Malaysian Assurance Alliance Berhad V Comsa Properties Sdn Bhd

  

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MALAYSIA

 

IN THE HIGH COURT IN KUALA LUMPUR (COMMERCIAL DIVISION)

 

COMPANIES (WINDING-UP) PETITION NO. D-28NCC-283-2009

 

In the matter of section 218 (1)(e) and (i) of the Companies Act 1965 And

 

In the matter of Comsa Properties Sdn Bhd (169011-V)

 

Between

 

MALAYSIAN ASSURANCE ALLIANCE

 

BERHAD … PETITIONER

 

And

 

COMSA PROPERTIES SDN BHD

 

(Company No: 169011-V) … RESPONDENT

 

BEFORE THE HONOURABLE JUDGE Y.A. DR. HAJI HAMID SULTAN BIN ABU BACKER

 

IN OPEN COURT

 

JUDGMENT

 

1. This is my judgment in respect of the petitioner’s application to wind-up the respondent for failing to honour the sum due and owing amounting

 

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to more than 40 million by the principal borrower Comsa Farms Berhad, borrower as per the terms of the memorandum of charge of lands in East Malaysia executed by the respondent pursuant to a third party charge given by the respondent as collateral for facilities advanced to the borrower. And to find liability on the part of the respondent the petitioner relies inter alia on the following clauses in the memorandum of charge which I reproduce as stated in the submissions:

 

“Covenant to pay

 

The (Respondent) hereby covenants with the (Petitioner) that as and when the Indebtedness or any part thereof is due for payment in accordance with the provisions of the Facility Agreement or on such earlier date as the security constituted by this Charge becomes enforceable and the (Petitioner) becomes entitled to exercise the rights and powers upon default provided under this Charge and by law the (Respondent) shall pay to the (Petitioner) in the manner specified in the Facility Agreement, the Indebtedness or, as the case may be, the part thereof due to be paid and, in the meantime will pay to the (Petitioner) interest and Additional Interest, (as well after as before any judgment), at the rates and calculated in the manner prescribed in the Facility Agreement on the Indebtedness from time to time outstanding ”.

 

“(Respondent) as Principal Debtor

 

Although as between the Borrower and the (Respondent), the (Respondent) is a surety only for the Borrower, yet as between the (Respondent) and the (Petitioner), the (Respondent) shall be a principal debtor and the Land shall

 

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be the principal security for the Indebtedness due and accordingly the (Respondent) and the Land and every part thereof shall not be released at any time by any indulgence given to the Borrower or by any act matter or thing whereby the (Respondent) as a surety or sureties only or the Land and any part thereof might have been released and discharged. ”

 

2. And the petitioner asserts that pursuant to those clauses a certificate of amount due and owing by the borrower is also conclusive evidence against the respondent. In essence the petitioner says the terms of the memorandum of charge have made the respondent inter alia, a guarantor as well as principal debtor. The petitioner’s statutory demand to the respondent reads as follows:

 

“TAKE NOTICE that we, as solicitors for Malaysian Assurance Alliance Berhad of Menara MAA, 11th Floor, 12 Jalan Dewan Bahasa, 50460 Kuala Lumpur, do hereby require you to pay us a sum of RM41,770,007-37 being the amount due and owing by you to your client as at 31-7-2007 pursuant to a Memoranda of Charge dated 8-5-2006 and 22-52006 between you and our client, the full particulars of which are within your knowledge. A copy of the Certificate of Indebtedness dated 31-7-2007 is enclosed herewith.

 

AND FURTHER TAKE NOTICE that in the event of your failure and/or refusal to make payment of the said debt of RM41,770,007-37 and further interest to us within three (3) weeks of the receipt of this Notice or to secure or compound for it to the reasonable satisfaction of our clients, you shall be deemed to be unable to pay your debts within the meaning of

 

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Section 218 of the Companies Act, 1965 and Winding-Up proceedings shall thereafter be instituted against you. ”

 

3. In a badly drafted affidavit in opposition the respondent in essence says (i) the petitioner has not established himself as a creditor (ii) there is admission of liability (iii) admits that the 2 properties of the respondent measuring 1,278.97 acres in Tawau, Sabah has been given as a charge (iv) the petitioner’s attempt to wind up the borrower has failed as some other companies have wound it up (v) the certificate of indebtedness issued by the petitioner is not binding (vi) the petitioner has prematurely filed the winding up petition (vii) the respondent is solvent. And also objects to the 2 named provisional liquidators.

