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WANGSINI SDN BHD V. GRAND
UNITED HOLDINGS BHD
HIGH COURT MALAYA, KUALA LUMPUR
RK NATHAN JC
[COMPANIES WINDING-UP NO: D5-28-40-1996]
21 MARCH 1997
[Application dismissed.]
JUDGMENT
RK Nathan JC:
Background Facts To The Filing Of The Petition
On 19 January 1990 the petitioner had obtained a final judgment against
Bukit Ritan Realty Sdn. Bhd. (BRR), a wholly owned subsidiary of the
respondent in the sum of RM33,875 together with interest at the rate of 8%
per annum from 15 March 1985 till the date of the notice made pursuant to s.
218 of the Companies Act 1965 (the Act) dated 8 January 1996. The said
notice was for a sum of RM130,740.65.
Willway Industries Sdn. Bhd. (WISB) was a house purchaser which signed a
sales and purchase agreement with BRR on 9 April 1995. WISB duly paid the
10% of the purchase price for the said property amounting to RM33,887.50.
WISB subsequently changed its name to Wangsini Sdn. Bhd. (WSSB), the
petitioner in the present proceedings. The petitioner rescinded the sales
and purchase agreement with BRR and sued BRR for the refund of deposit and
claimed liquidated damages for loss of rental income together with interest
and costs. The plaintiff (WSSB, formerly known as WISB) obtained judgment in
default on 19 January 1990. At all material times the present respondent and
BRR were fully aware of this judgment, had never disputed it and had not
attempted to appeal against it.
The Present Proceedings
The respondent had assumed all the debts owing to BRR under a Composite
Scheme of Arrangement (the Schemes) pursuant to s. 176 of the Act which was
subsequently sanctioned by the High Court on 4 January 1994 by way of Kuala
Lumpur High Court Originating Summons No. D3-24-53-93 (the D3 suit). The
petitioner had on 8 January 1996 issued a s. 218 notice for the sum of
RM130,740.65 to the respondent. Thereafter the petitioner presented this
winding-up petition on 30 January 1996.
Issues Not In Dispute
The petitioners highlighted the issues not in dispute, namely that:
(a) The sale and purchase agreement between the petitioner and BRR was
rescinded by the petitioner on 25 October 1989.
(b) The petitioner had obtained judgment against BRR on 19 January 1990.
(c) The judgment debt as at the date of the statutory notice on 8 January
1996 is RM130,740.65 and that this debt has not as yet been paid by the
respondent.
(d) The respondent has assumed all the debts and liabilities of BRR under
the Schemes.
(e) Both the petitioner and the respondent are bound by the Schemes which
were sanctioned by the High Court on 4 January 1994, approved by the
respondent's shareholders in the Extraordinary General Meeting on 2 July
1993 and by virtue of s. 176(3) of the Companies Act 1965 .
(f) Scheme E Option B under the Schemes together with other relevant clauses
are applicable and all house purchasers are entitled to be paid by the
respondent in full by cash RM1 for every RM1 owing by BRR.
(g) The s. 218 notice and the petition was filed and served in accordance
with the Act and the Companies (Winding-Up) Rules 1972.
The Petitioner's Case
Relying on Sri Hartamas Development Sdn. Bhd. v. MBF Finance Bhd. [1992] 1
MLJ 313 the petitioner argued that the demand notice had not been complied
with and that the respondent had, for three weeks after the service of the
demand, neglected to pay the sum or to secure or compound for it to the
reasonable satisfaction of the petitioner.
Further it was the case of the petitioner that since the petitioner had
obtained judgment against BRR and that since subsequently the respondent
herein had assumed all the debts and liabilities of BRR under the Schemes,
the respondent has therefore neglected to pay the amount stated in the
notice within the three weeks after service of demand and therefore the
petitioner contended that the presumption of insolvency had arisen against
the respondent. It was also pointed out to me that Scheme E and other
provisions of the said Scheme, in particular cl. 41, confirmed, accepted and
recognised judgments and made provisions for the payment of judgment debt
including costs and interest incurred thereon. The relevant clauses of the
Schemes relied on by the petitioner are:
(i) The second limb of Cl. 41 which provides:
All judgments, debts, interest thereon and costs relating to any debt owing
by BRR shall be subject to Option B and shall be satisfied in the same
manner as stated above.
(ii) Clause 2.1.5 under Scheme E which states clearly:
House purchasers opting for Option B will be paid in full by cash a sum of
RM1 for every RM1 owing.
(iii) Clause 2.6(b) which clearly and unequivocally provides that:
House purchasers opting for Option B will be paid IN FULL by cash a sum of
RM1 for every RM1 owing.
The emphasis is "IN FULL" and not the refund of 10% deposit.
It was the contention of the petitioner that having not opted for Option A,
under the Schemes, the petitioner is therefore automatically entitled for
Option B, i.e. that the petitioner is to be paid in full by cash RM1 for
every RM1 owing, amounting to RM130,740.65.
