Lecture 7

QUESTION 1

(i) Explain what is meant by the term “winding up”?

Winding up is a process in which the existence of a company is brought to an

end, where assets of a company are collected and realised. The proceeds collected
are used to discharge the company’s debts and liabilities and the remaining balance
(if any) will be is distributed amongst the contributories according to their entitlement.
Under s.431 of the Companies Act 2016, it provides that the provisions of winding
up shall apply to the winding up of a company for either mode specified in s.432(1),
unless the context requires otherwise. S.432(1) of CA 2016 categorises “winding up”
into two divisions:
(a) voluntary winding up; or
(b) compulsory winding up.
With regard to the first kind, s.432(2) of CA 2016 stated that a voluntary winding
up may be effected by a resolution either:
(a) by a members’ voluntary winding up where the company is solvent and the
liquidator is appointed by the members at the members’ meeting; or
(b) by a creditors’ voluntary winding up where the company is solvent and the winding
up and the liquidator is appointed by the creditors at the creditors’ meeting.

Voluntary Winding Up
S.439(1) CA 2016 states that a company may be wound up voluntarily when
the period fixed for the duration of the company by the constitution expires, or on the
occurrence of which the constitution provide that the company is to be dissolved and
the company in general meeting has passed a resolution requiring the company to be
wound up voluntarily; or if the company so resolve by special resolution.
After passing of a resolution for voluntary winding up, s.439(2) requires the
company to lodge a printed copy of the resolution with the registrar within 7 days; and
give notice of the resolution in one widely circulated newspaper in Malaysia in the
national language and one widely circulated newspaper in Malaysia in the English
language within 10 days. According to s.439(3) of CA 2016, the company and every
officer who contravenes this section is said to have committed an offence and shall be
liable to a fine not exceeding RM10,000 and in the continuing offence, to a further fine
not exceeding RM500 for each day during which the offence continues after
conviction.
S.443(1) of CA 2016 stipulates that where it is proposed to wind up a company
voluntarily, the director or in the case of a company having more than one directpr, the
majority of the directors may (a) make a written declaration to the effect that the
directors have made an inquiry into the affairs of the company; or (b) at a meeting of
directors, have formed the opinion that the company will be able to pay its debt in full
within 12 months after the commencement of winding up. Of note, s.433(2) of CA 2016
requires the abovementioned declaration to be made before the notices of the meeting
at which the resolution for the winding up of the company to be proposed are sent out
to the members of a company.
In furtherance to that, s.433(5) of CA 2016 states that a director, who makes a
declaration without having reasonable grounds for the opinion that the company will
be able to pay its debt in full within the period specified, shall be liable to imprisonment
for a term not exceeding 5 years, or a fine not more than RM3 million, to both, and in
the case of continuing offence, to a further fine not more than RM500 for each day
during which the offence continues after conviction.
S.433(3) of CA 2016 provides that a statement of affairs of the company shall
be attached to the declaration containing the particulars made up to the latest
practicable date before the making of the declaration as follows:
(a) the assets of the company, and the total amount expected to be realised;
(b) the liabilities of the company; and
(c) the estimated expenses of winding up
The declaration made by the directors shall have no effect unless (a) it is made at the
meeting of directors; (b) made within 5 weeks immediately preceding the passing of
the resolution for voluntary winding up; and (c) lodged with the registrar before the
date on which the notices are sent out to the members of the company.
Distinction between members’ voluntary winding up and creditors’ voluntary winding
up has been provided under s.444 of CA 2016 that the former is that a directors’
declaration under s.443 has been made, whilst the latter is that a declaration has not
been made.

