1. ) TAN TEE HUI 2. ) Soon Siew Ling v DE FOOD CREATOR SDN BHD

Case Significance

Instructive on distinguishing a friendly loan from an equity investment for want of contemporaneous documents, on a director's fiduciary liability under section 213(1) of the Companies Act 2016 for appropriating company assets, and on the elements of conspiracy against a cheque co-signatory.

This High Court decision in the Commercial Division at Kuala Lumpur is an appeal from a Sessions Court in a dispute between a company and two of its directors over an alleged friendly loan and a counterclaim for breach of fiduciary duty. The first appellant, who was the plaintiff below and a director and shareholder of the respondent company, had claimed repayment of a friendly loan and advances said to have been made to the company for factory deposits and rental, machinery and renovation works, while the company counterclaimed against the first appellant and the second appellant, also a director and shareholder, for breach of fiduciary duties and breach of trust, relying on section 213(1) of the Companies Act 2016 and alleging the appropriation of company assets for personal benefit. The Sessions Court had dismissed the plaintiff's claim and allowed the counterclaim. The court, per Muhammad Adam @ Edward bin Abdullah JC, dismissed the first appellant's appeal but varied the orders below, and allowed the second appellant's appeal. On the loan claim, it upheld the dismissal, holding that the plaintiff had failed to prove the existence of a friendly loan as distinct from a capital contribution or investment, there being a lack of contemporaneous documentary evidence. On the counterclaim against the first appellant, it granted a declaration that he had breached his fiduciary duties and committed a breach of trust and ordered him to pay the company the sum counterclaimed with interest and costs. On the counterclaim against the second appellant, however, it allowed her appeal and dismissed the counterclaim against her, finding that the payment attributed to her constituted the full payment of her own investment and did not involve any withdrawal of company funds, and that the allegations against her, including conspiracy, which required proof of the knowledge and intent of a co-signatory of cheques, remained unproven on the balance of probabilities. The judgment is instructive on distinguishing a friendly loan from an equity investment, on a director's fiduciary liability for appropriating company assets, and on the elements of conspiracy against a co-signatory.