KHOO TENG CHUAN

Company Law: Shares – Transfer of shares – Claim by plaintiffs that transfer of

1st plaintiff’s one share in 1st defendant to 3rd defendant void and of no effect
– Real owners of 1st defendant – Whether 2nd defendant a shadow director of
1st defendant – Whether transfer of 1st plaintiff’s one share in 1st defendant
invalid and should be set aside

Civil Procedure: Amendment – Writ and statement of claim – Application by

plaintiffs to re-amend amended writ and amended statement of claim –
Whether application made too late and would be prejudicial to defendants –
Whether nothing untoward in trial judge’s exercise of discretion in disallowing
application

The first appeal by the appellants/plaintiffs was against the High Court’s
dismissal of their application to re-amend the Amended Writ and Amended
Statement of Claim, while their second appeal was against the High Court’s
dismissal of their entire claim. Penkin Holdings Bhd (“Penkin”) and its
subsidiaries (“Penkin Group”) were owned by 5 families, namely, the
Tan Family, Ang Family, Khor Family, Ooi Family and Siew Family. The 2nd
defendant was the Managing Director and one Tan Chew Hua (“TCH”) was a
co-director of the Penkin. Topazvest Temasek Sdn Bhd (“Topazvest”) was an
investment holding company for the five families and in which the said five
families held shares in the same percentage as they held in Penkin. Following
the merger of a few companies, including some owned by a few common
shareholders of Penkin Group, Multi-Usage Holdings Berhad (“MUH”) was
established and subsequently listed on the Bursa Malaysia in 1994. MUH was
at all times controlled by the common shareholders of Penkin Group through
their investment holding company Topazvest. The 2nd defendant was
recognised as the founder of the MUH group of companies and at all material
was the Group Managing Director of MUH and its subsidiaries, while TCH was a
co-director of MUH. Sometime in 2008, MUH faced financial difficulties and
wanted to undertake a loan restructuring scheme in respect of loans totalling
some RM36,130,358 from certain banks (“Creditor Banks”).

MUH appointed the 1st defendant, Wealthy Achievers Sdn Bhd (“WA”), as the
“White Knight” to undertake the loan restructuring scheme with the Creditor
Banks on behalf of MUH. WA was in fact a “shelf company” with a RM2.00 paid
up capital purchased by TF Resources Sdn Bhd (“TF Resources”), a wholly
owned subsidiary of Penkin. After the purchase by TF Resources, the original
promoters of WA transferred each of their one share in WA to the 1st plaintiff
and 4th defendant, and on 22 May 2008 both the 1st plaintiff and 4th
defendant were appointed as directors of WA. The plaintiffs stated that both
the 1st plaintiff and 4th defendant were mere nominees on WA’s board of
directors, and that they held the two shares in WA on trust for the 5 families
and that the 2nd defendant was at all material times the shadow director of
WA. The plaintiffs asserted that the 4th defendant was the nominee of the 2nd
defendant to protect the interests of the Ang Family and at all times acted in
accordance to the directions given by the 2nd defendant. The 1st plaintiff, the
brother in law of TCH, was on the other hand appointed to protect the interest
of the remaining 4 families, and also acted in accordance to the directions
given by the 2nd defendant. Subsequently, the 1st plaintiff’s one share was
transferred to the 3rd defendant, who was a complete stranger to the 1st
plaintiff. In the circumstance, the plaintiffs filed a claim in the High Court
seeking, inter alia, a declaration that WA’s Board of Directors’ resolution
approving the transfer of the 1st plaintiff’s one share in WA to the 3rd
defendant was void and of no effect. The High Court judge (“judge”) dismissed
the plaintiff’s claim. The plaintiffs had also filed a notice of application to re-
amend the Amended Statement of Claim to include an additional prayer for
relief. The judge was of the opinion that the application was made too late in
the day and it would be prejudicial to the defendants, and thus declined to
exercise her discretion to allow the application. The appellant had confined the
present appeal to the following issues: (a) whether WA belonged to the 5
families; (b) whether the 2nd defendant was a shadow director of WA; and (c)
whether the transfer of the 1st plaintiff’s one share in WA to the 3rd defendant
was invalid and ought to be set aside.