(iv) Clause 48 which states:
... Payment to creditors under the Composite Schemes shall be completed as
soon as possible after the effective date.
(v) Clause 34 reads:
Grand United Holdings Bhd will acquire and assume from the various House
Purchasers all the sums paid by them to BRR as at the Fixed Date and Grand
United Holdings Bhd will give to the House Purchasers two (2) options as
follows:
Option A
The House Purchasers opting for Option A will agree to rescind the original
sale and purchase agreements and execute new sale and purchase agreements
for the property described in the original sale and purchase agreements or
similar property in the Project at the same price and to be completed and
delivered within a period of twenty four (24) months from the date of the
execution of the new sale and purchase agreements. The deposit and any
further sums paid by the House Purchasers pursuant to
the original sale and purchase agreements shall be credited as part payment
towards the purchase price under the new sale and purchase agreements.
Option B
The House Purchasers opting for Option B will be paid a sum of Ringgit
Malaysia One (RM1-00) for every Ringgit Malaysia One (RM1-00) paid by the
House Purchasers to BRR pursuant to the term of the sale and purchase
agreements entered into between the House Purchasers and BRR.
(vi) Clause 39 reads:
The House Purchasers shall fully discharge and forgive the debts assumed by
Grand United Holdings Bhd as aforesaid and all other debts and liabilities
howsoever arising from the agreements between the parties under Scheme E in
consideration of them opting for Option A or B referred to in Clause 35
above.
Scheme E refers to the Scheme of Arrangement under s. 176 of the Act to be
made between the respondent and its subsidiaries and the house purchasers in
its present form or subject to any modification thereof or addition thereto
as may be agreed by the parties thereto or condition approved or imposed by
the High Court of Malaya.
The petitioner contended that there are two categories of house purchasers,
namely those with and those without judgments and that those with judgments
must be paid the judgment sum including costs and interest to date of
realisation and not the refund of the 10% deposit paid, irrespective of the
judgment sum as contended by the respondent.
The respondent and BRR, having applied to the court under the D3 suit for a
Composite Scheme of Arrangement, and pursuant to the order of that court,
called for a meeting of shareholders of the respondent, various creditors
and house purchasers of BRR through their solicitors by way of a notice
dated 7 June 1993. This meeting was held on 2 July 1993 and the s. 176
Composite Scheme of Arrangement was approved. The respondent, on the same
day served notice to the shareholders for an Extraordinary General Meeting (EGM)
to be held at the same venue, and at that EGM approved a special resolution
to give effect to the Composite Schemes. The relevant provision of the EGM
relating to the house purchasers of BRR is Resolution 2.6 which reads:
The company do and hereby assume the debts owing by Bukit Ritan Realty Sdn
Bhd (BRR) to the various House Purchasers of Taman Bukit Kepayang in
Seremban, Negeri Sembilan Darul Khusus (hereinafter referred to as "the
Project") who had entered into Sale and Purchase Agreements with BRR and
paid some monies towards the purchase price but did not get any house
(hereinafter referred to as "House Purchasers") which as at the 30 day of
June 1992 amount to RM2,104,511.92 and do and hereby pay and/or settle with
the above-mentioned House Purchasers by way of two (2) options namely Option
A and Option B to be given to them. The House Purchasers shall in
consideration of them opting for either of the said options fully discharge
and forgive the debts assumed by the company aforesaid and all other debts
and liabilities howsoever arising from the said Sale and Purchase Agreements
including all claim for damages for late delivery of vacant possession.
The said options are as follows:
Option A
House Purchasers opting for Option A will agree to rescind the original sale
and purchase agreements and execute new sale and purchase agreements with
BRR for the property described in the original sale and purchase agreements
or a similar property in the Project at the original purchase price to be
completed and delivered within a period of 24 months from the date of the
new sale and purchase agreements.
The amounts paid to BRR as at the 30 day of June 1992 will be credited as
part payment towards the purchase price of the property under the new sale
and purchase agreements.
Option B
House Purchasers opting for Option B will be paid by the Company in full by
cash, a sum of RM1 for every RM1 owing."
Referring to the amount of RM2,104,511.92 under the special resolution 2.6
representing monies paid by the house purchasers being the 10% deposit, the
said scheme provided for the repayment of RM1 for every RM1 paid by the
house purchasers to BRR pursuant to the original sales and purchase
agreement entered into between the house purchasers and BRR, under Option B.
After the approval of the said Schemes by the shareholders, various
creditors and house purchasers of BRR on 2 July 1993, and later sanctioned
by the High Court on 4 January 1994, the respondent, in implementing and
giving effect to the said Schemes, made a separate provision in its 1994
accounts for a sum of over RM4 million, which was different from and higher
than the RM2.1 million referred to earlier, in order to satisfy the
judgments, costs and interest accrued thereon under the second limb of cl.
41 of the said Schemes, for payment of damages claimed by House Purchasers.
