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Cases & Deals

Case update

Court of Appeal Restates Fundamental Procedural Requirements when Obtaining Leave for Derivative Proceedings
June 2024

The Court of Appeal in a recent judgment reiterates two fundamental procedural points concerning leave application for derivative proceedings (Judgment dated 10.5.2024 in Civil Appeal No. B-02(NCC)-214-02/2023 Wong Cheng Houng v Hoe Poh Lin & Anor).  

 

First, the giving of 30 days’ prior written notice to the directors in s. 348(2) of the Companies Act 2016 is a mandatory requirement for a complainant to comply with. Factually, the 1st Respondent only gave 3 days’ written notice to the directors and justified the short notice on grounds of urgency to defend the company at an impending hearing of appointment of an interim liquidator. Based on this reason, when the High Court granted leave to the 1st Respondent to defend legal proceedings on behalf of the company, it also made an order to abridge the 30 days’ notice period. The 1st Respondent’s argument that non-compliance of the notice requirement in s. 348(2) is a mere irregularity, especially in an urgent situation, did not find favour with the Court of Appeal. It was held that failure to comply with the mandatory 30 days’ notice requirement is fatal and it is not open for the Court to cure it.

 

Second, even though s. 348 does not specify that the directors of the company must be named in a leave application, it is only fair and just that the relevant directors upon whom serious allegations have been made are named so as to be given the opportunity to respond to the application by filing reply affidavits. Moreover, on the facts, the Appellant and the 1st Respondent were the only directors. The company was named as a party, but not the Appellant. The Court of Appeal held that by not naming the Appellant as a party, the 1st Respondent practically faced no resistance to the leave application since the company would not be in a position to appoint a legal representative without the 1st Respondent’s agreement.

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