i)nWhether, and if so, what, duties have been breached by Azam and the other directors

and the remedies either under the common law or the Companies Act for the breach of
such duties.

The first issue is whether the board of directors including Azam had breach the duties
as directors.

The general rule is that a company is treated as separate legal entities under the law.
However, even so, that does not render the companies capable of executing the function on its
own due to the persona ficta. Persona ficta is a fictitious person who is created under the law.
Therefore, due to inability for companies to function on its own, the company shall be
represented by natural person as an agent of the company, namely, board of directors of the
companies. Under Section 2 of the 2016 companies act, it does not specifically define
directors, but it can be interpreted as head of organization, elected, or appointed that has the
power and duties to manage the companies.

Under Section 211, it is provided that the company shall be operated and managed
under the board and directors. However so, this is not an issue, what arises as the problem is
whether the act of the directors will bind the company or nor depends on the extent of
authorities given to the agent that represent the companies. If the directors had acted more than
the extent of power given or violate it, then the directors had breached their duties as directors.
In the case of Leonard’s Carrying Co v Asiafic Petroleum, the director negligent conduct
leading to accident at the sea was the company fault as well. Thus based on the law laid down
and referred cases, the directors are subjected to duties that need to be fulfilled in the best
interest of the company as a whole where they are expected to act in good faith and focus on
the object and purpose of the company. In the case of Foss v Harbottle, the director may act
on their own interest or abuse the power for wrong purposes and shall be regarded as breach
duties as directors and subject to liability for any loses suffered.

Under the first issue, there are three sub issue to be discussed. The first sub issue, is
whether Azam action which entered into contract of sale and purchase of RM 10 million ringgit
breached the duties as directors.

Generally, there are three type of duties imposed on directors which are Fiduciaries duties,
duties of skill, care and diligence and statutory duties. However, the question mainly concern
with the Fiduciaries duties. In the case of Board of Trustee of Sabah Foundation v Datuk
Syed Kechik, fiduciaries duties of directors works based on mutual trust and confidence. In
short, the directors must exercise bona fide duties for the benefits and interest of the company
and not of their personal interest. Under fiduciaries duties, they are several other duties that the
directors need to conform to.

The one that is related to the first issue is Duties to act in good faith and in the best
interest of the companies. It means that the director shall consider the interest of the
companies as a whole instead of their personal interest or interest of several parties within the
companies. Under Section 213(1), it is stated that the director shall exercise their power in
good faith for the right purpose and interest of the companies as a whole and in Section 214,
in order to meet the requirement of section 213, they must do as what had been provided under
this section. Under Section 214(1)(a), the director must make business judgement for proper
purpose and in good faith and Section 214(1)(d), it must be reasonably believe that the business
judgement is in the best interest of the companies. Therefore, in Re Smith v Fawvett, best
interest of the companies is question of facts which need to be answered by directors and not
based on court interpretation. Furthermore, in Mills v Mills, the court agreed that the ultimate
analysis for best interest of the company is what fair among the shareholders.

However, the director must prove that their action and judgement are for the best interest and
benefit of the companies as whole and fair to shareholders. In Intrico Pte Ltd v Multi – Pak
Singapore, the burden of proving that the directors had not acted in bona fide lies on the parties
who alleged as such.

In applying, since Azam is one of the directors, he is subjected to fiduciaries duties in

which he must act in good faith and in the best interest of the companies. Thus by virtue of
Section 213, any action that he takes or any judgement that he made bound him. Therefore, if
he had acted contrary to this, he will be liable for breach of duties as directors. Hence, by virtue
of Mills v Mills, Azam must at in the best interest and be fair to company and shareholders.
However, as per Intrico Pte Ltd, Multi – Pak Singapore, the burden of proof lies on the
company, Supershine Bhd to allege as such.

Therefore, when he had contracted to purchase a piece of land at the price of 10 million
when the real value of the land is only 5 million. It can be said that he had acted not in the best
interest of the companies and furthermore his action was not brought to the attention of the
board and because of that it may be a proof that his action is not bona fide where there might
be an intention to conceal his action from the knowledge of other directors or shareholders.
Hence, Azam action may be challenge as to him breaching the fiduciaries duties of not acting
in the best interest and bona fide action as directors to Supershine Bhd.

