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To date, there have been few cases of fraudulent trading which are brought before
the court despite the fact that the section has been in existence since 1965. 302
Prior to this, a liquidator may have been unwilling to take a chance by bringing
an action under fraudulent trading because there has been lack of precedent, for
example, on which standard of proof should apply under the section. A liquidator
has to act in the best interest of the company and he or she has to decide whether
it is worthwhile to pursue an action against a director, especially when fraud is
usually discovered when the company is wound up or in any other proceedings
against the company. 303 Alternatively, a liquidator may prefer to bring action
under other provisions under the Act, such as section 293 for undue preference,
where courts have given clear guidelines on the interpretation of the section.
10.6.3 Liability for Insolvent Trading under Section 303(3)
Companies Act 1965
The Malaysian section 303(3) was adopted from the Australian provision in the
Uniform Companies legislation 1961. Since then, the Australian legislation has
gone through several reforms until the current provisions were enacted in section
588G of the Corporations Act 2001. Section 303(3) can be compared to the
Australian section 592(1) of the Corporations Act 1989 since the essence of both
sections are alike. It imposes criminal liability on "an officer of the company who
was knowingly a party to the contracting of a debt who at the time of contracting
no reasonable or probable expectation of the debt being paid." 304 Like section
302 See Siow Yoon Keong v H Rosen Engineering BV [2003] 4 MLJ 569 at 578, where counsel for
the defendant noted in his submission that the case is the first case in the country under section
304(1) of the Malaysian Companies Act 1965. This case is also the first case in which the court
has given clear interpretation of section 304(1).
303 See Tang Eng Iron Works Co Ltd v Ting Ling Kiew & Anor [1990] 2 MLJ 440 where fraud
was discovered during examination of defendant in order to seek payment for an award granted
by arbitrator.
304 Section 303(3) of the Malaysian Companies Act 1965 states: “If in the course of the winding
up of a company or in any proceedings against a company, it appears that an officer of the
company who was knowingly a party to the contracting of a debt had, at the time the debt was
contracted, no reasonable or probable ground of expectation after taking into consideration to
the other liabilities, if any, of the company at the time, of the company being able to pay the
debt, the officer shall be guilty of an offence against this Act. Penalty: Imprisonment for one
year or five thousand ringgit.”
303