The petitioners argued that the House Purchasers herein referred to were
those with judgments. It was pointed out that the annual account of the
respondent ending 31 December 1994 showed an amount of RM4.177 million
surplus written back as "Provision no longer required for damages claimed by
House Purchasers."
The petitioner thus submitted that the respondent had agreed that the house
purchasers with judgments had to be paid in cash in full RM1 for every RM1
owing thereon on the judgment sum and costs and that it had also
specifically made provisions in its 1994 accounts for such payment. The
petitioner further argued that the special resolution 2.6, in reference to
the sum of RM2,140,511.92 read together with cll. 34 and 39, clearly applied
to house purchasers without judgments.
The petitioner urged upon me that had it not rescinded the sale and purchase
agreement between itself and BRR and had it not obtained judgment, the
petitioner would certainly have accepted the refund of 10% deposit that is
RM33,887.50 pursuant to the original sale and purchase agreement. It was
submitted forcefully for the petitioner that it was wrong for the respondent
to insist and force the petitioner to accept a lesser amount from the
judgment debt when there were clear provisions for such payment of judgment
debt in the said Schemes and accounts.
The petitioner also pointed out that one other house purchaser, Lee Seng Mee
(LSM) had successfully claimed damages and as a result of a court order, was
duly paid by BRR. The petitioner questioned as to why the said LSM who had a
valid judgment was paid in full, whereas this petitioner, who also had a
valid judgment has been denied his just dues. This, it was submitted meant
that the respondent was insolvent and didn't have liquid funds to satisfy
its legal liabilities. This fact, it was pointed out, was supported by the
respondent's audited accounts for 1994 which balance sheet as at 31 December
1994 showed an accumulated loss of RM10,812,000 and prior to that as at 30
June 1993 an accumulated loss of RM521,318,000. The petitioner therefore
prayed for an order to wind up the respondent and for other consequential
orders.
The Respondent's Case
The respondent contended that notwithstanding that the judgment in default
obtained by the petitioner was against BRR which was a separate legal entity
altogether, the plaintiff served a statutory demand notice under s. 218 of
the Act on the respondent on 8 January 1996. Upon receipt of the said
statutory notice, the respondent informed the petitioner's solicitors that a
cheque for the sum of RM33,887.50 being a full cash refund of all monies
paid by the petitioner on a ringgit for ringgit basis as provided under the
said Schemes would be forwarded to it and requested the petitioner to stay
its hand. The petitioner's solicitors kept the cheque forwarded to them by
the respondent for three months and subsequently, despite the request of the
respondent to refrain from taking any further action, the petitioner
commenced these windingup proceedings and advertised the same. The
respondent submitted that the petitioner's conduct in filing the petition
was totally devoid of merit, extortionate, oppressive and an abuse of the
process of the court and accordingly should be dismissed with costs. The
respondent submitted that this petition was filed with the singular purpose
of trying to coerce and to apply undue pressure on the respondent, a public
listed company whose profit before taxation was RM23,459,000 for year ended
31 December 1995 and RM25,280,000 for the period ended 31 December 1994. It
was submitted that the threat of a winding-up proceeding was to compel the
respondent to pay to the petitioner, the debt which is owed by an entirely
different legal entity, namely BRR. The respondent had raised various issues
to resist the petition. Having considered all the arguments and the cases
cited by both parties I dismissed the petition with costs. Since an appeal
has been filed, I shall give my reasons under various heads.
Petition Is Oppressive Because Of The Scheme Of Arrangement Under S. 176 Of
The Act
It is my judgment that the winding-up petition filed by the petitioner
herein is oppressive, and is an abuse of the process of the court, for
despite the fact that the petitioner was well aware that a Scheme of
Arrangement under s. 176 of the Act (The Schemes) had been approved and
sanctioned by the court by way of an order of court dated 4 January 1994,
the petitioner had wilfully and blatantly chosen to flout the clear orders
of the court and to disregard the law in this respect.
Section 176 of the Act empowers the court to sanction a scheme of
arrangement proposed between a company and its members if the scheme is
agreed to by a majority in number representing three fourths in value of the
members present and voting in person or by proxy. Indeed once the scheme is
approved and sanctioned by the court it becomes binding not only on the
creditors, and also on the company but also on the liquidator, where the
company has been wound up, and also on the contributories of the company. In
other words, once the scheme is approved it assumes the characteristics of a
statutory contract imposed by law on all parties who are affected by it, as
is the case here (see Buckley on the Companies Act, 14th Edition). In fact,
before approving or sanctioning the scheme, the court must be satisfied that
the statutory provisions have been complied with, that the classes of
creditors or members have been fairly represented by those who attended and
that the statutory majority approving the scheme is acting in good faith in
the interest of the class it professes to represent. The arrangement must
also be such as a man of business would reasonably approve and be fair and
reasonable as regards the different classes if any, but the court will not
sanction a scheme when the required majority is made up of persons not
acting in good faith in the interest of the class to which they belong and
it will also not sanction any scheme which involves the doing of an act
which is ultra vires the company.
