Yew Huoi, How & Associates | Leading Malaysia Law Firm

COMPANY LAW – DIRECTOR – TRANSFER OR DIVERSION OF FUNDS TO THIRD PARTY – WINDING UP

Q: Can a director of a company make payments to himself or divert funds to third party after a winding up petition is presented and served.

No, unless it is approved by the court.

Section 472(1) of the Companies Act 2016 (“CA 2016”) provides that “(a)ny disposition of the property of the company, other than an exempt disposition, including any transfer of shares or alteration in the status of the members of the company made after the presentation of the winding up petition shall, unless the Court otherwise orders, be void.

Q: What can creditors do if the director diverted funds in breach of Section 472 CA 2016.

The creditors can pursue an action against the delinquent director and recover those funds under Section 541 of the CA 2016. Section 541(2) CA 2016 allows recovery from delinquent director the receipt of any money or property by him within the period of 2 years before the commencement of winding up.

Q: Can the director claim that the transfer was an exercise of business judgment and therefore he is protected by Section 214 of the CA 2016?

No. Section 214 of the CA 2016 places emphasis on the words “proper purpose”, “in good faith” and “in the best interest of the company”. When a transfer and diversion of funds are carried out after a winding up petition is presented and served, it lacks the element of proper and good faith in the best interest of the company.

Q: Can the director pay himself and claim that as his remuneration?

A director is not an employee of the company. He is doing business for the company. There is no implied term from the mere fact that he is a director, he should be paid. Section 230 CA 2016 provides fee and benefits of directors of a public listed company must be approved in a general meeting. For private company, the payment may be approved by the Board of Directors subject to provision of the constitution.

If payments of remuneration are made in contravention with Section 230 CA 2016, the director will be deemed to be breaching Sections 213 and 218 CA 2016 for making such payments – i.e. failure to act in good faith in the best interest of the company and breach the rule on prohibition against improper use of property of the company.

It follows that the creditors can claim for those breaches under Section 541 CA 2016 as explained earlier.

Case in point: CIMB Bank Bhd v Jaring Communications Sdn Bhd [2017] 4 CLJ 465. High Court Malaya (KL) – Companies (Winding-up) no: 28NCC-843-11-2014

Recent Post

ROAD ACCIDENT – INSURANCE COMPANY STRIKES BACK: HIGH COURT OVERTURNS ROAD ACCIDENT CLAIM

When a motorcyclist claimed he was knocked down in an accident, the Sessions Court ruled in his favor, holding the other rider fully liable. But the insurance company wasn’t convinced. They appealed, arguing that there was no proof of a collision and even raised suspicions of fraud. The High Court took a closer look – and in a dramatic turn, overturned the decision, dismissed the claim, and awarded RM60,000 in costs to the insurer. This case is a stark reminder that in court, assumptions don’t win cases – evidence does.

Read More »

CHARTERPARTY – LIEN ON SUB-FREIGHTS: CLARIFYING OWNERS’ RIGHTS AGAINST SUB-CHARTERERS

In Marchand Navigation Co v Olam Global Agri Pte Ltd and Anor [2025] 1 Lloyd’s Rep 92, the Singapore High Court upheld the owners’ right to enforce a lien on sub-freights under Clause 18 of the NYPE 1946 charterparty, ruling that the phrase ‘any amounts due under this charter’ was broad enough to cover unpaid bunker costs. Despite an arbitration clause between the owners and charterers, the sub-charterer was obligated to honor the lien, as it was not a party to the arbitration agreement. This decision reinforces that a properly exercised lien on sub-freights can be an effective tool for owners to recover unpaid sums, even in the presence of disputes between charterers and sub-charterers.

Read More »

SHIP SALE – LOSING THE DEAL, LOSING THE DAMAGES? THE LILA LISBON CASE AND THE LIMITS OF MARKET LOSS RECOVERY

In “The Lila Lisbon” [2025] 1 Lloyd’s Rep 101, the court ruled that a buyer cancelling under Clause 14 of the Norwegian Salesform Memorandum of Agreement is not automatically entitled to loss of bargain damages unless the seller is in repudiatory breach. The case clarifies that failing to deliver by the cancellation date does not constitute non-delivery under the English Sale of Goods Act 1979, as the clause grants the buyer a discretionary right rather than imposing a firm obligation on the seller. This decision highlights the importance of precise contract drafting, particularly in ship sale agreements, where buyers must ensure that compensation for market loss is explicitly provided for.

Read More »

CRIMINAL – KIDNAPPING – NO ESCAPE FROM JUSTICE: COURT UPHOLDS LIFE SENTENCE IN HIGH-PROFILE KIDNAPPING CASE

A 10-year-old child was abducted outside a tuition center, held captive, and released only after a RM1.75 million ransom was paid. The appellants were arrested following investigations, with their statements leading to the recovery of a portion of the ransom money. Despite denying involvement, they were convicted under the Kidnapping Act 1961 and sentenced to life imprisonment and ten strokes of the whip. Their appeal challenged the identification process, the validity of the charge, and the admissibility of evidence, but the court found the prosecution’s case to be strong, ruling that the appellants had acted in furtherance of a common intention and were equally liable for the crime.

Read More »

TRADEMARK – BUSINESS SABOTAGE AND TRADEMARK MISUSE

Businesses must be vigilant in protecting their contractual rights, brand identity, and operational control. In this case, unauthorized control over online booking platforms, misleading alterations to the hotel’s digital presence, and continued use of trademarks post-termination led to significant legal consequences. This ruling highlights the importance of clear agreements, strict compliance with contractual obligations, and proactive enforcement of intellectual property rights.

Read More »

NAVIGATION AND SHIPPING LAW – COLLISION REGULATIONS – COLLISION AT SEA – A WAKE-UP CALL FOR ADHERING TO NAVIGATION RULES

The collision between the FMG Sydney and MSC Apollo highlights the critical importance of adhering to established navigation rules. Deviations, delayed actions, and reliance on radio communications instead of clear, early maneuvers can lead to disastrous outcomes. This case serves as a stark reminder for mariners: follow the rules, act decisively, and prioritize safety above assumptions.

Read More »
en_USEN
× Contact Us