The second sub issue is whether Azam aztion withdrew and using RM 2 million from
the company’s funds to renovate his own house and giving the balance of the money to Basri,
Chin and Derek breached their duties as directors.

Under the second sub issue, the duties that is imposed upon directors is duties to avoid
conflict of interest. In general, the director are always subjected to personal interest and benefits
and also interest of the companies at the same time. However, in courses of executing their
duties, their personal interest shall not prevail. This is also one of the fiduciaries duties. Under
Section 214(1)(b), the directors must not have material personal interest in the subject matters
of the business judgement. Therefore, the directors must act in the best interest of companies
without conflicting between personal interest and the interest of the companies.

There are several duties in order to prevent conflict of interest. The one that is related
to second sub issue is that the directors shall not make secret profit. Under this duties, the
director shall not make secret profit without the approval from the boards of directors or misuse
the property of the company using his position as directors. Hence, during the course of
directors executing their duties, there are several restriction to this.

The first restriction that is related to the first sub issue is Director shall not take the
company property. Under Section 218(1)(a), it is provided that the directors is prohibited
from improperly using the company’s property without consent or ratification. In Voo Nyuk
Fah v Lam Yat Kheong, the court held that the defendant had breach his duty as director of
the company as he had used the company tractor’s as security in order to obtain loan for his
own business.

The second restriction that is related to second sub issue is Director shall not use his
position as directors. Under Section 218(c), it is provided that without the consent of general
meeting, director of company shall not use his capacity or position as the directors of the
company for the benefit of himself leading to detrimental effects upon the company or else be
treated to have breached fiduciaries duties. In Fur Ltd v Tornkies, the court in this case
emphasis that director shall not use his position to make secret arrangement for his own
benefits.

In applying, Azam Basri, Chin and Derek, all the directors must not have conflict of
interest between personal interest and companies interest as per Section 214(1)(b). Therefore,
all the directors must not make secret profit. Based on the first restriction that the director shall
not use the property of the companies without consent of ratification from the companies as
what had been provided in Section 218(1)(a). Thus, by virtue of Voo Fah v Lam Yat Kheong,
Azam in this question had withdraw 2 million from the companies fund for renovating and
distribute it to other directors. Furthermore, money is considered as an asset of the company
and can be either in tangible or intangible form. Hence, his act of renovating the house using
funds from the company is an act of personal interest and it amount to using the companies
properties without the consent and ratification from the companies thus violating his duties.

Secondly, based on second restriction, that the directors shall not use his position as
directors as under Section 218(c). If the act of Azam is detrimental to the companies, then he
had acted and breach the duties. As in Furs Ltd v Tornkies, where the directors should not
make secret arrangement, Azam and other directors suing the money from the company clearly
for their own benefits violate the duties. Thus Azam, Basri, Chin and Derek may be held liable
for using the company asset as secret profit for personal use and breach the duties.

The third sub issue is whether Azam and Basri action contracting contract with the
Japanese government using AB Bhd breached their duties as directors.

The third sub issue is also related to duties not to have conflict of interest and must not make
secret profit. Therefore, the third sub issue is related to the third restriction not to make secret
profit which is duty not to take or use corporate opportunities. Corporate opportunity means
taking advantage of business opportunity of the company from his position as directorship for
himself. The duties of directors is only to take corporate action for the benefits of companies
only and not personal such as contractual agreements. Even if the companies does not take
corporate opportunity, the director are still prohibited to take opportunity without the consent
of the company. In the case of Industrial Development Consultant v Cooley, the defendant
in this case had failed to disclose that the contract now had been offered to him. The court held
that he had breach his fiduciaries duties as director as the plaintiff is the one that initiated to
enter into contract with third party but the director took the rejection from third party as
opportunity to enter into contract without disclosure.

