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TAN TIEN SENG &
ANOR V. GROBINA RESORTS SDN BHD
HIGH COURT MALAYA, MELAKA
[COMPANIES (WINDING-UP) NO: MT1-28-1-2006]
LOW HOP BING J
18 AUGUST 2006
JUDGMENT
Low Hop Bing J:
Petition
Before me is the judgment creditors' petition in encl. (3) for an order that
the respondent ("judgment debtor") be wound up under s. 218(1)(e) of the
Companies Act 1965 ("the petition") with consequential orders for the
appointment of the director general of the Insolvency Department as the
judgment debtor's provisional liquidator, and costs.
Unless the context otherwise requires or unless otherwise stated, a
reference hereinafter to a section is a reference to that section in the
Companies Act 1965.
Factual Background
The uncontroverted facts are simple and straightforward.
Vide Melaka High Court Civil Suit No. 24-537-2000 ("the civil suit"), the
judgment creditors had on 14 July 2005 obtained judgment which together with
all accrued interest amounted to RM1,236,246.72 as at 3 October 2005 ("the
judgment debt").
Despite requests and demands made by the judgment creditors to the judgment
debtor to settle the judgment debt, the judgment debtor has failed to pay
the same or any part thereof.
On 10 October 2005, the judgment creditors through their solicitors served a
notice of demand under s. 218 ("the statutory notice") on the judgment
debtor by leaving the same at the registered office, calling upon the
judgment debtor to make payment of the judgment debt and further interest
within three weeks of the receipt of the statutory notice, but the judgment
debtor has failed to do so.
On 15 June 2006, one Yakin Mulia (M) Sdn Bhd ("Yakin Mulia") claimed to be a
contributory of the judgment debtor and opposed the petition.
It now becomes necessary for me to determine the preliminary issue
pertaining to Yakin Mulia's locus standi as an alleged contributory.
Locus Standi And "Contributory"
[9] It was submitted by learned counsel Ms Claudia Cheah Pek Yee for the
judgment creditors that Yakin Mulia had no locus standi to appear and oppose
this petition as it is not a contributory of the judgment debtor, citing:
(1) s. 4(1);
(2) Form 8, Companies (Winding-up) Rules 1972;
(3) Arjunan & Low, Lipton & Herzberg's Understanding of Company Law in
Malaysia, 1995 p. 434;
(4) Walter Woon, Company Law 2nd edn, pp. 721 and 722; and
(5) Andrew R Keay, McPherson, The Law of Company Liquidation 4th edn, 1999
pp. 401 and 402.
Yakin Mulia's learned counsel Mr. CK Ng in contending that Yakin Mulia is a
contributory under s. 4(1) relied on a mutual benefit agreement ("the
agreement") executed between Yakin Mulia and one Kamra Jaya Sdn Bhd ("Kamra
Jaya") wherein Yakin Mulia was to pay the judgment debtor RM50,000 as
management expenses due from Kamra Jaya to the judgment debtor as the
management company for Yakin Mulia's housing projects and Yakin Mulia has to
pay a monthly sum of RM15,000 to the judgment debtor with effect from 1
January 2005 as administration costs.
Support was sought in:
(1) Vijayalakshmi Devi d/o Nadchatiram v. Dr Mahadevan s/o Nadchatiram & Ors
[1995] 3 CLJ 493 FC;
(2) Pilecon Engineering Bhd v. Remaja Jaya Sdn Bhd [1996] 1 LNS 105; [1997]
1 MLJ 808 HC; and
(3) Sri Binaraya Sdn Bhd v. Golden Approach Sdn Bhd (Poly Glass Fibre (M)
Bhd, applicant) [2002] 4 CLJ 589 HC.
In considering the word "contributory" in relation to a company, I am
mindful of its definition in s. 4(1) ie, a person liable to contribute to
the assets of the company in the event of its being wound up and includes
the holder of fully paid shares in the company and, prior to the final
determination of the persons who are contributories, includes any person
alleged to be a contributory.
