.00 (Guan Chong Cocoa Manufacture Sdn Bhd) Total RM511,734,80 [14] The Plaintiffs contended that the Winding-up Notice is invalid as the amount of debt stated in the Statements of Account which is the sole basis for the Winding-up Notice was a false demand by the 1st Defendant. [15] The Plaintiffs averred that the 1st Defendant is not entitled to the claimed amount based on the following reasons: (a) the payment from RHF had not been received by the 1st Plaintiff. There was no evidence to show that the 1st Plaintiff received such payment; (b) the payment to the 1st Defendant will only be made after RHF has paid the 1st Plaintiff; (c) any payment from RHF is subject to the profit-sharing arrangement of 40% which is the Plaintiffs’ entitlement pursuant to the Shareholders’ Agreement; and (d) the Plaintiffs are entitled to RM200,000.00 being the 40% profit sharing based on their investment in the 1st Defendant who was given the subcontract by the 1st Plaintiff in the RHF Project. 7 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [16] After the trial, I find that the 1st Defendant failed to establish that the 1st Plaintiff had received the alleged payment from RHF to substantiate its allegation in the Statements of Account. On the other hand, the 1st Plaintiff has proven that, based on the Shareholders’ Agreement, the company is entitled to 40% of the 1st Defendant’s profit. A subpoena witness, Chan Choi Wan, Irene (SP2) who prepared the Income and Expenses Statement for the 1st Defendant revealed in her testimony that the company gained a profit of RM511,734.80 from the RHF Project. Thus, I agree with the Plaintiffs that the amount of RM200,000.00 being the 40% of the 1st Defendant’s profit should be given to and kept by the 1st Plaintiff. [17] On the 1st Defendant’s claim in the Statements of Account for the floor slab and water tank structure works at Guan Chong Cocoa Manufacture Sdn Bhd, it is no doubt that these works were subcontracted by the 1st Plaintiff to the 1st Defendant. Nevertheless, the 1st Plaintiff has proven that the 1st and 2nd Defendants failed to carry out the works according to the approved plan and specifications. As a result, the 1st Plaintiff had spent RM50,000.00 for rectification works. In light of this, I agree with the 1st Plaintiff that the 1st Defendant failed to establish any bona fide debt against the 1st Plaintiff. [18] It is my considered view that in order for the Winding-up Notice to be valid, the debt on which the notice was based at the first place must be bona fide undisputed (see Jurupakat Sdn Bhd v. Kumpulan Good Earth (1973) Sdn Bhd [1988] 1 CLJ Rep 618; [1988] 2 CLJ 649; [1988] 3 MLJ 49 and Christopher Michael Cheow v. ANS Builders Sdn Bhd [2012] 9 CLJ 727; [2012] 1 LNS 234; [2012] 10 MLJ 359). In the present case, the 1st Plaintiff has established that there are contestable issues and bona fide disputes on the alleged debt. 8 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [19] Further, the Plaintiffs had proven their claim that the 2nd Defendant had misled a staff at the 1st Plaintiff’s office to acknowledge the receipt of the Statements of Account. [20] To substantiate the claim, the Plaintiffs subpoenaed two witnesses namely SP2 who is a former worker of the 1st Defendant and Fatin Farhana (SP5) who is a former Assistant Accountant of the 1st Plaintiff to testify in court. SP2 testified that when she was still employed by the 1st Defendant, she was personally instructed by the 2nd Defendant to deliver the Statements of Account to the 1st Plaintiff with a specific instruction given by him that she must ensure that the 3rd Plaintiff was not in the 1st Plaintiff’s office which signified by his car not being there. In short, SP2’s mission on that day was only one i.e to send the Statements of Account when the 3rd Plaintiff was not around as to enable the Plaintiffs to accept the Statements of Account without any objection or argument. [21] After carefully listening and perusing her testimony, I accepted SP2’s evidence despite the 2nd Defendant (SD3) strenuously challenged and denied her narrative. I find that SP2 is a credible witness as she is a witness with no interest and there is no reasonable ground for her to lie in court. [22] Likewise the evidence from SP3 - when she was still working with the 1st Plaintiff, she admitted receiving the Statements of Account from SP2. Nevertheless, at that point of time she just chopped the 1st Plaintiff’s company chop at the column “confirm & accepted” on the Statements of Account without verifying the correctness of the amount claimed in the Statements. 9 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [23] Based on the evidence adduced, I find that the Statements of Account were deliberately delivered when the 3rd Plaintiff was not in the 1st Plaintiff’s office. If the Statements of Account were genuine, why the 2nd Defendant instructed SP2 to deliver them in such suspicious manner? A reasonable inference can be drawn that the motive was none other than to ensure that the Statements of Account were delivered and considered as admitted by the Plaintiffs so that the Winding-up Notice could be issued. [24] It is interesting to note that the 2nd Defendant, during the cross- examination, explained that the Winding-up Notice was issued based on the alleged oral arrangement between him and the Plaintiffs whereby it was agreed that the 1st Plaintiff would issue