Winding up By Court/ Compulsory Winding Up

S.464 of CA 2016 provides the persons who may petition to the court for
winding up of a company. The circumstances where the company may be wound up
by court have been clearly provided under s.465 of CA 2016. In particular with the
circumstance in which the company is unable to pay its debts, s.466(1) of CA 2016
provides that a company shall be deemed to be unable to pay its debt if the company
neglected to settle its debt in full within 21 days after the receipt of the letter of demand
from the creditor; or it is proved that the company is unable to pay its debts the court
shall take into account the contingent and prospective liabilities of the company. It is
pertinent to note that a petition to wind up a company, by virtue of s.466(2), shall be
filed in the court within 12 months from the expiry date of the notice of demand issued
under s.466(1)(a) of CA 2016.
S.467 of CA 2016 states that where before the presentation of the winding up
petition, a resolution has been passed by the company for voluntary winding up, the
winding up of the company shall be deemed to have commenced at the time of the
passing of the resolution, and all proceedings taken in the voluntary winding up shall
be deemed to have been validly taken, UNLESS the court on proof of fraud or mistake
thinks fit to direct otherwise.
In this regard, reference can be made to the case of Malayan Banking Bhd v
Chip Lam Enterprise Bhd [2015] 5 CLJ 260, where upon the filing of the winding up
petition, the debtor company (“respondent”) passed a director’s resolution which
resolved that the respondent be voluntarily wound up. Hence, the respondent
company applied for members’ voluntary winding up and filed a declaration of solvency
of the company, and appointed interim liquidator. The issue encountered in this case
is whether the respondent’s company voluntary winding up was made bona fide. The
High Court held that the respondent’s voluntary winding up was not bona fide and was
contrived to unlawfully thwart both the petitioner’s PL application as well as this
petition. This was so, as the respondent failed to adduce any credible evidence on
why the respondent’s directors had to immediately cease the respondent’s business
on 5 September 2014 and to immediately hand over the respondent’s affairs to TCK
on that date and why the respondent’s contributories could not expeditiously be
considered and resolved by way of a special resolution to commence voluntary
winding-up of the respondent. If the respondent’s voluntary winding-up was bona fide,
there was no reason for the respondent to wait until 5 September 2014 for the
respondent to ‘realise’ the need to resort to the voluntary winding-up procedure.

In conclusion, winding up is a proceeding to cease the running in business of a

company, and to call the existence of the company to an end, due to the fact that in
cases of members’ voluntary winding up, the company is itself solvent, and may
subsequently be switched to the a creditors’ voluntary winding up where the company
is proved to be insolvent and is unable to settle its debt in full within a period specified
by the creditor.

(ii) What is a statutory declaration of solvency?

With regards to winding up of a company, statutory declaration of solvency means a

company is declared solvent if it is proved to be able to settle its debt in full within 12
months after the commencement of the winding up. This has been clearly provided
unders.443ofCA2016. In addition, s.112 of CA 2016 has also provided the provisions
on solvency test relating to redemption of preference shares, reduction of share capital
and financial assistance.
QUESTION 2

Bakers Best Sdn. Bhd. has been a leading cake and biscuit manufacturers in Malaysia.
However, after the sudden passing of their Managing Director two years ago they have
been facing financial problems as there has been no effective leadership. The
directors decide to liquidate the company and appoint an Interim Liquidator to study
the affairs of the company. The interim liquidator is of the opinion that the company is
not solvent.

(i) Advise Bakers Best Sdn. Bhd. on the best course of action.
(ii) Discuss the implications of a creditors voluntary winding up and a Court ordered
compulsory winding up.

(i) Since Bakers Best Sdn Bhd is not solvent, the best course of action is to opt for
winding up by the Court. Section 464(1)(a) of the Companies Act 2016 provides that
a company, whether or not it is being wound up voluntarily, may be wound up under
an order of the Court on the petition made by the company itself. Section 465(1)(e) of
the Act provides that the Court may order to wind up a company if the company is
unable to pay its debts. It is a common ground to wind up a company due to failure to
pay debts in 12 months and thus, fail to satisfy the solvency test.
According to Section 446(1)(a) of the Act, a company shall be deemed to be
unable to pay debts if the company is indebted for a sum exceeding the amount as
may be prescribed by the Minister and a creditor by assignment or otherwise has
served a notice of demand requiring the company to pay the sum due by leaving the
notice at the registered office of the company and the company has 21 days after the
service of the demand neglected to pay the sum or to secure the compound for it to
the satisfaction of the creditor. Currently, the amount of threshold for a company to
wind up is RM10,000.
As to its procedure, Rule 22 of the Companies (Winding-Up) Rules 1972
provides that to wind up a company, a petition may be filed to the Court in Form 2.
As per Rule 23, the petition must be be presented at the office of the Registrar who
shall appoint the time and place which must be written in the petition and have
sealed copies of it, and the petition is to be heard. Also, according to Rule 24, the
petition must be advertised as provided. The advertisement must be advertised in
Form 4 and 7 clear days or such longer time as the Court may direct before the
hearing. The advertisement must be advertised once in the Gazette and twice at
least in two local newspapers circulating in Malaysia or in such other newspapers as
the Court may direct. The advertisement shall also state the day on which the
petition was presented and the name and address of the petitioner and of his
solicitor or local agent if any.
Then, the creditors have to serve the petition upon the company at the
registered office of the company or at the principal or last known principal place of
business if there is no registered office and by leaving a copy with any member, officer
or servant of the company. The affidavit of service of the petition has to be filed either
in form 5 or 6, as provided under Rule 25. Subsequently, Rule 26 provides that every
petition for the winding up of a company by the court shall be verified by an affidavit in
Form 7 which shall be made by the petitioner or one of the petitioners. If the petitioner
is presented by a corporation or by some director or secretary or to the principal officer,
there shall be sworn after and filed within 4 days after the petition is presented and the
affidavit shall be prima facie evidence of the statement in the petition.
 Next, Rule 33 states that after the petition is presented, the petitioner or his
solicitor must attend before the Registrar on a day appointed by the registrar to satisfy
him that petition has been duly gazetted and advertised, the prescribed affidavit
verifying the statements therein and the affidavit of service has been duly filed, the
consent in writing of the approved liquidator nominated by the petitioner has been
obtained and filed, and the provisions of these rules as to petitions have been duly
complied with.
Once the order is made for the winding up of a company, according to Rule 34,
the petitioner must forthwith inform the liquidator in Form 10, and within 14 days of the
pronouncement, they have to gazette and advertise a notice in Form 12 of the making
of the order, and serve upon the liquidator, official receiver and the registrar of
companies a copy of the order. The order to wind up a company in Form 11 must
contain at the foot of the order stating that it will be the duty of the person who is at
the time secretary or chief officer of the company and of such of the persons who are
liable to make out of concur in making out the company’s statement of affairs as the
liquidator may require to attend on the liquidator forthwith on the service of the order
at the place mentioned therein.

