INSOLVENCY

- s. 88 IA – The High Court shall be the court having jurisdiction in

bankruptcy under the IA - the “High Court” refers to High Court of
Malaya & High Court of Sabah and Sarawak which have separate
jurisdiction among each other.

- Section 3(3) IA – definition of a debtor - “…includes any person who at

the time when the act of bankruptcy was done… -
 was personally present in Malaysia, or
 ordinarily resided or had a place of residence in Malaysia; or
 was carrying on business in Malaysia either personally or by
means of an agent, or
 was a member of a firm or partnership which carried on
business in Malaysia”

- Creditor – Secured and unsecured creditor

- Secured Creditor
- Section 2 IA – 2 criteria – the creditor must be holding the property
of the judgment debtor as security – the property must be held as
security for the debt owing by the judgment debtor to the creditor.
- Perwira Habib Bank Malaysia Bhd v Samuel Pakianathan
[1993] - To be a "secured creditor", the creditor must be holding a
mortgage, charge or lien on the property of the debtor, as a security
for the debtor’s debt. : In this case, since the respondent had not
given any security to the appellant for his debt as a guarantor. The
appellant was not a secured creditor.
- Unsecured Creditor
- Is a person whose money is owed with no security attached to the
loan.
- For example, trade creditors that provides goods and services to its
customers on credit terms

THE DEBT THRESHOLD FOR INITIAING A

BANKRUPTCY PROCEEDING IS RM100,000 –
PROVIDED UNDER SECTION 5(1)(a) IA!!!!!!

Persons subjected to bankruptcy

- 1)Foreigner
- As long as he fulfils all the requirements under s.3(3) and at the
time the bankruptcy petition is presented all the conditions under
s.5(1)IA is met.
- Therefore:
- First, the creditor must show that the person is a debtor
under s.3(3) IA;
- Second, the creditor must show that all the conditions under
s.5(1) IA is met when the bankruptcy petition is presented.
- 2. Married women
- S. 120 IA – “a married woman shall be subjected to this Act in all
respects as if she was a feme-sole”
- married women may be subjected to bankruptcy as if they were
single.
- 3. Minors
- Bankruptcy proceedings may be taken against a minor in respect of
debts that are legally enforceable against him. For example,
judgment arising from an action in tort.
- Minors – Individuals before the attainment of 18 years old. See s.2 of
Age of Majority Act 1971
- 4. Persons of unsound mind
- A person of unsound mind may be adjudged a bankrupt -
- S.133(c) IA – a mentally disordered person or lunatic may act by his
committee or curator bonis. [A legal representative appointed to
manage his finances, property or estate which the person is unable
to manage due to his mental or physical capacity]
- Rule 226 IR – where his lunacy is not confirmed by inquisition, the
court may appoint a suitable person to represent him in the
proceedings.
- 5. Deceased
- 1. Death of the debtor does not invalidate the bankruptcy
proceedings.
- S.96 IA – “If a debtor or against whom a bankruptcy petition has
been presented dies, the proceedings in the matter shall, unless the
court otherwise orders, be continued as if he were alive, and
the court may dispense with service of the petition upon
him”
- The court may order under r.111 IR for service to be affected on his
personal representative or such other person as it thinks fit.
- 2. Bankruptcy proceedings cannot be initiated against a
debtor after the debtor has died. However, a petition may be
presented for the administration of his estate in accordance with
bankruptcy law. See: S.122(2) IA - (2) Any creditor of a deceased
debtor whose debt would have been sufficient to support a
bankruptcy petition against the debtor had he been alive, may
present to the court a petition in the prescribed form praying for an
 order for the administration of the estate of the deceased debtor
according to the law of bankruptcy.
- Service of the petition is to the executor or the person who has
taken the letter of administration r.240
- 6. Members of Parliament
- Members of either House of Parliament cannot claim parliamentary
privilege to avoid bankruptcy proceedings.
- Re Haji Yahya Lampang [1987] – the judgment debtor holds
political posts of State Assembly Member of Tempasuk and M.P. for
Kota Belud
- 7. Members of diplomatic corps
- Diplomatic corps are ambassadors and other diplomatic personal
posted in other countries. The Diplomatic Privileges (Vienna
Convention) Act 1966 provides certain immunities to diplomatic
corps. However, if a debt is incurred by the diplomat outside his
scope of duty, he may be subject to bankruptcy proceedings.

