Unveiling The Power Of Statutory Injunctions Under Section 351 Of The Companies Act 2016

In the realm of company law, a spectrum of remedies has evolved to safeguard the interests of both the company and its members, particularly in instances where the majority engages in unfair or oppressive practices. The Companies Act 2016 (“CA 2016”) emerges as a pivotal legislative stride, introducing procedures that empower members to seek redress when confronted with oppressive or unjust actions by the controllers of a company. Among these remedies, Section 351 of the CA 2016 stands out prominently – it offers a potent avenue for members to seek injunctive relief, thereby thwarting conduct that runs afoul of the provisions within the CA 2016.

DECODING SECTION 351 OF THE CA 2016 – WHAT IS IT? WHO MAY APPLY?

Section 351 of the CA 2016 reads as follows:

“351. (1) Where a person has engaged, is engaging or intends to engage in conduct that constituted, constitutes or would constitute —

1. a contravention of this Act;
2. an attempt to contravene this Act;
3. an attempt that aids, abets, advises or procures a person to contravene this Act;
4. an attempt to induce, whether by threats, promises or otherwise, a person to contravene this Act;
5. an attempt by which any person would be in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of this Act; or
6. an attempt of conspiracy with others to contravene this Act,

the Court may, on the application of the Registrar, or of a person whose interests have been, are or would be affected by the conduct, grant an injunction, on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing.”

This section is identical to the previous Section 368A of Companies Act 1965 (“CA 1965”). Essentially, it empowers the court to grant an injunction to stop or prevent a person from engaging in any conduct which contravenes the CA. Under Section 351(2) of the CA 2016, the court may also grant an injunction to compel a person who has refused or failed to do something required by the CA, to perform that act. As such, Section 351 CA 2016 allows the court to make both prohibitive and mandatory injunctions.

Here is the catch – can just anyone invoke this provision? The short answer is no. The authority to invoke Section 351 CA 2016 is limited to two categories. It may only be initiated by (1) Registrar; or (2) by a person whose interests is either affected or would be affected by such conduct. Typically, this would be someone holding a pivotal role within the company, such as a director or shareholder.

APPLICATION OF SECTION 351 OF THE CA 2016

This segment lays down the various scenarios depicting the usage of Section 351 CA 2016. The cases aptly encapsulate the requirements that have to be fulfilled and how the court assessed each case at its discretion.

1. Application to order for delivery of documents to the Official Receiver or liquidator of the company

When delving into the requirements of statutory injunction under Section 351 of the CA 2016, a noteworthy case to examine is Wong Kien Ching v Seng Kim Huat & Anor [2018] MLJU 1910 as the Court of Appeal has laid down the requirements that must be met before an injunction can be granted.

In this instance, the respondents had successfully petitioned to wind up a company at the High Court. They filed an application seeking orders under Sections 351(1) and (4) of the CA 2016. These orders were to mandatorily order the appellant to deliver to the Official Receiver or an appointed liquidator certain documents relating to the appellant's subleases held over freehold native titles together with duplicate charges an executed discharge of charges. The orders were granted by the High Court and the appellant appealed.

The Court of Appeal held that the application for the injunction should not have been granted because no averment as to what interests of the respondents were affected, and how such interests were affected. Further, no allegation of conduct of which contravened the CA on the part of the appellants.

In dissecting the case, the Court not only highlighted the 2 distinct categories of the eligible applicants, but also underscores that the applicants need to state how the conduct of the respondent affect their interests. When that element has been established, the Court is then in the position to impose such terms as are appropriate when granting the relevant injunction. Further, the applicants are required to identify what or which specific provisions of the CA that the respondent is said to have contravened, for it is where there is contravention of the CA and not some other legislation that the reliefs under section 351 are available.

2. Application to compel the furnish of documents

In Lina Yap Ai Lin (f) v Giant Rewards Sdn Bhd & Ors [2023] 1 MLJ 113, the appellant discovered from a search of the records of the Companies Commission of Malaysia (“CCM”) that she had ceased to be a director of the company with her resignation, and that she had also ceased to be a shareholder pursuant to a voluntary transfer of all her 25,000 shares to the 3^rd respondent. The documents are not made available in the public domain of CCM. The appellant requested the company to supply all documents allegedly signed by her to relinquish her directorship and the wrongful transfer of 25,000 shares, but this was refused. Therefore, the appellant applied under S 351 of CA 2016 to compel the furnish of those documents.

The Court of Appeal held that (1) there was a contravention of Sections 591 and 593 of the CA 2016 which required the respondents to furnish true and accurate statements. The act of the respondents falls within ‘has engaged’ or ‘is engaging’ in conduct that will contravene the CA. False and misleading statements as to the appellant’s resignation and transfer amount to an offence. This is a contravention of the law within the meaning of s 351(1) of the CA 2016; (2) The appellant is a person whose interests have been affected by the refusal of the respondents to provide the documents. She has been deprived of her rights as director and shareholder in the company. Hence, the documents are required to verify their genuineness; (3) There is no other avenue for the appellant to obtain the documents other than to seek them from the respondents. The documents are not lodged with CCM, thus it cannot be said the appellant could access them by paying the prescribed fees.

This case has captured the key principles governing the application of Section 351 of CA 2016. Again, it deals with a situation where a person is alleged either to have engaged or intends to engage in conduct that contravenes the CA. In such a situation, the court is moved to grant an injunction requiring that person to do a particular act. Further, the prerequisite to show contravention is required if there is any attempt to contravene. It is only applicable where there is evidence that the provision had been contravened. It is also observed from this case that Section 351 cannot be invoked where there are other alternatives where the appellant can seek relief from.

