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defendant company. During a meeting of the board of directors of the plaintiff
company, in which the second, third, fourth and fifth defendants were present, the
auditor expressed the view that the plaintiff‟s account might not be sufficient to meet
all claims in respect of policies issued by the plaintiff.
The second, third, fourth and fifth defendants then gave an undertaking to be
responsible for any shortfall and when the sum was not enough to meet all the claims,
the plaintiff claimed from the defendant company for the shortfall. The defendant
company denied any liability. Zakaria Yatim J decided that the parent and subsidiary
companies are two separate entities and that officers of the parent company, when
giving the undertaking, are not representing the parent company, but they sit as
directors or agents of the subsidiary. Thus the parent was held not to be liable to pay
for any shortfall of the subsidiary.
The court is also reluctant to depart from the principle of separate legal entity where
the subsidiary company is partly owned by the holding company. In JH Rayner
(Mincing Lane) Ltd & Ors v Manilal & Sons (M) Sdn Bhd & Anor, 188 the plaintiffs,
who were foreign companies, claimed that the defendants were indebted to them.
The first defendant company wrote to the plaintiff admitting the debt and asking the
plaintiff not to commence any legal action within 21 days from the date of the letter.
The defendants also pledged in the same letter all the issued share capital of its
subsidiary, the second defendant, in favour of the plaintiffs. The defendant further
promised to procure the creation of a first fixed charge and floating charge over all
assets of the second defendant as security for payment of the said debts.
When the defendants failed to comply, the plaintiffs commenced an action in London
and obtained a Mareva injunction. Later, an action was filed in Kuala Lumpur and an
injunction was obtained. The defendants then applied for an order dissolving an
injunction granted against them. The second defendant argued that the plaintiff had
188 [1987] 1 MLJ 312.
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