The High Court in a recent decision of Datuk Beh Kim Ling & Anor v. NEP Holdings(Malaysia) Bhd [2024] 1 CLJ 517 held that difficulties in complying with a Court Order are not an excuse to defy the Order and that it is no answer in a case of contempt for a director to argue that he is a sleeping director.
The Plaintiffs obtained an Inspection Order which required the Defendant company to:-
(a) open its accounting records and the accounting records of its various subsidiaries for inspection by the Plaintiffs’ Auditor at the time of commencement of the inspection and for the next 30 working days; and
(b) supply copies of its accounting records and the accounting records of itsvarious subsidiaries as set out in the Annexure to the Inspection Order to the Plaintiffs within the aforesaid timeframes. Following non-compliance with the terms of theInspection Order, the Plaintiff ssuccessfully obtained leave to initiate committal proceedings against the Defendant company, its 3 other directors and its General Manager.
The Defendant company was charged for breaching the terms of the Inspection Order in failing to:-
(a) open up the entire and complete set of the accounting records for inspection by the Auditor at the time of the commencement of the inspection. This was because the Defendant company unilaterally chose to open the accounting records in stages; and
(b) supply any copies of the accounting records listed in the Annexure to the Inspection Order. The 3 other directors and the General Manager were charged in their capacity as the officers of the Defendant company for failing to ensure the Defendant company complies with the terms of the Inspection Order.
The Contemnors argued that there were difficulties in complying with the Inspection Order for the following reasons:-
(a) most of the accounting records were old records and the format of those accounting records was distorted;
(b) the accounting records of the Defendant company’s subsidiaries in Hong Kong were kept in Hong Kong, and that there were difficulties to compile those records as Hong Kong was undergoing restricted movement control at the material time; and
(c) the audit team requested debtor ledgers, creditor ledgers, sales invoices, and supplier invoices, which comprise hundreds of thousands of documents a month and run into millions of pages. The 3rd and 4th Contemnors (directors of the Defendant company) sought to be exonerated by arguing that they were not involved in the management and day-to-day affairs and operations of the Defendant company. It was also argued by the 4th Contemnor that he was a non-executive director and that his directorship was merely an honorary position.
In rejecting the alleged difficulties in complying with the Inspection Order, the High Court accepted the Plaintiffs’ following arguments:-
(a) the Defendant company was required by S. 245(3) of the Companies Act, 2016 (“CA 2016”) to keep the accounting records particularized in the Annexure to the Inspection Order for 7 years, and those accounting records were well within this period;
(b) the Defendant company was required by S. 245(5) CA 2016 to keep in Malaysia the accounting records of its subsidiaries operating in Hong Kong;
(c) the timeframe for the Defendant company to open its entire accounting records and the timeframe for the audit team to carry out the inspection were agreed upon by parties through their respective solicitors; and
(d) the alleged difficulties in complying with the Inspection Order were not an excuse to defy it as the Inspection Order must be obeyed until and unless it is set aside or varied. The Defendant company had an available recourse to apply to the Court to vary the Inspection Order or for an extension of time for compliance since the Inspection Order granted parties liberty to apply.
The High Court also accepted the Plaintiffs’ argument that the 2ndto 4th Contemnors asdirectors of the Defendant company and the 5th Contemnor as an officer of theDefendant company were liable for contempt of Court for failing to ensure compliancewith the Inspection Order by the Defendant company. The High Court held that it is no answer in a case of contempt for a director to argue that he is not involved in the management and day-to-day affairs and operations of the company or that he is merely a nominee or a sleeping director as the law recognises that directors and officers are the human agencies responsible for the conduct of the affairs of the company. Therefore, they are liable for any breach of a Court order by the
company. The High Court referred to William Jacks & Co (M) Sdn Bhd v. Chemquip (M) Sdn Bhd & Anor [1994] 3 MLJ 40, Datuk Hong Kim Sui v. Tiu Shi Kian & Anor [1987] 1 MLJ 345, Societe Jas Hennessy & Co & Anor v. Nguang Chan (M) Sdn Bhd [2005] 4 MLJ 348, BYD Auto Industry Co Ltd v. Amdac (M) Sdn Bhd [2017] 11 MLJ 513 and Bayu Gamitan Sdn Bhd v. Mah Siew Seng & Ors [2000] 4 AMR 4351. The High Court found that all the charges against the Contemnors were proven beyond a reasonable doubt. The High Court’s decision is pending appeal to the Court of Appeal.
1. Difficulties in complying with the terms of a Court Order are not an excuse to defy the Order.
2. As a director, you can be held liable for contempt of Court for failing to ensure your company complies with the terms of a Court Order even though you are not involved in the management and day-to-day affairs and operations or are a sleeping director.
3. Every director of a company, regardless of whether he has an executive or non- executive designation, has fiduciary duties and legal responsibilities to his company as held in Ravichantiran A/L Ganesan v. Percetakan Wawasan Maju Sdn Bhd & Ors [2008] 8 MLJ 450.
4. Every director of a company is part of the alter ego of the company and therefore, he has to give his all to serve in the best interest of the company as held in Zaheran Hj Zakaria v. Redmax Sdn Bhd & Other Appeals [2016] 5 MLJ 91 and Lembaga Kumpulan Wang Simpanan Pekerja v. Adorna RMIT Sdn Bhd & 9 Ors [2003] 4 MLJ 729.
