Directors, Partners and Office Bearers To be Personally Liable for their organisations’ failure in paying their Employees’ EPF

Lembaga Kumpulan Wang Simpanan Pekerja v. Adorna RMIT Sdn Bhd & 9 Others
[2003] 1 LNS 482


The High Court held that the directors of a company were to be jointly and severally liable for contributions which were due and payable by the company under the Employees Provident Fund Act 1991 ("the Act").

 

In this case, the plaintiff being the Employees Provident Fund, sued the 1st defendant for failure to remit a sum of RM303,867.00 being the aggregate of its contribution as employer and its employees' contributions, which the 1st defendant was obliged to remit to the plaintiff under sec. 43 and sec. 45 of the Act, for the period from October 1998 to July 2000.

 

The plaintiff also claimed a sum equivalent to the dividends it paid for the relevant periods by way of additional contribution and interest against the 1st defendant, pursuant to sec. 45(3) and sec. 49(1) of the Act.

 

The plaintiff contended that the 2nd to 10th defendants, being directors of the 1st defendant, were jointly and severally liable for the aforesaid sums under sec. 46 of the Act which inter alia provides as follows:-

 

"(1) Where any contributions remaining unpaid by a company, a firm or association of persons, then, notwithstanding anything to the contrary in this Act or any other written law, the directors of such company including any persons who were directors of such company during such period in which contributions were liable to be paid, or the partners of such firm, including any persons who were partners of such firm during such period in which contributions were liable to be paid, or the office bearers of such association of persons, including any persons who were office bearers of such association during such period in which contributions were liable to be paid, as the case may be, shall together with the company, firm or association, be jointly and severally liable for the contributions due and payable to the Fund.

(2) In this section the word "contribution" shall be deemed to include any dividend and interest due on any contributions."

 

Upon the application of the plaintiff, the Senior Assistant Registrar granted summary judgment against all the defendants. The 6th defendant appealed against the decision of the Senior Assistant Registrar on the following grounds:-

  • that neither he nor the 1st defendant had complied with sec. 123(4) of the Companies Act 1965 by filing the requisite statutory declaration with the Registrar of Companies and the Official Receiver before his appointment as director;
  • that he was appointed informally as a director of the 1st defendant for the sole purpose of re-negotiating a joint venture agreement between certain parties;
  • that he neither held shares nor equity in the 1st defendant;
  • that he was not involved in the day to day running of the 1st defendant nor received any remuneration from the 1st defendant;

 

The learned Judge held that the 6th defendant could not rely on his own default in complying with sec. 123(4) of the Companies Act 1965 as a defence. According to the learned Judge, if such an argument is accepted then every director will with impunity refuse to comply with the mandatory requirements of the Companies Act and set up such defaults as defences.

 

The Court also rejected the remaining arguments raised by the 6th defendant. The learned Judge held that sec. 46 is sufficient to render directors jointly and severally liable for amounts due to the plaintiff in the event that the employer, namely the 1st defendant, failed to pay such sums. According to R.K. Nathan, J:-

 

"It is a sensible section which ensures that directors owe a duty to see to it that the companies' employees' savings are protected. Directors are alter egos of a company. It is therefore not appropriate for a director to attempt to escape culpability by pleading that he is a sleeping partner or director, or a silent director or a non-active director."

The Adorna RMIT Case is a timely reminder to directors, partners and office bearers of their personal liability in the event that the companies, firms and associations in which they are directors, partners and office bearers, as the case may be, default in making the requisite contributions under the Employees Provident Fund Act.

 

 

By Chen Kah Leng ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 
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