(ii) Winding up or liquidation of a company is the ending of as company’s life, its

property administered for the benefit of its creditors and members. At the end of the
winding up, the company will be dissolved. For creditors’ voluntary winding up, it is
where the director of the company does not file a declaration as to solvency of the
company, the voluntary winding up is called the creditors voluntary winding up.
The procedure is fairly straightforward. The directors instigate the process by
convening meetings of shareholders and creditors. At the shareholders’ meeting a
resolution is passed to wind-up the company and appoint a Liquidator. A creditors’
meeting follows immediately after the shareholders’ meeting where creditors may
then, if they so wish, put forward an alternative nomination for Liquidator, which is,
then subject to a vote.
As to its procedure, Section 440 of the Companies Act 2016 provides that the
directors must make a statutory declaration that because of liabilities the company
cannot continue in business and the meeting of the creditors have been summoned
within 30 days of the declaration. Then the directors shall lodge the declaration with
the Registrar of Companies and Official Receiver and appoint an Interim Liquidator,
which will be valid for 30 days. He will be provided to maintain the status quo of the
company and will be vested all the powers of a liquidator.
Bear in mind, the creditors cannot stop the winding up process. They can only
nominate their own liquidator to administer the winding up. Next, under Section 499 of
the Act, the company shall call for the creditors meeting and issue notice together with
a list of creditors and their due debts. This notice should be advertised in 1 National
language paper and 1 English paper with wide daily circulation, at least 7 days prior
to the meeting. Directors have to present the Statement of Affairs at the meeting. Any
breach will attract liability of a fine up to RM10 000.
On the other hand, compulsory winding up is winding up by an order of the
court, which is initiated by the presentation of a petition by a person who is entitled to
do so. The petition can be presented in the High Court of Malaysia. Two things must
be shown before the court will make a winding up order on a petition that the petitioner
had the right to present the petition, and that one of the grounds set out in the Act as
justifying a winding up has been made out. The court may not make a winding up order
unless it is satisfied that the voluntary winding up cannot be continued with due regard
to the interest of the creditors or contributories.
Section 456(1) of the Act provides that the Court may order a winding up if (a)
the company has by special resolutions resolved that it would be wound up by the
court, (e) the company is unable to pay its debts, or (h) the court is of opinion that it is
just and equitable to do so. Section 466(1)(a) further provides that the company shall
be deemed to be unable to pay its debt if it is indebted in a sum exceeding the
prescribed sum (RM10, 000.00), the creditor by assignment or otherwise served a
notice of demand requiring the company to pay the sum by leaving the notice at the
registered office and the company has 21 days after the service of the demand
neglected to pay such sum. Take note of Section 467(2) that winding up will
commence on the date of the winding up order.
QUESTION 3

Mayflower Sdn Bhd would like to oppose the petition on the following grounds.
Now, it is to advise whether the grounds alleged by Mayflower Sdn Bhd will succeed.