a RM511,734.80 cheque to him and in return, he would give the 1st Plaintiff a RM200,000.00 cheque. This exchange of cheques has to be done simultaneously. Nonetheless, the 2nd Defendant averred that the Plaintiffs failed to honour the arrangement which led him to issue the Statements of Account to the 1st Plaintiff. This narrative adds another reasonable doubt that the Winding- up Notice is not genuine and issued with mala fide. [25] In light of this I find that the Winding-up Notice was invalid and has no effect. Whether the Plaintiffs are entitled to keep a sum of RM200,000.00 paid by RHF [26] As alluded to earlier, based on the Shareholders’ Agreement, the 1st Plaintiff is entitled to 40% share of the 1st Defendant’s profit. Since the Plaintiffs have proven vide SP2 that the 1st Defendant gained a profit of RM511,734.80 from the RHF Project, then the Plaintiffs are entitled to 10 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal keep the sum of RM200,000.00 being the 40% share of the 1st Defendant’s profit pursuant to the Shareholders’ Agreement. Whether there was a breach of fiduciary obligation by the 2nd Defendant towards the Plaintiffs and the 1st Defendant [27] It is pertinent to point out that the Companies Act 2016 requires a director to act in the best interest of his company and prohibits him from engaging in any business which is in competition with his company to gain personal benefit. Sections 214 and 218 of the Act read – Business judgment rule 214 (1) A director who makes a business judgment is deemed to meet the requirements of the duty under subsection 213 (2) and the equivalent duties under the common law and in equity if the director— (a) makes the business judgment for a proper purpose and in good faith; (b) does not have a material personal interest in the subject matter of the business judgment; (c) is informed about the subject matter of the business judgment to the extent the director reasonably believes to be appropriate under the circumstances; and (d) reasonably believes that the business judgment is in the best interest of the company. (2) For the purposes of this section, "business judgment" means any decision on whether or not to take action in respect of a matter relevant to the business of the company. 11 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal Prohibition against improper use of property, position, etc. 218. (1) A director or officer of a company shall not, without the consent or ratification of a general meeting— (a) use the property of the company; (b) use any information acquired by virtue of his position as a director or officer of the company; (c) use his position as such director or officer; (d) use any opportunity of the company which he became aware of, in the performance of his functions as the director or officer of the company; or (e) engage in business which is in competition with the company, to gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the company. (2) Any person who contravenes this section commits an offence and shall, on conviction, be liable to imprisonment for a term not exceeding five years or a fine not exceeding three million ringgit or to both. [28] The question is whether the 2nd Defendant being one of the 1st Defendant’s director had acted in breach of his fiduciary duty by discreetly concealing and deliberately subcontracted the Cuipo Project to his sole- proprietorship company in the 3rd Defendant instead of the 1st Defendant? [29] It is undisputed that the Plaintiffs had invested in the 1st Defendant and the 2nd Defendant knew that the main purpose of the Plaintiffs putting their investment in the 1st Defendant was to gain profit and nothing else. 12 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [30] As alluded to earlier, in August 2019, the 2nd Defendant secured the Cuipo Project but subcontracted the Project to the 3rd Defendant to carry out the related works. All payments by Cuipo Stone to the 3rd Defendant were made when the 2nd and 3rd Plaintiffs were still the 1st Defendant’s shareholders. Nevertheless, surprisingly after the 2nd and 3rd Plaintiffs were no longer the 1st Defendant’s shareholder with effect from 22.8.2019, all payments by Cuipo Stone were paid to the 1st Defendant. This evidence shows the clear intention of the 2nd Defendant subcontracted the Cuipo Project to the 3rd Defendant is to avoid the sharing of profit from the Project with the Plaintiffs. [31] Further, during the trial there was no single reasonable explanation advanced by the 2nd Defendant on why he subcontracted the Cuipo Project to the 3rd Defendant instead of the 1st Defendant. [32] It is my considered view that one of a director’s responsibilities is to place the shareholders’ interest above his own and it is incumbent upon the director to show that he had acted as such. [33] Drawing the thread together, it is clear that the 2nd Defendant was in breach of his fiduciary duty when he discreetly concealed and deliberately subcontracted the Cuipo Project to his sole-proprietorship company instead of the 1st Defendant as to avoid the 40% profit share with the Plaintiffs and at the same time made secret profits for his own. Whether there was a breach of fiduciary obligation by the 4th Defendant towards the Plaintiffs 13 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [34] It is pertinent to note that the 4th Defendant being the then company secretary of the 1st