Social Guarantors and Guarantors

Section 2 of IA - “social guarantor” means a person who provides, not for
the purpose of making profit, the following guarantees: (a) a guarantee for
a loan, scholarship or grant for educational or research purposes; (b) a
guarantee for a hire-purchase transaction of a vehicle for personal or non-
business use; and (c) a guarantee for a housing loan transaction solely for
personal dwelling;
s. 5(3)(a) IA – a creditor cannot commence any bankruptcy action against
a social guarantor
s. 33B(2A)(a) IA – a creditor cannot object to a discharge by a certificate
of DGI against a bankrupt who was adjudged a bankrupt because he was a
social guarantor

8. Guarantors
s. 5(3)(b) IA – a creditor cannot commence any bankruptcy action against
a guarantor other than a social guarantor unless the creditor has obtained
leave from the court.
s. 5(4) IA – to obtain leave a petitioning creditor must satisfy the court
that he has exhausted all modes of execution and enforcement to recover
the debts owed to him by the debtor before commencing any bankruptcy
action against a guarantor other than a social guarantor.
s. 5(6) IA – describes what are the modes of execution and enforcement
in s. 5(4) IA. - (6) For the purposes of subsection (4), modes of execution
and enforcement include seizure and sale, judgment debtor summon,
garnishment and bankruptcy or winding up proceedings against the
borrower.
Hong Leong Bank Berhad v Ong Moon Huat [2018] MLJU 1576
The appeal relates to 2 specific questions namely:
(a) Whether the word ‘debtor‘ in “to recover the debts owed to
him by the debtor’ in section 5(4) of the Insolvency Act 1967
refers to the guarantor or the principal debtor;
The court found that the section aims to protect guarantors from direct
bankruptcy proceedings without first attempting to recover debts from the
principal debtor. This protection ensures that creditors exhaust all
enforcement methods against the principal debtor before targeting the
guarantor. The court referred to Section 5(6), which lists modes of
execution and enforcement, including bankruptcy against the borrower.
As bankruptcy had not been initiated against the guarantor, the court
concluded that "debtor" in Section 5(4) refers to the principal debtor or
borrower.

(b) When or at what point should an application for leave under

section 5(3)(b) of the Insolvency Act 1967 be made?
The second issue was when to apply for leave under Section 5(3)(b). One
argument was that leave should only be sought after serving the
bankruptcy notice, indicating an act of bankruptcy. Another argument was
that leave could be applied for soon after issuing the bankruptcy notice.
The court analyzed the Khairulnizam case, which dealt with a similar
issue for social guarantors. It concluded that a judgment creditor can
apply for leave either after issuing the bankruptcy notice or even before
that, up to the point of filing a creditor's petition. This flexibility allows
creditors to obtain leave based on the circumstances of each case without
prejudicing the debtor/guarantor, as the legislation requires obtaining
leave before receiving adjudication orders.

Re Wong Choon Loong; exparte Ambank (M) Bank [2022]

The JD contended that the JC had not exhausted all modes of execution
and enforcement to recover the debt owed by the Principal Debtor, citing
Section 5(6) of the Insolvency Act 1967. The JD argued that "include" in
Section 5(6) rendered the examples non-exhaustive, implying that
foreclosure proceedings should have been pursued against properties
charged to the JC.
However, the court disagreed, stating that "include" does not necessarily
indicate a non-exhaustive list unless explicitly stated as "include, but are
not limited to." The court found no evidence supporting foreclosure
proceedings as a mode of execution and enforcement under the
Insolvency Act.
The court differentiated between modes of execution related to personal
claims (in personam) and foreclosure proceedings, which involve rights
over property (in rem). The latter falls under the National Land Code 1965
and was not explicitly included in the Insolvency Act provisions.

9. Companies
Bankruptcy proceedings cannot be instituted against any company or
corporation that is incorporated under the Companies Act 2016.
Distribution of a company’s assets among its creditors in the case of
insolvency is by way of winding up proceedings under the Companies Act
2016. See s. 121 IA
10. Partnerships
s.103(1) IA – A partnership may be the subject of bankruptcy proceedings.
rule 220 IR – The bankruptcy order shall be made against the partners of
the firm individually and not the firm.
s.98 IA – a creditor may commence bankruptcy proceedings against all
partners of a firm, or any one of them without including the others.
Re Chan Tse Yuen & Co; Ex Parte M Wealth Corridor Sdn Bhd
[2020] MLJU 1828
One of the issues is whether the bankruptcy proceedings is an abuse of
the process of the court as there were 2 other bankruptcy proceedings
against the partners of the Firm respectively which the JD submits
amounted to duplicity?
It is not an abuse of court process as it is the right of a JC to initiate
whatever execution proceedings including separate bankruptcy
proceedings against the partners of a firm wherein judgment have been
obtained against the firm.
Referred to S11 of Partnership Act 1974 where the partners are jointly
and severally liable and thus the JC in a bankruptcy proceeding is entitled
to pursue against all or any of the partners as it thinks fit.
Referred to Rules 216 - 220 of the Insolvency Rules wherein a judgment
obtained against the Firm, the JC may choose to commence bankruptcy
proceedings against either the Firm and/or its partners and in this case, it
is in line with Rule 220. [Para 11] -- not a legal person ; no legal
personality.
Can a creditor take an action against the firm and its partners? YES.
May choose either or too—any or all of partners – s 98.
In addition, it only prohibits a bankruptcy order to be made against a firm
but does not prevent bankruptcy proceedings being commenced against
the name of the Firm and this is as per S103 of Insolvency Act.