In applying, when Azam and Basri went to Japan to secure a million dollar contract,
they were acting on behalf as capacity as Supershine Bhd Directors. Therefore, any contract
that was received from the Japanese Government granted to them should belong to the
company. However, both of them hide this facts, and furthermore, they take the million dollar
contract through AB Bhd which they are the only shareholders indicate that they had intention
to make secret profit by taking corporate opportunity from Sunshine Bhd. Therefore, by virtue
of Industrial Development Consultant v Cooley, Azam and Basri may be held liable for
breach the fiduciaries duties not to make secret profit by taking corporate opportunity from
Supershine Bhd.

Lastly, the remedies that is available for the companies is first, the companies may sue
for damages or for return of specific property. In this situation, Supershine Bhd may sue for
damages for the unlawful withdrawal of RM 2 million by Azam, Basri, Chen and Derek.
Second, the company may claim profit that the director had made. Thus Superhine Bhd may
claim profit that the director had made out of the contract that was made by AB Sdn Bhd by
Azam and Basri. And lastly, the exercise of the power which in breach of directors duty may
be declared to be invalid. Hence, the act of Azam purchasing land amount to RM 10 million
may be declare as invalid.

With regard to the issue where the Supershine Bhd had ratified all of the directors
actions. Under Section 349, it is provided that if members of a company, ratify, or approve the
conduct of the subject matters of the action, 1) the ratification or approval does not prevent any
person from bring, intervening in or defending proceeding with the leave of the court 2) the
application for leave or action brought or intervened in shall not be strayed or dismissed by
reason only of the ratification or 3) approval and the court shall take into account the ratification
or approval in determining what order to make. It mean that it does not matter if Supershine
Bhd had already ratified the director’s action, the breach is still actionable in court.
Thus, it may be conclude that Azam, Basri, Derek and Chin have breach several duties
as director of Supershine Bhd and the company have the right to be remedied.
ii) Whether she could successfully challenge her removal as a director.

The issue is whether Elaine could successfully challenge her removal as director.

The provisions on the removal of directors are provided under Section 206 and 207 of
Companies Act 2016 (herein after referred to as CA 16). As for Public company, the procedure
for removal of director have to be in accordance with Section 206 of Companies Act 2016.
Section 206 provides ground to remove a director if the company dissatisfied with his
performance. In addition, Section 206(2) stated that despite of what is provided under the
company’s constitution (with regards to the removal of director) or the agreement between the
company and the director, the company still have the right to remove a director even though
before expiry term provided it is made by ordinary resolution at a meeting. In Tuan Haji Ishak
bin Ismail v Leong Hup Holdings Bhd [1996], it was held that in case of public company,
the company’s constitution cannot prevails on the removal of its director.

In removing the director, there are 3 stages involved which are before meeting, at the
meeting, and after removal.

Before the meeting with regards to the removal of the director, members who want to
remove the concerned director must serve a special notice or notice of intention as in Section
206(3) on the company at least 28 days before the meeting (Section 322). Then, under Section
207 (1), the company shall send copy of notice to the director concerned, and the director may
respond to that notice as provided in Section 207(2), and he may require his respond to be sent
to other directors (sub 3).

At the meeting, in accordance with Section 207 (4), the concerned director shall have
the right to speak and right to be heard, if the other directors fail to sent the respond to others.
Subsequently, voting on the ordinary resolution will take place, and the resolution will be
passed if it gains more than half votes of cast as provided in Section 291.

After the meeting, if the director concerned is to be removed, the concerned director
have the right for remuneration from the company under Section 227 provided that the
company follow the procedure of payment.

In application, in Elaine’s case, as the company (Supershine Bhd) is a public company,

thus the directors in Supershine Bhd who want to remove Elaine (Azam, Basri, Chin and Derek)
as director of the company must follow the procedure provided under Section 206 of the
Companies Act 2016. The directors must give special notice to the company at least 28 days
before the meeting as stated under Section 206(3) and shall send the copy of the notice to the
concerned director which is Elaine so that Elaine can respond to that notice under Section
207(2). However, in this case, as stated in the question, Elaine didn’t receive any notice from
the company with regards to her removal as director. She was removed by the board right after
she threatened to take legal action against the misconduct of the other directors. Thus this
deprived the right to be heard of Elaine under Section 207(2). The directors also not passed any
ordinary resolution under Section 206 of the CA 16. This makes the board of directors (Azam,
Basri, Chin and Derek) failed to follow the procedures stated under Section 206 of CA 16, thus
this may give rise to Elaine to challenge her removal as this removal is unlawful as it does not
in compliance with Section 206, and 207 of CA 16. However, in the case of the removal is
valid, the company may have the duty to payment for loss office to Elaine under Section 227.