It is also the duty of the court in the exercise of its supervisory powers
under s. 176 of the Act and the Court's discretion, in approving or
disapproving an application for a scheme of arrangement under s. 176 , to
have regard to all the classes of creditors, whether secured or unsecured
and the contributories and where the proposed scheme had obtained the
requisite three fourths' majority, to place the interest of the creditors
who overwhelmingly support the scheme, as in the instant case, as against
those other creditors like the petitioner, in the instant case, and to ask
itself whether the interest of those who support the scheme overwhelmingly
far outweigh the interest of the petitioner.
In Deputy Commissioner of Taxation (Vic) v. Avram Investments Pty Ltd 9 ACSR
580, the appellant company owed the Deputy Commissioner of Taxation over $2
million. The appellant appealed from an order made pursuant to an
application by the Deputy Commissioner, that it be wound up by the court.
The appellant argued that the court should exercise its discretion against
the application for winding-up, as a scheme of arrangement had been drawn up
and was approved by the court, subject to the outcome of this appeal, and
its implementation was in the interests of all creditors, including the
Deputy Commissioner. In allowing the appeal the court held that in
exercising the discretion to accede to or dismiss an application to wind up
an insolvent company, the court may have regard to the wishes of the
company's creditors. It may place the interests of those of the petitioning
creditor against those of the remaining creditors and ask whether the
interests of one outweigh the other, always having regard to the prima facie
right of the petitioning creditor in those circumstances to obtain a
winding-up order. Here the fact that the Deputy Commissioner was the only
creditor who wished to proceed with the windingup whereas the overwhelming
majority of creditors voted for the scheme of arrangement, was decisive. For
this reason alone the appeal was allowed.
By way of contrast in Sri Hartamas Development Sdn. Bhd. v. MBF Finance Bhd.
[1990] 2 MLJ 31 where an insolvent company had proposed a scheme of
arrangement to enable it to settle its outstanding debts, Siti Norma J (as
her Ladyship then was) allowed an application by an unsecured creditor to
throw out the s. 176 scheme of arrangement, as the scheme proposed was
solely for the benefit of one class of creditors and she held that the test
of solvency of any company must be viewed in the commercial sense, that is,
its inability to meet current demands irrespective of whether the company
was possessed of assets, which if realised would enable it to discharge its
liability in full.
The binding effect of the Scheme on all creditors, including the dissentient
ones, is therefore accorded to it, by operation of law. In fact a Scheme
under s. 176 (U.K. s. 425 of the Companies Act 1985) when sanctioned by the
court cannot be varied or departed from, with the mere acquiescence of the
shareholders and creditors (see Gore-Browne on Companies 44th Edn Vol. 2
para. 30.14.2).
Having perused the evidence tendered by both sides I find that the
petitioner had in fact elected to opt under Scheme E, Option B. The
petitioner cannot now go back on its election to claim for the full sum
owing under the said judgment in default. In my view it would be plainly
unconscionable to allow the petitioner to do so.
Once the Scheme has been approved, all creditors are bound and the court has
power under the Act to order the distribution of assets otherwise than in
accordance with the creditors' strict legal rights (see R.M. Goode's
Principles of Corporate Insolvency Law 1990 Edition p. 15). Indeed, I hold
that the classic feature of a court sanctioned scheme of arrangement
pursuant to s. 176 of the Act , is its ability to bind the dissenting
minority to the scheme in the event the scheme is approved by the requisite
statutory majority of each class of creditors.
Another glaring feature of this case is that the petitioner is well aware
that the Scheme of Arrangement had been approved and sanctioned by the court
as can be evidenced by the contents of the s. 218 notice served by it on the
respondent which makes clear reference to this Scheme. Yet despite being
fully aware of the ramifications of the restraining order restraining all
creditors and members of the company and the house purchasers, including the
petitioner, whether by themselves, or by their servants and/or agents from
commencing and/or continuing with all or any actions, proceedings and/or
execution, including winding-up proceedings against the respondent and the
binding effect of the court approved Scheme, I find that the petitioner here
has wilfully disobeyed the said order by proceeding with the winding-up
proceedings against the respondent.
It is my judgment that under s. 176 of the Act , if a scheme of arrangement
is proposed by a company to its classes of creditors and if a majority in
numbers representing three-fourths in value of the debt approve the scheme
of arrangement and then it is subsequently approved by the court, the said
scheme becomes binding on the company and all its creditors to whom the
scheme is proposed. The scheme, in the instant case, is one such scheme of
arrangement which has secured the approvals of the requisite statutory
majority of each creditor and sanctioned by an order of the High Court. The
binding effect of the Scheme is therefore accorded to it by operation of
law. Accordingly it is not open to the petitioner here to pursue another
cause of action, that is by way of filing a winding-up petition to pressure
the respondent to pay the alleged debt incurred by BRR once the petitioner
had bound itself to the said Scheme of Arrangement.
