QUESTION

Matthew owned and ran tour guide business as a sole proprietor which was quite successful. Matthew was worried about a long term prospects and wanted to expand the business. He had no idea as to the form of business that he should be expanding to. Hence he incorporated Spring Tourism Sdn. Bhd. and his business was transferred to the company. Matthew became the director and majority shareholder of the company. Although, the business was worth approximately RM100,000, the company agreed to buy it from Matthew for RM180,000 and he became the secured creditor. He appointed Emma and Mike as directors and thus the board of Directors includes Matthew, Emma and Mike.

At a recent meeting, the directors considered an offer from Nature Village Sdn. Bhd. to buy a van for RM150,000. The board of directors decided that the company should not accept the offer as it doubted that the company does not need a van at the moment. Emma then formed her own company, Eton Sdn. Bhd., which purchased the van for RM80,000. At the same meeting, the directors discussed a proposed contract with Dolphin Sdn. Bhd. to provide activities in East Malaysia. Mike owns 10% of the shares in Dolphin Sdn. Bhd., but did not reveal his interest at the board meeting.

Mike also has an arrangement with Aspen Furniture Sdn. Bhd. whereas he receives a 10% commission for all orders placed with it by Spring Tourism Sdn. Bhd. Six months ago, Spring Tourism Sdn. Bhd. renovated the office and purchased furniture from Aspen Furniture Sdn. Bhd. for RM100,000 for which Mike was also paid RM10,000 commission.

In January 2022, a fire broke out at the workplace of Spring Tourism Sdn. Bhd. and caused extensive damage to the premises (which were at all material times owned by Matthew and which the company was licensed to use for the purpose of its business). The business had to cease operating for 4 weeks resulting in a loss of some RM200,000 and physical damage to the premises amounted to RM150,000. Matthew had affected insurance against such risks, both to the premises and to the business, but when the business was sold to the company, there was no assignment of the benefit of the insurance policy to the company, nor did the company effect its own insurance against such risks. The insurance company is now refusing to pay out in respect of the loss suffered by the company from the cause of the fire.

In March 2022, the local council gave notice of its intention to exercise its compulsory purchase powers to expropriate the premises but offered compensation which took account only of the fact that Matthew owned the premises and refused to consider compensation for the loss of the right to use the premises for business purposes which would result from the expropriation. From January to March 2022, the business continued to decline and in April, the company went into liquidation with debts exceeding assets by close to RM300,000.

Whether Matthew should be held to be liable in respect of the companys debts and if he is the only secured creditor, will he get his money back?