As conclusion, Elaine could successfully challenge her removal as director as it does

not following the correct procedures provided under Section 206 and 207 of the CA 2016.
iii) Whether she could institute an action on behalf of the company in the event that the
other directors/members decide not to lend the name of the company to such action.

The issue is whether Elaine could take action on behalf of the company in the event that
the other directors decide not to lend the name of the company to such action.

The General rule regarding action taken towards company is that only the company
could sue if there is wrong done towards the company. This principle can be seen in the case
of Foss v Harbottle where In this case, two minority shareholders want to take action against
three directors but their action was denied as it was held that the right to sue is the company
himself and the company can only take action through the Board of Directors. In order for the
company to sue the directors, there must be a passing of resolution to take action.

By virtue of the case of Foss v Harbottle, two rules had been derived. Firstly, the
proper plaintiffs rule. This rule provided that the proper plaintiff for wrong done to the company
is the company itself because the company can be regard as an artificial legal person and is
capable of suing. The second rule is the majority rule where, if the majority of the company
decides that the company should not take any action for the wrong done to it, then there can be
no use in having litigation about it since a company may only take action if it is a decision
made by the majority of the company.

However, the exception to these rules was also laid out in the judgment of Foss v
Harbottle. An individual can take actions again the company; if the acts of the company are
acts which are ultra vires to the company constitution. Secondly, it is an Infringement of
member’s personal rights. Third, the acts requiring special Majority and lastly if there’s
existence of fraud on minority. In this current case, the most relevant to be discussed is on fraud
on minority.

Fraud on minority is actually a fraud committed against the company where minority
is directly or indirectly affected by a decision of a controlling majority. This means an abuse
of power whereby the majority secures an unfair gain at the expense of the minority In the case
of Abdul Rahim Bin Aki v Krubong Industrial Park (Melaka) Sdn Bhd, Gopal Sri Ram
made the following points in relation to fraud on minority: ‘Fraud on minority’ is a term of art
and has absolutely nothing whatsoever to do with actual fraud or deception at common law. It
is not necessary to prove dishonesty before a minority shareholder may claim relief under the
exception. It is sufficient for a plaintiff to show that the majority had abused their power vested
in them in the sense that they used their power for a collateral purpose and not for the true
purpose for which such powers were granted.

Fraud on minority has been held to have been present in the following circumstances
which are expropriation of the company’s money, property or opportunities, majority obtaining
a benefit at the expense of the company, preventing an action being brought, and expropriation
of members’ property.

In Estmanco (Kilner House) Ltd v Great London Council. In this case, the
defendant owned a block of flats. The flats were sold to tenants on long lease and were to be
managed by the plaintiff. The Defendant held majority shares in the plaintiff’s company. The
minority shares held by the tenant carried no vote. It was understood that when all units were
sold, Defendant would drop out of the picture and the tenant would managed the flat through
the plaintiff where at that point they were entitled to vote. However, Political control changed
and Defendant refused to sell. This was breach of agreement. Plaintiff brought action against
Defendant for specific performance. Therefore, in this case it can be seen that defendant was
the only shareholder entitled to vote in the company and it passed a resolution that the action
discontinued. The minority shareholder attempted to carry on the action In the name of the
company. The action was allowed by the court on the ground that there was fraud on minority.

