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holding company. The directors who were held liable under the section were also
the directors of the holding company and their action was found to be
inconsistent with current notions of fair trading, and constituted deceitful and
unethical practices.
The courts have adopted a wide definition of „intent to defraud‟ as in the case of
Re William C Leitch Bros Ltd 300 , and it should be noted that the reasoning used
by the judge in this case for finding intent to defraud was that „the directors must
have known that there was no reasonable prospect of the plaintiff ever receiving
payment for the purchase price‟ overlaps with the concept of insolvent trading
under section 303(3). Section 303(3) states „…, no reasonable or probable ground
of expectation… of the company being able to pay the debt,…‟. It would seem
that the difference between the two provisions is on the level of knowledge of the
person in question. In this case, the inference of directors‟ knowledge of no
reasonable prospect of the plaintiff receiving payment stems from the fact that the
company‟s physical assets and its receivables have been transferred to the
holding company.
In this case, the two directors who were found liable under section 304(1) were
also directors of the holding company. Malaysia, like UK, does not have
provisions like those in New Zealand and Australia which allow a holding
company to be liable for the debts of its subsidiaries. 301 It will be more beneficial
for creditors of a subsidiary, as in the case, to have the holding company liable
for its debts because the holding company may be in a better position to pay off
the debt compared to individual directors. If directors prove to be men of straw,
then creditors end up with nothing.
300 [1932] 2 Ch 71.
301 See section 271 and section 272 of the New Zealand Companies Act 1993 - Pooling of assets
of related company. See also discussions of section 588V of the Australian Corporations at
2001 above.
302