With regard to the first ground, it is whether the affidavit was defective due to
its late filing. According to Rule 26 of Company Winding Up Rules 1972, the affidavit
should be sworn and filed within 4 days of the petition being presented. Reference is
made to the case of Lim To Chiow v Dian Tong Credit & Development Sdn Bhd,
where an affidavit verifying the petition was sworn before the petition was presented.
The court held that the affidavit is in relation to some matter pending in the court. It
cannot purport to verify something non-existent at the time it is sworn. An application
for extension of time to file a subsequent affidavit may be made under r. 7(1) CWR.
However, the court will not allow the petitioner to re-swear a 2nd affidavit to verify the
1st affidavit as it is in breach of r. 26 CWR. Contrary to that, the case of Sari Atlantic
S/B v Aik Kim Enterprise, where the petition in this case was presented on 15/2
whereas the affidavit was affirmed on 10/2, 4 days before presentation of petition. It
was held that non-compliance with r. 26 does not render the petition a nullity and it is
curable under s. 221(2) CA which allow the court to cure technical error there is no
injustice caused to the other party.

On the facts, it is clear that the affidavit was affirmed 5 days later than the
presentation of winding up petition which is a clear breach of rule 26. Since there was
no application for extension if time made, the court will not allow a re-swear of affidavit
under normal circumstance. However, in a very exceptional case, the court will allow
the error made in affidavit to be cured under s. 221(2) CA when there is no injustice
cause. If our case is very exceptional, the court may follow the principle established in
Sari Atlantic’s case. Otherwise, the petition is deemed to be void.

Moving on from that, the second issue is whether B Bank can still enforce the
judgement on Mayflower Sdn Bhd after 6 years. Under O. 46, r. 2 ROC, it states that
a writ of execution to enforce a judgment may not be issued without the leave of the
Court where 6 years have lapsed since the date of the judgment. In the case of
Wangsini S/B v Grand United Holdings Bhd, judgment was obtained on 19 Jan 1990
and winding up petition filed on 30 Jan. 1996. It is clearly exceeded 6 years.
However, the court held that O.46, r.2 RHC is not applicable in a winding up as the
winding up petition does not come within ‘a writ of execution’. Hence, it is not
applicable to petitions under s.218. Applying this principle to our facts, there is no
issue on the 6 years limitation to enforce the judgment by B Bank on Mayflower Sdn
Bhd since O.46, r.2 ROC is not applicable in a winding up as the winding up petition.

The next issue is whether Mayflower Sdn Bhd will succeed in setting aside the
petition by relying on the ground that CS was not an authorized signatory of B Bank.
Rule 26 states that every petition in Form 2 must be verified by affidavit in Form 7 by
the petitioner, or in the case of a company by its director, secretary or other principal
officer. In the case of Re Lim Chooi Sang, The court has allowed the appeal to set
aside bankruptcy notice on the ground that the signature in the two documents were
different and no explanation was given for the discrepancy. On the facts, the affidavit
was affirmed by LO, bank’s legal officer.
 LO is said to be likely fall within the category of “other principal officer”.
Therefore, B Bank is advised to give explanation as to the reason of inconsistency of
signatures. In the event that there is no justified reason given, court may set aside
such petition.

In relation to the last ground that CS was not an authorized signatory of B Bank,
Section 2 of Companies Act 2016 defines officer as any director, secretary or
employee of corporation; a receiver and manager of any part of the undertaking of the
corporation appointed, or any liquidator of a company appointed in a voluntary winding
up. In the case of Re See Joo Siong, the court held that modern corporate law
recognized the concept of implied authority. By applying the above principle, CS is a
chambering student at B Bank. CS does not fall within the definition of “officer”. It is
safe to say that CS is not an authorized signatory of B Bank. Mayflower Sdn Bhd may
oppose on this ground.
LECTURE 8

QUESTION 1

Since P had already presented a petition to wind up RSB and the petition was
served at RSB’s office, and the hearing of the petition was scheduled accordingly,
therefore it is my advice to RSB that they have to firstly (a) give notice of intention to
appear; and followed by (b) the filing of an affidavit in opposition.

Notice of Intention to Appear

According to rule 28(1) & (2) of Companies (Winding-up) Rules 1972, it is
particularly stated that a notice of intention to appear at hearing filed in Form 8 shall
be served at least by 12p.m. the day before the hearing. In furtherance to that, by
virtue of rule 28(3) of the Companies (Winding Up) Rules 1972, for those who fail to
comply with this rule shall with the leave of the court to appear on the hearing of the
petition.

