IN THE COURT OF APPEAL OF MALAYSIA AT PUTRAJAYA
CIVIL APPEAL NO. Q-02-1366-06/2013
JOHAN SHIPPING SDN BHD (in liquidation)
PUBLIC BANK BERHAD
[In the Matter of Originating Summons No. KCH-24-2/1 -2012
In the High Court of Sabah And Sarawak at Kuching
Johan Shipping Sdn. Bhd. (in liquidation) … Plaintiff
Public Bank Berhad … Defendant]
Abdul Wahab Patail, JCA Mohtarudin Baki, JCA Mah Weng Kwai, JCA
Date of Judgment: 8th October 2013
GROUNDS OF JUDGMENT
1. The Plaintiff Johan Shipping Sdn. Bhd. (in liquidation) (“the Appellant”) appealed against the dismissal on 22.4.2013 of its Originating Summons.
2. By its Originating Summons, the Appellant had challenged the validity of various security instruments (“the said security instruments”) in respect of 6 specific shipping vessels owned by the Appellant created in favour of the Defendant Public Bank Berhad (“the Respondent”) during the subsistence of the Appellant’s restraining order (“RO”) obtained on 13.10.2010 under Section 176(10), Companies Act 1965 (“the Act”).
3. The security instruments were a Debenture and fixed and floating charges all dated 30.11.2010. The challenge was on the premise that the said instruments constituted a “disposition” of the property of the company within the meaning of section 176(10C) of the Act, and therefore void since no leave of court was obtained for the creation of the same.
4. The RO had remained in force from 13.10.2010 until 7.7.2011.
While the RO was subsisting, the Appellant and the Respondent entered into an Agreement on Restructure and Reschedule (R&R) Arrangement for 13 Fixed Loan (FL) and Al-Bai Bithaman Ajil facilities (ABBA) (“the R&R Agreement”) on 30.11.2010. The R&R Agreement, amongst other things, for the Appellant to undertake to cause a new specific debenture to be created in favour of the Respondent, over 6 unencumbered vessels, as additional security for various loan facilities held with the Respondent.
5. It was not disputed that notwithstanding no leave of court as required by section 176(10C) of the Act was obtained for the creation of the said security instruments created and registered the same day, 30.11.2010. When the proposed scheme of arrangement did not materialize, the Appellant went into voluntary liquidation on 8.8.2011. However, the Respondent sold 5 of the 6 vessels charged under the security instruments for the sum of RM20.5 million.
6. Section 176(10C) provided:
“Any disposition of the property of the company, including things in action and any acquisitions of property by the company, other than those made in the ordinary course of business, made after the grant of the
restraining order by the Court shall, unless the Court otherwise orders, be void.”
7. Since no leave of court was obtained under section 176(10C), the said security instruments would, therefore, be void and the RM20.5 million would have to be returned to the Appellant, if the security instruments were (a) a disposition of property and (b) unless the said security instruments were made in the ordinary course of business.
8. Having considered the submissions for the Respondent, we dismissed the submissions for the following reasons:
a. Although the security instruments was not a transfer, it was a disposition in that the 6 unencumbered vessels were charged as security to the Respondent under which the Respondent had the right to dispose of the vessels, not under a financing arrangement where there is loan funds received, but as additional security for existing debt. This is evident from the letter dated 22.10.2010 from the Respondent and security instruments.
b. The making of security instruments, as a business is in the ordinary course of business of the Respondent as a bank. The Appellant was in the shipping business and its assets comprised primarily of shipping vessels. Its business was shipping. We appreciate the fact that one of the ways to finance the shipping vessels is to raise the money by charging the vessels. But it is quite another to charge vessels owned under a new charge as is the case of the security instruments. We hold that the said security documents were not made in the ordinary course of business and therefore not exempted from the requirement of leave of court under section 176(10C).
9. A supplemental submission was made for the Respondent. Briefly it was that prior to the debenture comprised in the security documents, the Respondent was already secured creditor under the 6 pre-existing debentures granted. Clause 4.01 of the debenture dated 14.8.1996 created a floating charge upon vessels both present and future. We find little support for the Respondent’s proposition from Affin Bank Bhd v Malayan Banking Bhd  2 MLJ 74 CA. The case did not involve an RO and restructure under section 176(10C), nor as averred in the affidavit by Ling Haan Tiang, deposed for the Respondent, that the
debenture comprised in the security instrument was “… additional security to supplement pre-existing securities comprising, amongst others, the Debentures”. That the vessels were until 30.11.2010 “unencumbered” contradicts the submission that the vessels the subject of a floating charge before 30.11.2010, and even if the vessels were the subject of a floating charge, the agreed term was that, as contained in the all-monies debenture dated 14.8.1996, the Appellant as borrower was to charge by way of a fixed mortgage on all vessels of the borrower both present and future, in respect of which the borrower shall at the request of the Bank execute mortgages under the Merchant Shipping Ordinance in favour of the Bank or such other legal documents as required by the Bank from time to time to the exclusion of any prior encumbrance (save those outstanding mortgages). The debenture of 14.8.1996 did not directly confer upon the Respondent the power to sell the vessels and collect payment, but consistent with the notion of a floating charge, obliged the Appellant to execute a mortgage when required by the Respondent to do so. There is no evidence that prior to 30.11.2010 the Appellant had been required to and had executed mortgages that empowered the Respondent to sell the vessels and collect the RM20.5 million payment.
10. For the foregoing reasons, we allowed the appeal, set aside the
order of the High Court, fixed costs at RM30,000.00 and ordered the deposit be refunded.
(DATUK ABDUL WAHAB PATAIL)
Court of Appeal of Malaysia Putrajaya
Dated: 13th May, 2015
For the Appellant: George Lo & Wong Li Ching Messrs George Lo & Partners Advocates No. 49, 1st Floor, Block F, King’s Centre Jalan Simpang Tiga 93350 Kuching SARAWAK
For the Respondent: Sim Hui Chuang & Lim Lip Sze Messrs Reddi & Co. Advocates Lane Building No. 29, Kai Joo Lane 93000 Kuching SARAWAK