section 216A case - Poondy Radhakrishnan v Sivapiragasam s/o Veerasingam

A new case on statutory derivative actions cocerning a company named Megatech System & Management Pte Ltd (the Company).

The plaintiffs were members of the Company.

Their allegations made against S, a director of the Company were that he had done the following illegal acts -
(a) diverted for his personal use the recruitment fees and renewal fees received from Indian workers and a recruitment agent for employment with Megatech System;
(b) improperly deducted the foreign worker levy component from the wages paid to the Malaysian workers of Megatech System and diverted that deduction for his personal use;
(c) made purported loans to Megatech System for purpose of creating an indebtedness owing by the company to himself; and
d) sold off Megatech System’s profitable security guard business contrary to the interests of the company.

The court noted that the allegations were not as this stage proven. However, the plaintiff-members had produced supporting affidavits. Unlike some earlier cases where the applications under section 216A were dismissed, here, there was reasonable evidence by persons with direct knowledge of the wrongdoing to support the allegations. Some of the allegations, if true, would expose the Company to liability to employees. Accordingly, the allegations had some semblance of merit. It should be noted that this approach is consistent with the requirement in section 216A that the action only needs to be prima facie in the interests of the company. There is thus a very low threshold in obtaining court approval.