In this regard, with the utmost respect, upon reading Vijayalakshmi Devi,
supra, cited for Yakin Mulia, I find that the judgment delivered by Mohamed
Dzaiddin FCJ (later CJ Malaysia) is of no relevance to the issue raised for
Yakin Mulia.
[14] The same can be said of the judgment of Kamalanathan Ratnam JC (later
J) in Pilecon Engineering, supra, which clearly does not concern any issue
of contributory.
In Sri Binaraya Sdn Bhd, supra, an application was filed by an applicant
seeking leave pursuant to s. 243 to stay all proceedings in relation to the
winding up order. The petitioning creditor objected to the applicant's
application. The applicant held all the issued and paid up share capital of
the respondent company. The relevant issue for determination was whether the
applicant was a contributory for the purpose of s. 243(1) read together with
s. 4(1). Section 243(1) where relevant reads:
243 Power to stay winding up
(1) At any time after an order for winding up has been made the Court may,
on the application of the ... contributory and on proof to the satisfaction
of the Court that all proceedings in relation to the winding up ought to be
stayed, make an order staying the proceedings either altogether or for a
limited time on such terms and conditions as the Court thinks fit.
Having regard to s. 243(1) and s. 4(1), Zulkifli J (now JCA) gave the answer
in the affirmative.
It is to be noted that Yakin Mulia before me had never held any share
capital in the respondent company. Hence, I am unable to see how Sri
Binaraya, supra, could be of any assistance to Yakin Mulia.
Apparently, it was also submitted that Yakin Mulia was "a person alleged to
be a contributory" as included in the third limb of the definition in s.
4(1).
At this juncture, it is appropriate for me to give a comprehensive treatment
to the ambit and purview of s. 4(1).
The tenor of s. 4(1) is clear and unambiguous in that a contributory means a
person liable to contribute to the assets of the respondent company and such
a person is extended to include holders of fully paid shares. In addition,
their names must also be entered in the register of members: see Arujnan &
Low, Lipton & Herzberg's Understanding Company Law in Malaysia, supra, at p.
434; Walter Woon, Company Law 2nd edn, pp. 721 and 722; and Andrew R Keay,
McPherson, The Law of Company Liquidation 4th edn, pp. 401 and 402.
At p. 676 of Loh Siew Cheang's Corporate Powers, Controls, Remedies and
Decision Making, 1996, the learned author observed:
(1) the word "contributory" is used in two senses viz:
(a) to characterize the category of persons who have locus standi as
contributory under s. 217(1)(c) to file a winding up petition; and
(b) to denote the category of persons who do not fall within s. 217(1)(c)
but who are nevertheless persons liable to contribute in the event of the
company being wound up or when winding up supervenes (see also Rehlbolton
Engineering Co Ltd [1956] 1 Ch. 57 per Wynn-Parry J).
At p. 677, ibid, the learned author added that the other category includes
persons who are caught under the third limb of the definition, namely "prior
to the determination of the persons who are contributories, includes every
person alleged to be a contributory", and that the meaning of these words
are to be gathered from a reading of the Act and the winding up rules as a
whole. The Act empowers the court and the liquidator respectively to settle
the list of contributories and this power arises upon a winding up order
being made (s. 244(1) and s. 252(b) respectively). Under the Companies
(Winding up) Rules 1972, the liquidator is under a duty to (a) draw up an
interim list setting out the names of persons whom he proposes to include in
the list of contributories; (b) send out the proposed list to the affected
persons and fix a date for hearing objections; and (c) decide upon the
objections, if any, and settle the final list and inform the persons whose
names appear in the final list that they may make an application to the
court to vary the list (Rules 67-70 Companies (Winding up) Rules 1972).
Where a person objects to being named as a contributory on the final list of
contributories drawn up by the liquidator, he is still regarded as a
contributory for the purposes of liability to pay money or make good calls
prior to the court's determination on his objection.
