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Court of Appeal provides guidance on “Piercing the Corporate Veil”

08 May 2026

In Capital City Property Sdn Bhd v Teh Swee Neo & Anor [2026] 3 MLRA 493, the Court of Appeal explained the difference between “lifting the corporate veil” and “piercing the corporate veil” and provided guidance on the requirements to be fulfilled in order to pierce a corporate veil to impose a company’s liability on another company.
 
Brief facts
 
The appellant (“2nd Defendant”) had sold commercial units in a mall built by it (“Mall”) to various purchasers who then rented out their units to the 1st Defendant pursuant to tenancy agreements entered into between the relevant purchasers and the 1st Defendant (“TAs”). The respondents (“Plaintiffs”) commenced proceedings on behalf of the unit purchasers against the Defendants jointly and severally, claiming rent which had not been paid for the 97 units pursuant to the TAs.
 
The Plaintiffs sought to impose the 1st Defendant's liability under the TAs on the 2nd Defendant. The 1st Defendant counterclaimed, seeking a declaration that the Plaintiffs had breached the TAs by failing to pay various charges due to the 2nd Defendant under the respective sale and purchase agreements (“SPAs”) and sought damages for the alleged breaches. The 2nd Defendant in turn also counterclaimed for various charges due under the SPAs.
 
Decision of the High Court
 
The learned Judicial Commissioner (“JC”) allowed the Plaintiffs’ claim and dismissed both counterclaims. The JC lifted the corporate veil of both Defendants and found them jointly liable to the Plaintiffs for the rent under the TAs. The JC found inter alia that the 1st Defendant was incorporated as the 2nd Defendant's vehicle to avoid liability to the Plaintiffs for the rent, and that the lifting of the 1st Defendant’s corporate veil was justified as the 2nd Defendant had “effective control” over the 1st Defendant.
 
The 2nd Defendant appealed to the Court of Appeal only against the JC’s finding that it was liable to the Plaintiffs for the rent under the TAs on various grounds, including in particular, that there was no evidence of fraud to justify piercing the 1st Defendant’s corporate veil and imposing liability on the 2nd Defendant for the rent due to the Plaintiffs.
 
Decision of the Court of Appeal
 
The Court of Appeal observed that by virtue of section 20 of the Companies Act 2016 (“CA 2016”), a company is a legal person in itself (“Company's Own Legal Personality”). In a group of companies (“Group (Companies)”), each company in the Group (Companies) is a legal person who is separate from the other companies in the Group (Companies).
 
Distinguishing between “lifting the corporate veil” and “piercing the corporate veil”
 
According to Wong Kian Kheong JCA, although there have been cases that use the phrase “lifting the corporate veil” interchangeably with the phrase “piercing the corporate veil”, there is in fact a distinction between the court's lifting of a company's corporate veil and its piercing. A company's corporate veil is pierced by a party when the party seeks to impose personal liability on an individual who may or may not be the company's director, shareholder or employee, whereas the Court lifts the corporate veil of a company to ascertain the true factual position without imposing any personal liability on a particular individual (Chanel v Melwani2 International Sdn Bhd & Ors And Other Cases [2017] 6 MLRH 175 (“Chanel”)).
 
In the instant appeal, it was the Court of Appeal’s view that the JC should have pierced (and not merely lifted) the 1st Defendant’s corporate veil to impose the 1st Defendant’s liability under the TAs on the 2nd Defendant.
 
Piercing the corporate veil to impose liability on an individual or on another company
 
The Court of Appeal said that the Court has a discretion to pierce a company's corporate veil to impose the company's liability on individual(s) (“Court's Piercing of Corporate Veil (Liability on Individual”) (Ong Leong Chiou & Anor v Keller (M) Sdn Bhd & Ors [2021] 4 MLRA 211, FC) or to pierce a company’s corporate veil to impose that company's liability on another company (“Court's Piercing of One Company's Corporate Veil (Liability on Another Company)”) (SPM Energy Sdn Bhd & Anor v Multi-Discovery Sdn Bhd [2025] 3 MLRA 744 (CA) (“SPM Energy”)).
 