Since the petitioner had admitted to being bound by the provisions of the
Scheme of Arrangement (para. 10 of the affidavit of the Managing Director of
the petitioner of encl. 8), the respondent is only legally obliged under the
terms of the Scheme of Arrangement to pay a sum of RM33,887.50 to the
petitioner and the amount was indeed paid to the petitioner through the
petitioner's solicitors in January 1996 but this said cheque was
subsequently returned to the respondent, 3 months later when the petitioner
filed this petition to wind up the respondent. On this ground alone, this
petition ought to be dismissed.
The argument of the petitioner that the restraining order against commencing
any action including winding-up proceedings is limited to until after the
applicants had conducted the meetings held pursuant to the order and further
until after the Scheme of Arrangement has become effective, fails to
consider the effect of s. 176 itself. The purpose and intent of s. 176 has
to be given a wider import.
The Locus Standi Of The Petitioner
It is a sine qua non for a party to be entitled to file a winding-up
petition against a company, that the party must come within one of the
categories as set out in s. 217(1) of the Act which reads:
217.
Application of winding up
(1) A company (whether or not it is being wound up voluntarily) may be wound
up under an order of the court on the petition of:
(a) the company;
(b) any creditor, including a contingent or prospective creditor, of the
company;
(c) a contributory or any person who is the personal representative of a
deceased contributory or the trustee in bankruptcy or the Official Assignee
of the estate of a bankrupt contributory;
(d) the liquidator;
(e) the Minister pursuant to s. 205 or on the ground specified in s.
218(1)(d) ;
(f) in the case of a company which is a licensed institution, or a scheduled
institution in respect of which the Minister charged with responsibility for
finance has made an order under s. 24(1) of the Banking and Financial
Institutions Act 1989 , or a non-scheduled institution in respect of which
such Minister has made an order under s. 93(1) of that Act , Bank Negara
Malaysia,
g) ...
or of any two or more of those parties.
It is evident from the facts that the petitioner had obtained judgment in
default against BRR on 19 January 1990 and not against the respondent.
Subsequently, by the operation of the Scheme of Arrangement the said
judgment debt was abrogated by terms of the said scheme duly approved and
sanctioned by the court pursuant to s. 176(3) of the Act . Consequently
since Scheme E was binding on the petitioner, the amount to be refunded by
BRR and not the respondent under the Scheme was the 10% deposit sum of
RM33,887.50 paid by the plaintiff to BRR under the sale and purchase
agreement dated 9 April 1985. As pointed out earlier it must not be
forgotten that the Scheme of Arrangement as approved and sanctioned by the
court is in respect of 3 legal entities, namely BRR, the respondent and
Grand Credit & Leasing Ocean Development Bhd (GODB), which itself was a
wholly owned subsidiary of the respondent and their respective creditors and
members. Accordingly the respondent submits that the petitioner cannot
assume that BRR's debts and obligations or financial burden would
automatically or legally be assigned to the respondent, in the absence of
any legal assignment to that effect. I was urged to find that the petitioner
is not a creditor nor a contingent or prospective creditor of the company
within the meaning of s. 217(1)(b) of the Act .
This submission is rejected. Under the terms of s. 176 of the Act the
Schemes applied by the respondent and BRR, defined "creditors" as including
house purchasers of the respondent and the respondent's subsidiaries as at
30 June 1992 and the respondent's subsidiaries clearly included both BRR and
GODB. Further under heading "Settlement of Debts" it was stated clearly that
"the debts of GUH subsidiaries, namely BRR will be assumed by GUH." In the
circumstances, I find that the petitioner had locus standi to file this
windingup petition.
Does Section 6(3) Of The Limitation Act 1953 Make The S. 218 Demand Notice
Bad
It was the submission of the respondent that even assuming that the
respondent was liable on the judgment in default obtained by the
petitioner/plaintiff against BRR, the judgment order obtained by the
plaintiff dated 19 January 1990 was as follows:
(a) The sum of RM33,887.50 with interest at the rate of 8% per annum from 15
March 1985 to the date of full realisation.
(b) Liquidated damages of RM44,429.25 with interest thereon at the rate of
8% per annum with effect from 6 November 1989 to date of realisation.
(c) Costs of RM1,150.
These three sums totalled RM130,740.55 as at 8 January 1996, which was the
date of the s. 218 notice of demand. In fact the said statutory notice
reflected the three items mentioned herein. The respondent relied on s. 6(3)
of the Limitation Act 1953 and submitted that the interest ought to have
been calculated on clauses (a) and (b) for 6 years only from 15 March 1985
and 6 November 1989 respectively. Since the interest herein was calculated
up to 8 January 1996 the said notice was bad in law and the winding-up
petition a nullity.
Having considered the submissions of both parties I agree with the
respondent that s. 6(3) of the Limitation Act 1953 will have a telling
effect on the statutory notice of demand. Section 6(3) of the Limitation Act
1953 reads:
An action upon any judgment shall not be brought after the expiration of
twelve years from the date on which the judgment become enforceable and no
arrears of interest in respect of any judgment debt shall be recovered after
the expiration of six (6) years from the date on which the interest became
due.