I agree with and apply the above statements expounded by the respective
learned authors and find that Yakin Mulia does not appear to come within any
of the illustrations given by them. I therefore hold that Yakin Mulia is not
a "contributory" within the meaning of s. 4(1), and so has no locus standi
to appear and oppose this petition.
Judgment Debt
In resisting the petition, learned counsel Mr. FH D'Cruz, assisted by Mr. BP
Yap, contended for the judgment debtor that there is an appeal against the
judgment debt.
It was submitted for the judgment creditors that upon the judgment being
entered, the debt ceased to be disputed.
It is necessary for me to categorically state that the judgment creditors
had obtained judgment after a full trial. Subsequently, upon the judgment
debtor's application, I granted a conditional stay thereof, the condition
being that the judgment debtor was to pay the judgment debt into the
solicitors' joint account within 21 days of the conditional stay and that
such debt was not to be released pending the disposal of the judgment
debtor's appeal. However, the judgment debtor had declined to fulfil the
condition, thereby deliberately allowing the conditional stay to lapse.
The judgment debtor had instead filed another application in the Court of
Appeal in order to seek a second bite at the proverbial cherry. The Court of
Appeal had without any hesitation dismissed the judgment debtor's second
application. There is therefore no stay and hence no legal impediment to the
judgment creditors obtaining the fruits of their litigation. Hence, this
winding up petition.
It is instructive to note that even a default judgment is a good and
enforceable judgement to form the basis for supporting a winding up
petition: per Hashim Yeop A Sani CJ (M) (as he then was) in Pembinaan KSY
Sdn Bhd v. Lian Seng Properties Sdn Bhd [1991] 1 CLJ 343 (Rep); [1991] 1 CLJ
263; so also a summary judgment: per Abdul Aziz J (now FCJ) in Bank Utama
(M) Bhd v. GKM Amal Bhd [2000] 2 CLJ 525; and per Su Geok Yiam JC (now J) in
SBSK Plantations Sdn Bhd v. Dynasty Rangers (M) Sdn Bhd [2002] 2 CLJ 329 HC.
Defective Statutory Notice
The judgment debtor raised the issue that the judgment creditors' statutory
notice was defective while the judgment creditors held a contrary view.
I shall first consider the question as to whether the issuance of the
statutory notice is a sine qua non to the petition.
In Maril-Rionebel (M) Sdn Bhd & Anor v. Perdana Merchant Bankers Bhd and
Other Appeals [2001] 3 CLJ 248 CA, Gopal Sri Ram JCA gave the answer in the
negative, adding that what is needed is compelling evidence of the company's
inability to pay its debts as and when they fall due.
A similar answer was given by Abu Mansor J (later FCJ) in Teck Yow Bros
Hand-Bag Trading Company v. Maharani Supermarket Sdn Bhd [1989] 2 CLJ 555
(Rep); [1989] 1 CLJ 258 HC; and Dillon LJ in Taylors Industrial Flooring Ltd
v. M & H Plant Hire (Manchester) Ltd [1990] BCLC 216 CA.
In the circumstances, it is trite law that the statutory notice is not a
prerequisite to the petition and so the alleged ground of a defective
statutory notice is the judgment debtor's red herring. Further, I am unable
to see any merit in this submission, as there is no defect therein.
Inability To Pay
It was said for the judgment debtor that it has several on-going housing
projects and so it is not insolvent.
In submitting on the judgment debtor's inability to pay and insolvency, the
judgment creditors relied on the the judgment debtor's non-compliance with
the statutory notice, and its failure to lodge accounts for five years,
commencing 31 December 2001.
[36] In my view, as the judgment debtor has failed to comply with the
statutory demand and to pay the judgment debt, it is presumed to be unable
to pay its debt ie, it is insolvent (see my judgment in RHB Bank Berhad v.
Pembinaan M.C.P. Sdn Bhd [2003] 5 CLJ 335; [2002] 597 MLJU 1 at p. 3; and
Taylors Industrial Flooring Ltd, supra, per Dillon LJ.).