Affidavit in Opposition
With reference to rule 30(1) of the Rules 1972, it is provided that affidavit in
opposition must be filed and served on a company may be wound up within 7 days
before the date appointed for the hearing of the petition. Rule 30(2) of the Rules 1972
further provides that any affidavit in reply to an affidavit filed in opposition to a petition
shall be filed within 3 days of the date of service of the petitioner of the affidavit in
opposition and a copy of the affidavit shall be forthwith served on the opposing
petitioner, or his solicitor.
Moving on to the issue of whether there is any possible steps that can be taken
to discontinue the winding up petition, I am of the opinion that RSB should forthwith
apply for a stay of proceeding. S.470 CA 2016 states that a stay of proceedings can
be applied, after the presentation of petition, or before the winding up order had been
made. In our present case, the fact clearly shows that P had indeed presented a
petition to wind up RSB, and a hearing had been scheduled. However, it does not
further state that a winding up order has been obtained. Hence, in applying the
provision in s.470 of CA 2016, it is my opinion that RSB is still allowed to apply for a
stay of proceeding of the petition. In the event that the court were to grant the
application to stay the proceeding of petition, a copy of such order must therefore be
lodged with the Registrar within 14 days from the making of this order.
In this regard, it is important to refer to the cases like Ga Seng Paper Marketing
v Percetakan Warni S/B, where the factors that the court should take into consideration
before granting a stay to the applicant are as follows:
(a) Company total value of assets exceed debt; and
(b) Payment had been made to the official receiver to settle the judgment sum
Additionally, the court in Sony Malaysia S/B v Asia Broadcasting Network has
also reiterated the factors that need to be taken into account:
(a) Debtor had taken step and serious effort to solve the financial problem with creditor;
(b) Debtor had shown the Memorandum of Understanding to its shareholders; and
(c) Creditor also willing to give time to the Debtor to make arrangement.
 In order to successfully obtain the stay from the court, RSB is highly suggested
to comply with the principles containing the factors for which the court must have taken
into consideration when deciding on whether to grant RSB a stay or not.
Apart from the application for stay of proceeding, RSB may also apply to the
court for an Erinford injunction. Of note, there is no provision governing on such
injunction under the Companies Act 2016, and Company Winding up Rules. However,
the power of court to grant such an injunction has been known as inherent jurisdiction
which is provided under section 23(2) Courts of Judicature Act, and under the
Common Law. Under the common law, a restriction on presenting a winding up petition
would amount to an abuse of process.
According to the case of Bina Satu Sdn Bhd v. Tan Construction, the court held
that a debtor who disputed the debt may be granted an injunction against the winding
up petition. The court in Sun Soon Heng Coach Works v Nima Travel S/B went on to
state that in order for the court to grant an injunction, there must be a prima facie case
which means that there is bona fide debt to be disputed. What more is that, the court
stated in the case of Mobikom S/B v Inmiss Communication S/B that in addition to the
bona fide dispute about the debt, the injunction can also be granted when it involves
foreign jurisdiction which leads to multiplicity proceeding.
On the fact, P claimed a total sum of RM1.2 million for the work on 30 Sept 2015,
30 Oct 2015 and 30 Nov 2015. RSB may dispute the sum claimed because the
payment for the work done may not be agreed upon between the two parties yet.
Hence, this amount claimed by P may possibly be disputed and challenged. Hence,
RSB may thus apply to the court for an injunction by disputing the amount claimed by
P.
QUESTION 2

Based on the facts given, the issue is whether A is able obtain an adjournment
against the winding up petition, whether the lack of an affidavit in opposition by A ruins
the chance of getting an adjournment.For the first issue, the appropriate authority is
the Section 469 of the Companies Act 2016, which states that during the hearing of
the petition, the Court has the power to dismiss or adjourn the petition. This allows a
possibility for an adjournment for A against the winding up petition.
The case of Sony Malaysia Sdn Bhd v Asian Broadcasting Network (M) Sdn
Bhd, in this case, the petitioner obtained summary judgment against the respondent
and subsequently, served a notice to the respondent, demanding payment of the
judgment sum within 21 days, failing which winding up proceedings would be instituted
against the respondent. The respondent pursuant to Section 221, 243 Companies Act
1965 and Order 92 Rule 4 ROC 2012, applied for a stay and adjournment of the
winding up proceedings for 6 months, which then was amended for a 3 months.
The court allowed the application of respondent of stay and adjournment of the
winding up proceeding for 3 months. The court reasons was that the respondent, the
respondent had taken steps and made serious efforts to solve its financial problem
with its creditors, including the petitioner. The respondent had already shown a
memorandum of understanding which was executed by the respondent, and
shareholders and investor, this would take time to look into the details of the terms of
the joint venture agreement which could help the respondent to repay the debts owed.
Furthermore, the creditors are willing to give time to the respondent to pursue the
arrangement between the investor and the respondent.
By the virtue of the section 469 CA 2016, it clearly shows that the court has the
power to grant an adjournment against the winding up petition. The case of Sony
Malaysia Sdn Bhd v Asian Broadcasting Network (M) Sdn Bhd, the court allowed the
application for stay and adjournment because there is a good reason that the
respondent is sincere in trying to solve its financial problem with its creditors. The facts
shows that A’s willingness shows sincerity to solve the taxed costs. Therefore, A
should be able to obtain an adjournment against the winding up petition.
For the second issue, the case of Delta Drive (M) Sdn Bhd, Hong Leong
Finance Bhd, in this case the appellant failed to file affidavit in opposition in the first
hearing and in the second hearing he failed to file affidavit in opposition again and he
applied for an adjournment on the grounds that he was notified of the hearing date
late. The High Court and appeal his case in the Court of Appeal. However the Court
dismissed the appellant’s application on the ground that the appellant new of the date
of the hearing and had ample time to file the affidavit in opposition but fail to do so as
accordance to Rule 30 (1), and it is unreasonable to suggest that Rule 30 (1) need not
be complied when raising a preliminary objection. The court also held that the power
to grant an adjournment of the hearing of any matter or any trial is discretionary.
On the facts, the circumstances did not merit an adjournment. The facts shows
that A did not file any affidavit in opposition and A only wishes for an adjournment
against the winding up petition, the fact that A did not file any affidavit in opposition
ruins the chance of A to getting an adjournment as accordance to the case of Delta
Drive (M) Sdn Bhd, Hong Leong Finance Bhd. Conclusion, the chances of A obtaining
an adjournment is low, due to his mistake of not filling an affidavit in opposition.
QUESTION 3

