The Raising of Lazarus

 

Kwan Will Sen discusses the decision of the High Court in Drico Ltd v Drico (Water Specialist) Sdn Bhd & Ors

 

 

Can the dead be resurrected, only to be laid to rest again?

 

That, in short, was the issue faced by the High Court in Drico Ltd v Drico (Water Specialist) Sdn Bhd & Ors [2011] 1 LNS 488.

 

On 30 August 2008, a members' resolution was passed to wind-up Drico (Water Specialist) Sdn Bhd ("DWS"). The final nail was laid on the coffin of DWS. Or so it seemed.

 

 

DRAMATIS PERSONAE

The sole petitioner in this case, Drico Ltd ("Drico"), is a company incorporated in Japan. Drico has been engaged in a wide variety of projects in Japan and overseas, including water resource development and water supply projects.

 

The first respondent, DWS, was a company incorporated in Malaysia. At all material times, Drico was the majority shareholder of DWS.

 

The second respondent, Ismail Bin Johari ("Ismail"), was a director and shareholder of DWS at the material time.

 

The third respondent, Kinoshita Masao ("Kinoshita") was also a director of DWS at the material time. Kinoshita was a long serving employee of Drico and moved to Malaysia to oversee and manage the operations of DWS in the interest of Drico.

 

The fourth respondent, Tam Kok Meng ("Tam") was purportedly appointed as the liquidator of DWS upon the passing of the members' resolution to wind-up DWS on 30 August 2008.

 

 

BACKGROUND FACTS

On or about 6 February 2008, Drico and Kinoshita entered into an agreement ("Memorandum") whereby Drico agreed to pay ¥12 million to Kinoshita in consideration of Kinoshita initiating proceedings for the voluntary winding-up of DWS.

 

As it appeared that Kinoshita did not take any steps to convene a general meeting for the voluntary winding-up of DWS, Drico filed a petition to wind-up DWS pursuant to section 218 of the Companies Act ("Act") on 7 October 2008 ("218 Petition").

 

Unbeknownst to Drico, DWS had already been allegedly wound-up voluntarily. It appeared that an extraordinary general meeting ("EGM") had been called on 30 August 2008 and that Kinoshita had purportedly been appointed as Drico's proxy to attend the EGM on its behalf. Both Ismail and Kinoshita attended the EGM and voted in favour of the resolutions for the voluntary winding-up of DWS and the appointment of Tam as liquidator of DWS ("the Relevant Resolutions").

 

It was by chance that Drico discovered the documents which indicated that DWS had purportedly been wound-up voluntarily when it conducted a company search several months after the filing of the 218 Petition.

 

The discovery of these documents provided the catalyst for Drico to file a petition under section 181 of the Act ("181 Petition") which sought, amongst others, a declaration that the Relevant Resolutions were null and void and an order that DWS be wound-up (in proper manner and in accordance with law), as opposed to the initial voluntary winding-up of DWS which Drico contended was invalid.

 

 

THE RAISING OF LAZARUS

The Court found that the notice convening the EGM was never sent to Drico. The Court held that the proof of postage showed that the notice had been posted to Kinoshita instead. Thus, Drico had no knowledge of the EGM or the resolutions to be passed at that meeting.

 

The Court was satisfied that the evidence adduced showed that Kinoshita had signed the proxy form to appoint himself as Drico's proxy. In actual fact, Drico had not authorized Kinoshita to do so. The Court held that the signing of the proxy form by Kinoshita purportedly on behalf of Drico was contrary to Note 2 of the proxy form which required an appointor which is a corporation to sign the form under its common seal or under the hand of its officer or attorney.

 

The Court accepted the petitioner's contention that the fact that Kinoshita had acted as Drico's proxy on previous occasions did not automatically authorize him to continue acting as Drico's proxy. In this respect, the Court relied on Puran Singh v Kehar Singh [1939] MLJ 71 and Veetak Enterprise Sdn Bhd v The Kuala Lumpur Finance Bhd [1985] 1 LNS 9 where it was held that there can be no estoppel against a statutory provision in an enactment which legislates on a matter of general interest.