Act of Bankruptcy
The IA sets forth 9 acts of bankruptcy. s. 3(1)(a) – (j)
1. S. 3(1)(a) – Conveyance of debtor’s property to creditors.
If in Malaysia or elsewhere the debtor makes a conveyance or assignment
of his property to a trustee or trustees for the benefit of his creditors
generally.
❏ Under this subsection, the debtor gives instruction for all his
properties to be transferred to his creditors generally.
❏ The term “creditors generally” means that the conveyance or
assignment of the debtor’s property must be made to all his
creditors and not a particular class of creditors.
❏ It is immaterial whether the conveyance or assignment took place in
Malaysia or otherwise;

2. S. 3(1)(b) – Fraudulent conveyance of property

If in Malaysia or elsewhere the debtor makes a fraudulent conveyance,
gift, delivery or transfer of his property or any part thereof.
- The transaction is fraudulent if it is made with the intention to
prevent, defeat, hinder or delay the distribution of the debtor’s
property in accordance with bankruptcy law to the creditors.
- To determine whether the conveyance is fraudulent, the standard of
proof is the civil standard of balance of probabilities.
- Official Assignee of the Estate of Koh Liang Hee (A bankrupt)
v Koh Thong Chuan & Anor [1997] - The debtor sold to his son a
property purportedly for RM1 million. This transaction took place less than
6 months before a creditor’s petition was presented against the debtor.
The Official Assignee took action to recover the property.
 - The court held that the transfer of the property from the debtor to
this son was a fraudulent conveyance constituting an act of
bankruptcy under s.3(1) of BA 1967. In coming to that finding the
HC took note of all the following circumstances: The relationship
between the seller and purchaser, which is father and son; The
financial standing of the son who was only 25 years old and earning
RM3,000 per month. However, he was able to purchase the property
for RM1 million; and The property was sold below the market price.
- Koh Thong Chuan v Official Assignee [2003] 1 MLJ 113 (COA)
- The COA concluded on the balance of probability that the
conveyance was a fraudulent conveyance. (to avoid the property
from being vested to the OA for distribution to the creditors.)
....
BANKRUPTCY NOTICE
Section 3(1)(i) IA – non-compliance with a bankruptcy notice is an act of
bankruptcy.

A bankruptcy notice can only be issued on the application of a creditor :–

- who has obtained a final judgment or final order against the debtor;
and
- who is in a position to execute the judgment or order.

The creditor has obtained a final judgment or final order

1) A judgment or order is final if it disposes of the rights of the parties
finally or no further step is necessary to perfect it.
Peninsular Land Development Sdn Bhd v K Ahmad (No.2) [1970] – the
respondent had obtained a summary judgment under O14A against the
appellant which was in relation to an agreement involving sale of land. In
appeal, the respondent argued that that the summary judgment was not a
final judgment. In applying the Bozson’s test laid down in Bozson v
Altrincham Urban District Council [1903], the Federal Court held that the
said judgment was a final judgment.
The Bozson’s test as laid down by Lord Alverstone in Bozson v
Altrincham Urban District Council [1903] 1 KB 547:
“Does the judgment or order as made, finally dispose of the rights of the
parties? If it does then I think it should be treated as a final order, but if it
does not, it is then in my opinion, an interlocutory order.”

A judgment for a liquidated sum rendered after a full trial is a

final judgment.
A consent judgment for a liquidated sum is a final judgment.

A summary judgment for a liquidated amount is a final judgment

notwithstanding an appeal.
Re Lo Kon Wah; Ex P Jupiter Securities Sdn Bhd [2000] - JD applied
for an order for the BN to be struck out and set aside on the grounds that
the summary judgment is not a final judgment falling under s.3(1)(i) of the
BA 1967 until the disposal of the debtor’s appeal on the summary
judgment. The court held, as the judgment was obtained after the court
heard arguments from both sides via affidavit evidence and there were no
triable issues, the summary judgment is a final judgment that falls under
s.3(1)(i) of BA 1967, notwithstanding an appeal.