The test for inability for a company to pay its debts is one of commercial
insolvency, under this rule a company shall be deemed to be insolvent when it is
unable to pay off its immediate debts regardless of how much wealth it has in the form
of assets.
Section 466 of the CA 2016 (earlier it was section 218 (2)(a) CA 1968) where
the company has after 21 days of the service of the notice of demand neglected to
pay the sum demanded or secured or compounded it to the satisfaction of the creditor.
It was applied in the case of Malayan Plant Pte. Ltd. v Moscow Narodny Bank Ltd.
[1980] –where by the court held that the appellant was insolvent as respondent bank
had proved the debt and that the debt had not been paid. This principle was also
followed in the case of Re Hong Huat Realty)M) S/B, UAB Bhd.v Hong Huat Realty
(M)S/B.

(ii) Under what circumstances can a company refuse to abide by a demand for
payment?
A company may refuse to abide by a demand for payment if the demand for
payment was not properly delivered to them as per r.18 CWR 1972 , which is also
stated in the case of Weng Wah Construction S/B v Yik Foong Development S/B.
A company may also refuse to abide by the demand if it disputes the debt on
substantial grounds.- – Wangsani S/B v Grand United Holdings Bhd.
A company may also refuse to abide by the demand if it amounts to abuse of
the process of court like for example to embarrass the company, Apirami S/B v Tamil
Nesan (M) S/B[1986]
A company may also refuse to abide by the demand if there is certain
irregularities contained in the notice of demand that would amount to injustice against
the company in question. This principle is stated in the case of Kampat Timber
Industries S/B v Bensa S/.

(iii) Discuss the powers of the Court to grant. a stay of proceedings in a winding-
up.

Under section 470 of the CA 2016 the Court may grant a stay of proceedings upon
an application by the company, the order must be lodged with the Registrar CCM
within 14 days of making. The grant of such a order is at the court’s discretion,
unexplained and excessive delay in making such an application may be a ground for
refusal as stated in the case of Ga-Seng Paper Marketing Sdn Bhd V. Percetakan
Warni Sdn Bhd.
Also in the granting of such an order the wishes of the creditor shall also be
considered, as well as the conducted of the debtor company before the winding
proceedings was commenced. This was stated in the case of Sony Malaysia Sdn Bhd
V. Asian Broadcasting Network (M) Sdn Bhd and Lin Shoon Jewellers Sdn Bhd V.
Kedai Emas Mee Chan Sdn.
A court may grant a stay of proceedings in the case whereby the debt is disputed
by the debtor company in s. 23(2) Courts of Judicature Act(CJA) 1964 and the
common law, this principle is also stated in the case of Bina Satu Sdn Bhd v. Tan
Construction [1988].
A court may also stay the proceedings if the winding up process amounts to an abuse
of court process as stated in the case of Dynaworth Shipping Sdn. Bhd. v Ling Chung
Ann
Q4

Timber Sdn. Bhd.(TSB) contracted with All Machines Sdn. Bhd.(AMSB) for the
purchase of wood cutting machines for RM380,000. Mr. Woods the Managing Director
of TSB executed a guarantee in favour AMSB for the said amount. Delivery of the
machines was made over a period of several months. TSB rejected some of the
machinery as not meeting specifications. Unfortunately, neither TSB or AMSB kept
any records of the deliveries or rejections or re-deliveries if any. Consequently TSB
alleged that only wood cutting machines worth RM350,000 was delivered. However,
despite negotiations AMSB issued a bankruptcy notice against Mr. Woods for
RM380,000 with interest at 12% per month and costs until final settlement.
At the same time they also issued a s.218 CA1965 (now s.466(1) CA2016) notice for
the sum of RM380,000 interest at 12% per month and costs until final settlement.