 

4. In the submission of the respondent the respondent’s counsel inter alia says (i) petitioner has failed to sell the charged property (ii) petition filed in the wrong jurisdiction as the respondent and charged property are in Sabah, and as per the petition the address for service on the respondent is in Sabah. Only the High Court of Sabah and Sarawak have the jurisdiction to hear this petition (iii) the petitioner has failed to file and/or exhibit the consent in writing of the proposed liquidator pursuant to Rule 31(2) of Companies (Winding-Up) Rules 1972 which states as follows:

 

“Before the hearing of the petition the petitioner or his solicitor shall obtain and file the consent in writing of the approved liquidator nominated”.

 

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5. On the issue of jurisdiction the petitioner complaints that the issue was not raised in the affidavit in opposition and in consequence the petitioner could not display two letters from the respondent’s solicitor to say that they are authorized to accept service for purpose of winding up petition. To this argument the respondent says service of the petition is entirely different from filing of the petition.

 

6. The parties relied on the following cases: Pioneer Concrete (M) Sdn Bhd v Celini Corp Sdn Bhd [1998] 3 MLJ 810; Lin Shoon Jewellers Sdn Bhd v Kedai Emas Mee Chan Sdn Bhd [2006] 2 CLJ 644; Megasteel Sdn Bhd v Perwaja Steel Sdn Bhd [2008] 4 CLJ 352; BMC Construction Sdn Bhd v Dataran Rentas Sdn Bhd [2001] 1 CLJ 591; PB Securities Sdn Bhd v Autoways Holdings Bhd [2000] 4 CLJ 811; Cempaka Finance Bhd v Ho Lai Ying & Anor [2006] 3 CLJ 544; Low Lee Lian v Ban Hin Lee Bank Bhd [1997] 2 CLJ 36; Pontian United Theatre Sdn Bhd v Southern Finance Berhad [2006] 1 CLJ 1067; Lix Industries Sdn Bhd v Greenworld Industry Sdn Bhd [1998] 1 LNS 353; Sogelease Advance (Malaysia) [1999] 5 CLJ 331; Bunga Lawas Shipping Agencies Sdn Bhd v Nusantara Worlwide Insurance (Malaysia) Bhd & Ors [1999] 2 CLJ 731; UOL Factoring S/B v Voon Shin Siong@Foo Shin Siong [1991] 1 LNS 195; Shearn Delamore & Co & Anor v Joseph Lee Henn Shen [1998] 3 CLJ 799; American Express Bank Ltd v Mohamad Toufic Al-Ozeir & Anor [1995] 1 CLJ 273; PT Bank Mandiri (Persero) TBK v

 

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Karambunai Corp Bhd [2007] 10 CLJ 636; Perwira Habib Bank (M) Bhd v Hj. Abdullah Hj. Sulaiman & Anor [1985] CLJ (Rep) 639; Metal Reclamation (Industries) Sdn Bhd v JRC Tenaga Sdn Bhd [2000] 6 CLJ 290; Malaysian Resources Corporation Bhd v Juranas Sdn Bhd [2002] 7 CLJ 260; Dayakuasa Holdings Sdn Bhd v Kayaal Holdings Sdn Bhd [2003] 2 CLJ 391; Jurupakat Sdn Bhd v Kumpulan Good Earth [1973] Sdn Bhd [1988] 1 CLJ (Rep) 618; In re Lympne Investments Ltd [1972] 1 WLR 523; Mark Jaya Engineering Sdn Bhd v LFY Construction Sdn Bhd [1990] 2 CLJ (Rep) 451; Multi-Purpose Bank Bhd v Uniphoenix Corporation Bhd [2006] 6 CLJ 474; Hong Leong Bank Berhad v Bennes Machinery Sdn Bhd & 4 Ors [2009] 1 LNS 1382; PM Securities Sdn Bhd v Wong Nam Seng [Commercial Trial No: D5-22-901-2001] Amelia Tee Hong Geok Bte Abdullah JC High Court Malaya, Kuala Lumpur 30 November 2009; Leong Yick Realty Co. Sdn Bhd v Asia Commercial Finance (M) Bhd [1994] 2 CLJ 530; Hong Kong & Shanghai Banking Corp. Ltd. V Wan Mohd Wan Ngah [1991] 2 CLJ (Rep) 732; AmMerchant Bank Bhd v Totalhill Sdn Bhd & Another Case [2008] 3 CLJ 845; Ng Yik Seng & Anor v Perwira Habib Bank Malaysia Bhd [1980] 2 MLJ 83; Fung Beng Tiat v Marid Construction Co. [1997] 2 CLJ 1; Dayasar Corp. Sdn Bhd v C.P. Ng & Co. Sdn Bhd [1990] 2 CLJ (Rep) 11; Bank Utama (Malaysia) Bhd v Perkapalan Dai Zhun Sdn Bhd [2003] 1 CLJ 450; Lee Hui Jian v Public Bank Bhd [2007] 2 CLJ 551.

