Yew Huoi, How & Associates | Leading Malaysia Law Firm

COMPLIANCE AND CONSEQUENCES UNDER SECTION 348 OF THE COMPANIES ACT 2016

Illustrative Scenario

ABC Sdn Bhd, a private limited company incorporated on 12.11.2016, has three shareholders: X, who holds 50% of the shares; Y, who holds 35%; and Z, Y’s son, who holds 15%.

X and Y serve as the only two directors of ABC Sdn Bhd. Recently, the board of directors made a controversial decision to sell a significant portion of the company’s valuable software patent portfolio to a competitor at a price well below market value. This decision was made without proper consultation with the shareholders, and no clear justification was provided to explain how the sale benefits the company.

Subsequently, Z initiated a statutory derivative action under Sections 347 and 348 of the Companies Act 2016, after successfully obtaining leave from the High Court to do so. However, Z failed to comply with the mandatory 30-day notice requirement under Section 348(2) of the Companies Act 2016 and did not name the directors in the leave application that led to the Leave Order.

The central issue is whether X and Y can seek to set aside the Leave Order ex debito justitiae on the grounds that Z failed to comply with the procedural requirements of Section 348(2) of the Companies Act 2016 and did not include their names in the leave application.

Legal Principles & Laws

  • Section 348(2) of the Companies Act 2016: A plain reading of this section indicates that the 30-day written notice is a mandatory requirement. Non-compliance with this notice requirement cannot be overlooked or excused by the court. The purpose of the notice is to provide the company with an opportunity to address the issues raised before legal action is initiated.
  • Naming the Directors in the Leave Application: Although Section 348 of the Companies Act 2016 does not explicitly require the alleged wrongdoer directors to be named in the leave application, it is necessary to do so. This ensures that the directors are given an opportunity to respond to the allegations made against them by the applicant. The failure to name the directors may deprive them of the chance to defend themselves and could be grounds for setting aside the leave order.
  • Application to the Scenario: Applying these principles to the scenario, X and Y have the legal standing to apply to the court to set aside the Leave Order ex debito justitiae on the basis of Z’s failure to comply with the mandatory procedural requirements, including the failure to name them in the leave application. The court is likely to consider this non-compliance as a serious procedural defect that warrants the setting aside of the leave order.

Reference Cases

  • Wong Cheng Houng v Hoe Poh Lin & Anor [2024] MLJU 1189 (Court of Appeal): This case reaffirms the mandatory nature of the 30-day notice requirement under Section 348(2) of the Companies Act 2016.
  • Ong Keng Huat v Fortune Frontier (M) Sdn Bhd [2015] 10 CLJ 599: Highlights the importance of procedural compliance in statutory derivative actions.
  • Ng Hoy Keong v Chua Choon Yang [2011] 4 CLJ 545: Discusses the necessity of including relevant parties in legal applications to ensure they have the opportunity to respond.
  • Tai May Chean v United Eastern Resources Sdn Bhd [2022] 2 CLJ 757: Emphasizes the significance of adhering to statutory requirements in corporate litigation.
  • Salina bt Mohamad Sukor v MVD International Sdn Bhd [2019] 9 MLJ 762: Explores the consequences of failing to comply with mandatory procedural requirements in derivative actions.

Recent Post

REGULATIONS – GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT 1947 ) – ARTICLE I

This legal update explores key provisions of the General Agreement on Tariffs and Trade (GATT 1947), focusing on Article I (Most-Favoured-Nation Treatment), Article II (Schedules of Concessions), Article XX (General Exceptions), and Article XXI (Security Exceptions). Article I mandates that any trade advantage granted by one contracting party to another must be extended unconditionally to all other parties. Article II ensures that imported goods from contracting parties receive treatment no less favourable than that outlined in agreed schedules, while also regulating permissible taxes and charges. Articles XX and XXI provide exceptions for measures necessary to protect public morals, health, security interests, and compliance with domestic laws. The provisions reflect the foundational principles of non-discrimination, transparency, and fair trade, while allowing for limited, well-defined exceptions. This summary is intended to provide a concise reference for businesses and legal practitioners involved in international trade law.

Read More »

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 »
en_USEN
× Contact Us