J&J Sdn. Bhd. (J&J) is a biotech company engaged in the research and development of vaccines? With the re-emergence of swine flu outbreaks, J&J plans to supply swine flu test kits and vaccines to all government hospitals in Malaysia. For this purpose, J&J Sdn. Bhd. incorporates a subsidiary company called G&G Bhd. (G&G) which owns and operates a manufacturing plant which is located in Sungai Petani. Shortly thereafter, the directors of G&G discover that the government has already signed a deal with a pharmaceutical company to supply vast quantities of flu swine vaccine to the hospitals. Thus, G&G decides to focus on other lines of business and agrees to sell the manufacturing plant to Medi Inc., which is scouting for manufacturing plants in Malaysia. A few weeks later, the Ministry of Health announces that the government plans to look for additional suppliers of the vaccine in view of the rising number of swine flu cases. Accordingly, before the sale of the manufacturing plant to Medi Inc. is completed, G&G transfers ownership of the manufacturing plant to J&J, and argues that the contract with Medi Inc. is no longer valid as G&G no longer owns the manufacturing plant. Medi Inc. wishes to take legal action against J&J and G&G to enforce the contract.

G&G later successfully secures a contract with the government and supplies the vaccine to government hospitals. However, the vaccine turns out to be unsafe due to contamination that occurs during its manufacture. Those suffering from adverse side effects due to the defective vaccine file legal action against the company. Most of the legal actions are settled out of court with monetary compensation by G&G. G&G soon is facing a serious financial problem and has insufficient funds to meet its liabilities. Its directors borrowed RM1 million from Meibank in order to overcome the difficulties even though they are aware that G&G might not be able to repay the loan. To date, no payment has been made to Meibank. G&G eventually is liquidated.

Advise Medi Inc., and Medibank on any legal actions they can take in the above situations.

QUESTION 2

Novus Sdn. Bhd is an interior design company. Its directors are Nobi, Dori, Ita, and Moon. Nobi is the managing director of the company. Together the directors hold 30% of the company shares.

Recently the directors of Novus Sdn. Bhd. discover that Lotus Bhd. is making a bid to take over Novus Sdn. Bhd. by purchasing majority shares in the company. It is rumored that Lotus Bhd. plans to remove Novus Sdn. Bhd.’s directors once it gains control of the company. Accordingly, the directors of Novus Sdn. Bhd cause the company to issue new shares to Mala, a member of the company who strongly opposes the takeover, to block Lotus Bhd.’s takeover bid. The issuance of the new shares has the effect of reducing Lotus Bhd.’s percentage of shareholding in the company.

Meanwhile, Nobi successfully negotiates a contract on behalf of Novus Sdn. Bhd. with Ace Sdn. Bhd. However, the company has recently learned that Nobi has received a commission of RM300,000 from the negotiation, which Nobi has not disclosed to the company.

Novus Sdn. Bhd. seeks your advice as to whether any of its directors have breached their duty. Advise Novus Sdn. Bhd.

QUESTION 3

In January 2017, Moverna Bhd. (Moverna) borrowed RM2 million from IM Bank and created a floating charge over all its assets and undertakings in favour of the latter as a security for the loan. The instrument creating the floating charge expressly stated that Moverna was not allowed to create any other charges upon its assets in priority to or in pari passu with the floating charge. The floating was duly registered.

A year later, Moverna critically needed more money to complete its mega project in Alor Setar. Morena received emergency funding of RM4 million from Tolong Finance. The loan was secured against the company’s office premises and warehouse by a fixed charge.

Recently, there were rumors of Moverna facing liquidation. Upon inquiry, Tolong Finance discovered that the fixed charge executed in its favor was not registered. Finance also found out that Moverna had created another fixed charge over the same office premises and warehouse, which was duly registered last year in favor of Tijar Bank as security for RM2 million loan from the bank. Tigar Bank apparently knew about the floating charge but did not know about the negative pledge in it.

Advise IM Bank, Tolong Finance, and Tijar Bank as to their respective rights in the event the assets of Moverna are insufficient to pay all parties in full in the event of winding up.

QUESTION 4

Sootera and Sateen each hold 10% of shares in Kayeen Sdn. Bhd. Batik and Soon Kit, who are the directors of the company, hold the remaining 80% shares. Sootera and Sateen allege that Batiq and Soon Kit have managed the company as if it is their own disregarding the interest of the minority shareholders. Even though the company makes a considerable profit, dividends have not been declared for the past two years. Instead, a significant portion of the profits is used to pay annual bonuses to the directors.

In addition, the company made a bad investment when the directors purchase a piece of land located near a landfill in Jitra for a price of RM1 million from Soon Kit’s brother Soon Sang. Complaints have been made to the directors, but they have gone unheeded.

Advise Sootera and Sateen on whether they can take legal action in the name of the company or seek a remedy on their own in the above situations.