 

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Preliminaries

 

7. In the instant case the respondent without taking into consideration other provisions of the Act, cannot prima facie be said to be a debtor within the ordinary meaning of section 218(2) of CA 1965 and neither can the petitioner be said to be a creditor per se within the meaning of section 218(2)(a) which reads as follows:

 

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 authorized 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;..

 

8. In addition if the respondent’s liability arises as a guarantor as alleged by the petitioner then that liability must be treated as secondary liability only and a writ action will be a proper procedural step to establish liability as a guarantor or a purported principal borrower based on terms of the agreement. This will give the appropriate opportunity for the respondent to raise the valid defences as provided in law. I have dealt with this area of jurisprudence in Wong Ai Sung v Orix Credit [2007] 4 CLJ 52. I do not wish to repeat the same. When the respondent denies total liability and the defence merits consideration then the winding up court forum is not proper to investigate the issue more so when the

 

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respondent alleges that he is solvent and there are substantial assets of the respondent in the hands of the petitioner which have not been liquidated. In Globe Detective Agency Pvt. Ltd. V Subbiah Machine Tools Pvt. Ltd., (1985) 58 Comp.Cas 271 it was said that where the company failed to comply with the statutory notice but subsequently denied liability to pay the petitioning creditor, and made a counter claim in respect of the loss on account of the negligence of the petitioning creditor which appeared to be legally tenable, no winding up order should be made and the petitioning creditor should be asked to seek its remedy in Civil Court. [see Datta on The Company Law, 4th ed. pg 860].

 

9. In the instant case the terms of the agreement attempts to reduce the respondent as a debtor. And those terms have to be scrutinized by the courts and crystallized by way of judgment before the respondent at least will carry the title of judgment debtor shifting his position as alleged guarantor and/or purported principal debtor. This distinction must be kept clearly in mind in weighing the petitioner’s case. Further, even if the petitioner has obtained judgment against the respondent that does not mean the winding up court must grant the winding up order as it would be inequitable to do so as the respondent is holding valuable securities and prima facie the respondent cannot be said to be insolvent.

 

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10. It is trite that to make a person a bankrupt or to wind up a company are not legal rights per se as it is subject to the discretion of the court. I have dealt with this area of jurisprudence in a number of cases. To name a few are as follows: (i) PT Bank Mandiri (Persero) TBK v. Karambunai Corp Bhd [2007] 10 CLJ 636 (ii) TPPT Sdn Bhd v. Jurukur Berjasa [2009] 1 LNS1221.

 

11. In addition insolvency jurisdiction to some extent recognizes that legal rights are subject to equitable consideration [see Ebrahimi v. Westbourne Galleries Ltd [1973] AC 360]. In consequence, the petitioner cannot totally rely on common law cause of action to justify a winding up order when it will be inequitable to do so. [see Mann v Goldstein [1968] 1 WLR. 1091].

 

12. The cases which the petitioner relied on are not relevant to the facts of this case. In the instant case it cannot be disputed that the petitioner is still holding valuable securities belonging to the respondent. Cases such as the Supreme Court decision in Low Lee Lian v Ban Hin Lee Bank; (supra) which the petitioner has relied on is not relevant to the facts of the case and to winding up jurisdiction of the court which stands as a discretionary relief. In essence the legal jurisprudence relating to foreclosure and winding up proceeding are not one and the same. It is important to note that a limited company is more than a mere juridical

 

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entity. By ordering a winding up, the interest of others may be affected and the court is given wide discretion to deal with matters unlike foreclosure proceedings.

 

13. I have read the petition, affidavits, submission of the parties in detail. I do not wish to set out the lengthy submissions of the parties in detail as it will serve no useful purpose. After having given much consideration to the submission of the learned counsel for the petitioner I take the view the petition must be dismissed. My reasons inter alia are as follows:-

 

(i) On the issue of jurisdiction the petitioner has not produced consent of all parties in writing for the matter to be heard in the High Court of Malaya as set out in section 23 of Courts of Judicature Act 1964. In consequence the petition must be dismissed in limine. [see Bumiputra-Commerce Leasing Bhd v. Nethaven Pacific Sdn Bhd & Ors [2008] 5 CLJ 69]. However I have taken the safer approach to also consider the petition on merits.

