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insolvent. In Malaysia, there is no requirement for directors to take positive action to
minimize loss to creditors so they can continue to trade in order to bring the
company to liquidity without fear of liability. Hence, directors in Malaysia are less
pressured to put the company into premature liquidation compared to their UK
counterparts.
On the area of a subsidiary company acting in the interests of a parent company, the
principle of separate legal entity should be upheld and directors of each company
should act in the interest of its company. In cases the parent company has acted to
the prejudice of subsidiary’s creditors, it has long been established that in a wholly
owned subsidiary, courts will lift the corporate veil and held that the two companies
are in fact one. 11 The court has even gone further to hold that in certain
circumstances, separate legal entity does not apply and the companies should be
treated as one from the beginning. 12 In a partly owned subsidiary, courts have been
reluctant to lift the veil in the absence of clear guarantee of liability from the parent
company 13 . It is submitted that courts have dealt with the issues sufficiently and no
amendments should be made in respect of the matter. For nominee directors, they
can act in the interest of the holding provided there is no conflict of interest and the
company is not insolvent at the time or is not insolvent as a result of the act.
The concept which keeps on emerging in relation to creditors’ protection is the
company’s solvency. This is because creditors’ main concern is the likelihood of
getting paid on time and it is jeopardized if the company is insolvent. Directors too
need to be aware of when the company’s solvency status because their liability
depend on it.
11 Golden Vale Golf Range & Country Club Sdn Bhd v Hong Huat Enterprises Sdn Bhd (Airport Auto
Centre Sdn Bhd & Anor as third party) [2005] 5 MLJ 64; Hotel Jaya Puri Bhd v National Union of
Hotel, Bar & Restaurant Workers & Anor [1980] 1 MLJ 109; Law Kam Loy & Anor v Boltex Sdn
Bhd [2005] 3 CLJ 355.
12 Sunrise Sdn Bhd v First Profile (M) Sdn Bhd & Anor [1996] 3 MLJ 533; Kwan Chew Holdings Sdn
Bhd v Kwong Yik Bank Bhd [2006] 6MLJ 544.
13 JH Rayner (Mincing Lane) Ltd & Ors v Manilal & Sons (M) Sdn Bhd & Anor[1987] 1 MLJ 312.
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