Yew Huoi, How & Associates | Leading Malaysia Law Firm

Menu

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

Back to Latest Legal Updates

Recent Post

JURISDICTION – CHOOSING THE RIGHT COURT: THE SEA JUSTICE CASE HIGHLIGHTS WHERE MARITIME DISPUTES SHOULD BE HEARD

In The Sea Justice cases [2024] 2 Lloyd’s Rep 383 and [2024] 2 Lloyd’s Rep 429, the Singapore courts tackled a key question: which country should handle a maritime dispute when incidents span international waters? After examining the location of the collision, existing limitation funds in China, and witness availability, the courts concluded that China was the more appropriate forum. This ruling highlights that courts will often defer to the jurisdiction with the closest ties to the incident, ensuring efficient and fair handling of cross-border maritime disputes. This approach is also relevant in Malaysia, where similar principles apply.

Read More »
17 11 月 ,2024 尚無留言

BREACH OF CONTRACT – FORCE MAJEURE – FORCE MAJEURE UNPACKED: WHEN ‘REASONABLE ENDEAVOURS’ DON’T BEND CONTRACT TERMS

The UK Supreme Court clarified the limits of force majeure clauses, ruling that “reasonable endeavours” do not require a party to accept alternative performance outside the agreed contract terms. This decision emphasizes that force majeure clauses are meant to uphold, not alter, original obligations – even in unexpected circumstances. The case serves as a reminder for businesses to define alternative options explicitly within their contracts if flexibility is desired.

Read More »
17 11 月 ,2024 尚無留言

NEGLIGENCE – MEDICAL NEGLIGENCE – HOSPITAL ACCOUNTABILITY REINFORCED: COURT UPHOLDS NON-DELEGABLE DUTY IN MEDICAL NEGLIGENCE

In a landmark ruling, the court reinforced the hospital’s non-delegable duty of care, holding that even when services are outsourced to independent contractors, the hospital remains accountable for patient welfare. This decision emphasizes that vulnerable patients, reliant on medical institutions, must be safeguarded against harm caused by third-party providers. The ruling ultimately rejected the hospital’s defense of independence for contracted consultants, underscoring a high standard of duty owed to patients.

Read More »
17 11 月 ,2024 尚無留言

CONTRACTS – CONTRACT FOR THE SALE OF GOODS FOB – REMOTENESS OF DAMAGES IN BACK-TO-BACK CONTRACTS – COURT DEFINES LIMITS ON LIABILITY

In a complex dispute involving back-to-back contracts, the court clarified the boundaries for assessing damages, emphasizing that a chain of contracts does not automatically ensure liability passes through. Although substantial losses resulted from delays and disruption, the court highlighted the importance of the remoteness of damages, noting that each contract’s unique terms ultimately limited liability. This decision emphasise the need for parties in chain contracts to carefully define indemnity and liability provisions, as damages are assessed based on foreseeability rather than simply the structure of linked agreements.

Read More »
17 11 月 ,2024 尚無留言

TORT – BREAKING CONFIDENTIALITY – COURT CRACKS DOWN ON INSIDER LEAKS AND CORPORATE CONSPIRACY

In a recent ruling on corporate confidentiality, the court held two former employees liable for disclosing sensitive business information to a competitor, deeming it a breach of both employment contracts and fiduciary duties. This case highlights the serious consequences of unauthorized sharing of proprietary data and reinforces that such disclosures can lead to substantial legal and financial repercussions, even for the receiving parties if they knowingly benefit from confidential information.

Read More »
17 11 月 ,2024 尚無留言
zh_TWZH
en_USEN ms_MYMY zh_TWZH
× 联系我们