Held (dismissing the first appeal; allowing the second appeal in part):

(1) There was ample evidence showing that WA was acquired and funded
for the purpose of furthering the interest of the 5 families who
controlled MUH, through Topazvest Temasek, in the restructuring of the
debts of MUH and its related companies. Any monetary benefits derived
by WA in the loan restructuring scheme was clearly intended to benefit
the 5 families, and not just the 2nd defendant and his family or some
other related individuals or entities to the exclusion of the other
families. However, the judge in arriving at her decision that WA did not
 belong to the 5 families had given undue weight to two MUH company
announcements to Bursa Malaysia in which the 5 families were said to
have made statements to the effect that they did not have any direct or
indirect interest in the loan restructuring scheme between MUH and
WA. The judge seemed to have overlooked the fact that these
statements were not made by the 5 families but by someone in MUH.
Hence, they could not be attributed to the 5 families and be taken for
admissions by the 5 families. The evidence overwhelmingly showed that
WA belonged to the 5 families and not to the 4th defendant. In this
regard, the judge had failed to properly evaluate the evidence and there
was lack of judicial appreciation of the uncontroverted evidence, which
when taken in its entirety supported the plaintiffs’ case. (paras 32-34)

(2) The evidence when taken as a whole, on the facts, led to the irresistible
conclusion that the 2nd defendant was the shadow director of WA, and
that in fact the 2nd defendant was the directing mind of WA. This was
fortified by the 1st plaintiff’s evidence that he never met his co-director,
the 4th defendant, and had never attended any board meetings until he
resigned on 15 June 2010. The 1st plaintiff further stated that during his
tenure as director of WA he had signed all documents that were sent to
him by the 2nd defendant through TCH. The 1st plaintiff had also signed
a book of cheques in blank as directed. The documents that were signed
by the 1st plaintiff included several agreements relating to the loan
restructuring scheme. The evidence clearly showed that the 2nd
defendant managed the affairs of WA to the exclusion of the plaintiffs
and the 4th defendant, who were directors. The plaintiffs and the 4th
defendant were directors in name only, and the 4th defendant was a
mere puppet of the 2nd defendant. If the judge had properly considered
and evaluated the evidence, she would have come to a different
conclusion. It appeared from the Grounds of Judgment that the judge
had concluded that the 2nd defendant was not a shadow director of WA
for lack of direct evidence showing the 2nd defendant giving directions
to the plaintiffs or the 4th defendant, or that the 4th defendant was
accustomed to acting on the 2nd defendant’s directions. In this regard,
such a nexus between the 2nd defendant and the 1st defendant’s board
of directors could be established by circumstantial evidence, which was
aplenty in this case. Hence, this was a misdirection by the judge. There
was overwhelming evidence of the 2nd defendant acting as a shadow
director of the 1st defendant. The total evidence also established the
fact that the 4th defendant was a nominee of the 2nd defendant, thus
 giving credence to the plaintiffs’ assertion that WA was acquired for the
interest of the 5 Families, and that the plaintiffs and the 4th defendants
were nominees of these families who were to act in the interests of the
5 Families in WA. (paras 39-42)

(3) The evidence in totality showed that the impugned transfer of the one
share from the 1st plaintiff to 3rd defendant was never the intention of
the 1st plaintiff, nor consistent with the original intent of the parties.
The transfer of the one share was said to have been done at the behest
of the 4th defendant who claimed to be the beneficial owner of the 1st
plaintiff’s one share. There was absolutely no reason why the 1st
plaintiff would want to transfer his one share which was very valuable
for a mere RM1.00 to the 3rd defendant who was unknown to him, and
more so at the behest of the 4th defendant who had no ownership
nexus to the 1st plaintiff’s one share. Hence, this claim was wholly
inconsistent with the evidence adduced. The 4th defendant was not the
owner of WA. The evidence showed that he did not put a penny into
WA. He was a mere nominee of the 2nd defendant. The transfer of the
1st plaintiff’s share to the 3rd defendant was wrong in law. The 1st
plaintiff had stated that he signed the transfer form in blank and handed
it to the 2nd defendant for details to be completed and the transfer
effected to the 2nd plaintiff. The subsequent use of the transfer form to
transfer the one share to the 3rd defendant, who was unknown to the
1st plaintiff, and against his express objection, was a clear misuse of the
documents that were handed to the 2nd defendant with clear
instructions. In the circumstances of the case, based on the original
intention of the parties, the 4th defendant, acting under the direction of
2nd defendant, could not use the casting vote as Chairman of the Board
meeting to effect the transfer of the one share registered in the name of
the 1st plaintiff to the 3rd defendant, who was also a nominee of the
2nd defendant. By virtue of the fact that WA belonged to the 5 families,
the 4th defendant as a mere nominee of the 2nd defendant would have
no power to decide the transfer of the 1st plaintiff’s one share to the 3rd
defendant. In this regard, the judge had failed to judicially appreciate
the evidence as a whole before coming to her decision. (paras 51-53)

(4) As for the first appeal, the application for re-amendment of the
pleadings was made too late in the day. The application was filed after
the trial had ended and directions for submissions were given by the
court and the matter had been set down for decision. There was no
reasonable explanation for the delay. The judge dismissed the
application as she was of the view that it would be prejudicial to the
defendants. There was nothing untoward in the judge’s exercise of
discretion in disallowing the application to re-amend the pleadings very
late in the day. (para 55)