Case update – The Court of Appeal in Tay Keong Kok & 5 Ors v Eastmont Sdn Bhd (“The Eastmont appeal”).

FACTS:

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A.????????? Eastmont’s initial claim

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• Through a letter of award (“LOA”), Eastmont was appointed by Mega Planner Jaya Sdn Bhd (“Mega Planner”) to carry out works.
• Eastmont said they have done all the works under the LOA. But, the LOA was later mutually terminated.
• Eastmont claimed Mega Planner owed them a sum of around RM12mil for the works done.
• Eastmont later sued Mega Planner for this sum. However, it discovered that Mega Planner was already wound up then.
• Mega Planner was wound up based on the request (or in legal terms, petitioned by) of Dakota Engineering.
• Because of Mega Planner’s wound-up status, Eastmont successfully obtained leave to proceed against Mega Planner and obtained a JID for RM10mil (+).

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B.????????? Dakota Engineering v Mega Planner

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• Mega Planner was wound up due to another suit by Dakota Engineering, through a JID that was obtained against Mega Planner.
• However, Eastmont later discovered that Mega Planner and Dakota Engineering are related – they had common controllers, i.e. directors and shareholders.
• The 6 appellants here (defendants in the High Court) were the directors and/or shareholders of Mega Planner and Dakota Engineering. They were the ultimate controllers of the company, at the time.

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C.?????????? Eastmont’s fight against the companies

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• Eastmont then sued the 6 directors/shareholders/controllers of Mega Planner and Dakota Engineering for fraudulent trading and conspiracy to injure.
• Specifically, for carrying Mega Planner’s business with the intention to defraud Eastmont by winding up Mega Planner, through its own company, to avoid payment of debts.

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D.????????? High court finding

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• The HC allowed Eastmont’s claims.

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ON APPEAL:

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• Parties will be referred to their respective capacities in the High Court (as above).
• The Court of Appeal has succinctly narrowed down the issue of fraudulent trading to be, at [80]:

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“…the business of Mega Planner said to have been carried on with intent to defraud the creditors of the company here (Eastmont) – was the course of conduct of the defendants (which controlled both Mega Planner and Dakota Engineering) orchestrating a judgment in default to be entered against Mega Planner and the subsequent institution of the winding up proceeding against Mega Planner, albeit filed by Dakota Engineering, and not resisted by Mega Planner, with the result that the plaintiff was denied payment of debt owing to it by Mega Planner.

• The court opined that a scheme to wind up a company, to avoid payment of debts can still fall within fraudulent trading under S540.
• So, the elements under S540 have to be proven:

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a)?? Mega Planner carried on its business with intent to defraud its creditors.

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b)?? The controllers of Mega Planner (the 6 defendants here) participated in (a) above.

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c)?? Such participation was made knowing that Mega Planner was carried on to defraud creditors.

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FINDINGS:

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• The Court of Appeal affirmed the High Court’s decision and found that the winding-up of Mega Planner, by Dakota Engineering was a “plan devised by the defendants”. And, as such, there was fraudulent trading and lawful means of conspiracy.
• This is because the 6 defendants, who were the controlling minds of Mega Planner and Dakota, all played a role in:

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a)?? Suing Mega Planner.

b)?? Deliberately causing Mega Planner not to contest the suit.

c)?? Resulting in a JID against Mega Planner.

d)?? Filing petition to wind up Mega Planner, based on the JID.

e)?? Causing Mega Planner not to resist the winding up petition.

f)??? Causing Mega Planner to be wound up; and

g)?? Depriving due payments of debts.

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• 7.????????????? The decision of the High Court was affirmed. And, the appeal was thus dismissed.

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