“The dalang is more than a puppeteer. His skill makes us believe that we see a war between two great armies, but there is no war. There is only the dalang.” Grant Morrison: The Invisibles no. 5.
In Tay Keong Kok v Eastmont Sdn Bhd [2024] 7 AMR 245, the employer (Mega) owed its contractor (Eastmont) a substantial sum for works executed by the latter. It was several years after the contract between them had been mutually terminated that the contractor filed a court action against the employer for the outstanding sum. The contractor then discovered that the employer had been recently wound-up by another company, Dakota. Subsequently, the contractor also discovered that both the employer and Dakota were related companies, with common directors, shareholders, and/or ultimate controllers (para 11).
The contractor filed a fresh action in the High Court against 6 individuals, believed to be controlling both companies (para 11). The contractor claimed that the defendants carried on the business of the employer with the intention of defrauding the contractor by using Dakota to wind-up the employer in order to avoid payment of the debt owing to the contractor. In this regard, the contractor invoked section 540 of the Companies Act 2016 which provide for persons who were knowingly involved in fraudulent trading by a company to be personally responsible for the debts of that company. In addition, it was also claimed that the defendants conspired to injure the contractor by orchestrating the winding-up of the employer. See para 12.
The High Court found the defendants liable for both fraudulent trading and conspiracy, and this decision was upheld by the Court of Appeal. The core factual findings were as follows:
a) Both the employer and Dakota were ultimately controlled by the first and third defendants; the remaining defendants were their nominees and/or agents in those companies and/or their corporate shareholders (paras 143, 144, 149).
b) The defendants were aware of the debt due from the employer to the contractor (para 163).
c) The debt allegedly owing by the employer to Dakota – being the underlying basis for Dakota’s winding-up against the employer – was not regarded as genuine, arising from the failure of the defendants to adduce substantiating evidence (paras 166, 167). Even if the debt owing to Dakota was genuine, the employer was financially able to pay it and there was thus no good reason to wind-up the employer (para 169). Despite the foregoing, the employer (under the control of the defendants) allowed Dakota to obtain judgment against it and thereafter did not oppose Dakota’s petition for winding-up (paras 80, 162).
Interestingly, the ultimate controllers were not directors or shareholders of either the employer or Dakota. Instead, the link between them and those companies were through intermediate entities at the material time – (i) Dakota was wholly owned by Temasek in which the controllers were directors and shareholders; and (ii) the employer had 3 corporate shareholders and the third defendant controller was a director and shareholder of one of them (paras 141, 142). The outcome of the case demonstrates that orchestrating a shadow play behind complex corporate structures is no escape from the long arm of the law.
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