FEDERAL COURT CASE: AUSPICIOUS JOURNEY SDN BHD -v- EBONY RITZ SDN BHD & ORS
The primary legal issue before the Federal Court was, namely whether liability can devolve upon directors and third parties in an oppression action under Section 181 of the Companies Act 1965 (now Section 346 of the Companies Act 2016).
The Federal Court went on to examine the jurisdiction of other Commonwealth countries (i.e. Australia, Singapore and United Kingdom) to examine the breadth of their equivalent provisions with a view of ascertaining whether the reach of their oppression provisions extends to directors of the subject company or third parties.
With a detailed consideration of the jurisprudence from other jurisdictions, the Federal Court has accorded a liberal construction to Section 181 of the Companies Act 1965 (now Section 346 of the Companies Act 2016).
The Federal Court in interpreting Section 181 of the Companies Act 1965 (now Section 346 of the Companies Act 2016) was instructive as follows:
“…it may be concluded that it is open to the courts in this jurisdiction to impose liability against directors or third parties provided there is a sufficiently close nexus between the oppressive or unfairly discriminatory conduct, or disregard of the minority’s interests or otherwise prejudicial conduct and that party. It requires something more than the mere fact of their being directors who had conduct of the affairs of the company at the material time. It requires deliberate involvement in the impugned transactions, or a sufficiently close nexus, participation or connection to warrant the imposition of liability to directors or third parties.”
The Federal Court concluded that liability can, in an appropriate case, be imposed on directors and third parties in an oppression suit brought under the Companies Act 2016 and laid down the test to establish liability against a director and/or third party.
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