COMPANY

LAW
ABDUL RAHIM SULEIMAN
& ANOR v. FARIDAH MD L
AZIM & ORS [2017] 1 CLJ
GROUP MEMBERS:
MIMI YAZIERAH BINTI YUNUS (A153489)
AZALEA SHARMEEN BINTI ZAIZAN (A153639)
DINI AMALINA BINTI MOHAMAD (A153768)
MAISARAH BINTI MUSTAFFA (A153509)
 FACTS OF THE CASE
8th respondent was incorporated on 4 June 1973. From 1973 until present,
the 8th respondent has changed management 13 times.

Its profits from car sales

1st appellant Economic recession, the car
soared and at the height of
(director and shareholder of its success. sales plummeted and the
the 8th respondent since 8th respondent's business
4 branches were opened deteriorated. 
1973)
within the State of Johor.

The 8th respondent's From 18 June 2007

He resigned as a director on winning streak continued onwards, the 8th respondent
19 March 1985. when between the period had not been in active car
of 1973 to 1980, business.

Ministry of International The last unqualified audited

After the incorporation of the Trade & Industry (MITI) accounts prepared were for
8th respondent, it was accorded the 8th respondent the period of 1986 and
appointed as a sole the status of a sole 1987 which reflected the
Bumiputera dealer of Honda authorised importer of true and fair view of the
vehicles for the State of Johor. Honda vehicles for the State results of the business of
of Johor. the 8th respondent.
 For 14 years, from the period of 1988 to 2002, no board meetings w
ere convened to table the 8th respondent's audited accounts nor an
nual general meetings called to pass any of the same.

The appellants, as
shareholders of the 8th
respondent, filed a After becoming a
petition at the High director of the 8th
The petition was
Court under S. 181 of respondent, the
the Companies Act allowed
first appellant
1965 to be placed as a discovered that;
director of the 8th
respondent.

i. There were no accurate audited accounts from 2002 to 2012 showing the true and fair
view of the 8th respondent;
ii. The 8th respondent’s funds were misappropriated by its directors and/or
management;
iii. The court actions to recover the misappropriated monies were not properly enforced.

The appellants filed an originating summons (‘OS’) for

leave under s. 181A of the Act to commence a derivative
action in a representative capacity on behalf of the 8th
respondent.
 High court’s decision
The learned High Court Judge, in construing s. 181A(1), (3), (4)(a) and (b) of the Act,
stated that the following four conditions had to be fulfilled cumulatively by the appellants
before the High Court could exercise its discretion to grant leave:

(a) the appellants should be a ‘complainant’ within the meaning of S. 1 81A(4)(a) and (b)
of the Act.
(b) S. 181B(2) of the Act required the appellants to give 30 days’ written notice to the
eighth respondent’s directors of their intention to apply for a leave of court under
S. 181A.
(c) the appellants must act in good faith as required by S. 181B(4)(a) of the Act ; and
(d) whether, pursuant to s. 181B(4)(b) of the Act, it appeared prima facie to be in the best

interest of the eighth respondent for leave to be granted.

The HCJ DISMISSED the appellants’ OS on the ground that despite fulfilling the 1st & 3rd conditions, the
appellants failed to satisfy the 2nd and 4th conditions.

Hence, the present appeal. The issue that arose for the court’s adjudication were whether the
appellants had satisfied the four conditions.
 ISSUES

Whether the appellants

fulfilled s. 181B(2) of the
Act that requires the
Whether the appellants
appellants to give 30 days
are complainants within
notice to the eight
the meaning of S. 181(4)(a)
respondent’s directors of
and (b) of the Act
their intention to apply for
leave of court under s.
181A of the Act

Whether, pursuant to s.
Whether the appellants
181B(4)(b) of the Act,
acted in good faith as
there is a prima facie case
required by s. 181B(4)(a) of
in the interest of the
the Act
eighth respondent
FIRST Whether the appellants are complainants within the meaning
ISSUE of S. 181(4)(a) and (b) of the Act

S.181A (4) defines ‘complainant’;

(a) a member of a company, or a person who is entitled to be registered as member of
a company;
(b) a former member of a company if the application relates to circumstances in
which the member ceased to be a member;
(c) any director of a company; or
(d) the Registrar, in case of a declared company under Part IX.