Applying to the current situation, it can be seen that there is a fraud against minority
when the act by Azam withdrawing RM 2 Million in from the company funds is an
expropriation of the company’s money. The money was not only used by Azam to renovate his
own house but was also given to Basri, Chin and Derek. This shows that the four majority
shareholders had expropriate the company’s money. The fact that the million dollar contract
should be between the Japanese government and Supershine Bhd but was use by Basri and
Azam to AB Sdn Bhd which there were the only two shareholders show that there is
expropriation of the companies property. In addition, the fact that the other directors decide not
to lend the name of the company to take action against them may be fall under preventing an
action to be brought that also falls under fraud on minority as in case of Estmanco (Kilner
House)nLtdnvnGreatnLondonnCouncil.

As conclusion, under the exception of common law principles derived from Foss v
Harbottle, action can be taken by Elaine on behalf of the company under fraud on minority.
Note: For current position under Companies Act 2016, common law exception is not
applicable, reference should be made to Section 346.
iv) Whether Elaine could sue for remedy on grounds of oppression or alternatively to
have the company wound up.

The issue is whether Elaine could sue for remedy on grounds of oppression or
alternatively to have the company wound up.

The Companies Act 2016 provides certain statutory provision of minority shareholder.
Among them are remedies for oppressive under section 346, seeking to wind up the company
under section 465 (1) (h), seeking an injunction to restrain the company from contradicting CA
16 under section 351 (2), seeking to prevent a variation of class right under section 91, power
to appoint inspectors to investigate the affairs of the company under section 590 (1) and right
to bring statutory derivative action under Section 348.

However, for the purpose of answering this question, remedies of oppression and
winding up company will be further discussed.

Section 346(1)(a) provides that in the event that the company are being conducted or
powers of the directors are being exercised in the manner oppressive to one or more of the
members or debenture holders including himself or in disregard of his or their interests as
members, shareholders or debenture holders of the company, any member or debenture holder
of the company may apply for remedy provided that the oppression must be continuous.

On the other hand, Section 346(1)(b) provides that any member or debenture holder of
the company also may apply remedies if some act of the company has been done or is
threatened or that some resolution of the members, debentures holders or any class of them has
been passed or is proposed which unfairly discriminates against or is otherwise prejudicial to
one or more of the members or debentures holders, including himself.

Thus, the section provides for 4 grounds of protection which are oppression, disregard
of interest, discrimination and unfairly prejudicial. But, oppression will be further discussed.

CA 16 did not provides any definition for oppression for the purpose of Section 346.
Thus, references to the decided cases have to be made. The court in Scottish Cooperative Co
v Meyer [1959] AC 324 have defined oppression as conduct which is burdensome or harsh or
wrongful. The application of remedies of oppression can be seen in Re Hr Harmer Ltd [1958]
3 All ER 689 where in this case the founder of the firm gave his share to his son make him a
majority shareholder. However, the father still acted actively in the company as director to the
extend that he refuse any resolution made by other director. Thus, petition was made, and the
court held that oppression had been made out.

In addition, in Re Kong Thai Sawmill Sdn Bhd [1978] 2 MLJ 227, the court stated
that “The mere fact that one or more of those managing the company possess a majority of the
voting power and, in reliance upon that power, make a policy or executive decisions with which
the complainant does not agree, is not enough. It is only when majority rule passes over into
rule oppressive of the minority, or in disregard of their interest, that the section can be invoked.
There must be visible departure from the standards of fair dealing and a violation of the
conditions of fair play which a shareholder was entitled to expect before a case of oppression
could be made up.” Thus, from this case, it provides few guidelines as to determine whether
there is oppression is laid down. Firstly, there must be certain domination and control.
Secondly, mismanagement is not actionable (Ng Chee Keong v Ng Teong Kiat Highland
Plantations Ltd [1980] MLJ 45). Thirdly, the oppression must affect you as a member or
shareholder.

In Re Coliseum Stand Car Service Ltd [1972] 1 MLJ 109, the respondent (majority
shareholder) ran the business failed to declare dividends even though the company was
profitable, continued to receive a salary from the company although he was absent from the
country for 3 and a half years, made loans to himself and his son, and kept certain details secret
regarding the terms of the renting out of the company’s premises. The court said that this case
is a good illustration of a case that is deserving of remedy under Section 181 of the old act.