A judgment of the appellate court is a final judgment not withstanding

appeal
Re Tan Ah Poi [1999] – the issue is whether the High Court judgment
which was pending appeal before the Court of Appeal was a final
judgment.
Since the HC judgment was a judgment that was decided by way of an
appeal from the decision of the Sessions Court, the court held it finally
disposed of the rights of the parties notwithstanding that the appeal
proper to the COA was still pending.
Therefore, the word ‘final judgment” in s.3(1)(i) of the BA 1967 must be
construed as a final and conclusive judgment notwithstanding the fact
that the judgment is subject to an appeal or under appeal; it is a final
judgment even though that judgment is appealable; and it is a final
judgment, and the JC is entitled to issue the BN against the JD
notwithstanding the fact that the JD has filed an appeal.
Jacob Rabindranath a/l M Krishnan v GP Autobat Sdn Bhd [2009]
The appellant appealed against the judgment of the Sessions Court where
the court entered judgment against the appellant on a guarantee as
security for a loan. The appellant appeals against the Sessions Court’s
judgment. While the appeal was pending before the High Court, the
respondent JC took out the bankruptcy notice where the appeal was later
dismissed. So the appellant appealed to the CoA.
Whether the judgment (by the session court) was final since there is an
appeal pending against the judgment on the basis which the impugned
bankruptcy notice was issued
Just because there is an appeal, it doesn’t mean no bankruptcy
proceedings can be instituted. In this case, the appellant made an
application for a stay of execution to the Sessions Court, the High Court
and also the Court of Appeal but it failed at all levels. Thus, there is
nothing in law to prevent the respondent to institute bankruptcy
proceedings. So, the appeal is dismissed.
A judgment in default is not a final judgment because it is not
decided on merits.
Re Udos al Rigging v Seabanc Kredit Sdn Bhd [1994] - During the hearing
to set aside the BN, the petitioner raised the ground that JID is a final
judgment notwithstanding the appeal which is pending in court. The High
Court held a default judgment is not final because it is not decided on
merits. Any judgment not given on merits is liable to be set aside on
application and does not finally dispose of the rights of the parties.
However, if the debtor had not set aside the judgment in default within
the prescribed time under the law, the default judgment would crystalised
into a final judgment.

A judgment in default on a liquidated amount is a final judgment.

Re Tan Hwee Earn; Ex P The People’s Insurance Co (M) Sdn Bhd [1999] -
One of the grounds relied on to set aside the BN is the judgment was not a
final judgment within the meaning of s(3)(1)(i) of the BA1967. The debtor
relied on the case of Re Udos al Rigging.
Referring to Orders 13 r.1(1) and 13 r.2 RHC (now O13 r.1(1) and O13 r.2
ROC) and following the FC case of Adzmi bin Ali & anor, the court held
the creditor’s claim against the debtor was for a liquidated amount …the
JID would constitute a final judgment for the sum claimed by the creditor
against the debtor in this case.
Adzmi bin Ali & Anor v Mohamed Isa bin Kasad [1987] 2 MLJ 199
per Seah SCJ at p200:
“Now, when a defendant fails to enter an appearance to a writ for an
unliquidated sum, the plaintiff may enter interlocutory judgment against
him for damages to be assessed (see O13 r2 of the Rules of the High
Court 1980).
On the other hand, if the claim of the plaintiff is for a liquidated amount
and the defendant defaults in entering an appearance within the specific
time, final judgment for the sum claimed may be entered against him (see
O13 r1(1)). The court may, on such terms as it thinks just, set aside or
vary any judgment entered in pursuance of this Order (see O13 r8)..”

The creditor must be able to execute the judgment or order

Low Mun v Chung Khiaw Bank Ltd [1988] - The issue before the court was
whether a BN for the sum of RM2,325,000,00 and for an unspecified
amount of interests and costs is a good and valid notice. Only in respect of
the judgment debt of RM2,325,000 the creditor bank could have issued
execution
- Since the base lending rate of the bank is not known and costs have not
been taxed, these parts of the judgment debt cannot be quantified and
therefore cannot be executed.
- Since these parts of the judgment debt cannot be quantified the BN is
bad in law because it demanded for a whole judgment debt when parts of
the judgment debt were incapable of being quantified at the time the BN
was issued and thus incapable of being executed.
- The amount of interest and cost must be quantified because the debtor
is entitled to know from the BN exactly what is being claimed and due on
the whole judgment debt and to be paid by the debtor within the 7 day
period. Non-compliance with the terms of the judgment renders the BN
invalid. Failure to comply with such a BN is not an act of bankruptcy.

P Mukundan a/l PK Kunchu Kurup & Ors v Daniel a/l Anthony and another
appeal[2018]

