COMPANY LAW: Directors - Personal liability - Whether directors of company jointly and severally liable for EPF contributions due and payable - Company under scheme of rearrangement under s. 176(1) of Companies Act 1965 - Whether s. 46 of Employees Provident Fund Act 1991 unconstitutional

PROVIDENT FUND: Arrears of contribution - Recovery of arrears of EPF contributions - Whether directors of company jointly and severally liable for EPF contributions due and payable - Company under scheme of rearrangement under s. 176(1) of Companies Act 1965 - Whether EPF officer concerned duly authorised to certify amount outstanding and to commence action - Employees Provident Fund Act 1991, ss. 46 & 64

PROVIDENT FUND: Liability of employer - Directors of company - Whether directors of company jointly and severally liable for EPF contributions due and payable - Company under scheme of rearrangement under s. 176(1) of Companies Act 1965 - Whether s. 46 of Employees Provident Fund Act 1991 unconstitutional

LEMBAGA KUMPULAN WANG SIMPANAN PEKERJA v. AZIMUDDIN AB GHANI & ORS
HIGH COURT MALAYA, KUALA LUMPUR
LEE SWEE SENG JC
[CIVIL SUIT NO: S-21-2-2006]
10 MARCH 2011

HEADNOTES

The defendants were directors of George Town Chemist Sdn Bhd ('the company') during the relevant period. The company went into financial problems and on 9 March 2005, it obtained a restraining order under s. 176(10) of the Companies Act 1965 ('Companies Act') to restrain legal action against it for a temporary period pending the approval of a scheme of rearrangement under s. 176(1) of the Companies Act. The company had failed to make Employees Provident Fund ('EPF') contributions to the tune of RM270,127 for the period from August 2004 to March 2005. The plaintiff thus claimed under an O. 14 Rules of the High Court 1980 (RHC) application for judgment to be entered against the defendants for the due and owing EPF contributions. The defendants raised the following purported triable issues: (i) that the restraining order restrained the plaintiff from proceeding against the directors of the company; (ii) that the EPF officer concerned was not duly authorised to certify the amount outstanding and to commence this action; and (iii) that Parliament has no authority to provide in effect through s. 46 of the Employees Provident Fund Act 1991 ("EPF Act") a lifting of the corporate veil and making the directors personally liable for the debts of the company.

Held (allowing plaintiff's claim with costs):

(1) Nowhere in the restraining order is the word 'directors' referred to. An action against the directors of the company cannot in any way be interfering with the restructuring of the company and more so when the restraining order made no reference to proceeding against the directors of the company. (paras 12 & 13)

(2) One Nailatul Himam had affirmed an affidavit stating that she was a senior legal officer of the plaintiff and was duly authorised to affirm the affidavit on behalf of the plaintiff. She had also exhibited a copy of the 'Instrument of Delegation of Powers'. In the absence of evidence to the contrary, a mere assertion that the said Nailatul had not been duly authorised to affirm the said affidavit and to sign the certificate referred to in s. 64 of the EPF Act was not sufficient to displace the authority of the said deponent (Tang Kwor Ham @ Tang Kwor Harn & Ors v. Lembaga Kumpulan Wang Simpanan Pekerja; refd). (paras 16 & 17)

(3) There was no merits in the argument that s. 46 of the EPF Act was unconstitutional. (para 30)

Obiter:

(1) It behoves directors of companies to ensure that at board meetings, they obtain written confirmation from the executive director and have it duly minuted that all statutory payments have been made. Failure to do so may expose all the directors, jointly and severally liable, irrespective of their involvement and interest in the company, to the full brunt of the law. (para 37)

Case(s) referred to:
Bank Negara Malaysia v. Mohd Ismail Ali Johor & Ors [1992] 1 CLJ 627; [1992] 1 CLJ (Rep) 14 SC (refd)
Cempaka Finance Bhd v. Ho Lai Ying & Anor [2006] 3 CLJ 544 FC (refd)
Lembaga Kumpulan Wang Simpanan Pekerja v. Shaharudin Omar & Ors [2008] 8 CLJ 684 HC (refd)
Ng Hee Thoong & Anor v. Public Bank Berhad [1995] 1 CLJ 609 CA (refd)
Ong Kim Chuan & Anor v. Lembaga Kumpulan Wang Simpanan Pekerja [2009] 6 CLJ 586 CA (refd)
Puah Bee Hong & Bee Hong (F) & Anor v. Pentadbir Tanah Daerah Wilayah Persekutuan Kuala Lumpur & Anor [1994] 2 CLJ 705 SC (refd)
Tang Kwor Ham & Ors v. Lembaga Kumpulan Wang Simpanan Pekerja [2005] 8 CLJ 676 HC (refd)

Legislation referred to:
Companies Act 1965, s. 176(1), (10F)
Customs Act 1967, s. 22C
Employees' Provident Fund Act 1991, ss. 14(3), 45(3), 46(1), (2), 49, 64, 65(1), (2)
Employees Social Security Act 1969, s. 108A
Rules of the High Court 1980, O. 14, O. 14A
Sales Tax Act 1972, s. 26
Service Tax Act 1975, s. 17

For the applicant/plaintiff - Shahinuddin Shariff; M/s Shahinuddin & Ranjit
For the respondents/defendants - Sivasankar Chelliah; M/s Sankar & Co

Reported by Amutha Suppayah