Azhar Yong & Co

LAU JICK ING v. LIM HENG SEAN @ EDDIE LIM & ANOR [2021] 8 MLJ 9, High Court (Kuala Lumpur).

Matter involving: Civil Procedure — Injunction — Interim injunction to restrain a party from presenting winding up petition.
One of two shareholder-directors of the company applied for leave to commence derivative action on the company’s behalf
against fellow miscreant shareholder-director. The miscreant shareholder-director had acted to the company’s detriment by holding up monies due to it from another company (‘SM’) which he controlled. On coming to know of application for a derivative action, miscreant shareholder-director gave co-director notice of his intention to wind up the company on the ground it was ‘just and equitable’ to do so as their relationship of mutual trust and confidence in managing the company had irretrievably broken down.
Co-director applied for Fortuna injunction to prevent winding up petition from being presented.
Whether threatened winding up petition was an abuse of process of court which had no chance of success but would instead cause irreparable harm to company as a going concern.
Whether threatened winding up was not bona fide but for the ulterior purpose of preventing the company from recovering its dues from SM.

Held, allowing the application for the interim injunction:
(1)       The plaintiff’’s application for a Fortuna injunction was allowed as D1’s proposed petition to wind up D2 not only had no prospect of success but would irreparably damage D2 as a going concern (see para 52).

(2)       The facts clearly showed that D2 was at all material times a going concern making good pre-tax net profits and therefore it was not to D1’s interest as a shareholder and director of D2 to wind up the company. D1’s threat to wind up D2—made only after the plaintiff had filed the instant OS for a derivative action — was an abuse of process of court as it was to achieve the collateral purpose of denying D2 of the commissions due to it from Sutera Matra in which D1 had a proprietary and pecuniary interest. Clearly, D1’s interest to wind up D2 was not bona fide but an afterthought (see paras 35, 38, 40 & 50–51).

(3)       D1 did not come to court with clean hands, yet he sought to invoke the equitable jurisdiction of the court to wind up D2 on ‘just and equitable’ grounds. Besides holding 50% of the shares in D2 he was also a director and shareholder of Sutera Matra which held up the payment of commissions that were payable to D2. D1 was clearly in a position of conflict of interest and was acting to D2’s detriment. It was untenable for D1 to argue that D2 would not be prejudiced if it was wound up as D2’s liquidator could pursue the claim against Sutera Matra (see paras 33–34, 36 & 39).

(4)       The court did not find any legitimate grounds for D1 to assert that the relationship between himself and the plaintiff had so completely and irretrievably broken down that they could no longer work together to manage D2 and that it was just and equitable that D2 should be wound up. Their relationship might have soured or they might be at loggerheads but to say that it was completely impossible to mend their relationship for the sake of D2 was premature (see para 42).