1.0 Introduction
The Companies Act 2016 (CA 2016) provides the legal framework which regulates the conduct of the directors in carrying out their duties, managing their business dealings with their suppliers and their accountability to the shareholders.
Any contravention acts on the CA 2016 by the default directors of the company which causes financial injuries affecting the rights or interest of other fellow directors or shareholders ought to be guarded and prevented by the company secretary being the forefront officer of the company.
Victimised parties of shareholders or directors whose interest or rights are being severely affected by the contravention of the CA 2016 would seek the Court’s intervention to issue an injunctive order to remedy the situations. The wrongdoer directors, company and even company secretary may be reprimanded by the Court upon such application.
The Court of Appeal in Lina Yap Ai Lin (f) v Giant Rewards Sdn Bhd & 3 Ors [2023] 1 AMR 523 is a landmark decision governing s 351 of CA 2016 on this matter which has a far-reaching bearing on the company secretary’s practice.
2.0 Legislation
Section 351 governs a statutory injunction. It is a remedy provision specially provided to empower the Court to grant appropriate orders specifically in a situation in which the provision of the Companies Act 2016 has been contravened.
Section 351 of CA 2016 empowers the Court to issue an injunction to prevent the continuation of the contravention acts and if needed, further orders the wrongdoers to make good any act in compliance to the CA.
Section 351 is a special legislation which serves as a remedy provision. Therefore, it cannot be invoked as a quick fix solution in all situations. The applicant first needs to demonstrate that there exists a contravention of the CA 2016 affecting the rights and the interest of the applicant. The Court of Appeal in Lina Yap Ai Lin (f) v Giant Rewards Sdn Bhd & 3 Ors [2023] 1 AMR 523 held that the phrase ‘has engaged, is engaging or …’ used in s 351(1) denotes past or present contravention.
The genesis of CA 2016 governs directors’ and shareholders’ matters. The phrase ‘a person whose interests have been, are or would be affected by the conduct which contravenes the Companies Act’ naturally refers to the shareholders or the directors who are injured by their own peers, causing non-compliance and in the breach of the CA 2016.
The invocation of s 351 requires the applicant, being shareholder or director, to make an application to Court, seeking an injunction and direction to remedy the injuries caused by the wrongdoers which comprise of the company, the BOD and most possibly implicate the company secretary as well. The prerequisite for the application of s 351 requires evidence that the company has contravened the CA 2016.
It is imperative for the applicant who is leading evidence in Court to identify the conduct and demonstrate how and in what manner the conduct of the wrongdoers have affected his interest or caused him injury. The identification of the conduct and the specific provision that is in breach need to be pleaded and to allow the Court to formulate the most appropriate action to rectify or remedy the injuries caused.
The Court of Appeal in Wong Kien Ching v Seng Kim Huat & Anor [2019] 7 CLJ 356 on dealing with s 368A of the Companies Act 1965 (CA 1965), the predecessor of s 351 of CA 2016, succinctly pointed out that it remained the paramount duty of the applicant to state clearly in express terms how his interest has been affected by the conduct of the wrongdoer. Nothing falls short than that and it leaves no room for second guessing or inference by the Court.
Mary Lim JCA held on p 367:
In addition to that, the applicant bears the burden and onus of proof to identify what or which specific provisions of the CA 1965 that the appellant is said to have contravened.
Section 368A is a specific provision granting statutory injunction to remedy any contravention of the CA only. It should not be construed to encompass every wrong, offence, or breach not addressed and determined by the CA. In Wong Kien Ching v Seng Kim Huat & Anor [2019] 7 CLJ 356, the Court of Appeal rejected the application of s 368A of CA 1965 on contravention of ss 17 and 64 of the Sabah Land Ordinance on land matters.
Mary Lim JCA in her illuminating remarks concluded on p 367:
Section 368A is predecessor to s 351 of CA 2016. Both sections are pari materia in their contents. Thus, the invocation of s 351 of CA 2016 by the Court requires the strict compliance with the terms in relation to contravention of CA 2016 only. With the establishment of the contravention of CA 2016, the Court would then move to grant the appropriate order or injunction which will require the wrongdoers to carry on a particular act or thing.
