PANG SUI JIN v CELLPRO CONSULTANCY SDN BHD

Case Significance

Illustrates the criteria for granting leave to commence a statutory derivative action under section 347 of the Companies Act 2016 — locus standi and procedural compliance, good faith, a prima facie arguable cause of action, and the company's best interests.

This High Court decision from the Commercial Division at Kuala Lumpur concerns an application for leave to commence a statutory derivative action on behalf of a company, and it applies the requirements that govern the grant of such leave. The applicant, a shareholder holding twenty per cent of the company, applied under section 347 of the Companies Act 2016 for leave to bring proceedings in the company's name against several proposed defendants, alleging breaches of fiduciary duty. The company had been incorporated with five equal shareholders, and the applicant had resigned as a director, leaving one of the proposed defendants as the sole registered director. The applicant alleged that the proposed defendants had incorporated a competing company using the company's brand, premises and equipment, diverted customer payments that should have gone to the company, transferred company funds to another entity described as a capital injection, and participated in further competing entities, amounting to self-dealing, the diversion of corporate opportunities and assets, and the misappropriation of company funds. He had served the requisite thirty-day notice under section 348(2) of the Companies Act 2016 and a supplementary notice, to which the proposed defendants responded by denying the allegations without taking remedial action; the company, under their control, contended that the application was motivated by vengeance following a counterclaim it had filed against the applicant. The court's task, following Court of Appeal authority, was principally to determine whether the application was frivolous, and to assess the statutory criteria of locus standi and procedural compliance, good faith, a prima facie cause of action with reasonable prospects of success, and whether it appeared prima facie to be in the best interests of the company that leave be granted, without determining the merits of the intended action. Satisfied that the applicant had standing and had complied with the procedural requirements, was acting in good faith, had a prima facie and arguable cause of action, and that leave prima facie served the company's best interests, and that the application was not frivolous, the court allowed the application and granted leave. The judgment is a useful illustration of the criteria for granting leave to bring a statutory derivative action under section 347 of the Companies Act 2016.