MRADULA A/P RAMANIK LAL v 1. ) MASER (M) SDN BHD 2. ) IBRAHIM BIN MAT SEDDEK 3. ) MOHAMMAD AZAHAN BIN MAT SEDDEK 4. ) DATO' MAT SEDDEK BIN ADAM

Case Significance

Illustrates the demanding requirements of a fraudulent-trading claim under section 540 of the Companies Act 2016: the court will not impose personal liability on directors or controllers, or disregard the company's separate legal personality, without proof of the fraudulent intent the section requires, and a creditor holding a judgment against the company must ordinarily enforce it rather than pursue those behind it.

This High Court decision in the Commercial Division at Kuala Lumpur concerns a claim of fraudulent trading brought against a company and the individuals behind it, and an attempt to make them personally liable. The plaintiff sued the first defendant company together with three individual defendants for joint and several liability to pay a sum of about RM1.74 million, or alternatively about RM1.65 million, on allegations of fraud and fraudulent trading under section 540 of the Companies Act 2016. The plaintiff's case was that the defendants had used the first defendant company as a vehicle to perpetrate a fraud, including by the issue of a post-dated cheque, and there was also an issue as to whether a loan received was in contravention of the Moneylenders Act 1951. Section 540 allows the court, where the business of a company has been carried on with intent to defraud creditors or for a fraudulent purpose, to declare those knowingly party to it personally responsible for the company's debts; but it requires the fraudulent intent to be proved, and it is not a shortcut to piercing the corporate veil. The court found that the plaintiff had not established the requirements for personal liability under section 540 against the individual defendants, and that the plaintiff's real recourse lay against the first defendant company, against which it had already obtained a judgment that it was free to execute. It accordingly dismissed the claim against the defendants with costs. Delivered by Ahmad Fairuz bin Zainol Abidin J, the judgment is a useful illustration of the demanding requirements of a fraudulent-trading claim under section 540 of the Companies Act 2016: the court will not impose personal liability on directors or controllers, or disregard the separate legal personality of the company, without proof of the fraudulent intent the section requires, and a creditor with a judgment against the company must ordinarily enforce that judgment rather than pursue those behind it.