Legal Issues in Business – Unveiling the Legal Perils: How Inadequate Documentation Can Lead to Accusations of financial Impropriety, Fraud, or Breach of Trust

Key takeaway: Business must not only be done properly but must ‘BE SEEN’ to have been done properly. Simply put, business transactions must be properly and adequately documented.

The Kuala Lumpur Court Drama

A few years ago, in a bustling courtroom in Kuala Lumpur, a gripping case unfolded. At its heart was a seemingly innocent omission: a lack of documentation for certain business transactions. This omission, however, according to the prosecution, hinted at a far more sinister narrative—a tale of financial misconduct and grave breach of trust.

In reality, the transactions involved were two modest payments of a mere few thousand ringgits approximately RM3,000 and RM6,000 each. However, the fact that the matter ended up in court was grave enough to place anyone under tremendous stress, apprehending potential imprisonment, even for the innocent. And this is how it happened:

The Businesswoman, the Investor and the Quagmire of their Relations

The protagonist was a businesswoman who ran flourishing restaurant business in Klang Valley. When an investor approached her with an irresistible offer to expand her business empire, she couldn’t resist the temptation.

Together, they formed a company to operate a restaurant, with her overseeing the day-to-day operations and the investor contributing significantly to the capital.

At first, the venture was prosperous, but when revenue took a nosedive in the following year, their once-promising partnership soured.

The investor started to hurl slew of accusations of wrongdoings against her. This escalated into various reports lodged against her by the investor and his proxy with the authorities including the police and the Companies Commission of Malaysia. Lawsuits were also launched against her.

One particular police report alleged that she had authorised 2 payments to her other company and also to her personal bank account without supporting documents, suggesting some financial improprieties have been committed by her. These were the 2 modest payments mentioned earlier.

In actual fact, the payments were meant to reimburse her and her other company for their previous advances made for the company’s daily operations.

Apparently the nature of the business was such that immediate petty cash was required for purchase of a number of sundry items. Cheque payments and proper documentation to account for all these numerous small items would be tedious if not impractical, at least from her perspective. It was her practice all along and she could not see anything wrong with that. In any event, the amount was too meagre for her to record down properly as she was a woman of means.

The fact remained that there were some receipts to account for the purchases but were crucially inadequate to link to the 2 payments. No documentation were prepared to establish the link.

She would have thought that since she had done nothing wrong, she needed not worry about the report.

Navigating the Legal Process

As it turned out, the Commercial Crime Department of the police, for reason best known to them, was interested to open an investigation file in relation to that report. She got wind of that.

She sought legal advice. Based on the advice, she extended the fullest co-operation to the police; volunteered eagerly to give statement to the police to assist them in their investigation and also offered all the relevant available documents of the company concerning the subject matter of the report. Peculiarly, the police showed no interest for any of that.

After some time, the police finally called her for questioning. She obliged as any good citizen would do.

After the questioning, she was made to wait in the police station on the pretext that the police needed to process certain things before she could go. The police did not warn nor hint at her of an impending arrest. She was made to wait for few hours in the police station before the police finally informed that they were detaining her for a day.

She spent a harrowing night in the police lock-up.

The next day, she was brought before a magistrate for the police to apply for a remand order. If a remand order was given, the police could further detain her for another few days. The police informed the magistrate that they needed more time to complete their investigation.

She remarked to her lawyer that she would ‘die’ if she were to stay another day in a lock-up. Her lawyer fought for her release in the remand hearing before the magistrate. The lawyer argued forcefully that there was no necessity to further detain and deprive her of her liberty.

After hearing arguments from the lawyer and the police, the learned magistrate did not believe the police’s tale and immediately release her from further detention by the police.

The Legal Battle

Few days later, she was charged with 2 counts of criminal breach of trust in Kuala Lumpur Court in connection with the 2 payments. Those were serious charges which upon conviction she could easily serve behind bars for a good few years.

During the trial in court, evidence was adduced by the prosecution that there was no proper documentation to account for that 2 payments. It was argued that this was indicative of her having siphoned the company funds for her own personal benefits without valid justifications. However, her legal team managed to show that the 2 payments were really reimbursements for the advances to the company. The court believed her and acquitted her of all charges.

Aftermath and Lessons

When she thought that that was the end of her ordeal, the prosecution decided to file an appeal. She won in the appeal subsequently.

Even though she was ultimately released by the court but the mental stress that she endured was tremendous. The criminal charges were hanging over her head then like a sword of Damocles. And that was a good few year affair for her.

To compound that, the legal fees kept mounting in light of the appeal process as well as other lawsuits. The loss of reputation in her business circles was certainly another cost.

So much for the mere convenience of no proper documentation! Her experience probably serves as a good reminder that one should not take for granted proper documentation even if it involves small amount of sum. It can’t be stressed enough. In business, everything must not only be done properly but must also ‘BE SEEN’ to have been done properly.

Even though she has secured her liberty but all the distress could have been avoided if the business transactions have been properly and adequately documented.

If you have any questions or require any additional information, please contact our lawyer that you usually deal with.

This article is written by 

Colin Liew
Principal Associate, Low & Partners