Requirements for Court’s Piercing Corporate Veil (Liability on Individual)
 
Referring to SPM Energy, the Court of Appeal made the following observations in relation to the Court’s Piercing of Corporate Veil (Liability on Individual): 
  1. in view of the General Rule (Separate Corporate Persons) premised on the Company’s Own Legal Personality and Company’s Limited Liability, the Court’s Piercing of Corporate Veil (Liability on Individual) should not be invoked as a matter of general application but should only be exercised in the following exceptional circumstances: 
(a)
there is proof of:
  1. actual fraud; or
  2. equitable/constructive fraud; and
(b)
in accordance with the “Evasion Principle”, the court imposes liability on an individual (“Y”) for the liability incurred by X Company (“X Company”) when:
  1. Y is X Company’s “alter ego”;
  2. Y is the “directing mind and will” of X Company; and/or
  3. Y controls X Company.
  1. by way of the Court’s Piercing of Corporate Veil (Liability on Individual), in accordance with the Evasion Principle, justice is attained by ensuring that Y’s personal liability for X Company’s liability, is not evaded; and 
  2. in the absence of actual fraud or equitable/ constructive fraud, the Court’s Piercing of Corporate Veil (Liability on Individual) cannot be exercised merely in the interest of justice because such a wide application of the Court’s Piercing of Corporate Veil (Liability on Individual) will undermine the General Rule (Separate Corporate Persons). 
Requirements for Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company)
 
Referring to ARL Associates Sdn Bhd & Ors v Bank Kerjasama Rakyat Malaysia Berhad [2013] 3 MLRA 370 (CA) (“ARL Resources”) and SPM Energy, the Court of Appeal expressed the following views on the Court’s Piercing of One Company’s (i.e. “X Company”) Corporate Veil (Liability on Another Company (i.e. “Z Company”):
 
  1. a Group (Companies) has a right to arrange its corporate affairs among the member companies of the Group (Companies) in any manner so as to avoid future legal liability provided that such corporate arrangement:
(a) does not involve any actual or potential illegality; or
(b) is not intended to deprive any person of that person’s existing right(s) (not future right(s),
(“Right of Corporate Arrangement (Group of Companies)”);
  1. in view of:
(a) a Company’s Own Legal Personality;
(b) the fact that each member company in the Group (Companies) has a legal personality which is distinct from the other member companies in the Group (Companies); and
(c) the Right of Corporate Arrangement (Group of Companies),
the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) can only be invoked if a party applying to invoke the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) can discharge the legal and evidential burden under sections 101(1), 101(2) and 1021 of the Evidence Act 1950 to prove on a balance of probabilities one of the following two sets of exceptional or special circumstances (“2 Exceptions”):
  1. actual fraud had been committed (“Actual Fraud Exception”); or
  2. there existed equitable fraud or constructive fraud (“Equitable/ Constructive Fraud Exception”). 
The Court of Appeal further explained that:
  1. “actual fraud” implies a wilful act, on the part of one, whereby another is sought to be deprived by unjustifiable means, of what he is entitled (PJTV Denson (M) Sdn Bhd & Ors v Roxy (Malaysia) Sdn Bhd [1980] 1 MLRA 562); and
  2. “equitable or constructive fraud” refers to unmeritorious and unconscionable conduct (Rasiah Munusamy v Lim Tan & Sons Sdn Bhd [1985] 1 MLRA 150 (SC)).   
Justice Wong Kian Kheong, citing Takako Sakao v Ng Pek Yuen & Anor [2009] 3 MLR 74 (FC), added that a non-exhaustive list of situations that have been treated as species of equitable fraud include:
  1. misrepresentation by persons under an obligation to exercise skill and discharge reliance and trust (e.g. in fiduciary relationships), and inducements to contract or otherwise for the representee to act to his detriment in reliance on the representation;
  2. the use of power to procure a bargain or gift, resulting in disadvantage to the other party;
  3. conflict of interest against a duty arising from a fiduciary relationship; and
  4. agreements which are bona fide between the parties but in fraud of third persons;
  1. when the 2 Exceptions apply, the following circumstances are inevitably present:
  1. there was an evasion of liability by one member company of the Group (Companies) (“Evasion (Liability)”);
  2. there was an abuse of the corporate personality by one member company of the Group (Companies) (“Abuse (Corporate Personality)”);
  3. there existed special or exceptional circumstances (“Special/ Exceptional Circumstances”);
  4. it was in the interest of justice for the court to apply the 2 Exceptions (“Circumstances (Interest of Justice)”); and/or
  5. the company which had incurred liability would be controlled by the company which had sought to evade liability (“Control of One Company by Another Company”);             
  1. when the 2 Exceptions do not apply, the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) cannot be invoked even if one or more of the circumstances referred to in sub-paragraphs (a) to (e) of paragraph 3 is/are present. According to the Court of Appeal, the application of the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) without the presence of the 2 Exceptions will undermine the following three fundamental aspects of Malaysian company law:
  1. a Company’s Own Legal Personality as provided in section 20 of the CA 2016;
  2. each member company in the Group (Companies) having its own legal personality which is distinct from the other member companies in the Group (Companies); and
  3. the Right of Corporate Arrangement (Group of Companies);
  1. When the 2 Exceptions do not apply, the mere fact that one company controls, manages and/or directs another company, in itself, cannot be a basis for the application of the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) for the reasons stated in sub-paragraphs (a) to (c) of paragraph 4 above. Further, the learned Court of Appeal Judge added that in a Group (Companies), it is neither uncommon nor sinister for a holding company to control, manage and/or direct its subsidiary. 
Is the Court’s power to lift or pierce a company’s corporate veil a cause of action in itself ?
 