I find that the petitioner is only legally entitled to claim interest on the
judgment in default obtained on 19 January 1990 for 6 years from the date on
which the interest became due, that is to say:
(a) for the principal sum of RM33,887.50 from 15 March 1985 to 14 March
1991.
(b) for the liquidated damages of RM44,429.25 from 6 November 1989 to 5
November 1995.
It is not correct to have calculated interest up to 8 January 1996 as was
worked out in the statutory notice of demand dated 8 January 1996.
In essence there are two limbs to s. 6(3) of the Limitation Act 1953 ; the
first in relation to the enforcement of any judgment and the second with
regard to the recovery of arrears of interest in respect of any judgment
debt. What is obvious is that the period of limitation of cases that fall
under the first limb is 12 years and for cases under the second limb, 6
years, interest to run from the date on which the interest became due. The
petitioner argued that it was wrong for the respondent to submit that the
6-year period is to include the pre- and post-judgment period.
It was the petitioner's submission that the words "judgment debt" in s. 6(3)
must mean from the date the judgment was entered and in this case it was on
19 January 1990. Therefore since the notice was dated 8 January 1996 the
petitioner contended that the calculation of interest was within the 6-year
period since date of judgment.
This submission would have been acceptable if no interest was mentioned in
the order and in which case the statutory rate of interest at 8% per annum
from date of judgment would prevail. However in the instant case the order
clearly spelt out when the interest would commence in respect of both the
principal sum and the liquidated damages. The principal sum, the liquidated
damages and the costs, all crystallized on 19 January 1990 to become the
judgment debt.
However, the second limb of s. 6(3) allowed parties the right to set the
date on which the interest became due. Since the judgment in default has not
been set aside and subsists, I must accept the dates when the respective
interests begin to run, as the dates stipulated in the said order.
The excess interest wrongly claimed by the petitioner has been calculated by
the respondent as amounting to RM13,691.36. Since this figure has not been
disputed by the petitioner I accept it as correct.
The next question I have to consider is, assuming the judgment is correctly
enforceable against the respondent herein, whether I ought to, as was urged
upon me by the petitioner, to following the decision of Mr. Justice Plowman
in Re Tweeds Garages Ltd [1962] 1 All ER 121 wherein his Lordship said at p.
124:
... Moreover, it seems to me that it would in many cases be quite unjust to
refuse a winding-up order to a petitioner who is admittedly owed moneys
which have not been paid merely because there is a dispute as to the precise
amount owing. If I may refer to an example which I suggested in the course
of argument, suppose that a creditor obtains judgment against a company for
24310,000 and after the date of the judgment something is paid off. There is
a genuine bona bide dispute whether the sum paid off is 24310 or 24320. The
creditor then presents a petition to have the company wound up. Is the
company to be entitled to say: "It is not disputed that you are a creditor
but the amount of your debt is disputed and you are not, therefore, entitled
to an order?" I think not.
In my judgment, where there is no doubt (and there is none here) that the
petitioner is a creditor for a sum which would otherwise entitle him to a
winding-up order, a dispute as to the precise sum which is owed to him is
not of itself a sufficient answer to his petition.
The petitioner also relied on YPJE Consultancy Service Sdn. Bhd. v. Heller
Factoring (M) Sdn. Bhd. (formerly known as Matang Factoring Sdn. Bhd.)
[1996] 3 CLJ 51 where in a recent decision Ahmad Fairuz Sheikh Abdul Halim
JCA declined to follow the literal interpretation of the meaning of the sum
demanded which would compel the court not to make a winding-up order
notwithstanding the existence of clear evidence that an undisputed debt
exceeding RM500 had remained unpaid after making a proven demand without any
reasonable explanation being advanced for that failure to do so. He
preferred the wider interpretation in that, so long as there was an admitted
debt of over RM1,000 there was no need to state the precise amount due in
the notice of demand.
It is noteworthy that in both Re Tweeds Garage and in YPJE Consultancy
Service the courts held that so long as a sum was admitted as being owed and
so long as that admitted sum exceeded the minimum sum referred to in the
relevant sections, of the respective Acts, a winding-up order ought to be
granted.
The significant difference in the instant case is that the actual admitted
sum of RM33,887.50 was in fact paid by the respondent to the petitioner but
the said cheque for the said sum was subsequently returned to the respondent
3 months later when the petitioner filed this winding-up petition. Therefore
the ratio of these two cases will not apply here as there is no longer an
admitted sum, and the rest is in dispute.
The Position Of The Statutory Notice
It is my finding that since the statutory notice pursuant to s. 218 of the
Act is a pre-requisite to the commencement of a winding-up petition under
that section, and if that statutory notice is defective in its demand, then
the basis for the winding-up petition has collapsed, and ipso facto, the
winding-up petition must be dismissed.
