MEGAFEST SDN BHD (DALAM LIKUIDASI) v 1. ) LIM KUI YONG 2. ) SIVANANTHAM A/L MUTHU KARPAN 3. ) LIM KWEE GEE

Case Significance

One of the three undue-preference appeals the Court of Appeal allowed in the Megafest cluster, confirming the liquidator's recovery of value transferred by voluntary settlements lacking valuable consideration and not made in good faith, the commercial-pressure exception not availing on the facts.

This Court of Appeal decision is one of the related appeals arising from the liquidation of Megafest Sdn Bhd (in liquidation) and concerns Civil Appeal No. J-02(NCvC)(W)-764-05/2023. As in the connected undue-preference appeals, the liquidator of Megafest Sdn Bhd sued to unwind “voluntary settlements said to have been made without valuable consideration and not in good faith” as against a group of respondents, who are referred to here by their procedural role.

The judgment addressed, across the whole group, “the distinct statutory requirements governing undue preference as opposed to fraudulent preference”, “whether proof of a dominant intention to prefer remains a necessary element for fraudulent preference”, “the scope of the recognised exceptions where payments are made under genuine commercial pressure to avert the imminent collapse of the company”, and “the scope of the directors' duties”. The transactions were governed by the Companies Act 1965 (“CA 1965”) and the Insolvency Act 1967 (“IA 1967”). What distinguishes this appeal within the cluster is its particular configuration of respondents and the settlement it targeted; the court's reasoning on the preference principles applied to it in common with Appeals 761 and 765.

The Court of Appeal allowed this appeal. It recorded that it was “unanimous in [its] decision to allow Appeals 765, 761, and 764 with costs fixed at RM 20,000.00 each here and below subject to payment of allocator and with interest at 5% p.a from 19.4.2023 to full realisation”.

The court's treatment of the “scope of the directors' duties” was part of the same framework, because settlements of this kind engage the duties of those who caused the company to make them. The decision is significant as one of the three undue-preference appeals the court allowed, confirming the liquidator's entitlement to recover value transferred by voluntary settlements that lacked valuable consideration and were not made in good faith, and demonstrating that the commercial-pressure exception did not save the impugned transaction on these facts. Read with the sister appeals decided in the same judgment, it forms part of a considered restatement of when pre-liquidation transfers may be unwound for the benefit of the general body of creditors.