In application, in Elaine’s case, the fact that the directors (Azam, Basri, Chin and Derek)
told Elaine to not create any trouble when Elaine questioned on the breach of duties as she was
only the minority SH, giving rise to oppression as Azam, Basri, Derek and Chin as majority
SH dominate and control the company in a wrong manner and restrict Elaine which is alone
from questioning or checking their action as director. (Re Kong Thai). The oppression is clearly
shown when the director, as a result from the questioning and threat for taking legal action,
removed Elaine as the director of the company. This shows that they want to eliminate Elaine
because they did not want to be subjected to a legal action. Thus, their conduct will be
burdensome to Elaine as Elaine being removed from the company and likely have no rights in
the company when the other director said she is only minority SH. She does not have the right
to correct and protect the company. The directors using their power altogether to make Elaine
as if she has no power being a minority SH which clearly shows oppression towards minority
SH. Thus, this falls under continuous oppression under Section 346 (1) (a).

Moving on to the next remedies which is winding up.

Section 465 (1) (h) is another statutory remedy available to minority shareholders as to
petition for the company to be winding up. However, winding up of a company is a remedy of
last resort.

To ensure the petition to winding up the company is success, just and equitable ground
under Section 465 (1) (h) has to be proven. However, it is not defined in the CA 16. Thus,
references to decided cases have to be made. In Re London Country & Coal Co, where there
is no bona fide intention on the part of the controllers to manage the company in proper manner,
it is just and equitable ground to petition to wind up the company. In Tay Book Choon it was
held that the exclusion of management of minority also falls under just and equitable ground.
In Ebrahimi v Westbourne Galleries [1973] AC 360 where the mutual trust and confidence
which is the basis of the company is gone as just and equitable ground to petition for the
company to be wind up. In this case, Mr Ebrahimi and Mr Nazar were partners and there are
the sole SH. After a few years, Mr Nazar’s son come back and was appointed to the board of
directors in which Mr Ebrahimi and Mr Nazar transfer their share to him. After a falling out
between the directors Mr Nazar and son called a company meeting, at which they passed an
ordinary resolution to have Mr Ebrahimi removed as a director. Mr Ebrahimi, clearly unhappy
at this, applied to the court for a remedy to have the company wound up. It was held that based
on the personal relationship between the parties it would be inequitable to allow Mr Nazar and
his son to use their rights against Mr Ebrahimi so as to force him out of the company and so it
was just and equitable to wind it up. The company was wound up and Mr Ebrahimi received
his capital interest.

If the company is to be winding up, the consequences is provided under section 475 CA
16 in which the liquidator will liquidate the company’s assets to settle the debts of the company,
before distributing the excess among its members.

In application, with regards to Elaine, she must proved to the court on the just and
equitable ground for the company to be wound up under Section 465 (1) (h). The fact that
Azam enter into a contract of land which actually only RM 5 Million but have invest RM 10
Million (do not act on the best interest of the company), Azam had breach his fiduciary duty in
which he withdrew RM 2 Milllion of company’s funds and use it for his own house renovation,
and the balance is given to Basri, Chin and Derek for personal use, etc, shows that all the other
directors (Azam, Basri, Chin and Derek) from the first place have no bona fide intention to
manage the company in a proper manner thus, give rise to just and equitable ground for Elaine
to petition for the company to be wound up as according to the case of Re London. Apart from
that, all their misconduct also make the mutual trust and confidence which is the basis of the
company is gone on the fact that they use the company’s fund for their own interest. Thus,
according to the case of Ebrahimi, this could fall under just and equitable ground as to wound
up the company. In addition, the fact that Azam, Basri, Chin and Derek as majority shareholder
made decision without involving Elaine, it amount to exclusion of management as in case of
Tay Book Choon, thus it is also just and equitable ground to petition to wind up the company.
However, it is to be noted that this statutory remedy should be remedy of last resort.

As conclusion, Elaine may sue for remedy on the grounds of oppression under Section
346(1)(a) or alternatively to have the company wound up under Section 465 (1) (h).