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EPF Contribution – Personal Liability of Company Directors

CASE SUMMARY:       

LEMBAGA KUMPULAN WANG SIMPANAN PEKERJA v. EDWIN CASSIAN NAGAPPAN

[2021] 7 CLJ 823 [“Edwin Cassian’s Case”]

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  1. 1. Where a company defaults in its Employee Provident Fund (EPF) contributions, can company directors be made personally liable? The answer is YES.
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  3. 2. Are the directors jointly and/or severally liable for the unpaid EPF contributions? This was the crux of the Federal Court’s decision in Edwin Cassian’s Case.
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  5. 3. Section 46 of the EPF Act 1991 (“EPF Act”) provides that the directors of a company will be made jointly and severally liable for the contributions due and payable to the EPF. The said Section 46 reads as follows:-
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    1. “Where any contributions remaining unpaid by a company, a firm or an association of persons, then, notwithstanding anything to the contrary in this Act or any other written law, the directors of such company including any persons who were directors of such company during such period in which contributions were liable to be paid, or the partners of such firm, including any persons who were partners of such firm during such period in which contributions were liable to be paid, or the office-bearers of such association of persons, including any persons who were office-bearers of such association during such period in which contributions were liable to be paid, as the case may be, shall together with the company, firm or association of persons liable to pay the said contributionsbe jointly and severally liable for the contributions due and payable to the Fund.
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THE FACTS

  1. 4. The EPF Board commenced a suit against a company (Fixed Interior Collections Sdn Bhd) and its directors, Edwin and Bernard (all 3 as Defendants) for the company’s failure to make the employer’s contributions on behalf of its employees. The parties then entered into a consent judgment, whereby each Defendant agreed to pay the EPF Board the arrears in 24 instalments including dividends, interest and legal fees.
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  3. 5. The pertinent terms of the consent judgment read as follows: –
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    1. “MAKA ADALAH PADA HARI INI DIHAKIMI SECARA PENGHAKIMAN PERSETUJUAN bahawa Defendan-Defendan hendaklah membayar kepada Plaintif…”
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  6. 6. Following the default in the consent judgment, the EPF Board issued a bankruptcy notice against Edwin and presented a creditor’s petition against him in respect of the whole sum under the consent judgment. Edwin applied to set aside the bankruptcy notice and creditor’s petition which was allowed by the Senior Assistant Registrar (“SAR”).
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  8. 7. The reasons given by the SAR was that, in the absence of the words “jointly and severally” liable in the consent judgment, the liability ought to be jointly shared and in equal proportion. Therefore, the sum demanded in the bankruptcy notice and the creditor’s petition against Edwin for the full judgment sum is excessive, thereby rendering them as defective.
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  10. 8. On appeal to the High Court Judge, the Learned Judge agreed with and upheld the SAR’s decision.
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  12. 9. Dissatisfied with the decision, the EPF Board appealed to the Court of Appeal. Similarly, the Court of Appeal placed emphasis on the wordings of the consent judgment which is a contract binding upon the parties. The Court of Appeal went on to hold that it cannot import the phrase “joint and several” notwithstanding the express provisions of Section 46 of the EPF Act. On that basis, the Court of Appeal dismissed the appeal and upheld the decisions by the lower courts.
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  14. 10. Subsequently, the EPF Board appealed to the Federal Court and the question of law before our apex court is: –
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    1. “Whether this Court should give effect to the liability on a “joint and several” basis as provided under section 46 of the Employees Provident Fund Act 1991 in a situation where the words “joint and several” were not specifically stated in the court judgment.”

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  17. 11. The Federal Court unanimously answered the above question in the affirmative.
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FEDERAL COURT’S DECISION

  1. 12. The Federal Court overturned the decision of the Court of Appeal and held that the EPF Act being a statutory law prevails over the terms of the consent judgment. Therefore, it is not open to the courts to stultify, vary or whittle down the clear provisions promulgated by Parliament in relation to liability for EPF contributions by construing judgments in a manner which is not consonant with the EPF Act.
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  3. 13. In reaching its decision, the Federal Court referred to Section 44(1) of the Contracts Act 1950 on joint liability:-
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    1. “When two or more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any one or more of the joint promisors to perform the whole of the promise.”
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  6. 14. Accordingly, the EPF Board is entitled to proceed against Edwin, Bernard or the company, or all three in order to procure the full performance as evidenced from Section 44 of the Contracts Act 1950.
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  8. 15. The court went on to hold that merely inserting the word “jointly” is insufficient to halve liability. There must be express words to that effect to state that the liability of the joint promisors is to be borne in equal proportions.
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  10. 16. Given the effect of the statutory provisions above and in the absence of the express joint liability, it must follow that the liability under the consent judgment in this case be both joint and several.
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KEY TAKEAWAYS

  1. 17. Based on the decisions made by the Federal Court and the courts below, the key takeaways are: –
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    1. (i) company directors are personally liable (jointly or severally) for the failure of the company to make EPF contribution for its employees;
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    3. (ii) notwithstanding the express provision of Section 46 of the EPF Act that sets out the personal liability of company directors as jointly and severally liable for any unpaid EPF contributions by the company, such liability can be apportioned (if the parties agree) and may be expressly recorded in a consent judgment, if applicable; and
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    5. (iii) in the event parties agree to the apportionment of liability, such apportionment must be expressly stated in the judgment. For example: –
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      1. “A and B as company directors are to pay the EPF Board the sum of XX jointly in equal proportion”  .“A and B as company directors are to pay the EPF Board the sum of YY jointly in the proportion of 60% (by A) and 40% (by B)”

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  3. 18. This flexibility to contract out of the statutory provisions on joint and several liability would be a useful “apportion liability” tool to companies comprising of decision-making directors, sleeping directors and/or director cum shareholders.
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This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

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About the Author

Chan Jia Ying

Senior Associate

Harold & Lam Partnership

jiaying@hlplawyers.com

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