COMPLIANCE AND CONSEQUENCES UNDER SECTION 348 OF THE COMPANIES ACT 2016

Legal Updates from YHA Law Firm

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.

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In Eletson Holdings Inc & Ors v The Vessel “Paros” [2026] 8 MLJ 80, the High Court set aside an arrest after finding that the plaintiffs had no proprietary or possessory right to the vessel at the time of the writ, as the bareboat charter had already been terminated. The Court held that the claim was in substance a corporate control dispute dressed up as an admiralty action, and emphasised that such disputes do not fall within admiralty jurisdiction. Critically, the plaintiffs’ failure to disclose the termination of the charter when obtaining the arrest warrant amounted to a serious breach, leading the Court to find mala fides or gross negligence and order damages for wrongful arrest. The decision reinforces that ship arrest is a powerful remedy that must be exercised with full disclosure and a proper maritime foundation.

14 July ,2026 No Comments

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In CE Energy DMCC v Bashar [2026] Lloyds’s Rep 267, the Commercial Court clarified that not all guarantees labelled “on demand” will be treated as demand guarantees. On a proper construction, the court held that the personal guarantee in question was a contract of suretyship, requiring proof of the principal debtor’s liability rather than automatic payment upon demand. Crucially, the court found that the debtor’s “irrevocable” admissions of debt in a payment agreement created a binding contractual estoppel, which the guarantor could not challenge. The decision also confirms that, where payment is due on a “day certain”, a seller may still claim the price notwithstanding retention of title. The case underscores the importance of precise drafting and the risks of entering into settlement agreements that conclusively fix liability.

14 July ,2026 No Comments

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14 July ,2026 No Comments

JURISDICTION – BILLS OF LADING – BREACH OF HIMALAYA CLAUSE – BREACH OF EXCLUSIVE JURISDICTION CLAUSE – ONEROUS OR UNUSUAL TERMS

In Maersk Guinéa-Bissau SARL v Almar-Hum Bubacar Baldé SARL [2026] 1 Lloyd’s Rep 215, the English Commercial Court held that a shipper was liable for breach of an exclusive jurisdiction clause and a Himalaya clause after commencing proceedings in Guinea-Bissau instead of England. The Court confirmed that such clauses are standard and enforceable, and that commencing foreign proceedings in breach of them can give rise to a claim for damages. Notably, the Court also recognised that Himalaya clauses may be used offensively, allowing subcontractors to recover losses caused by wrongful litigation. The foreign judgment was not recognised due to lack of jurisdiction and denial of natural justice.

14 July ,2026 No Comments

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In United Overseas Bank Ltd v The “Maersk Katalin” [2026] 1 Lloyd’s Rep 18, the Singapore High Court reaffirmed that delivery of cargo without presentation of original bills of lading remains a fundamental breach, even where carried out against letters of indemnity. The Court held that LOIs merely shift commercial risk but do not authorise misdelivery, and rejected arguments of consent, ratification and causation. Significantly, the Court emphasised that the burden lies on the carrier to prove that the loss would have occurred in any event – a burden not easily discharged. The decision underscores the continued strict liability regime in misdelivery cases, particularly where banks as bill holders are involved.

14 July ,2026 No Comments

CONTRACT LAW – ‘UK COURTS’ MEANS ENGLAND: COURT UPHOLDS JURISDICTION DESPITE VAGUE CLAUSE

In SMT Global Logistics Ltd v Georgian Airlines LLC [2025] Lloyd’s Rep. Plus 89, the Commercial Court held that a clause referring disputes to “the court in accordance with current legislation of the United Kingdom” was a valid jurisdiction clause in favour of the High Court of England and Wales. The Court also confirmed that the Montreal Convention does not apply to pure contractual claims for non-performance, such as repayment and loss of profits. Emphasising a broad and commercially sensible interpretation, the Court enforced the parties’ choice of forum and refused to stay proceedings, reaffirming that jurisdiction clauses will be upheld unless there are overwhelming reasons to depart.

14 July ,2026 No Comments