1. ) CHOONG YOON CHOI 2. ) FRANCIS CHOONG WEN CHUNG v 1. ) 88 RESTORAN GUO TAI SDN BHD 2. ) CHONG LEONG SHEN 3. ) YU TUA WEE 4. ) YU SZE HOU

Case Significance

Confirms that the corporate veil may be pierced to hold directors personally liable for a company's debt where, on proved facts, they have used the company as a device to evade its obligations or to perpetrate equitable fraud.

This High Court decision at Johor Bahru concerns the recovery of payment for goods sold and delivered, and the piercing of the corporate veil to hold a company's directors personally liable. The plaintiffs, seafood traders operating a trading business, had supplied seafood on a cash-on-delivery basis to the first defendant, a restaurant company, and sued to recover the outstanding payment. Because the claim against the first defendant was purely monetary, judgment in default of appearance was entered against it, and the trial then proceeded on the plaintiffs' claim that the second, third and fourth defendants — the company's directors — should be made to assume liability for the debt. The directors denied any personal indebtedness, contending that any sum owing was the responsibility of the company alone.

The court's task was to decide whether the directors could be held personally liable, which turned on whether the corporate veil should be lifted. It examined the conduct of the directors against the principles in authorities such as Ong Leong Chiou v Keller (M) Sdn Bhd and Lai Fee v Wong Yu Vee, which permit the veil to be pierced where a company is used as a device to evade legal obligations or to perpetrate fraud. Cautioning that an inference of wrongdoing must rest on proved facts rather than speculation, the court found that the directors had engaged in conduct designed to evade the obligations owed to the plaintiffs, and that there were elements of equitable fraud involved.

Having pierced the corporate veil, the court allowed the plaintiffs' claim and held the three directors jointly and severally liable to pay the company's judgment sum of RM139,756 with interest at five per cent from the date of judgment until settlement, together with costs of RM10,000. The judgment illustrates that directors who use a company to evade its obligations may be stripped of the protection of separate legal personality and made personally liable for the company's debt.