The Court of Appeal reiterated the views expressed by the High Court in Chanel that the court’s discretionary power to lift or pierce a company’s corporate veil, is not a cause of action in itself.
 
Whether the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) could be invoked in this case
 
The Court of Appeal then considered following issues to determine whether the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) could be invoked in the present appeal.
 
The nature of the SPAs and the TAs
 
The Court of Appeal was satisfied that the SPAs and TAs were genuine agreements for the following reasons: 
  1. the Plaintiffs had purchased and obtained vacant possession of the 97 units from the 2nd Defendant;
  2. the Plaintiffs had rented the 97 units to the 1st Defendant by way of the TAs; and
  3. the SPAs and TAs were not intended by the parties thereto to “give to third parties or to the court the appearance of creating between the parties, legal rights and obligations that differ from the actual legal rights and obligations which the parties intend to create”. 
The right of the Defendants to arrange their corporate affairs
 
Referring to ARL Resources and SPM Energy, the Court opined that the Defendants had a right to arrange their corporate affairs (“Defendants’ Right (Arrangement of Corporate Affairs”)) provided that such arrangement: 
  1. did not involve any actual or potential illegality; or
  2. was not intended to deprive any person of that person’s existing right(s) (not future right(s). 
In this case, the Defendants’ Right (Arrangement of Corporate Affairs) had been exercised as follows: 
  1. the 2nd Defendant would construct and develop the Mall;
  2. the 2nd Defendant would sell the units in the Mall by way of the SPAs;
  3. the 1st Defendant would rent the units from the purchasers by way of the TAs; and
  4. the 1st Defendant’s business was to manage the retail business and operations of the Mall. 
The Court held that the Defendants’ Right (Arrangement of Corporate Affairs) could be lawfully exercised because the Defendants’ Right (Arrangement of Corporate Affairs) did not involve any actual or potential illegality or was not intended by the Defendants to deprive the Plaintiffs and/or any person of their existing right(s).
 
Could the High Court pierce the 1st Defendant’s corporate veil and impose the 1st Defendant’s liability under the TAs on the 2nd Defendant?
 
The Court of Appeal held that the court’s decision in both the Court’s Piercing of Corporate Veil (Liability on Individual) and the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company) is a question of mixed law and fact. It is a question of law as to whether there is a sufficient ground in law for the court to pierce the corporate veil of X Company and impose liability on Y or Z Company, whereas it is a question of fact as to whether the court should exercise its discretion to pierce X Company’s corporate veil and impose liability on Y or Z Company as it depends on the particular facts of the case in question.
 
As the Court of Appeal had concluded that the Defendants’ Right (Arrangement of Corporate Affairs) had been lawfully invoked, it concluded that the High Court had committed an error of law in failing to take into account the Defendants’ Right (Arrangement of Corporate Affairs).
 
Whether the Plaintiffs could rely on the Actual Fraud Exception
 
The Court of Appeal was of the view that there was no basis for the JC to pierce the 1st Defendant’s corporate veil based on the Actual Fraud Exception as the Plaintiffs did not plead in their statement of claim that actual fraud had been committed by the Defendants and did not adduce any evidence to that effect at the trial.
 
