Kenbee Sdn Bhd v Glory Drive Sdn Bhd

Appellant(s): Kenbee Sdn Bhd

Respondent(s): Glory Drive Sdn Bhd

• YA Dato' Azmi Bin Ariffin
• YA Dato' Ahmad Kamal Bin Md. Shahid
• YA Dato' Ong Chee Kwan

• The appellant sold 51% of the shares in an oil palm plantation company to the respondent under a Principal Agreement and a Supplemental Agreement, with the purchase price subject to adjustment based on changes in the company's liabilities between a baseline date (31.12.2013) and completion.
• The Supplemental Agreement reduced the purchase price due to a smaller planted area revealed by drone survey, but expressly preserved the price adjustment mechanism for "any change in the liabilities of the company arising from its operation."
• The appellant claimed an upward price adjustment of RM2,719,975.35 (representing 51% of a net decrease in liabilities of RM5,333,285.00 as at 31.8.2015), which the respondent refused to pay, leading to the High Court suit.

• Whether the phrase "liabilities of the company arising from its operation" in Clause 2 of the Supplemental Agreement should be construed narrowly as a technical accounting term excluding "financing liabilities" (such as bank loan repayments), or broadly to encompass all liabilities arising from the company's ordinary business operations.
• Whether 31.8.2015 was the appropriate comparison date for computing the change in liabilities, in the absence of a contractually specified endpoint.
• Whether the respondent's post-acquisition change in accounting policy (from the Capital Maintenance Method to the Amortisation Method, introducing amortisation of Planting Development Expenditure and Deferred Tax Liability) should be applied retrospectively to alter the price adjustment computation.

• The Court held that "liabilities arising from its operation" bears its ordinary commercial meaning, encompassing all liabilities incurred in the ordinary course of business including bank loan repayments funded from operating revenue, and does not import the technical cash flow statement distinction between "operating" and "financing" activities; the High Court's narrow construction was rejected.
• The Court held that 31.8.2015 was the appropriate comparison date as it was the last month-end date under the appellant's full management control, and the respondent — having proposed no alternative date and adduced no financial evidence at any other date — could not rely on uncertainty as to the comparison date to defeat the claim.
• The Court held that the respondent's post-acquisition change in accounting policy could not be applied retrospectively to adjust the contractual price mechanism; the comparison must be conducted on a consistent accounting basis using the policies in the Primary Accounts, and the respondent could not unilaterally alter the commercial bargain through a board-level policy change made after taking control. The appeal was allowed and judgment entered for the appellant for RM2,719,975.35 with interest at 5% per annum and costs of RM100,000.