Another corporate war: Malaysian Judiciary is put to the test

The Malaysian Judiciary and corporate sense and sensibility, according to the letters of law is in a gambit here.  In fact, the outcome could put the two world in conundrum and be  a precedent for years to come unless rectified. Malaysian Federal Government investment arm Khazanah Holdings Bhd.’s subsidiary United Engineers Malaysia Bhd. (UEM) is facing a Singapore company, which could be the landmark on how corporate games are played and business law rules in the future.

Bernama.com’s story few months back:

D-DAY FOR UEM GROUP ON JAN 11

Bernama; 5 January 2010

KUALA LUMPUR, Jan 5 — Some RM87 million is at stake for UEM Group Bhd as the government-linked company (GLC) and wholly owned subsidiary of Khazanah Nasional Bhd faces the Federal Court on Jan 11 in a fight against its former joint venture partner, Singapore’s Genisys Integrated Engineers Pte. Ltd. (GIE).

The impending case follows an appeal made by UEM against the decision of the Court of Appeal, which had on Nov 7, 2008 allowed GIE’s appeal against the High Court’s dismissal of a petition for relief and had ordered that UEM purchase the UEM Genisys Sdn Bhd (UEG) shares from GIE.In reversing an earlier High Court decision, the Court of Appeal also ordered UEM to pay GIE some RM47 million plus 8.0 per cent interest per annum from the date of the UEM petition, which was in April 2001. To date, this amount totals some RM87 million.According to corporate lawyer and strategist, Khairul Anwar, the case has attracted the attention of legal practitioners not ony from Malaysia but elsewhere as well in view of a dispute between companies from two different countries.

“The case in essence is a commercial dispute between two companies, but as it involves two countries, it is now a high profile case that has attracted the attention of many parties following the judgement made by the Court of Appeal,” he said.

United Engineers (Malaysia) Bhd, as UEM was previously known, and GIE established a joint venture company in 1993 with a view of undertaking mechanical and electrical contract works, and to this end capitalising opportunities for such work presented by amongst others the UEM group of companies.The joint venture company was called UEM Genisys Sdn Bhd (UEG) where UEM was a 51 per cent shareholder and GIE had 49 per cent of the shareholding. UEG was under the management and control of GIE with its Chief Executive Officer being Seow Boon Cheng, the controlling shareholder and director of GIE.However, things went wrong for the JV in mid-1998 and litigation commenced in 2000 and 2001 following the total breakdown in relations between UEM and GIE.In 2000, GIE commenced proceedings against UEM under section 181 of the Companies Act. This is a specific provision that empowers a High Court to make appropriate orders on a petition by a shareholder. These include ordering the company in issue to be wound up as well as to order a buy-out of the shares by the other stakeholders.In 2001, UEM in turn commenced proceedings against GIE under the same section of the Companies Act.

The case was first heard in the High Court and after 50 days of trial, it had in October 20, 2005 found in favour of UEM where the court had also ordered that UEG be wound up.

GIE then filed an appeal with the Court of Appeals and won the case.Now UEM will hear the outcome of its appeal with the Federal Court on Jan 11.

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The issue at hand is very material; RM 87 Million Is At Stake. UEM Group Bhd as the government linked company (GLC) and wholly owned subsidiary of Khazanah Nasional Berhad, faces the Federal Court 11 January 2010 in a fight against its former joint venture partner, Singapore’s Genisys Integrated Engineers Pte. Ltd. (GIE). Share valuation exercise totaling RM 47, 286, 652.79 but the Court of Appeal ordered UEM to pay interest to the rate of 8% per annum from the date of presentation of the UEM petition i.e. 13 April.2001. This is unusual because the law is clear in that interest only rises in cases involving damages and certainty not applicable in this instant case.

Then again, this is not just about the money. This is about pride, especially in perspective of the legal eagle eyes. The case has attracted the attention of many, be it law practitioners locally and abroad, analysts and academicians for it could have broad implications. While the case in essence is a commercial dispute between two companies, but the issue goes beyond that of on risk perception with regards to foreigner companies who wants to set-up joint ventures with local companies as they would be subjected to Malaysian law. As mentioned, commerce requires certainty and for commercial enterprises to flourish, the state of the law must be certain. Businesses are more usually organized as companies.

Of course, the role and impact of our judiciary system to the corporate world is being put to the test in this case. The case in point of UEM vs Genisys is a fine opportunity to appreciate the role and impact of the Malaysian Judiciary system including in how business is structured and conducted. i.e. we usually hear of the major shareholder ripping off its minor counterpart but the other way around is usually unheard off. The outcome of the UEM appeal will be of interest to many in the corporate, investment and legal circles as it is likely to have a bearing on future treatment of shareholder disputes that go to court, particularly those that rely on the Section 181 provisions.

The global corporate world is watching closely the outcome and how this case is being mitigated.  On one had  Malaysian Government has been hard campaigning for FDIs and at the point where cost of production in neighbouring countries such as Indonesia, Thailand and Vietnam are far more competitive and attractive, the selling point for doing business here is about the matured and structured corporate and business laws put in place and being practiced. According to corporate lawyer and strategist, Khairul Anwar, the case has caught the attention of legal practitioners from Malaysia, its neighbouring country Singapore and even the world.  “While the case in essence is a commercial dispute between two companies, but as it involves two countries, it is now a high profile case that has attracted the attention of many parties following the judgment made by Court of Appeal. Judgment delivered by the Court of Appeal has opened debates on the trade relationship between Malaysia and Singapore.”

There are a few stand off between Malaysian and Singaporean corporate sector still unresolved. For one, hundreds of thousand Malaysian workforce inability to withdraw their rights to the CPF forced savings the moment they no longer work in the island-state has still not been resolved. Then the thorny CLOB, which took  a long time to be untangled. This would add further test to the ‘love-hate’ competitive relationship.

Published in: on April 21, 2010 at 14:05  Comments (19)