Whether the Plaintiffs could rely on the Equitable/ Constructive Fraud Exception
 
Notwithstanding the omission in the statement of claim to plead the application of the Equitable/ Constructive Fraud Exception, the Court of Appeal held that the Plaintiffs could not rely on this exception for various reasons including the following: 
  1. in relation to the High Court’s Judgment against the 1st Defendant, there is no evidence to show that the 1st Defendant is insolvent and cannot satisfy that judgment and that the judgment is a paper judgment which cannot be executed against the 1st Defendant;
  2. the SPAs and TAs were genuine;
  3. based on the documentary evidence, which had not been rebutted by the Plaintiffs at the trial, it has been clearly proved on a balance of probabilities that the 1st Defendant was not a nominal or shell company of the 2nd Defendant;
  4. by virtue of the entire agreement clause in the SPAs, the SPAs contained the entire agreement between the Plaintiffs and the 2nd Defendant; in this regard, the SPAs did not provide for the 2nd Defendant to be liable to the Plaintiffs for the rent pursuant to the TAs;
  5. the TAs did not provide for the 2nd Defendant to pay the rent to the Plaintiffs. When the High Court pierced the 1st Defendant’s corporate veil and imposed the 1st Defendant’s liability to pay rent under the TAs on the 2nd Defendant, such an addition to the TAs was prohibited by sections 91 and 922 of the Evidence Act 1950; and
  6. the SPAs and TAs were purely commercial in nature and should be construed by the court in a manner which makes business common sense. The High Court’s decision to impose the 1st Defendant’s liability under the TAs on the 2nd Defendant would have the effect that the rent payable to the Plaintiffs would be guaranteed by the 2nd Defendant, which was not supported by a business common sense interpretation of the SPAs and TAs. 
Did the High Court apply the wrong test in piercing the 1st Defendant’s corporate veil?
 
The Court of Appeal reiterated that the JC could only pierce the corporate veil of the 1st Defendant if the Plaintiffs could prove the application of at least one of the 2 Exceptions. In the absence of such proof, the High Court had erred in law by imposing the 1st Defendant’s liability under the TAs on the 2nd Defendant by relying on the following considerations: 
  1. Evasion (Liability);
  2. Abuse (Corporate Personality);
  3. Special/ Exceptional Circumstances;
  4. Circumstances (Interest of Justice); and/or
  5. the fact that the 2nd Defendant controlled, managed and/or directed the 1st Defendant (i.e. Control of One Company by Another Company). 
Was there a plain error of mixed law and fact in this case?
 
In light of the evidence before the Court and the reasons set out in the judgment, the Court of Appeal held that the High Court had made a plain error of mixed fact and law by piercing the 1st Defendant’s corporate veil and imposing the 1st Defendant’s liability under the TAs on the 2nd Defendant. This error warranted appellate intervention and accordingly, the Court of Appeal set aside the High Court’s Judgment against the 2nd Defendant.
 
Comments
 
Although this Court of Appeal decision does not break new ground, it nevertheless provides useful guidance on the requirements that a party would have to satisfy in order to persuade the court to exercise its discretion to invoke the Court's Piercing of One Company's Corporate Veil (Liability on Another Company) so as to impose liability of one company on another company.
 
The decision also distinguishes the requirements applicable to the Court's Piercing of Corporate Veil (Liability on Individual)3 and to the Court’s Piercing of One Company’s Corporate Veil (Liability on Another Company). Importantly, the Court of Appeal accords recognition to the three fundamental concepts of Malaysian company law, namely a Company’s Own Legal Personality, the distinct legal personality of each member in a Group (Companies) and the Right of Corporate Arrangement (Group of Companies) which enable companies within a corporate group to organise their business affairs among members of the group to avoid future legal liability so long as the arrangements between the companies concerned are not tainted with illegality or actual or equitable/ constructive fraud.
 
 
Case Note by Kok Chee Kheong (Consultant) and Chong Cai Yi (Associate) of the Corporate Practice of Skrine.
 
 
 
1 Sections 101(1) and 101(2) provide, inter alia, that the burden of proof lies on the party who asserts the existence of particular facts. Section 102 provides that the burden of proof in a legal proceeding lies on that person who would fail if no evidence was given by either side.
2 Section 91 provides, inter alia, that where the terms of a contract have been reduced to the form of a document, no evidence shall be given to prove the terms of the contract except the document itself, or secondary evidence that is admissible. Section 92 provides, inter alia, that (subject to the exceptions set out that section) where the terms of a contract have been proved according to section 91, no evidence of any oral agreement or statement shall be admitted as between the parties to the contract or their representatives to contradict, vary, add to, or subtract from its terms.
3 Notwithstanding the helpful guidance provided by the Court of Appeal on the Court's Piercing of Corporate Veil (Liability on Individual), it is to be noted that the Court’s views on this point are obiter dicta as the case did not involve this aspect of the piercing of a corporate veil.

This article/alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.

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