The burden is on the judgment debtor to prove its solvency. It is imperative
to observe that, in contravention of the Companies Act 1965, the judgment
debtor has for five years ie, since 31 December 2001 failed to lodge updated
accounts with the Companies Commission of Malaysia (formerly the Registry of
Companies). The judgment debtor has never produced or exhibited its accounts
to overcome this vacuum. It is abundantly clear that the judgment debtor is
neither solvent nor active, as has been highlighted in two authorities.
First, in Meram Holdings Sdn Bhd v. GKM Wilayah-Prescon Sdn Bhd [2005] MLJU
352, there was a s. 218 petition for the respondent to be wound up on ground
of its inability to pay. The relevant facts revealed that the respondent had
not filed its audited accounts for seven years and that there was no
evidence that it was actually able to pay its debts or is commercially
solvent. Hence Abdul Wahab bin Said Ahmad J concluded that it would be
against public interest to allow an insolvent company to continue trading
when it does not have the ability to settle its debts.
The next case is In the matter of Simionato Holdings Pty Ltd; The
Commissioner of Taxation of the Commonwealth of Australia v. Simionato
Holdings Pty Ltd [1997] Aust Fedct Lexis 55, which concerns a petition for
the winding up of the respondent on the basis of an equipollent provision of
the Malaysian s. 218. The respondent, a trust company, had presented no
detailed balance sheets or profit and loss accounts or trading statements
for several years. Its annual returns disclosed total assets of a mere
A$100, and there was no operating profit or loss for that financial year.
Mansfield J could find no reason why he should not make a winding up order
against the respondent.
Reverting to the judgment debtor's claim that it has several unnamed and
unidentified housing projects elsewhere, it is my view that such
unsubstantiated claim does not ipso facto rebut the presumption of
insolvency against it.
Support for my view may be garnered from Malayan Plant (Pte) Ltd v. Moscow
Narodny Bank Ltd [1980] 1 LNS 44; [1980] 2 MLJ 53 where the Privy Council
upheld the concurrent winding up order made by the Singapore Court of Appeal
and High Court in which Wee Chong Jin CJ (Singapore) (as he then was) cited
a passage from Buckley on the Companies Act, 13th edn, at p. 460, dealing
with commercial insolvency, as meaning that the company was unable to meet
current demands upon it, and referred to the following impeccable passage:
In such a case it is useless to say that if its assets are realized there
will be ample to pay twenty shillings in the pound: this is not the test. A
company may be at the same time insolvent and wealthy. It may have wealth
locked up in investments not presently realizable; but although this be so,
yet if it have not assets available to meet its current liabilities it is
commercially insolvent and may be wound up.
Further support is to be found in Re Sunshine Securities (Pte) Ltd.;
Sunshine Securities (Pte) Ltd. & Anor. v. Official Receiver and Liquidator
of Mosbert Acceptance Ltd. [1977] 1 LNS 109; [1978] 1 MLJ 57 where the
Singapore Court of Appeal in a judgment delivered by Rajah J rejected the
respondent's submission that the respondent owned a property which was worth
far in excess of the alleged debt due to the petitioner seeking to wind up
the respondent under s. 218, and referred to the law clearly stated in the
above passage from Buckley on the Companies Act.
In the instant petition, although the respondent, by mere lip service,
claims to be able to pay the judgment debt, it is in reality embarking on a
persistent and deliberate refusal to pay. In my view, the respondent's bare
claim coupled with the absence of satisfying the judgment debt cannot
provide the respondent with any defence: Cornhill Insurance plc v.
Improvement Services Ltd and Others [1986] 1 WLR 114, as applied by Abdul
Malik Ishak J in Europlus Corporation Sdn Bhd v. Lim Wai Leng [2003] 1 LNS
31; [2003] MLJU 42.
Conclusion
On the foregoing grounds, the inevitable result is the making of a winding
up order against the judgment debtor which I hereby do, in terms of the
petition in encl (3).
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