1) Section 218(1) of the Companies Act (Malaysian Companies Act 1965) sets out the circumstances in which a company may be wound up by the Court, of which s218(1)(e) being one of the “common” grounds i.e. inability of the company to pay its debts.
2) Upon service and the non-payment of a s218 notice, the presumption under s218(2)(a) will be invoked that the company is deemed unable to pay its debts.
Judgment
3) It is also trite law that the Petitioner does not need to be armed with a Judgment to invoke the presumption under s218. Nevertheless and unfortunately, many judges and the official receivers department seek this (a judgment) as a “prerequisite”. .
The Court of Appeal affirmed that “It is not provided under the Act that a petitioner must be armed with a judgment debt prior to the filing of a petition to wind up a company” (Syarikat Mohd Noor Yusof Sdn Bhd v Polibina Engineering Enterprise Sdn Bhd (in liquidation) – COA [2006] 1 MLJ 446)
“Under s218(2)(a) of the Act, once a notice to pay a debt has been served on a company, the company has to meet the presumptive challenge of the section by disputing the existence of the debt which can be done by either showing that the debt is non-existent or that the petitioner is not its creditor.” (Tan Ah Teck (t/a Plumcon Plumbing & Construction Co) v Coffral (Malaysia) Sdn Bhd – HC [1992] 1 MLJ 553)
The Debt - A liberal interpretation
4) Being a statutory right, the Federal Court decided that Courts ought to adopt a liberal interpretation in considering of the provisions of s218(2)(a) of the Companies Act and even a demand not specifying an exact sum was deemed sufficient. Commercial reality demands of this liberal interpretation otherwise leaving this section an absurdity. The leading case of Re Fabo Pty applied. The Courts are looking into the commercial insolvency of the company rather than technical objections of the demand.
“The court should adopt a liberal interpretation when considering the provisions of s218(2)(a)of the Act. The adoption of a literal interpretation would be difficult as it would compel the court not to make a winding up order notwithstanding the existence of clear evidence that an undisputed sum exceeding RM500 has remained unpaid after a demand made without any reasonable explanation for the failure to pay. Further, commercial reality demands that liberal interpretation be adopted.
A notice of demand under s218 need not specify the exact sum due as at the date of demand. So long the sum due exceeded RM500 and remained unpaid after the demand made without any reasonable explanation to the satisfaction of the court, there is therefore neglect to pay such sum within the meaning of the section” (Malaysia Air Charter Co Sdn Bhd v Petronas Dagangan Sdn Bhd – FC [2000] 4 MLJ 657)
A statutory right/ Commercial Insolvency
5) In any event, the right to present a Petition is a statutory one and cannot be taken away unless the company/Plaintiff can seriously challenge and prove that the debt is substantially and bona fide disputed. Furthermore, the party must prove that they are able to pay the debt and are not commercially insolvent.
6) Following the Privy Council, Sri Hartamas Development Sdn Bhd v MBF Finance Bhd – SC [1992] 1 MLJ 313 decided that, “In dealing with ‘commercial insolvency’, that is, of a company being unable to meet current demands upon it, we would respectfully follow the Privy Council in the Malayan Plant case and cite the following observations from Buckley on the Companies Act (13th Ed) at p 460: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”
Conclusion
Alas, as aforemetioned, many courts seek a judgment as a “prerequisite” before the Winding-Up..