Thus, if any person falls within the definition of ‘complainant’, such person is plainly en
titled to apply for the leave of the court pursuant to s. 181B of the Act.

In this case,
(1stst appellant) Abdul Rahim bin Suleiman – director and shareholder ( 1,333 shares)
(2nd
nd appellant) Thahana Agencies Sdn Bhd– shareholder (65,333 shares)

 Both the appellants fulfil the first condition because they are both a member of
the company (shareholder).
 Whether the appellants fulfilled s. 181B(2) of the Act that requires the appellants
SECOND to give 30 days notice to the 8th respondent’s directors of their intention to apply
ISSUE for leave of court under s. 181A of the Act

(a) the non-fulfilment of the additional

requirements for such written notice under
S. 181B(2) that was put forward and imposed
Both the first and second
appellants had each sent their by the learned judge for the second condition
s. 181A written 30 days notices on
10 Oct 2013 and 29 Jan 2013 (b) second appellant’s notice dated 29 Jan 2013
respectively. was marked “without prejudice”

The fact that the appellants in

each of their s. 181A written
notice gave a 30 days notice as
required under s. 181B(2) of (c) the second appellant’s notice was superseded
the Act is not disputed.
by the second appellant’s letter dated 18 May
However, there are several
issues that arised namely; 2013; and
(d) the second appellant did not take any action
within a reasonable time after the expiry of
the 30 days written notice.
THIRD
Whether the appellants acted in good faith as required by s. 181B(4)(a) of the Act
ISSUE

Celcom (M) Bhd v Mohd Shuaib Ishak [2011]

HC in
determining Swansson v RA Pratt Properties Pty Ltd & Anor [2002]
“good faith”

Pang Yong Hock v PKS Contracts Services Pte Ltd [2004]

There was no evidence that:

• Plaintiffs (later appellants) have no honest belief in the merits of the
Derivative Suites nor any that indicate them to have filed the OS for a
collateral or ulterior purpose.
• they had abused section 181 of Companies Act for their own aims and
interests.
It was accepted by that the appellants had acted in good faith as
required under s.181B(4)(a) thereof.
FOURTH Whether, pursuant to s. 181B(4)(b) of the Act, there is a prima facie case in the
ISSUE interest of the eighth respondent
• Fraud can be prima facie proven
on balance of probabilities
d) Derivative suits
a) Derivative suits of 8th wouldn’t benefit 8th
• MAH order was personal
respondent barred by respondent
oppression petition
limitation

• conditions mentioned in c) Derivative suits barred • max amount considerably

section 29(a) and (b) of by res judicata more than appellants’ first
Limitation Act 1953 have affidavit
been met . • Contradicted learned
• “once an action is judge’s statement on
time-barred, it always credible evidence to show
remains barred” rule
applies BEST INTEREST benefit
• misconceived evidence OF 8TH e) 6th respondent & Mohd
b) 8th respondent was RESPONDENT: Nathir were adjudicated
bound by the settlement bankrupt
agreement
• learned judge were wrong
• not in the best interest. • only Mohd Nathir was a bankrupt
• no formal agreement/resolution

• 4th condition was not fulfilled is inherently fallacious.

• Evidence showed that prima facie it appears to be in the best
interest of the 8th respondent for leave to be granted
 held
The appeal was allowed, the leave was granted

The second was condition The forth condition was fulfilled

fulfilled • Evidence showed that prima facie, it
• S. 181B(2) of the Act merely requires appeared to be in the best interest of
the complainant to give 30 days notice the 8th respondent.
of the intention to apply for the leave • The appellants have also shown on the
of the court. basis of probability that the first and
• The additional requirement was not second respondents were not acting in
essential the best interest of the 8th respondent.
• This conversely proved that the
appellants were in fact acting in good
faith for the 8th respondent.
 SIGNIFICAnce OF THE
CASE
This case is useful in providing some of the procedural guidelines that must be
encountered in bringing such an action. Some of the significant are:

A complainant need only apply under 181A to bring a new action

If the suit is already concluded or pending, a complainant cannot seek to

apply for it

Section 181B stated that, a notice must be given to each of the directors
and it is not sufficient just to address it to the Board of Directors.