3.0 Real life application
In Lina Yap Ai Lin (f) v Giant Rewards Sdn Bhd & 3 Ors [2023] 1 AMR 523, the appellant was a director and shareholder in Giant Rewards Sdn Bhd (the company) since 2017. She later discovered from the SSM records on 30.7.2021 that, unbeknown to her, she had resigned as director on 31.5.2018 and voluntarily transferred all her 25,000 shares to the third respondent, N on 26.6.2018 too. N is now the current director of the company.
The appellant has deposed that it is beyond her knowledge and/or not within her recollection that she had consented to and/or submitted any resignation as director and/or consented to the transfer of the 25,000 shares at or around the material time between May and June 2018.
She has attempted to obtain the documents from the SSM but discovered that such documents were not available in its public domain. It is a fact that the purported resignation letter and the share transfer form would be retained at the company’s registered address and would not be at the public domain of the SSM. The company is only required to inform the SSM and update the register of members and directors accordingly within 14 days of the changes.
The appellant wrote to the company and the company secretary on 20.8.2021 for the supply of the purported resignation letter and the share transfer instrument but was refused as evident in the letter dated 7.9.2021. The company secretary had resigned from the company. Another letter dated 13.9.2021 ensued to the newly appointed company secretary but nothing was forthcoming. On 23.9.2021, the company equally maintained their refusal to provide the documents.
Being aggrieved, the plaintiff sought Court intervention on 24.9.2021, invoking the protection under s 351 to apply for the verification on the resignation letter and the share transfer instruments allegedly signed by her.
3.1 High Court’s decision and ruling [2022] 1 LNS 1615
In this case, the High Court opined that the plaintiff was attempting to fish information from the company for her benefits and reasons best known to her. The ladyship found the plaintiff’s explanation on her forgetfulness and uncertainty with regards to the purported resignation of her directorship from the company and the voluntary transfer of her 25,000 shares in Giant Rewards Sdn Bhd to be completely unacceptable in the commercial sense.
Zaleha Rose Pandin JC opined on:
The High Court declined the plaintiff’s application on the invocation of s 351 of the CA 2016. Instead, the High Court found that if what was contended by the plaintiff was true on its facts, then a reasonable person would embark to sue the company on fraudulent act and deny it outright in totality of the purported resignation of being director as well as the transfer of shares.
Zaleha Rose Pandin JC, in her wisdom, wisely pointed out the correct mode to proceed the claim on:
The High Court is not convinced of the appellant’s contention regarding her forgetfulness and inability to recollect whether she had in fact consented to and submitted the resignation of director. Likewise, the argument that the genuineness of the purported voluntary transfer of all her 25,000 shares to the third defendant can only be ascertained by verifying the authenticity of the documents and instruments found no footing in the High Court.
The High Court found that the appellant, in seeking the said documents and instruments from the company, is merely fishing for information. The learned ladyship rejected the application of s 351 in totality and expressed doubt as to whether her absolute inability to recall the matter was indeed genuine.
Doubting the plaintiff’s contentions and vagueness in making her claim, the High Court declined the premature application of s 351. The Court held that the prerequisite of invocation of s 351 requires the plaintiff to show that the company has contravened the CA 2016 which is not found. At most, the plaintiff had alleged in her affidavit that there might be some fraudulent involvements but was unable to show for certain any contravention. In short, there is no evidence to support the plaintiff’s contentions.
Zaleha Rose Pandin JC concluded that:
3.2 The Court of Appeal’s decision [2023] 1 AMR 523
Upon further appeal to the Court of Appeal, the court found merits in the plaintiff’s claim and thus allowed the invocation of s 351 to order the company, its existing directors, and its company secretary to furnish the plaintiff with the purported resignation letter and the share transfer instruments.
The Court of Appeal found some elements of truthfulness in the plaintiff’s application as her allegation is not given any reply by the defendant company, its directors, or its company secretary. Their failure to specifically plead and their rejecting the plaintiff’s contentions moved the Court to believe the validity of the plaintiff’s allegation to some extent.
In Alloy Automotive Sdn Bhd v Perusahaan Ironfield Sdn Bhd [1986] 1 MLJ 382, the Supreme Court held that the fatal implication of non-reply specifically on allegation of party would amount to acceptance of its claim.
Lee Hun Hoe CJ (Borneo) remarked on p 385:
The Court of Appeal laid down the parameter as to the application of s 351 of the CA 2016. The applicant needs to show that her interest and rights have been deprived, resulting in the company in breach of the CA 2016. It is therefore imperative that the applicant states how and in what manner the conducts of the company had affected her interest.
