AURELIA JOIE THAI v MAXTER GLOVE MANUFACTURING SDN. BHD.

Case Significance

Illustrates the gatekeeping function of section 348(4) of the Companies Act 2016: the twin requirements of good faith and prima facie corporate benefit are real hurdles, and leave for a derivative action will be refused where the application is driven by personal dispute and no genuine wrongdoing against the company has been shown.

This High Court decision in the Commercial Division at Kuala Lumpur concerns an application for leave to commence a statutory derivative action, and it is notable for refusing leave. The plaintiff, a director of the company, applied under sections 347 and 348 of the Companies Act 2016 for leave to bring proceedings in the name of and on behalf of the company against the company and another director, complaining that a purchase made by the company had been carried out without proper board approval. The company was a wholly-owned subsidiary, which brought into focus the authority of its sole shareholder and the significance of a director refusing to approve a resolution that the sole shareholder supported. Section 348(4) of the Companies Act 2016 requires an applicant for leave to satisfy the court both that she is acting in good faith and that it appears prima facie to be in the best interests of the company that leave be granted. The court held that the plaintiff had failed on both counts. On good faith, there were indications that the application was motivated by personal disputes rather than a genuine concern for the corporate interest; and it did not appear prima facie to be in the best interest of the company for leave to be granted. The court also found that the plaintiff had not demonstrated any irregularity or impropriety in the accounting treatment of the impugned purchase that would warrant a derivative action. It accordingly refused leave. The judgment is a useful illustration of the gatekeeping function of section 348(4): the twin requirements of good faith and prima facie corporate benefit are real hurdles, and leave will be refused where the court is satisfied that the application is driven by a personal dispute and that no genuine wrongdoing against the company's interests has been shown, particularly in the setting of a wholly-owned subsidiary whose sole shareholder's wishes are relevant to what serves the company.