Advise TSB and Mr. Woods on the law and procedure.

The first issue is whether Mr Woods can be sued as guarantor. Reference is

made to Section 5(3) of the Insolvency Act 1967, it states that a petitioning creditor
shall not be entitled to commence any bankruptcy action against a social guarantor.
“Social guarantor” is defined in Section 2 as the person who provides the guarantee
not for the purpose of making profit. On the facts, we can see that Mr Woods is the
Managing Director of TSB who provides guarantee for the purchases for TSB. Such
purchases are for the benefit of TSB to gain profit and hence, Mr. Woods is deemed
not to be a “social guarantor”. As a result, AMSB has the right to commence
bankruptcy action against Mr Woods by relying on the guarantees provided.
Next, it is whether the bankruptcy notice issued against Mr Woods is valid. By
virtue of Section 3(1)(i) Insolvency Act 1967, it provides that a bankruptcy notice can
only be issued on a debtor against after a final judgment has been obtained. Form 35
requires a copy of a final judgement in order to issue a bankruptcy notice under Rule
90 of the Insolvency Rules 2017. In Re Udos ak Rigging exp Seabanc Kredit Sdn. Bhd
it was held that bankruptcy notice is to issue only on a final judgment or order where
execution has not been stayed.
On the facts, it is silent on whether AMSB has obtained a judgment against Mr.
Woods. A bankruptcy notice can only be issued based on a final judgment by the court.
Thus, if a judgment has not been obtained, AMSB cannot issue a bankruptcy notice
against MR. Woods.
Section 5(1)(a) of the Insolvency Act 1967 provides that the threshold for the
debt for bankruptcy proceedings is RM50,000.00 currently. According to s. 3(1)(i) of
Insolvency Act 1967, bankruptcy notice should accurately quantify the amount due
including interest. In the case of Low Mun v Chung Khiaw Bank Ltd, it was held that
the bankruptcy notice should quantify the amount including the interest. If the amount
is not calculated, it will not be deemed as ‘liquidated’ and such mistake is not curable.
In addition, the case of Fawzia bin Osman v Bank Bumiputra Malaysia Bhd stipulates
that a bankruptcy notice which was ambiguous and uncertain would render the
bankruptcy notice null and void. The defect was not curable under s. 131 or r. 274. On
the facts, the amount stated in the bankruptcy notice was RM 380,000 with interest
which is deemed to be not accurately quantified, thus the bankruptcy notice can be
set aside.
 Furthermore, the issue arose here is whether the notice under section 466(1)(a)
of the CA is valid. Section 466(1)(a)¸ a petition for winding up can be presented without
a final judgment. The pre-requisite for a winding up petition is service of Notice of
Demand specifying the debt. The company shall be deemed to be unable to pay its
debts if it has for 21 days thereafter neglected to pay the sum demanded or secure or
compound it to reasonable satisfaction of the creditor under this provision. Hence,
AMSB can start a winding up action against TSB even though there is no final
judgment. Also, if TSB did not respond within 21 days after the Notice of Demand
being served, AMSB can proceed with applying for a winding up petition. Thus, the
Notice of Demand is valid.
Besides, it is pertinent to determine whether there are available steps for TSB
to take to dispute the claims. Section 470 of CA clearly states that where any winding
up action or proceeding is pending against the company, that company may apply to
Court for an order of stay or restrain from further proceedings by way of summons in
chambers supported by affidavit and such Order must be lodged with the Registrar
CCM within 14 days of the making of such Order.
Therefore, TSB may apply to Court for a stay of the proceeding since there was
a dispute on claim. However, such application must be made bona fide and with
reasonable grounds. This is illustrated in the case of Ga Seng Paper Maeketing Sdn.
Bhd. v Percetakan Warni Sdn Bhd, where a winding up petition was filed by the
petitioner due to company’s failure to settle judgment sum. The company applied for
stay on the grounds that the company is not insolvent and the company’s profit is more
than the debts. However, the Court rejected the application as it is not bona fide and
tried to conceal facts. Reference is also made to Sony Malaysia Sdn Bhd v Asian
Broadcasting Network (M) Sdn Bhd whereby the application for stay is granted by the
court as the court was of the view that the respondent has taken steps and made
serious efforts to solve its financial problem and also the application is done in bona
fide. As such, TSB is advised to apply for stay of proceeding based on bona fide and
reasonable grounds.
In order to set aside the petition, TSB may choose to apply injunction against a
winding up. Neither the Companies Act nor the CWR provides the Court the power to
grant injunction against a winding up petition. However, the Court can still resort to its
inherent jurisdiction as provided under s.23(2) of Courts of Judicature Act 1964 and
the Common Law, to restrain winding up petitions based on a disputed debt as it
amounts to an abuse of process. This principle has been recognized in an English
case, Mann v Godstein, which the principle was followed by Malaysian Court in the
case of Batu Satu Sdn Bhd v Tan Construction, which confirmed that a debtor who
disputed the debt may be granted an injunction against the filing of a winding up
petition. In the present case, since there is no record of the delivery of the goods, TSB
may apply for an injunction stating that there is bona fide dispute on the debt as it is
uncertain whether the debt amounts to RM380,000.
QUESTION 5
Based on the facts, the statutory notice of demand for the payment of RM
200,000 within 2 weeks is not in compliance with section 466 whereby it provides the
company is indebted in a sum exceeding that fixed by the Minister and a creditor by
assignment or otherwise served a notice of demand requiring the company to pay the
sum by leaving the notice at the registered office and the company has for 21 days
after the service of the demand neglected to pay the sum.The company should be
given 21 days after the service of the demand to pay the debt.Therefore, the company
is not presumed to be unable to pay debt and thus it is the first ground to oppose the
notice since there is a miscarriage of justice.