Applying to the current factual matrix, by not providing the purported director resignation letter and the share transfer form to the plaintiff, the company may be presumed to have contravened the s 591 and s 593 of the CA 2016. Section 591 and s 593 requires the company to provide truthful and accurate information as to the financial statements and company information to the SSM.
The Court of Appeal correctly pinpointed that the SSM would only have the changes and updates of the shareholders in the register of members. It would not have the share transfer instrument executed to effect the transfer. This instrument would be retained in the registered office of the company. Likewise, the purported resignation letter of director would be within the company’s retention.
The Court of Appeal found that the company directors are obliged to furnish true and accurate statements with regards to the company. As such, providing false and misleading statements as to the genuineness of the resignation of the appellant and the relinquishment of shares would amount to contravention of s 591, s 593 within the contemplation of s 351(1) of the CA 2016. Section 591 governs false and misleading statements and s 593 concerns false reports or statements to the SSM.
The Court of Appeal held that the appellant’s interest was affected and she was effectively being deprived of her rights as director and shareholder in the company of which the documents and share transfer instruments are essential to verify their genuineness.
The Court of Appeal invoked s 351 and ordered the director of the company, the company secretary and the company to furnish the original copy of the resignation letter and the share transfer instrument effecting 25,000 shares in Giant Rewards Sdn Bhd to the third respondent to be provided to the plaintiff.
4.0 Company secretary on guard
The company secretary is an officer to the company who owes it a duty of care to act in its best interest with honesty and integrity. He should not and never act in the personal interest of the directors or shareholders despite being appointed by the board of directors.
The company secretary, being forefront officer of the company and the liaison person to SSM, is expected to act vigilantly guarding and preventing the company from contravention of the CA 2016, as well as to ensure complete compliance with the timeframe of the various statutory duties, particularly in updating the register of members and directors to the SSM within the stipulated timeframe:
(i) Members 14 days s 51(1)
(ii) Directors 14 days s 58(1)
The verification of the authenticity of documents and accuracy in their contents would be the objective standard of what an honest competent professional would have done in discharging the professional duties. Nothing falls short than that.
The share sale between parties would have the following documents and compliance:
The resignation of director must be complied by:
In every legal suit involving director and shareholder disputes, the company secretary would be a party to the litigation. It would be an embarrassing situation where the company secretary is to be placed in the witness box and be made to testify as to the authenticity and confirm whether verification has been carried out. Professional standing is at stake.
Having acted professionally and diligently, the company secretary would be the bespoke person to resolve many compliance issues amicably without resorting to go to Court, which is an all-time costly and time-consuming assignment.
5.0 Conclusion
The company secretary, traditionally in CA 1965 and now in CA 2016, remains to assume a vital role to guard the company from violation or in breach of the CA 2016 and to ensure strict compliance of the various statutory duties imposed by the CA 2016 on companies (Sdn Bhd / Bhd), particularly on the deadline submission of annual returns, lodgment of financial statements and timely updates of various registers of the SSM.
In discharging these duties, the company secretary owes a duty of care to the stakeholders on the authenticity of information provided to the SSM, accuracy and completeness in its contents and submissions within a stipulated timeframe as provided in CA 2016.
The Court of Appeal case in Lina Yap Ai Lin (f) v Giant Rewards Sdn Bhd & 3 Ors [2023] 1 AMR 523 shed light that the company secretary would be at risk if his professional duties are not on guard.
* Dr Choong Kwai Fatt is an advocate and solicitor with special interest in tax and company law matters. He was an associate professor of tax of Faculty of Business, University of Malaya.
Note : The deliberation on “Contravention of Companies Act 2016 – Company Secretary on Guard ” is the writer’s own opinion and conclusion.
References:
- Company Law: Conceptual Framework, Real Life Applications, InfoWorld, 2021, 1st ed.
- MyCoID – Procedures, Mechanism and Real Life Applications, Choong Consultants Plt, 2021, 1st ed.
- Dr Choong on Companies Act 2016, Peng You Solutions Plt, 2020, 3rd ed.
- Dr Choong on Interpretation of Companies Act 2016 (2020, 1st ed.), Peng You Solutions Plt, 2020, 1st ed.
- Hallmark Legal Principles on Companies Act 2016, Choong Consultants Plt, 2019, 1st ed.
- Single Person Company, InfoWorld, 2018, 2nd ed.
- To order the books, please email to pengyou.solutions@gmail.com