Defendant had prepared the instruments for the appointment of the 2nd and 3rd Plaintiffs as directors of the 1st Defendant. These instruments were signed by of the 2nd and 3rd Plaintiffs on 21.1.2019. Nonetheless, the filing of the instruments with Suruhanjaya Syarikat Malaysia (SSM) was only done by the 4th Defendant two months later i.e on 11.3.2019. [35] The 4th Defendant admitted the delay but he averred the delay was caused by reasons outside his control namely the Chinese New Year which fell on 2.2.2019 and presentation of the stamp duty adjudication on the share transfer by the Lembaga Hasil Dalam Negeri (LHDN). With respect, I am not prepared to accept these reasons. The signing of the instruments was done almost 2 weeks before the Chinese New Year while LHDN would normally take not more than seven days to process the stamp duty adjudication. The delay depicts the 4th Defendant’s nonchalant attitude towards his responsibilities. [36] The 4th Defendant in denying the liability averred that the 2nd and 3rd Plaintiffs must be the shareholders of the 1st Defendant first before being appointed to its directors. Nevertheless, when being asked by learned counsel for the Plaintiffs, the 4th Defendant agreed that the 2nd and 3rd Plaintiffs could be appointed as the 1st Defendant’s directors immediately after the instruments for the appointment was signed by them. In addition, Evelyn Eng Hui Xian (SP4) the solicitor who prepared the Shareholders’ Agreement affirmed that the Agreement came into operation on the date of its signing and not when of the 2nd and 3rd Plaintiffs become the 1st Defendant’s shareholders. 14 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [37] The evidence adduced in this court shows that in between the date of the signing of the Shareholders’ Agreement and the filing of the instruments, the 2nd Defendant discreetly managed to withdraw a substantial amount of money namely RM117,080.00 from the 1st Defendant’s account without the 2nd and 3rd Plaintiffs’ consent despite they were directors by virtue of the Shareholders’ Agreement. This can be seen in the 1st Defendant’s Audited Account for 2018 (exhibit P41) where it was stated that cash in hand and at banks was only RM53,453.00. [38] It is my considered view that the 4th Defendant being the then company secretary must always act professionally, responsibly and honestly with reasonable care and due diligence. The 4th Defendant also must exhibit a high degree of skill and proficiency in discharging his duties. It is clear in the present case that due to the delay in filing of the instruments by the 4th Defendant, the 2nd and 3rd Plaintiffs suffered a great loss as they have significant shares in the 1st Defendant. [39] In the premise of the foregoing, I find that the 4th Defendant was in breach of his fiduciary obligation as the 1st Defendant’s company secretary towards the Plaintiffs which resulted of the 2nd and 3rd Plaintiffs suffering a substantial loss as the 1st Defendant’s directors and shareholders. The Defendants’ counter claim [40] The Defendants’ counter claim revolves around the sum of RM200,000.00 claimed by the Plaintiffs pursuant to the Shareholders’ Agreement. The failure of the 1st Defendant to pay the sum led the 1st Plaintiff to issue the Statutory Notice pursuant to s. 466(1)(a) of the Companies Act 2016 dated 11.11.2019 to the former. 15 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal [41] It is pivotal to note that I have covered earlier why the Plaintiffs are entitled to the sum. As such I do not propose to repeat my grounds on that matter. Suffice it to say that I came to the conclusion that the Plaintiffs are entitled to keep the sum being the 40% of the 1st Defendant’s profit from RHF Project pursuant to the Shareholders’ Agreement. [42] In the upshot, I find that the Statutory Notice dated 11.11.2019 issued by the 1st Plaintiff is valid. [43] For the 2nd and 3rd reliefs, the Defendant pray that such the 1st Defendant or the 2nd Defendant is not responsible to pay the sum RM200,000.00 to the 1st Plaintiff. Again, as I mentioned it above, this issue has been dealt before. [44] In the premise of the foregoing, I find that there is no merit in the Defendants’ counter claim. Thus, the counter claim is dismissed. Conclusion [45] In the final analysis, having considered the facts and the circumstances of the present case, I find that the Plaintiffs on the balance of probability have proven their case. Hence, I allow the Plaintiffs’ claim with costs and damages to be paid by the Defendants. An assessment of cost and damages will be fixed. I also dismiss the 1st, 2nd and 3rd Defendants’ counter claim with no order as to costs. Dated: 7.11 .2023 -SIGNED - (SHAMSULBAHRI BIN HAJI IBRAHIM) Judge, High Court of Malaya, Johor Bahru 16 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal Counsels:  For the Plaintiffs - Chang Tau Sian; Messrs. Henry Soong & Chang  For the Defendants - Jermaine Tay Yu Rong; Messrs. Dennis Nik & Wong Cases referred to:  Christopher Michael Cheow v. ANS Builders Sdn Bhd [2012] 9 CLJ 727; [2012] 1 LNS 234; [2012] 10 MLJ 359  Jurupakat Sdn Bhd v. Kumpulan Good Earth (1973) Sdn Bhd [1988] 1 CLJ Rep 618; [1988] 2 CLJ 649; [1988] 3 MLJ 49 Legislations referred to:  Companies Act 2016 - s. 214, 218 & 466(1) 17 S/N S6/vm4D5PUOElhnQcNwedg **Note : Serial number will be used to verify the originality of this document via eFILING portal