If more than 6 years have lapsed since the date of judgment,

leave of court is required to issue a bankruptcy notice.
Dr Shamsul Bahar Abdul Kadir v RHB Bank Bhd [2015] – after
approximately 10 years and 2 months from the judgment date, the JC
issued the bankruptcy notice against the judgment debtor.
The JD applied to set aside the BN on the ground that the BN was invalid
as it was issued without the leave of court pursuant to O46 r.2. O46 r.2,
inter alia, requires a JC to obtain leave of court in order to enforce a
judgment where six years or more have lapsed since the date of the
judgment.
According to O 46 r 2, to execute a judgment where six years or more
have lapsed since the date of the judgment, leave of the Court is required.
FC held that leave of court is required if a BN is to be issued where 6 years
or more has lapsed since the judgment. This was on the following
grounds: The FC interpreted the words “execution thereon having not
been stayed” in s.3(1)(i)to mean the right of the creditor to issue BN is
attached to the right of the creditor to proceed with execution. If the
creditor is not able to execute his judgment, he is not entitled to issue a
BN.
Thus, since a creditor needs leave of the court to execute a judgment
which 6 years or more have lapsed since the date of the judgment
following O46 r.2, it would also mean that leave of court is required if a BN
is to be issued where 6 years or more has lapsed since the judgment.
Bankruptcy notice cannot be founded on 2 judgment or orders.
r.89(2) IR - “A creditor is not entitled to apply for the issue of a
bankruptcy notice by combining 2 or more final judgments or final
orders.”
Re Chen Chong Fatt Willy; ex parte Hitachi Lease [1987] 1 MLJ 94
-
Re Chen Chong Fatt Willy; ex parte Hitachi Lease [1987] 1 MLJ 94
– the creditor issued a bankruptcy notice on the debtor for the payment of
a said sum arising from 2 judgements i.e., a summary judgment and
consent judgment. An objection to the bankruptcy petition was made on
the basis that the BN is bad as it was based on 2 separate judgments. The
court held, bankruptcy petition cannot stand on a BN founded on 2
separate judgments notwithstanding the judgment was obtained under a
same suit.

To issue a BN the creditor must:

 Obtain a final judgment on a liquidated amount against the
debtor;
 The creditor must be able to execute the final judgment
 If 6 years have lapsed since the judgment, leave of court is
required before a BN can be issued on the judgment
 The amount in the BN must:
 meet the threshold for personal insolvency; and
 be quantified in accordance with the judgment.

A BN cannot be issued on 2 judgments – one judgment one BN

Bankruptcy Notice : Calculation of interest
Section 3(1)(i) – the interest demanded in the bankruptcy notice must be
quantified to the date of the issue of the bankruptcy notice.
Where BN is to be issued 6 years after the judgment was obtained:
 Leave of court is required;
 Arrears of interest may only be claimed for a period of six
years from the date of the judgment.
s. 6(3) of the Limitation Act 1953
“An action upon any judgment shall not be brought after the expiration of
12 years from the date on which the judgment became enforceable and
no arrears of interest in respect of any judgment debt shall be recovered
after the expiration of 6 years from the date on which the interest became
due.”

Perwira Affin Bank v Lim Ah Hee [2004] - A bankruptcy proceeding

was caught by the provisions of s.6(3) of the Limitation Act. Bankruptcy
proceedings may be brought within 12 years of the date of judgment;
however, arrears of interest may only be claimed for a period of 6 years
from the date of judgment. In this case, the judgment was obtained on
23.10.1987. Interest was calculated from 1.12.1985, this is prejudgment
interest emerged into the judgment debt. Therefore, the words “the date
on which the interest becomes due” under s.(3) of the Limitation Act 1953
was the date of judgment and not on 1.12.1985.
The BN was filed 8 years and 5 months from the date of judgment (within
the 12 years period) and as such was not out of time. Arrears of interest
was calculated until 28/3/1996. Arrears of interest may only be claimed
for a period of 6 years from the date of judgment, i.e 16.5% pa from
23/10/1987 to 22/10/1993. Thus, the arrears of interest in this case is
outside the 6 years period, the BN was invalid.

United Malayan Banking Corp Bhd v Ernest Cheong Yong Yin

[2002] - BN was filed out of time (9 years after judgment), therefore the
BN was invalid This is because the phrase “from the date on which the
interest became due” under s.6(3) Limitation Act 1953 means from the
date of judgment.67 Thus, when it becomes “due” for more than 6 years
(ie obtained the judgment for more than 6 years, you can’t claim it) Note :
Therefore, it means no arrears of interest in respect of any judgment debt
shall be recovered after the expiration of 6 years from the date of
judgment.
Company Winding-Up
Only the persons specified in s. 464 CA may petition to the court to have a
company compulsorily wound up.
Court may order that a company be wound up if the petitioner can show
one of the grounds provided in s. 465 CA.
The most common ground for applications to court for winding up is under
s. 465(1)(e) CA, that is, a company is unable to pay its debts.
The section provides:
“The Court may order the winding up if-
(e) The company is unable to pay its debts;”
S.465(1)(e) to be read with s.466(1)(CA) – definition of ”inability
to pay debts”
Under s.466(1) there are 3 circumstances when a company will be
deemed to be unable to pay its debts. A presumption that the company is
unable to pay its debts arises and the creditor is entitled to present a
winding-up petition.
1. s.466(1)(a)
 This involves service of a statutory notice of demand to the
company.
 It may be utilized even in situations where the creditor has not
obtained a judgment. Case: Syarikat Mohd Noor Yusof Sdn Bhd
v Polibina Engineering Enterprise Sdn Bhd (in liquidation)
[2006] 1 MLJ 446
 If the company fails to settle the debt as demanded in the statutory
notice which complies with the requirement of s.466(1)(a), a
presumption that the company is unable to pay its debts arises and
the creditor is entitled to present a winding-up petition.
 A petition to wind up the company shall be filed in Court within 6
months from the expiry date of the statutory notice of demand.
2. s.466(1)(b)
Where a creditor has obtained a judgment against the company.
Execution of the judgment has been taken by the creditor but the
proceeds of the execution is not sufficient to satisfy the judgment sum.
3. s.466(1)(c)
Where it is proved to the Court that the company is unable to pay its
debts after taking into account the company’s contingent and prospective
liabilities. This means that the company’s liabilities is more than the
company’s assets. This requires the examination of the company’s entire
financial position.