3. Application to restrain parties from holding an extraordinary general meeting (“EGM”)

In Than Kau & Anor v Rhb Nominees (Asing) Sdn Bhd & Ors [2019] MLJU 920, the plaintiff is a substantial shareholder of the company. He filed an application pursuant to Section 351 CA 2016 for an injunction to restrain the defendants from holding an EGM pursuant to the notice of EGM.

The High Court dismissed the Plaintiff’s application and held that the Plaintiff has not satisfied the Court that there is a strong prima facie case that the EGM is invalid. The balance of convenience is also not in favour of granting the injunction as all preparations have been made to proceed with the EGM and many shareholders have filed their proxy forms to attend and vote at the EGM. There is no evidence that the Company will suffer any irreparable prejudice if the EGM is allowed to proceed.

4. Application to maintain the status quo of company until final disposal of winding up petition

The case of Tan Poh Lee v Tan Kim Choo Holdings Sdn Bhd & Anor [2018] MLJU 1750 sheds light on the application of Section 351 of the CA 2016 in maintaining the status quo of a company. In this case, the petitioner is a shareholder and director of the 1^st Respondent company. He filed a winding up petition against the company. 2^nd Respondent is another shareholder and director of company. He issued notices attempting to remove petitioner as director. Thus, the petitioner applied under Section 351 of the CA 2016 to seek for, amongst others, the respondents be prohibited from changing composition of company’s board, company secretaries, signatories of company’s bank account, maintain the status quo of the affairs and management of the Company until the final disposal of the winding-up petition.

The High Court granted the interim injunction in furtherance of the final order sought in this winding up petition to maintain the status quo of the company until the merits of this winding up petition is ventilated in a trial. Remarkably, the High Court highlighted that it is justified to invoke Section 351 because the removal of the petitioner as director and the vacation of his directorship would result in a situation where there would only be one director. Such a situation would contravene the then Section 122(1) of the CA 1965 which requires the company to have at least 2 directors.

5. Application to declare the annulment of shares and to restrain other director or shareholder from receiving distribution of assets of the company

In Lee Mun Lyn v Wong Kok Tung & Ors [2015] MLJU 1226, the plaintiff sought recourse to declare the annulment of shares and restrain the director and shareholder from receiving the distribution of company assets. Plaintiff contended that the increase in the share capital of the company is unlawful and prejudicial to her interest. There were irregularities in the new issue of shares and allotment as (1) there was a failure to convene an annual general meeting under Section 132D(1) of the CA 1965 for the issuance and (2) the non-making of an offer to existing members and the lack of consideration for the allotment. Plaintiff seek to declare the shares registered under the 1^st and 2^nd Defendant null and void and an injunction to restrain them to receive any distribution of assets of the company until disposal of this action.

The High Court ruled that under Section 132D(6) of CA 1965, any issue of shares in contravention of this section shall be void and consideration given for the shares shall be recovered accordingly. Therefore, the said violation of Section 132D(1) attracts the application of Section 351. This entitles the plaintiff to seek reliefs with a view to ensuring that the former position be restored.

THE WAY FORWARD – POTENTIAL USE OF SECTION 351 OF THE CA 2016 IN THE FUTURE

Section 351 of the CA 2016 is in pari materia with the Australian approach of Section 1324 of the Corporations Law and Section 409A of the Singapore Companies Act. Upon close examination of these parallel statutory provisions, it appears that Section 351 also extends the remedy to a broader spectrum of persons, and not just to the members or shareholders.

The phrase “a person whose interests have been, are or would be affected by the conduct which contravenes the Companies Act” has been relied on by creditors in Australia and Singapore under the equivalent of Section 351 CA 2016. This has empowered the creditors in Australia and Singapore with a direct cause of action against the company or directors. This legal framework allows a member, shareholder or creditor to restrain the directors from entering into a transaction in breach of their fiduciary duties to the company.

To glean insights from the Australian case of Allen v Atalay (1994) 12 ACLC 7, concerning an application to prevent the transfer of assets at undervalue.The Supreme Court of Victoria has asserted that a creditor with the right to prove in the liquidation of a company may be qualified as an individual whose interests are affected by a contravention. This decision has been instrumental in paving the way for the creditors to invoke the Australian statutory injunction provision. Thus, creditor in Australia are regarded as person whose interests are affected by a contravention and they have a direct cause of action against the company or directors under s 1324 of the Corporations Law.

Likewise, from a Singaporean case point of view, it has been decided by Singaporean High Court in Tang Yoke Kheng (Trading As Niklex Supply Co) v Lek Benedict And Others [2004] SGHC 84 that a creditor has locus to make the application under Section 409A of the Companies Act. Additionally, the Court has emphasised that the provisions of Section 409A of the CA are designed to achieve the purposes of the CA and not as a weapon of oppression by a frustrated judgment creditor.

The examination of the aforementioned cases in the previous segment highlights the prevalent application of Section 351 of the CA 2016 by directors and shareholders in Malaysia. Notably, there exists a nuanced difference when compared to Australia and Singapore, where the application and locus standi extend to creditors. In these jurisdictions, creditors are recognized as individuals whose interests have been, are, or would be affected by conduct contravening the Companies Act. This suggests a potential avenue for evolution in Malaysia, where Section 351 may be expansively applied in the future.

CONCLUSION

In the upshot, the landscape of Section 351 applications is poised for evolution, with the possibility of future cases initiated by the creditors of a company. Anticipating such scenarios, the court's consideration must extend beyond the immediate parties involved, encompassing broader issues – the pivotal question lies in whether the injunction sought aligns with the overarching purpose within the contemplation by the CA 2016.