The application for leave is filed by way of Originating Summons (OS). The
applicant need only cite the Company itself as the sole Defendant.
 Derivative action under
company act 1965 & company act
2016

The court allows the minority member to commence derivative action against
the wrongdoer, who is in the control of the company.

The term “derivative action” can be understood as it refers to an action derived

from a right belonging to the company.
This is premised on what is known as “majority rule” and “proper plaintiff rule,
which was laid down in common law case, Foss v. Harbottle.

1st element: 2nd element:

the applicant must provide a the applicant must demonstrate that
30-day notice to the directors of he is acting in good faith and that it
his’s intention to apply to the appears prima facie to be in the best
Court. interest of the company that the
application be allowed.
 Act of 1965 Act of 2016

The common law derivative action was Whereas the S.181A of the Old Act was in
expressly preserved under S.181A(3) of pari materia with S.347 (3) of the Act of
the Act, 2016 which provides that
• “the right of any person to bring, “right of any person to bring, intervene in,
intervene in, defend or discontinue any defend or discontinue any proceedings on
proceedings on behalf of a company at behalf of a company at common law is
common law is not abrogated.” abrogated.”

The natural consequence of this abrogation is that the exceptions of

common law can no longer be relied on, unless any of such exceptions
have been codified. It would naturally means that litigants are now only
left with statutory derivative action.
• There are slight different as for definition of the complainant as such
definition could be found under section 181A itself.
• Whereas section 347 of the new act only mentions the word ‘a complainant’ without
giving definition of it.

HOWEVER

Section 345 provides that the complainant means as;

a) Member of a company or a person who is entitled to be registered

as a member of a company or
b) Former member of a company if the applicant relates to the circumstances in which
the member ceased to be a member or
c) Any director of a company
d) Registrar in the case of a company declared under section 590 for the
investigation of affairs of company at the direction of the ministers

• The new act also stated that, leave of the court is now required for every derivative
action under s.348
• This change is significant as it has been emphasised that the threshold for leave is
higher and is not on the same footing as the leave for judicial review.
 opinion
Common law derivative action
• allowed a minority shareholder to bring an action on behalf of the company in
the circumstances where the wrongdoers were in control of the company.

• Preserved the right of a shareholder to either bring a common law derivative

action or a statutory derivative action. It allowed wider options.

Company Act 2016

• Removed the common law derivative action.
• To allow a more streamlined approach. But the removal can be
disadvantageous to shareholders in two aspects.

1. The statutory derivative action requires time to obtain a court order and may
not allow for urgent interim relief.
2. There are question whether it is possible to bring a multiple derivative action as
this exists only under common law
“Multiple derivative action refers to an action brought by a shareholder of a
parent or holding company on behalf of its subsidiary company against the directors
of that subsidiary company.”
 conclusion

The court will not

interfere in the The appellants have
Court may correct the shown on the basis of
management of the
situation if the probability that the
eighth respondent if
management’s first and second
the decisions were
decision is not made respondents are not
made bona fide.
bona fide as in this acting in the best
[Howard Smith Ltd v. present case, interest of the eighth
Ampol Petroleum Ltd
respondent.
[1974]

This conversely proves that the appellants are in

fact acting in good faith for the 8th
respondent and appear prima facie to
have acted in the best interest of the 8th
respondent to recover these monies.
Under s. 181A of the Act, we are fully satisfied that all the four conditions have been
fulfilled collectively;

Condition 1 has been fulfilled as the originating summons is the

mode for leave application applicable filed in this instance.

Condition 2 has been satisfied as 30 days notices were given by

both the first and second appellants with sufficient particularity.

Condition 3, there is no express requirement that s. 181B of the Act

requires leave application to be filed within any specific time frame
after the expiry of the 30 days as such there is no breach of this
section.

Condition 4 has been fulfilled for the reasons we have alluded to

earlier.
THANK YOU