Introduction
On 21st April 2026, the Industrial Court published Awards No. 614/2026, 615/2026, 616/2026, 617/206, 618/2026 and 619/2026, which dismissed 6 employees’ attempt to hold Ms Shamini a/p Muthusamy (“Ms Shamini”) (a CEO, director & shareholder) personally liable for airline company Flyglobal Charter Sdn. Bhd. (“Company”)’s failure to comply with 6 of its awards with a total compensation sum of RM 2,313,100.00 for constructive dismissal.
Our firm successfully acted for Ms Shamini. There have been several Industrial Court awards & superior court decisions setting out the test on joinder of parties i.e. whether a director/shareholder of a company can be joined in Industrial Court proceedings to hold them personally liable (including the recent Court of Appeal case of Hubline Berhad v. Intan Wazlin Ab Wahab & 39 Ors (Civil Appeal No: W-01(A)-128-03/2021 and Civil Appeal No: W-01(A)-142-03/2021)).
However, these recent decisions by Industrial Court President Wan Jeffry Bin Kassim are notable as they appear to be the first to set out the governing legal principles at the substantive stage (post-joinder) on whether a director, shareholder and/or officer can be personally liable for employee’s claims against the company.
Background Facts
The 6 employees were former pilots of the Company. The Company faced financial problems resulting in the non-payment of salaries, leading to the constructive dismissal of the 6 employees. Ms Shamini was the CEO, director & shareholder of the Company at the material time.
On 9.9.2020, the Industrial Court allowed the claims for constructive dismissal, and ordered the Company to pay compensation via several Awards. The Company failed to make the payments & was faced with winding-up proceedings.
On 3.8.2022, the employees then filed a Form S complaint under Section 56(1) of the Industrial Relations Act 1967 for non-compliance with the Awards (“Non-Compliance Proceedings“).
Then, on 10.5.2023, the employees were successful in their joinder application to include Ms Shamini as the 2nd Respondent in these Non-Compliance Proceedings.
The employees’ case against Ms Shamini rested on the argument that, as CEO, director and a 25% shareholder of the Company, she was the “directing mind and will” of the Company and ought to be held jointly and severally liable for the unpaid Awards.
Court’s Findings Against The Company
The Company was unrepresented at the Non-Compliance Proceedings. The Industrial Court found the Company liable for non-compliance, and made the necessary orders.
Court’s Key Findings On Whether CEO, Director & Shareholder Personally Liable
First, the Court made an important observation that the mere inclusion of Ms Shamini as a 2nd Respondent in the joinder application does not, in itself, automatically render her jointly or severally liable to satisfy the Awards. The question of Ms Shamini’s liability can only be determined after full consideration of the merits of the Non-Compliance proceedings.
Second, the Court held that an individual (such as a CEO, director or shareholder) could only be personally liable for Awards against a company under 2 circumstances:
(1) if there are circumstances to justify the piercing of the corporate veil, such as whether the company was set up for fraudulent purposes, or to evade an existing obligation, or to facilitate an abuse of the corporate legal personality. This is in line with the doctrine of separate legal personality which has long been the bedrock principle of Malaysian company law, tracing back to the landmark House of Lords decision in Salomon v A. Salomon & Co Ltd (1897) AC 22; or
(2) if the said individual was the “directing mind” or “alter ego” of the company. This depends on the extent of the person’s involvement in the management of the company, and the position as CEO or shareholder should not, by itself, be treated as the sole or determinative factors in this regard.
On the facts, the Court ultimately found that Ms Shamini could not be regarded as the “directing mind” or “alter ego” of the Company, for the following reasons:
(1) Ms Shamini was only a 25% shareholder, and not a majority shareholder of the Company. The majority shareholder was one Ara Cemerlang Sdn. Bhd. (“Ara Cemerlang”), a fund management company in which Lembaga Tabung Haji sought to assert a stake in the Company;
(2) The Shareholders’ Agreement dated 11.10.2016 expressly provides for numerous “reserved matters” on key management decisions, which may only be made with the approval of the majority shareholder, namely Ara Cemerlang. For example:
(a) Ara Cemerlang is entitled to nominate 1 director to the Company;
(b) the quorum for meetings of the Board of Directors (“BOD“) shall be 3 directors, at least 1 of whom must be the director nominated by Ara Cemerlang;
(c) the composition and terms of reference of any executive/management committees of the Company shall be determined by the BOD;
(d) there is a list of “Board Reserved Matters” which require approval of all members of the BOD;
(e) there is a list of “Investor Reserved Matters” over which Ara Cemerlang holds veto rights;
(f) Ara Cemerlang was granted full access to the Company’s premises, records, financial statements and information; and
(g) Ara Cemelang shall be entitled to receive notice of, and attend all management review meetings of the Company
Due to the above terms in the Shareholders’ Agreement, Ms Shamini could not have been the “directing mind” of the Company, as she was required to obtain the necessary approvals from the BOD, and in particular from Ara Cemerlang as the majority shareholder, on key and material matters. All major decisions of the Company were made collectively by the BOD, with the active participation of representatives of the majority shareholder, Ara Cemerlang and not by Ms Shamini alone.
Third, on public policy grounds, the Court rejected the employees’ attempt to justify that Ms Shamini was the “directing mind” of the Company because she injected large sums of her own money to assist the Company financially in its time of distress. The Court found that doing so would “set an undesirable precedent, in that it may deter shareholders from injecting fund into companies in financial distress, for fear that such bona fide actions may subsequently be used against them to characterise them as the “directing mind” of the company”.
Conclusion
This case illustrates that non-compliance proceedings under Section 56 of the IRA 1967 present a genuine and growing risk for directors, shareholders and officers of companies that fail to satisfy Industrial Court Awards — particularly where the company has ceased operations or become financially insolvent. The joinder of individual directors and officers is an increasingly common tactic, and the exposure can be substantial.
The outcome in this case demonstrates that with the right legal framework — examining the structural constraints on authority, the terms of shareholders’ agreements, the decision-making architecture of the company, and the conduct of all relevant parties — it is possible to successfully resist such claims even where the individual concerned occupied a senior position in the company.
This decision is also consistent with the principles laid down in the above cited Court of Appeal decision of Hubline. In Hubline, in the context of a joinder application, the Court of Appeal held that the Industrial Courts cannot rely on “the guise of equitable justice or industrial equity” to dilute the separate legal personality doctrine, that the corporate veil can only be pierced in the limited circumstances discussed above & that the practice of “dragging in and foisting liability” on directors of a company, on the excuse that the company is financially insolvent, “inherently violates settled company law principles”.
Ultimately, is reassuring that the doctrine of separate legal personality, which underpins the very architecture of commerce in today’s day & age, has been upheld by the Industrial Courts (through the President of the Industrial Court in this case).
Our Mr Lim Wei Jiet & Nevyn Vinosh Venudran acted for Ms Shamini in the above proceedings.
