SUSMA A/P BATUK @ SURESH CHANDRA v ENVI SKYVIEW SDN BHD PENCELAH MOHD ROBIEI WONG BIN ABDULLAH

Case Significance

Illustrates the good-faith and best-interests threshold for leave to bring a statutory derivative action under sections 347 and 348 of the Companies Act 2016, the court granting a minority shareholder leave to sue the alleged wrongdoers in control and ordering a partial costs indemnity from the company under section 350.

This High Court decision concerns an application by a minority shareholder for leave to commence a statutory derivative action under sections 347 and 348 of the Companies Act 2016 on behalf of a company against those alleged to control it. The applicant held a minority stake in the company, which operated a restaurant business, and alleged that a substantial sum of over RM5.5 million had been siphoned out of the company through unexplained transactions by the directors said to be the wrongdoers in control, one of whom was said to be the controlling mind of the majority corporate shareholder. Having served a notice under section 347 of her intention to bring proceedings, she applied for leave. The court restated the settled test, drawn from Dato' Seri Timor Shah Rafiq v Nautilus Tug & Towage and Celcom v Mohd Shuaib Ishak, that leave requires the applicant to act in good faith and to show that it is prima facie in the best interests of the company for leave to be granted. Good faith calls for an honest belief that a good cause of action exists with a reasonable prospect of success, assessed both subjectively and objectively, and that the application is not brought for a collateral purpose. The court held that a reasonable person would conclude that a good cause of action existed with a reasonable prospect of success, and that the applicant's admitted lack of access to the company's financial records was not unexpected and was precisely the kind of difficulty that the court's power under section 350 is designed to address; it was not a reason to deny leave. The court allowed the application, granting leave, and ordered that the applicant be partially indemnified by the company for the reasonable costs of the derivative action on specified conditions, with the company to pay the costs of the application of RM10,000. The judgment illustrates the good-faith and best-interests threshold for a statutory derivative action.