On the second issue the notice was handed to Sissy a cleaner of the Hotel
which is not an issue since r.18 CWR 1972 provides the notice need to be sufficiently
served if left or sent by prepaid post to the company’s last known address or that of
the person to be served with.In ET Mix S/B v Sun Steel Construction S/B, a service to
be deemed effective service was that there must be adequate proof of physical
delivery to the recipient. In this instance, the requirement had been fulfilled when the
notice of demand was delivered to the registered office of the respondent by registered
post. Furthermore, the respondent had entered an appearance and filed a notice to
oppose the petition. Moreover, the respondent knew the case against it and even if
the notice of demand was not properly served, the respondent was not prejudiced at
all.By applying this, it is sufficient to serve the notice to the cleaner of the Hotel at the
registered office

However the fact that the hotel had defaulted the payment ,the hotel is
commercially insolvent which has led to the service of the petition on 21.2.2018 as
seen in the case Malayan Plant Pte. Ltd. v Moscow Narodny Bank Ltd. [1980] –
respondent bank had proved the debt and that the debt had not been paid.And thus
the petition can be presented as stated in Pembinaan KSY Sdn. Bhd. v Lian Seng
Properties Sdn. Bhd, a petition for winding-up can be presented based on a judgment
in default so long as not set aside.But because from the beginning the Hotel was
served Statutory demand that is in contravention of less than 21 days, the petition can
be set aside.

On the issue of verifying of the affidavit 4 days before the petition, under r.26
The affidavit should be sworn and filed within 4 days of the petition being presented.In
the case of Sari Atlantic S/B v Aik Kim Enterprise petition was presented to the court
to wind up the respondent company on 15 Feb.1987. However, the affidavit verifying
the petition was affirmed on the 10 Feb,1987 about four days before the presentation
of the petition itself, which was a clear failure to comply with r. 26 CWR. At the hearing
of the petition, the respondent company contended that the non-compliance was a
fatal defect and that the petition must be rejected as this court had no power to cure
such a defect.Held: (1) in this case, none-compliance with r.26 does not render the
petition a nullity and is curable by the court under s.221(2) CA that allows the court to
cure a technical error which does no injustice to the respondents.Therefore , the Hotel
can raise Rule 26 since there is no compliance with statutory requirement in order to
oppose the petition.
 Next issue is whether Hotel can seek for injunction to restrain the
advertisement of petition in the gazette and local newpaper.Under R.24 CWR 1972
makes the advertisement of the winding up petition mandatory. In the case of People
Realty Sdn Bhd v Red Rock Construction Sdn Bhd held that Application for injunction
successful where not against advertisement. Thus the hotel cannot seek for injunction
to restrain the advertisement of the petition.

Since the hotel wants to oppose the statutory notice of demand and the petition
since they are not insolvent since they have assests which if realised will enable them
to pay off the debt, the hotel can seek for remedy of stay under s.470 CA2016 -Where
any winding-up action or proceeding is pending against the company it may it may
apply to Court for an order of stay or restrain further proceedings by way of summons
in chambers supported by affidavit and the Order must be lodged with the Registrar
CCM within 14 days of the making of such Order.