I further hold that in this case since the petitioner had in its quantum of
demand in the statutory notice, included a sum caught by s. 6(3) of the
Limitation Act 1953 , the entire notice is bad in law. Limitation is a valid
defence and in fact O. 18 r. 8(1) of the Rules of the High Court 1980 (the
RHC) specifically require limitation to be pleaded. Such is the importance
placed upon the defence of limitation. It is not appropriate and indeed it
would be a travesty of justice if I were to sever the claim and deduct the
sum of RM13,691.36 from the petition being the excess claimed after
limitation had set in. Even if severance can be done to the petition, can
the court rewrite the statutory notice of demand. I am therefore bound to
find that the said statutory notice dated 8 January 1996 is bad in law and
therefore on this ground too, this petition ought to be dismissed.
The Debt Is Bona Fide Disputed
The respondent agreed to take over the debts and liabilities of BRR pursuant
to the Scheme of Arrangement under s. 176 of the Act . The respondent has
never agreed with the petitioner in writing or otherwise to be fully liable
for the debts and liabilities of BRR per se or in its entirety except in the
context of the said court-sanctioned scheme of arrangement. The respondent
cannot be held responsible for the debts of its subsidiary company, BRR.
Moreover, pursuant to clause 39 of the said Scheme of Arrangement, it was
agreed that the house purchasers, who now include the petitioner, shall
fully discharge and forgive the debts assumed by the respondent and all
other debts and liabilities howsoever arising from the agreements between
the parties under Scheme E in consideration of them opting for Option A or B
which has been earlier referred to. In fact clause 40 is even more specific.
It says that the respondent shall administer and complement Scheme E in its
entirety as agent for and on behalf of BRR and without any personal
liability whatsoever on its part. Clause 41 provides that all judgments,
debts, interest thereon and costs relating to any debt owing by BRR shall be
subject to this Scheme E and be satisfied in the same manner as stated above
and the house purchasers shall be prohibited from instituting or commencing
proceedings, levying any writ of execution or other similar actions against
BRR in relation to the debts stated herein or any claims or counterclaims by
BRR against the house purchasers or any of them.
Clause 43 provides that as from the effective date, all previous
arrangements, agreements, compromise, commitments, negotiations and
moratorium entered into between BRR and the house purchasers shall be
superseded by this Scheme E.
Considering all these clauses which are self-explanatory I find that there
is no bona fide existing debt as between the respondent and the petitioner
entitling the petitioner to present this petition to wind up the respondent.
In Mann v. Goldstein [1968] 2 AER 769 it was held that where a debt was
disputed on substantial grounds then the petitioner was not a creditor
within the meaning of the relevant section and in this case s. 217 of the
Act . Mann v. Goldstein was cited with approval by Zakaria Yatim J (as his
Lordship then was) in Jurupakat Sdn. Bhd. v. Kumpulan Good Earth (1973) Sdn.
Bhd. [1988] 3 MLJ 49 where he said at p. 50:
It is common ground that there is no judgment debt in the present case.
The question for the court to consider is whether the petitioner is a
creditor and the respondent company is a debtor ...
On this ground too I ought to dismiss this petition.
Company Is Not Insolvent Nor Is It Unable To Pay Its Debts
The respondent is a public listed company on the main board of the Kuala
Lumpur Stock Exchange (KLSE). The respondent's preliminary Final Statement
on Consolidated Results as at 31 December 1995 exhibited as CCY1 to encl. 11
and a further affidavit of the accountant of the respondent, Choong Ah Ling
(encl. 13) confirm that the profit before taxation was RM23,459,000 as at 31
December 1995 for the group and that the respondent itself had made a profit
before taxation of RM2,136,000 as at 31 January 1995. Further, in the
audited accounts of the respondent, the balance sheet as at 31 December 1994
showed a total cash deposit of RM5,754,000 deposited with various licensed
banks and financial companies. The earnings in cents per ordinary share of
RM1 was 7.78 cents and the net tangible assets backing per ordinary share
was RM0.96. From the above facts, it is my finding that not only is the
respondent financially sound, it is also commercially solvent and is fully
capable of meeting any current liabilities. In Datuk Mohd Sari Datuk Nuar v.
Idris Hydraulic (Malaysia) Berhad [1996] 3 CLJ 877 I had in considering a
similar situation in respect of another public listed company, held that a
court should consider the overall assets and liabilities of a company and
not rely merely on the quick assets test to decide on a company's solvency
or otherwise. Applying the overall assets and liabilities test, as I did in
the Idris Hydraulic case, I cannot but find the respondent commercially
solvent and able to meet its debts and especially the disputed sum of
RM130,740.65 as claimed by the petitioner herein.