 

(ii) In the instant case the respondent is not the true borrower though the terms of the agreement make the respondent to be liable for the default of the borrower. There is support for the proposition that where a company acts as a guarantor for repayment of a loan, and the principal debtor has committed default, the amount guaranteed

 

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is a debt and a petition for winding up is maintainable. [ see Guide to the Companies Act, by A. Ramaiya 10th Ed. Page 1747]. But that does not mean the winding up order must be granted. It all depends on the facts; such an issue was considered in the case of Ram Bahadur Thakur & Co. v Sabu Jain Ltd. (1981) 51 Com Cases 301 (Delhi), where the respondent company stood guarantee for the principal debtor. And upon demand the guarantee was not honoured and the petitioner presented a winding up petition. The High Court in India held inter alia as follows:-

 

that under the deed of guarantee the company had undertaken to pay to the firm the amounts due to it by the mills. But no “debt” came into existence merely on the execution of the deed of guarantee because it was not a present liability but a contingent liability. The liability of the company to pay would not arise unless, (a) the mills defaulted in making the payments on scheduled and (b) there was a request notice calling upon the company to pay the amounts due. But the moment these contingencies happened, a present obligation arose resulting in the accrual of a “debt”. The firm had stated in the petition that the mills and the company had failed and neglected to pay the amounts or any part thereof in spite of repeated demands. This was not denied in the reply filed by the company. Prima facie, therefore, the obligation to pay had arisen under the agreement giving rise to a “debt” in respect of which proceedings were permissible under s.433. The facts showed that there was no bona fide dispute regarding the debt. The amount due had not been disputed either by

 

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the mills or the company. Even assuming there was some controversy regarding the actual amount, the debt was clearly due and a mere dispute regarding the actual amount would not disentitle the creditor from presenting a petition for winding up”.

 

The above Indian case can be distinguished. In the instant case the respondent has charged the property to the petitioner, disputes liability and says the property ought to be sold first. In consequence the winding up court is obliged to consider the fact that the legal rights of the petitioner are subject to equitable consideration. And the act of winding up, when holding security, must be seen to be an oppressive conduct and in consequence an abuse of process of court. In addition, seeking appointment of liquidators to have a general control over all assets of the company must be seen to be a vindictive step to paralyze the respondent. [see Tan Choon Keng Realty (Pte) Ltd v Tang Wee Cheng [1992] 2 SLR 1114; Bina Satu Sdn Bhd v Tan Construction [1988] 2 CLJ 652, [1988] 1 CLJ 384 (Rep)]. In the instant case the petitioner holds assets which can prima facie stand as reasonable satisfaction to the claim. Learned author Datta on The Company Law at pg. 866 says:-

 

“Reasonable satisfaction” means giving such terms as a man of ordinary business prudent will accept them. A creditor who is interested in money will agree to such terms. But if he is vindictive

 

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and his ulterior motive is to take revenge then he will not agree to any such compromise and refuse to be satisfied with the terms given by the company. The provisions of winding up of a company are not meant for such vindictive purposes ”.

 

In the instant case it must not be forgotten that the respondent has given his assets for the satisfaction of the borrower’s debt. Failure of the petitioner to sell the assets in satisfaction of the debt or part thereof must be seen as vindictive which the winding up court ought not to entertain.

 

(iii) On the facts of the case it can be said that the debt is bona fide disputed and substantial questions are raised to warrant the court to dismiss the petition. Learned author Walter Woon makes the following observation:

 

“ A person who bases his claim to be a creditor on a debt that is disputed on substantial grounds has no locus standi to present a petition. This is because he is not a creditor until the debt is established. Where a debt is disputed on a substantial ground, the ‘creditor’ has no locus standi to petition even if the company is insolvent. ”

 

14. For reasons stated above I dismiss the petition with costs. The costs is fixed in the sum of RM 10,000.00 to be paid by the petitioner to the respondent.

 

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I hereby order so.

 

(Y.A. DR. HAJI HAMID SULTAN BIN ABU BACKER)

 

Judge

 

High Court (Commercial Division)

 

KUALA LUMPUR

 

Date: 13th April 2010

 

For the Petitioner: Vinayaga Raj (Vijay Raj with him); M/s Shrine For the Respondent: Mohd Rizal Bahari Bin Md. Noor; M/s Bahari &

 

Bahari

 

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