Can a company recover secret payments received by its directors from a contractor?

A company discovers that its contractor has been making secret payments to its directors. The contractor says the work was completed and the company agreed to its prices. Does that put an end to the company’s claim?

Not necessarily. In Syarikat V.K. Kalyanasundram Sdn Bhd v Kalyani a/p Balasubramaniam & Ors, the Court of Appeal explained that a genuine services contract did not excuse the participants’ undisclosed benefits and breaches of duty. In grounds dated 13 October 2026, the Court increased the compensation awarded to the company to RM449,256.20.

What happened?

The company engaged Cosmos Resources Sdn Bhd to supply harvesting and transportation services for plantation operations. Cosmos continued using contractors who had already been performing the work, and the services were actually provided.

However, money received by Cosmos was channelled through its director to two directors of the plaintiff company and its former general manager. Their involvement and personal benefits were not disclosed to the company. The explanation that the payments were connected to a loan repayment arrangement was rejected.

The High Court did not accept that Cosmos was a vehicle of fraud or that the services agreement was a sham. Nevertheless, it found liability on other grounds, including breaches of duty and conspiracy.

Why could the company recover over secret payments?

The Court of Appeal distinguished the existence of a genuine contract from the way the participants used it.

A contractor earning a profit is not, by itself, evidence of wrongdoing. Here, the evidence went further: undisclosed interests, participation in the contractor’s banking arrangements, unexplained rate revisions and recurring personal payments formed part of a concealed arrangement that caused the company unnecessary expenditure.

The directors’ duties included avoiding undisclosed conflicts and accounting for unauthorised benefits obtained through their positions. Approval of the contractor’s prices did not establish informed approval of their personal benefits.

The former general manager’s position was different. His contractual duty of fidelity arose from his employment. The Court also found that he, the contractor and its director had dishonestly assisted the directors’ breaches. It did not treat every person involved as owing identical duties.

The Court upheld liability for conspiracy by unlawful means. The company’s separately pleaded claims survived even though its allegation that the entire agreement was a sham had failed.

Secret payments: how much could the company recover?

The Court increased the award from RM260,724.00 to RM449,256.20, payable jointly and severally by the five defendants found responsible.

The award represented the company’s proven loss from the arrangement. The Court allowed for the cost of the work actually supplied and supported additional expenditure. It did not simply award the contractor’s entire margin or add every secret payment to the compensation.

A claim to recover an unauthorised profit and a claim for compensation serve different purposes. The former concerns the benefit obtained; the latter concerns the loss caused. In this case, no additional monetary award was made under the overlapping claims.

What should companies and directors take note of?

Start with the payment trail. Preserve the contract, quotations, invoices, payment vouchers, approval emails and any bank records lawfully available to the company. Identify who approved the arrangement, who benefited and whether those benefits were disclosed. A suspicious payment requires an explanation supported by evidence.

Check the loss calculation separately. Account for the services actually received and distinguish the company’s own losses from expenditure incurred for another group company. An inflated or inconsistent figure can weaken an otherwise valid claim.

For directors, disclosure must address the personal interest or benefit itself. Approval of a commercial price does not necessarily authorise a director to receive part of it privately. Ending an executive role also does not end the duties of someone who remains a director.

A company facing secret payments should obtain advice on the claims and remedies supported by its documents. Whether the contract was genuine is only one part of that assessment.

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