SUMMIT HOTELS MANAGEMENT SDN. BHD. v 1. ) DATO' SIVAKUMARAN A/L BALAN NAIR 2. ) DATIN ALMA ZAMORANO SIVAKUMARAN NAIR 3. ) MAHENDRAN A/L BALAN 4. ) RABINDER SINGH A/L INDERJIT SINGH 5. ) RABINDER BUDIMAN & ASSOCIATES 6. ) RAJESWERI A/P PARAMASEVAM 7. ) SALVAN RAJES & ASSOCIATES

Case Significance

Illustrates the pleading discipline required for a fraudulent-trading claim under section 540 of the Companies Act 2016, the court striking out a conspiracy and fraudulent-trading suit that failed to plead any dealing with the wound-up company's assets, since winding up does not extinguish its assets and liabilities.

This High Court decision concerns applications by two law firms, individual advocates and company directors to strike out a suit brought against them, or alternatively to transfer it to the Sessions Court. The plaintiff, Summit Hotels Management Sdn Bhd, alleged that the defendants had conspired to deprive it of a judgment sum of RM91,059.33 obtained against a company, Leisurepoint Sdn Bhd, and that this amounted to fraudulent trading under section 540 of the Companies Act 2016. Its complaint was essentially that Leisurepoint had been wound up on a petition by a related company while judgment debtor summons proceedings were pending against Leisurepoint's directors, and that the directors, who were said to control both companies, had conspired with their lawyers to delay enforcement and engineer a winding up on a sham debt. The court noted that a fraudulent-trading claim under section 540 may be pursued as a separate in personam action against alleged wrongdoers, as confirmed in Tay Keong Kok v Eastmont Sdn Bhd and Chin Chee Keong v Toling Corporation, and that its ingredients had been set out by the Federal Court in Lai Fee v Wong Yu Vee. Applying those principles, the court found the plaintiff had not pleaded that the defendants dealt with or hived off any assets of Leisurepoint that could have satisfied the judgment; that omission was fatal, because winding up does not extinguish a company's assets and liabilities, and the plaintiff remained free to pursue the judgment debtor summons with leave or to use other insolvency procedures. The court added that even taking the plaintiff's case at its highest — that the company and its solicitors deliberately delayed the enforcement proceedings to engineer a sham winding up — this said nothing about any dealing with the company's assets, still less any dishonest collusion between the directors and the lawyers, and that the default judgment underlying the claim had itself been entered without any averment of available assets. Holding the action wholly speculative and obviously unsustainable, the court allowed the striking out with costs of RM10,000 for each application. The judgment illustrates the pleading discipline required for a fraudulent-trading claim under section 540.