Statutory notice of demand under Section 466(1)(a) Companies

Act
Where the creditor is relying on s.466(1)(a), a statutory notice of demand
pursuant to s.466(1)(a) CA 2016 (formerly s.218(2)(a) Companies Act
1965) is issued by the creditor and served on the debtor.
Section 466(1)(a) provides:
“(1) A company shall be deemed to be unable to pay its debts if -
(a) the company is indebted in a sum exceeding that it is fixed by the
Minister and a creditor by assignment or otherwise served a notice of
demand requiring the company to pay the sum due by leaving the notice
at the registered office and the company has, 21 days after the service of
the demand, neglected to pay the sum.”

1. Indebted sum
The amount of debt owed by the company must be RM50,000 and above.
Only a creditor can present a winding up petition under s.466(1)(a) CA.
S. 464(1)(b) CA provides that a company may be wound up under an
order of the court on the petition of “any creditor, including contingent or
prospective creditor, of the company”.
KNM Process System Sdn Bhd v Mission Biofuels Sdn Bhd & Anor
[2014] 8 MLJ 434 –
A creditor is a person to whom money is owed and payable by the
company. An unpaid creditor, is prima facie, entitled to petition for a
winding-up order against the company.
A contingent creditor is a person to whom a debt is owed only on the
occurrence of some future event. Referring to the case of Community
Development Pty Ltd v Engwirda Construction Company (1969)
120 CLR 455. In this case the Australian HC held that a builder whose
debt only became payable on the outcome of arbitration proceedings was
a contingent creditor
A prospective creditor is a creditor to whom a debt is due but not
immediately payable (for example purchase of goods sold and delivered
on 60 days credit)
Under s.466(1)(a) the sum of money must already be due to the creditor
= the debt has crystallised.
Therefore, contingent and prospective creditors cannot utilise s.466(1)(a)
Can utilise s.466(1)(c) – Case: KNM Process System Sdn Bhd v
Mission Biofuels Sdn Bhd & Anor [2014] 8 MLJ 434. Contingent
creditor was entitled to present a winding up application; notwithstanding
the outcome of the arbitration.

Where the alleged debt is bona fide disputed, a person cannot be said to
be a creditor.
Jurupakat Sdn Bhd v Kumpulan Good Earth (1973) Sdn Bhd [1988]
3 MLJ 49
In the case Jurupakat Sdn Bhd v Kumpulan Good Earth (1973) Sdn Bhd
[1988] 3 MLJ 49, the respondent company contested the debt claimed by
the petitioner. The respondent argued that the alleged debt stemmed
from breaches of contract by the petitioner and that, in reality, the
petitioner owed money, not the other way around. Consequently, the
petitioner was not a creditor. The respondent sought to challenge the
petition.
The High Court allowed the respondent company's application, holding
that:
1. The debt was bona fide disputed, with substantial grounds for the
dispute.
2. The evidence showed that the respondent company genuinely disputed
the alleged debt and claimed that the petitioner was actually in a debit
balance. Therefore, the petitioner was not considered a creditor under
section 217 of the Companies Act 1965 (now section 464 CA).
3. The petitioner had no locus standi to file the winding-up petition, and
doing so was an abuse of the court's process.

3. Statutory notice of demand

There is no prescribed form for the statutory notice of demand. For the
notice of demand to be effective it must comply with the prescribed
requirements of s.466(1)(a) CA and these are as follows:-v(Lai Yak Kee v
Pembinaan Alam Cemerlang Sdn Bhd [2012])
a) The demand must be in writing signed by the creditor or its
authorised agent;
b) It must specify the sum due (which meets the winding-up
threshold);
c) The demand must be served on the company by leaving it at its
registered office.
It is not a statutory requirement that the notice of demand need to include
a period of three weeks (now 21 days) as a timeline for compliance. There
is no requirement for the notice to give any warning that there would be
winding-up proceedings

Case law suggest that:

✘ The notice of demand need not stipulate that it was issued pursuant to
s.466(1)(a) CA.
✘It is not a statutory requirement to mention the 3 weeks compliance
period (21 days)*.
✘There is also no requirement to warn that there would be a winding-up
proceedings.
Notwithstanding, in practice, the above is usually incorporated in
the statutory notice of demand.