 

The Court rejected the argument by Ismail, Kinoshita and Tam that Kinoshita had been appointed as a proxy for Drico under the Memorandum. The Court held that whilst the Memorandum contained a request by Drico for Kinoshita to convene a general meeting for purposes of winding-up DWS, Drico had not given any authority to Kinoshita to attend the meeting or to vote on its behalf.

 

The Court also rejected the respondents' contention that Kinoshita had acted as the corporate representative of Drico as they had failed to adduce any documents or evidence, such as a Certificate of Appointment of Representative envisaged under section 147(5) of the Act, to support their contention.

 

By reason of the procedural irregularities in the convening of the EGM, the Court declared the EGM to be invalid. The Court also held that in consequence, the Relevant Resolutions whereby DWS was wound-up and Tam was appointed as liquidator were also invalid.

 

Thus, DWS came back to life.

 

 

THE RETURN TO HADES

Although Drico put forward various grounds in support of its contention under the 181 Petition that Ismail, Kinoshita and Tam had acted in a manner that was oppressive to Drico and in disregard of its interest as a shareholder of DWS, the Court upheld certain of the grounds raised by Drico while rejecting several others.

 

Amongst the allegations by Drico that were dismissed by the Court was the contention that Tam by aligning himself with Ismail and Kinoshita had failed to act in an impartial manner as the liquidator of DWS and had thereby acted in a manner that was oppressive to Drico.

 

The Court also rejected several allegations by Drico that certain conduct of the respondents were oppressive of Drico and that certain payments made by DWS to Ismail and Kinoshita were unauthorized.

 

The Court was however satisfied that Drico had succeeded in establishing that the following conduct by Ismail and Kinoshita were oppressive and in disregard of Drico's interest as a shareholder in DWS:

 

(i) The purported transfer by Kinoshita on behalf of Drico of 15,000 shares in DWS to Ismail which the Court found, contrary to Kinoshita's arguments, had not been authorized by Drico;

(ii) The payment of RM450,000.00 by DWS to Ismail on 1 August 2008, purportedly as dividend, was in fact a loan made in contravention of section 133 of the Act;

(iii) The failure by Ismail and Kinoshita to disclose their interest in a company known as East Trade & Technology Sdn Bhd which entered into certain contracts with DWS had contravened section 131 of the Act and amounted to a disregard of the interest of DWS and of its shareholders;

(iv) The failure by Ismail and Kinoshita to retrieve some monies paid to DWS's solicitors, in particular, monies paid for work yet to be done was a breach of fiduciary duty and amounted to oppression;

(v) By affirming affidavits on behalf of DWS in the 218 Petition after the alleged voluntary winding-up of DWS on 30 August 2008 without informing the Court that DWS was already in voluntary liquidation and without authorization from the liquidator, Ismail had breached sections 256 and 258 of the Act and had acted with disregard to DWS's interest.

 

The Court was satisfied that the afore-mentioned conduct of Ismail and Kinoshita, taken jointly and severally, clearly indicated that the affairs of DWS had been conducted in a manner which was oppressive to the interest of Drico and wholly disregarded its interest as a shareholder of DWS.

 

In view of the fact that the Court had ruled that the purported voluntary winding-up of DWS was invalid, the Court was of the view that the appropriate remedy in the circumstances was to make an order to wind-up DWS and that it was just and equitable to do so.

 

The Court was also satisfied that there was no commercial reason to keep DWS alive as a company.

 

With that DWS was once again laid to rest.

 

 

IS THERE LIFE AFTER DEATH?

This is the first reported case in Malaysia where a company, having been wound-up voluntarily, albeit unlawfully, was resurrected only to be wound-up again.

 

A novel point in this case is that among the oppressive conduct complained of was the improper voluntary winding-up of the subject company.

 

Ismail and Kinoshita have appealed against the decision of the High Court. Similarly, Drico has filed a cross-appeal against the findings of the High Court that certain acts by the respondents were not oppressive of or in disregard of its interest. The appeals are now pending hearing.

 

Should the Court of Appeal uphold the High Court's decision to set aside the resolution purportedly passed on 30 August 2008 for the voluntary winding-up of DWS and at the same time, set aside the order made by the High Court to wind-up DWS under the 181 Petition, we could witness yet another miracle where DWS would be resurrected once again!

 

 

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