AUGUST 1 — In a significant recent decision, the Federal Court of Malaysia resolved a complex legal battle involving a prominent Sarawak-based family business over the validity of shares issued in several private companies. The outcome affirms the principle that Malaysia courts can, in certain circumstances, validate share issuances even if proper approval procedures were not followed so long as it is fair and just to do so.  

The case, WTK Realty & Ors v Kathryn Ma Wai Fong & Ors, sheds light on the rights of shareholders, the responsibilities of directors, and how Malaysian courts balance formal legal requirements with real-world family and business dynamics. 

The dispute: A family affair turns contentious

The late Wong Tuong Kwong built a successful group of companies, including WTK Realty Sdn Bhd, Southwind Plantation Sdn Bhd, and Ocarina Development Sdn Bhd. When he passed away, control of the group fell to his three sons — Wong Kie Nai (“WKN”), Wong Kie Yik (“WKY”), and Wong Kie Chie (“WKC”). 

In the mid-2000s, WKN was allotted and issued millions of new shares in the 3 companies. His two brothers, WKY and WKC, did not object at the time. However, after WKN passed away in 2013, his widow and estate executor, Kathryn Ma, tried to have those shares officially registered under his estate. That’s when the dispute began.  WKY and WKC filed suits in the High Court to nullify the shares issued to WKN, claiming they were issued without the approval of shareholders, as required under section 132D (1) of the Companies Act 1965 (“CA 1965”).  They claim the issuance of the shares breached company law and internal company rules being the Articles of Association (“Articles”). Kathryn, in response, opposed the nullification suits and reciprocated by filing her own suits asking the court to validate the shares under section 63 and/or 355 of the CA 1965 despite any procedural issues. 

High Court — Strict compliance of the law required

The High Court sided with WKY and WKC, ruling that because proper shareholder approval had not been obtained in advance, the shares were invalid. The High Court found that meetings approving the share issuance had either not happened or lacked proper documentation. Kathryn’s argument — that the family had known about and accepted the shares over many years — was rejected. Her applications to validate the shares were also dismissed. 

The High Court reasoned that allowing the shares to stand would unfairly dilute the ownership of the other siblings and went against the legal requirement for prior approval under the CA 1965. 

Court of Appeal — Informal agreements may count

Kathryn appealed. The Court of Appeal reversed the decision of the High Court. 

It found that even though the proper procedures weren’t followed, the family had known about the issued shares for years and signed documents that referred to the new shareholdings. According to the Court of Appeal, this amounted to “informal assent” — in other words, the brothers had accepted the share issuance through their conduct, even if there was no formal meeting or written approval. The delay by WKC and WKY in seeking reliefs through the nullification suits, which were commenced almost six to seven years after the shares were issued to WKN connotes knowledge and acquiescence on their part.  

The court relied on the Duomatic principle, a concept from English law, which says that if all shareholders agree — even informally — their decision can be as good as a formal resolution. This is particularly applicable to family run companies as it is a distinctive hallmark of family-run companies where the affairs are frequently conducted informally and often without adhering to the formal requirements of statutes or the company’s Articles. 

Federal Court — Formal rules matter, but so does fairness

The dispute didn’t end there. WKY and WKC took the matter to the Federal Court, the apex court in Malaysia. The primary question was: Can informal agreement by the shareholders override legal requirements under the CA 1965? Or must the courts follow the law strictly?  In its judgment, the Federal Court took a middle path.  

While agreeing that the shares were not validly issued under the law, the Federal Court took a different view. It held that the Duomatic principle cannot override clear statutory requirements under the CA 1965, but the CA 1965 itself allows the court to cure procedural errors, if it is fair to do so. 

Importantly, the Federal Court held that this validation should be done under sections 63 and 355 of the CA 1965, which give judges the power to cure certain legal mistakes as long as it won’t cause serious injustice. 

In this case, the Federal Court amongst others found that: 

• WKN had paid for the shares and the companies kept the money. 
• His brothers knew about the shares for years, signed off on company accounts, and used the shares to get bank loans. 
• The delay in objecting (6-7 years) showed they had accepted the situation. 
• No one offered to return the money paid by WKN to his estate. 

Based on these factors, the court ruled that it would be unfair to nullify the shares. The share issuances were therefore validated. 

What does this mean for you? 

This case has broad lessons for Malaysian shareholders, business owners, and families who run companies together: 

1.    Follow statutory requirements — Share issuances and key decisions should always be properly approved in writing. Informality can lead to legal disputes later on. 

2.    Your conduct matters — If you know about something and benefit from it for years without objection, the court may treat that as acceptance. 

3.    The Courts can intervene — Even when procedures aren’t followed strictly, the courts have the power to cure the problem, if it’s fair and no one is unfairly prejudiced. 

4.    Time is of the essence — Delaying your objections can weaken your case. Courts may view long silence as acceptance. 

Final thoughts  

This decision reflects the maturity and flexibility of Malaysian company law, which tries to balance formal legal requirements with commercial reality and fairness. For family-run businesses, it’s a timely reminder that mixing business and personal relationships without clear documentary records can lead to bitter legal fights. 

If you’re a shareholder, director, or company owner, this case is a lesson: 

Document your decisions, know your rights, and act early when something seems wrong. 

P/S: Sections 63 and 355 of the CA 1965 have been repealed. Similar provisions are now found in sections 108 and 582 of the Companies Act 2016 respectively.  

* Justin Wee Kim Fang (Advocate & Solicitor), Partner of Messrs Justin Wee 

** This article is for informational purposes only and does not constitute legal advice. If you’re facing a similar situation, consult a qualified lawyer. 

*** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.