*Compliance period for statutory notice under s.466(1)(a)

Companies (Exemption)(No.2) Order 2020 (PU[A] 123 extends the period
of 3 weeks to 6 months after the notice of demand is served. This is
applicable for the period between 23.4.2020 until 31.12.2020
The position for compliance -
• For statutory demand served before 23.4.2020 the presumption of
insolvency under s.466(1)(a) CA arises if the debtor company fails to
pay within 21 days after service of the statutory demand;
• For statutory demand served between 23.4.2020 – 31.12.2020 the
presumption of insolvency under s.466(1)(a) CA arises if the debtor
company fails to pay within 6 months after service of the statutory
demand;
• For statutory demand served after 31.12.2020 the presumption of
insolvency under s.466(1)(a) CA arises if the debtor company fails to
pay within 21 days after service of the statutory demand;
The statutory notice of demand need not quantify the amount to the exact
cent.
UMBC Berhad v Richland Trade & Development [2000] 1 MLJ 385
(FC)
The statutory notice of demand dated 25 October 1991 to the company
claimed for 'interest of RM64.69 per day from 26 October 1991 till date of
full settlement'. The learned High Court Judge agreed it is defective as a
result of the ambiguity. The learned High Court Judge held that it was not
a mere irregularity which could be cured relying on cases on bankruptcy
proceeding. The case was appealed to the COA.
The FC agreed with the COA:
1. That the learned judge ought not to apply principles enunciated in
bankruptcy cases, in cases of winding up;
2. The demand need not exactly quantify the amount unlike in the
bankruptcy notice. Unlike a Bankruptcy notice there is no prescribed form
of the statutory demand or notice.
3. For the notice to be valid the requirements are that the demand must
be in writing under the hand of the creditor or his authorised agent, it
must specify the sum due (no requirement for quantifying it to the last
cent), and the demand must be served on the company by leaving it at
the registered office.

Fortuna Injunction
The inherent powers of the court to grant injunction is also
recognised by the Courts in Malaysia - Bina Satu Sdn Bhd v Tan
Construction [1988] - Section 23(2) of the Courts of Judicature Act 1964
confirms that the court retains its inherent powers, including the authority
to prevent any abuse of its proceedings. A classic example of such abuse
is illustrated in Re A Company [1894] 2 Ch 349, where it was ruled that if
a petition for a winding-up order against a company is presented
ostensibly for that purpose but is actually intended to pressure the
company, the court has the inherent jurisdiction to prevent this abuse of
process and will do so by issuing an injunction.
Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 CLJ
295 (COA)
The COA confirmed that the court has jurisdiction and the power to grant
an anti-suit injunction whenever it is necessary to serve the interests of
justice. This includes preventing multiple legal proceedings across
different jurisdictions and restraining the presentation of a winding-up
petition.
The two requirements are the existence of a bona fide dispute as to the
debt and irreparable damage to the plaintiff company if a Fortuna
Injunction were not granted had been established.

HSC LOGISTICS SDN. BHD. v TEONG TIEK WAH Case No. BA-
24NCvC-759-
An applicant will succeed in an application for a Fortuna Injunction if the
applicant is able to convince the Court that (i) the presentation of a
winding up petition against a company might produce irreparable damage
to the company; AND (ii) the proposed winding up petition has no chance
of success. Under this first branch of the principle, both limbs in (i) and (ii)
must be established.
Under the second branch of the principle, an applicant will succeed if the
applicant is able to persuade the court that there is indeed a more
suitable alternative procedure available to a would be petitioner. It is vital
to note that a claim or debt asserted by an intended petitioner under this
second branch must be one that is disputed and the presentation of the
winding up petition might result in irreparable damage to the subject
company.
Irreparable damage will have to be established by a subject
company seeking a Fortuna Injunction.

