Johan owned and ran a radio repair
business. it was quite successful but johan was worried about the long-term
prospect because of the far-reaching changes being made in radio technology.
Johan foresaw the eventual decline of his types of business and decided that
while it was still relatively prospects, he would transfer it to a company
(specially incorporated for the purpose). 999 RM 1 share of the nominal capital
of RM 1,000 were issued to johan and one to his wife. Johan and his wife became
the director of the company and employed three mechanics. Although the business
was worth approximately RM50,000 the company agreed to buy it from Johan for
RM80,000. In exchange for the business, the company issued a debenture for
RM80,000 to Johan secured by a fixed charge on the company’s fixed assets and a
floating charge on all its other assets.
In January 1996, a fire in the workshop
caused extensive damage to the premises (which were at all material times owned
by Johan and which the company was licensed to use for the purpose of its
business). The business had to cease operation for 4 weeks resulting in a loss
of some RM10,000, and physical damage to the premises amounted to RM15,000.
Johan had effected against such risks, both to the premises and to the
business. However, when the business was sold to the company, nor did the
company effect its own insurance against such risks. The insurance company is
now refusing to pay out in respect of the loss suffered by the company from the
interruption to the business.
In January 1997, the local council
gave notice of its intention to exercise its compulsory purchase power to
expropriate the premises but offered compensation which took account only of the
fact that Johan owned the premises and refused to consider compensation for the
loss of the right to use the premises for business purposes which would result
from the expropriation.
From January to April 1997, the
business continued to decline and despite advise to the contrary of his
accountant and workforce, Johan continued to trade through the company in the
hope that it would return to solvency.
In May 1997, Johan entered into a
contract one behalf of the company, with ABC Health Products Sdn Bhd to
purchase on credit, RM100,000 worth of herbal food supplements, with a view to
reselling them at double the purchase prise. However, due to severe market
competition this venture failed.