CTG PROPERTY SDN BHD v 1. ) SULAIMAN @ MOHAMED HELMI BIN MOHD ILYAS 2. ) ADAM BIN MOHAMED ILYAS 3. ) ZAHRAH BINTI AHMAD

Case Significance

Illustrates the requirement that a substantive claim for misfeasance or fraudulent trading against directors under the Companies Act 2016 be commenced by the correct originating process rather than by an interlocutory post-winding-up notice of motion, and the limits on curing such a defect by conversion to a writ.

This High Court decision in the Commercial Division at Kuala Lumpur concerns the proper mode of commencing a claim against the directors of a company in liquidation for misfeasance and fraudulent trading. The applicant, a company in liquidation, had issued a notice of motion in the winding-up proceedings seeking declarations that its directors were guilty of misfeasance, breach of fiduciary duty, misapplication of the company's assets and fraudulent transfer of its monies, together with fraudulent trading, and orders for the refund of various sums, invoking sections 471, 472, 486(1), 536, 540, 541 and 542 of the Companies Act 2016. The relief was sought against the respondents, who were or had been directors of the company. The court's decision turned on the nature of a post-winding-up application and the correct originating process. It considered whether such a notice of motion constitutes an originating proceeding or is merely interlocutory, and the effect of the relevant practice direction. It held that a substantive claim of this kind, seeking findings of misfeasance and fraudulent trading and consequential monetary relief against directors, could not properly be pursued by a post-winding-up notice of motion, which is interlocutory in nature, and that the defect was not one that could simply be cured by converting the motion into a writ. It accordingly dismissed the notice of motion. The applicant company has appealed. The court's reasoning underscores that the choice of originating process is not a mere formality: findings of dishonesty and fraudulent trading carry serious consequences for directors and must be pursued through a process that affords them the full protections of a writ action, including pleadings and discovery, so that treating such allegations as if they could be disposed of on an interlocutory motion in the winding up would deprive the respondents of those safeguards. The judgment is a useful illustration of the requirement that a substantive misfeasance or fraudulent-trading claim be commenced by the correct originating process, and of the limits on curing a procedural defect where the wrong mode of commencement has been used.