TECHNYGROUP HOLDINGS (M) SDN. BHD. v KIDE INTERNATIONAL

SDN. BHD. Case No. BA-24NCC-41-04/2023 link:
[Link]
DocumentID=9a7557cc-e556-450e-bc49-
fa45481f7ab1&Inline=true
Irregularities in the notice of demand - The irregularity raised is
on the drafting of the period to make payment by the debtor
company in the statutory notice of demand.
Sri Hartamas Development Sdn Bhd v MBF Finance Bhd [1992] 1
MLJ 313 (SC)
The notice stated that the appellant must pay the sum within 21 days
from the date of the demand notice. The 21 days should run from the date
the notice is served on the company, not on the date of the notice.
However, under rule 194, which provides that the no proceedings will be
invalidated by formal defect or any irregularity unless there is substantial
injustice caused and it cannot be remedied. However, the court held that
the 3 weeks mentioned in the notice of demand itself is not a requirement
relating to the content of the notice itself. It refers to the period of neglect
to pay before the presumption of inability to pay arises. In fact, the
company did neglect to pay for three weeks from the date of service of
the notice and therefore the presumption has been satisfied under
s.281(2)(a).
Procedure to oppose the winding-up petition
Rule 30 Companies (Winding Up) Rules 1972
1. Affidavits opposing a winding-up petition must be filed and a copy
served on the petitioner or their solicitor at least seven days before the
scheduled hearing date of the petition.
2. Affidavits in reply to those opposing affidavits (including any further
affidavits supporting the facts alleged in the petition) must be filed within
three days of the date of service on the petitioner of the affidavit in
opposition, and a copy must be promptly served on the opposing
petitioner or their solicitor.

Crocuses & Daffodils (M) Sdn Bhd v Development and Commercial

Bank Bhd [1997] 2 MLJ 756 (COA)
D&C Bank (respondent) approved an overdraft facility for RM5.5m to the
borrower for a period of 1 year and repayable on demand. It was secured
by a charge on a land belonging to the company (appellant). There was a
default on the facility and the land was auctioned. The proceeds of the
sale were insufficient to settle the debt owing to the respondent.
The respondent filed a civil suit against the appellant and obtained a
consent judgment.
The respondent issued out a notice under s.218 of the Companies Act
1965.
The appellant failed to comply with the notice and the bank issued a
winding up petition.
The appellant filed a notice of intention to oppose the petition on the
ground that they dispute the debt due to the bank 3 days before the
hearing. Hearing of the petition was postponed several times. On each
adjournment, an affidavit in opposition was served on the respondent but
was not within the prescribed times stipulated under r. 30.
The respondent raised preliminary objection that the affidavits should not
be admitted.
The HC judge agreed and order the appellant be wound up. The appellant
appealed to the COA.
COA held (in relation to the affidavit opposing the petition):
r.30(1) of the 1972 Rules is mandatory in nature and therefore the judge
was correct when he refused to admit all the affidavits in opposition for
non-compliance of r.30.
Consequently, the petition remains unopposed, and the company is liable
to be wound up.

Grounds to oppose the winding-up petition

Rebutting the presumption under s.466(1)(a) that the company is
“unable to pay its debts.”
Can do so by showing that the company is able to pay the debts.
In determining this, the test applied by the court is the commercial test of
insolvency i.e. whether the company has money/funds presently available
to the company to meet its liability, irrespective of whether the company
possess assets if realised would enable it to pay its liabilities in full. If the
company does not have money or funds to meet its current demands,
then it is insolvent.
It is not sufficient that the asset might be realised at some future date
after the debts become due and payable and it is not about whether the
company’s books show that the liabilities exceed its assets.
This was also highlighted in the case of Hotel Royal Ltd Bhd v Tina
Travel & Agencies Sdn Bhd [1990]: The respondent pleaded that they
have realisable assets to pay the amount due to the petitioner. Petition
was issued pursuant to the failure of the respondent to comply with the
notice served under s.218. As for the test of solvency, the court held that
it does not depend on the presence of their realisable assets - insolvency
in commercial sense, which is the inability to meet the current demands
irrespective of whether the company is possessed of assets which, if
realised would enable it to discharge its liabilities in full.
In Gulf Business Construction Sdn Bhd v Israq Holding Sdn Bhd,
the respondent failed to pay the sum within the stipulated time under the
notice. The petitioner filed a winding up petition against the respondent.
The court held that the test to ascertain commercial insolvency is whether
the company is unable to meet its current debts as they fall due. Such a
company would be categorised as unable to pay its debts even though (i)
it has substantial wealth which cannot be immediately realised and (ii) on
liquidation it would be able to meet all its liabilities. A company’s financial
potential is not enough. There must be money presently available to the
debtor to meet the debts as they become due.
Whereas in Wangsini Sdn Bhd v Grand United Holdings Bhd, the
respondent was a public listed company on the main board of KL Stock
Exchange. The company was financially sound and the balance sheet
showed a total cash deposited with various licensed banks and financial
companies (company was considered commercial solvent - available
assets to pay its debt as they are due) and therefore found to be fully
capable of meeting the petitioner’s demand.
In Sri Hartamas Development v MBF Finance Bhd, the respondent
bought evidence that it was the owner of landed assets worth more than
RM 500 million. In dealing with ‘commercial insolvency’, the court held
that it is not where the company has assets which if realised will be able
to pay off its debts. A company may have investments but if it does not
have assets available to pay off its current liabilities when it becomes due
it is commercially insolvent and can be wound up.

Debts disputed on substantial grounds.