Section 218(2)(a) of the Act reads as follows:
Definition of inability to pay debts
(2) A company shall be deemed to be unable to pay its debts if:
(a) a creditor by assignment or otherwise to whom the company is indebted in
a sum exceeding five hundred ringgit then due has served on the company by
leaving at the registered office a demand under his hand or under the hand
of his agent thereunto lawfully authorised requiring the company to pay the
sum so due, and the company has for three weeks thereafter neglected to pay
the sum or to secure or compound for it to the reasonable satisfaction of
the creditor;
There is clear evidence that there was no "neglect" on the part of the
respondent to pay the sum demanded. The non-payment was by design. In re
London and Paris Banking Corporation [1874] 19 LR 441 at 446 Sir G. Jessel
MR said on a similar issue as follows:
... It is very obvious, on reading that enactment, that the word "neglected"
is not necessarily equivalent to the word "omitted." Negligence is a term
which is well known to the law. Negligence in paying a debt on demand, as I
understand it, is omitting to pay without reasonable excuse. Mere omission
by itself does not amount to negligence.
Therefore I should hold, upon the words of the statute, that where a debt is
bona fide disputed by the debtor, and the debtor alleges, for example, that
the demand for goods sold and delivered is excessive, and says that he, the
debtor, is willing to pay such sum as he is either advised by competent
valuers to pay, or as he himself considers a fair sum for the goods, then in
that case he has not neglected to pay, and is not within the wording of the
statute.
I therefore find that where there is a serious dispute as to the sum claimed
and that on this genuine and strenuous ground, based on substantial material
and belief, a respondent fails to pay the sum demanded, such failure to pay
cannot fall within the meaning of neglect as in the statute. However if
there liability, then a failure to pay whether by reason of carelessness,
inadvertence, dilatoriness or mulishness, is neglect within the wording of
the statute. The dividing line is the genuine challenge to the issue of
liability. Once this challenge is raised there is no longer a basis to found
neglect within the meaning of s. 218(2)(a).
Is Leave Of Court Required Pursuant To O. 46 r. 2 Of RHC 1980
The respondent argued that since the judgment was obtained on 19 January
1990 and the winding-up petition filed on 30 January 1996 which was clearly
6 years later, the petitioner ought to have obtained the leave of court
pursuant to O. 46 r. 2 of the RHC. Order 46 r. 2 is reproduced:
2 When leave to issue any writ of execution is necessary (O. 46 r. 2)
(1) A writ of execution to enforce a judgment or order may not issue without
the leave of the court in the following cases, that is to say:
(a) where six years or more have lapsed since the date of the judgment or
order;
(b) where any change has taken place, whether by death or otherwise, in the
parties entitled or liable to execution under the judgment or order;
(c) where the judgment or order is against the assets of a deceased person
coming to the hands of his executors or administrators after the date of the
judgment or order, and it is sought to issue execution against such assets;
(d) where under the judgment or order any person is entitled to relief
subject to the fulfilment of any condition which it is alleged has been
fulfilled;
(e) where any movable property sought to be seized under a writ of execution
are in the hands of a receiver appointed by the court.
(2) Paragraph (1) is without prejudice to any written law or rule by virtue
of which a person is required to obtain the leave of the court for the issue
of a writ of execution or to proceed to execution on or otherwise the
enforcement of a judgment or order.
(3) Where the court grants leave, whether under this rule or otherwise, for
the issue of a writ of execution and the writ is not issued within one year
after the date of the order granting such leave, the order shall cease to
have effect, without prejudice, however, to the making of a fresh order.
Since no leave was obtained, the respondent submitted that on this ground
too, the petition ought to be dismissed.
The petitioners countered by submitting that since the statutory notice of
demand was served on the respondent on 8 January 1996, that is before the
expiration of 6 years, the petition was lawfully filed and no leave was
required.
I had in The Lyn Country Sdn. Bhd. v. EIC Clothing Sdn. Bhd. & Anor. [1996]
4 CLJ 828 held that the RHC do not apply to a petition filed under s. 218 of
the Act , as in this case. The Court of Appeal had on 9 December 1996
affirmed the said decision. In the circumstances, O. 46 r. 2 will not apply
to these proceedings which is based on a s. 218 notice.
In any event O. 46 r. 1 which is the definitive section states:
1 Definition (O. 46 r. 1)
In this Order, unless the context otherwise requires, "writ of execution"
includes a writ of seizure and sale, a writ of possession and a writ of
delivery.
Obviously winding-up proceedings do not come within "writ of execution." In
Re A Company [1915] 1 CH 520 the question before the court of Appeal was
whether the execution on a judgment included the petition of winding-up of a
company. Lord Cozens-Hardy MR said at p. 525:
... Now "execution on the judgment" is a technical term. It is a legal
process by which the judgment creditor, in that character and for his sole
benefit, by a proceeding in the same action seeks to satisfy his judgment
wholly or partially. I think it is plain that a winding-up petition is not
execution on a judgment.
It lacks almost every element of such an execution.
Halsbury's Laws of England 4th Edn. Vol. 7 para. 401 in describing the
meaning of execution clearly states that execution does not include a
petition to wind up a company.
It is my judgment that in respect of a winding-up petition commenced
pursuant to s. 218 of the Act there is no requirement that the petitioner
ought to obtain leave of court pursuant to O. 46 r. 2 of the RHC.
Considering all the circumstances, I dismissed the petition with costs.
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