Introduction

Have you ever faced a situation where your company funds seemed to vanish unexpectedly, only to discover that the loss was tied to the actions of a former director who was in charge of the operation of the company and has since resigned? You were left in the dark, with no clarity on what has transpired or how the funds were utilised?

A client of the firm has encountered such a situation, and we managed to assist them in successfully obtaining the equitable remedy of account from the Malaysian court.

Brief background

Our client is an Australian company who has decided to set up a company in Malaysia with the aim of expanding its business into the Malaysian market. Our client incorporated a local entity and appointed a local director who would be fully in charge of the operation of the entity.

Fast forward 3 years, the local director resigned. After taking over the management of the Malaysian entity, our client discovered that all the company funds had disappeared. These funds were purportedly used for the company operations, yet no supporting documents were available to substantiate the usage of the alleged operational costs and expenses.

Faced with confusion and unanswered questions, our client initiated a civil action for an order to compel the former director to account for the funds received by the Malaysian entity and purportedly used for the company operations.

Remedy of account

The remedy of account is an equitable remedy. The remedy is typically useful in situations where the facts are in the peculiar knowledge of the person who is being complained about.

For instance, in our case, the former director of our client was the only one in charge of managing the company bank account. There were no supporting documents, or any proper records kept to trace back the usage of the funds in the company bank account by the former director. Our client had no information or details on the actual usage of the funds as they were exclusively within the knowledge of the former director.

In seeking the remedy of account, the complainant must prove:

1. The complainee is an accounting party; and
2. The complainant is entitled to some sum of monies from the complainee.

An accounting party

To seek a remedy of account, the parties must be in a fiduciary relationship. While the categories of fiduciary relationships are never closed, the accepted traditional category of fiduciary relationship includes employee-employer and director-company. In other words, both employees and directors are considered accounting parties.

Entitlement to the sum found due

A point to be noted is that the remedy is not for the purpose of discovery. Hence, the complainant must prove to the court that the complainant is entitled to some sum of monies from the complainee.

For instance, in our case, our client had to prove that there was mismanagement or misconduct by the former director. Due to the mismanagement and misconduct, the former director was to repay the misused funds in the local entity to our client.

The order

Ordinarily, a direction that an account to be taken may be included in the judgment given at the trial of the action. Such judgment may include directions as to the mode of taking the account and the future conduct of the action. Thereafter, the court, upon determining the exact amount owed by the complainee (i.e., accounting party), an order for payment will be given.

Conclusion

The equitable remedy of account serves as a critical tool for addressing situations where financial mismanagement leaves a company without clarity on the usage of its funds. In this case, it enabled our client to uncover the details surrounding the missing funds and hold the former director accountable for the misused funds.

The information in this article is intended only to provide general infor­mation and does not constitute any legal opinion or professional ad­vice. For further information and advice on this article and/or on any areas of Corporate and Commercial Dispute Resolution, please contact Cheah Soo Chuan at soochuan.cheah@taypartners.com.my

Cheah Soo Chuan
Partner
T: +603 2050 1987
soochuan.cheah@taypartners.com.my

Khor Wei Wen
Associate
weiwen.khor@taypartners.com.my