1. ) Mr. Hamed Ahmed Al Ghazali 2. ) Mr. Abdul Latif Al Khunaini 3. ) Mr. Faisal Al Hajri 4. ) Mr. Husam Abu Ghazaleh 5. ) Mr. Ahmad Al Osaimi 6. ) Mr. Fuad Al Wohaib v Abrar Group International Sdn Bhd

Case Significance

Instructive on the boundary between the summary proof-of-debt process in a winding up and the requirement to pursue disputed fraud, fiduciary and trust claims by a properly constituted writ action with leave, and on privity in an investment-scheme collapse.

This Court of Appeal decision concerns proofs of debt filed by foreign investors against a Malaysian company that had been wound up, and the limits of proving fraud and trust claims in a liquidation. The appellants, individual investors from the Middle East, had invested in a short-term investment known as the Raya Fund through an asset-management company, on the promise of a return of capital and profit within a year. The Raya Fund was structured on a Bai Bithaman Ajil Islamic-financing basis for the purpose of enabling the asset-management company to purchase shares in a listed company from the respondent, and for the subsequent repurchase of those shares by the respondent from the asset-management company at a higher price, with an asset purchase agreement, an asset sale agreement, a trust deed and a power of attorney executed between the respondent and the asset-management company. The scheme collapsed in the wake of the 1997 to 1998 financial crisis when the respondent, the parent company of the asset manager, failed to repurchase the shares. After the appellants' proofs of debt were rejected by the liquidator, they brought High Court proceedings, which were dismissed for lack of privity of contract, the relevant agreements being between the appellants' asset manager and the respondent rather than with the respondent directly. On appeal, the Court of Appeal, comprising S. Nantha Balan, Lim Chong Fong and Ahmad Kamal bin Md Shahid JJCA, upheld the dismissal. It confirmed that claims founded on fraud, breach of fiduciary duty and trust are not capable of being proved within the proof-of-debt process in a liquidation without a prior writ action and the leave of the court, so that such contested and unliquidated claims could not be established merely by lodging proofs of debt against the wound-up company. The court accordingly dismissed the appeal with costs. The judgment is instructive on the boundary between the summary proof-of-debt process in a winding up and the need to pursue disputed fraud and trust claims by a properly constituted action.