Saturday, February 19, 2011

Winding up proceedings

Problematic Question:-

Suci Sdn. Bhd. requested your law firm to file a Winding-Up Proceeding against Khoo Thor Sdn. Bhd. Due to amount owing to them for a sum of RM 4 Million. Please advise them what are the procedures and step to be taken relating to the Winding-Up Proceeding and what are the relevant sections of the Companies Act 1965 and the Winding-Up Rules 1972 and the documents to be tendered before hearing of a Winding-Up petition.

There are several rules and regulation which ought to be followed in relating to the Winding-Up Proceedings against Khoo Thor Sdn. Bhd. whose indebt for amount RM 4 Million to Suci Sdn. Bhd. These rules and steps accomplish through provision under Companies Act 1965 and the Winding-Up Rules 1972.

A winding up petition may be presented subsequent to a judgment taken against a respondent who indebt of monetary payment such when a summary judgment is obtained or when a judgment in default is obtained by the petitioner.

On the same time, a winding up petition may also be presented without a judgment being taken against the respondent. However, a petition for winding up without a judgment may be presented after service of a notice of demand pursuant to Section 218 of Companies Act 1965, in which the circumstances are laid down. According  to Section 218 (2) (a) Companies Act 1965, a company shall be deemed to be unable to pay its debts if 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.

Nevertheless, the winding up petition procedures are laid down in the Companies (Winding-Up Rules) 1972. Pursuant to Rule 23 a petition shall be presented in the High Court for a declaration. The Registrar shall appoint the time and place at which the petition will be heard. Notice of the time and place appointed for hearing shall be written on the petition and on the sealed copies thereof, Rule 23 (2). A winding up petition is presented in the High Court upon expiry of three weeks or 21 days from the notice of demand being sent to the respondent by petitioner.

Pursuant to Rule 26, every petition for winding up must be verified by an affidavit sworn before the Commissioner of Oaths. The affidavit in Form 7 shall be made by the petitioner or by one of the petitioners, if more than one, or in case the petition is presented by a corporation, by the director, secretary or other principal officer, and shall be sworn after and filed within four days after the petition is presented and the affidavit shall be prima facie evidence of the statements in the petition which might produced to the court while winding up proceedings.

In the High Court case of Lim Tok Chiaw v Dian Tong Credit & Development Sdn Bhd [1994] 2 MLJ 345 it was held by his Lordship, Abdul Kadir Sulaiman J, that the general principle governing an affidavit is that it must be made in some cause or matter which is actually pending in the court. It cannot serve the purpose of verifying to something which is non-existent at the time it was sworn. If a formal application was to be made for the extension of time for filing a subsequent affidavit to verify the petition, it ought to be made under Rule 7 (1) of the Companies (Winding-Up) Rules 1972. In this case the affidavit verifying the petition was sworn before the presentation of the petition. The court could not exercise its discretion to allow the petitioners to re-swear a second affidavit to verify the affidavit as this would amount to a miscarriage of justice according to Rule 26 which might bring to the prejudice of the respondent company. The petition presented in this case was therefore bad and the notice of demand issued upon the respondent company did not help the petitioners to ask the court to presume that the respondent company is unable to pay its debts. The petition of the petitioners was struck off.

However, in the case of YPJE Consultancy Service Sdn. Bhd v Heller Factoring (M) Sdn Bhd (formerly known as Matang Factoring Sdn Bhd) [1996] 2 MLJ 482 in dismissing the appeal, the Court of Appeal held that the affidavit which is sworn before the presentation of the petition would cause the petition to be void. In the present appeal both the affidavits and the petitions dated 10th of July 1995. The trial judge was correct in holding that the affidavit was made after the petition was presented, as the affidavit referred to the petition which was attached to the affidavit. The trial judge was also correct in stating that Rule 26 had not been infringed because the affidavit that verified the petition had been filed on 11th of July 1995. Furthermore, there was no evidence to show that the affidavit had been sworn before the petition was presented.

While, in the High Court case of Sari Atlantic Sdn Bhd v Aik Kirn Enterprise [1988] 1 MLJ 201 the petition for winding up of Aik Kim Enterprise Sdn. Bhd was presented in February 1987 but the affidavit verifying that petition was affirmed on 10th of February 1987 which four days before the presentation of the petition itself, which is a clear failure to comply with rule 26 of the Companies (Winding-Up) Rules 1972. His Lordship, Lim Beng Choon J, in dismissing the appeal held that non-compliance with Rule 26 does not render the petition a nullity and is curable by the court as Section 221 (2) of the Companies Act allows the court to cure a technical error which does no injustice to the respondents. His Lordship in this case allowed an extension of time to the petition to re-swear an affidavit to verify the facts and the filing and serving of such affidavit before the hearing of this petition. However, the company is of course entitled to costs and I do order that costs of the proceedings up to the date of this judgment shall be paid by the petitioner to the company.

On reliance to Rule 25 (1) of the Companies (Winding-Up) Rules 1972, every petition shall, unless presented by the company, be served on the company's registered office and if there is no registered office, be served at the principal or last known principal place of business, if can be found leave a copy with any member, officer or servant of the company, if no member leave a copy at its registered office or principal place of business, or-by serving it on such member or members of the company as the court may direct, and if wound up voluntarily, the petition shall also be served upon the liquidator (if any) appointed for the purpose of winding up the affairs of the company. The affidavit of service of petition may be either in Form 5 or 6.

Pursuant to Rule 25 (2), where the petition is presented by any person other than a liquidator of the company in relation to a company which is in the course of being wound up, the petition shall be personally served upon the liquidator. Furthermore, pursuant to Rule 25 (3), a copy of the petition shall also be served upon the official receiver and the Registrar of Companies.
Every petition shall be advertised in Form 4 seven clear days or such time as the court may direct before the hearing rule 24. Pursuant to Rule 24 (a), the advertisement of the petition should be placed once in the gazette and at least twice in two [2] local newspapers which circulating in Malaysia, or such other newspaper as directed by the court.

In the High Court case of Re NKM Holdings Sdn. Bhd [1985] 2 MLJ 390 a winding up petition was filed by creditors against the company and the hearing was fixed on 12th of December 1983. Under the Companies (Winding-Up) Rules 1972, the petition had to be published in the Government gazette not less than seven clear days prior to the date of hearing. The gazette of 24th of November 1983 was put into circulation on 12th of December 1983. A preliminary objection was raised by the counsel for the company [ the debtor ] that the petition had not been advertised in the Government gazette at least seven clear days prior to the notice. Counsel for the appellant brought to the attention of the court Rule 94 (1) which read as follows, “ no proceedings under the Act or the Rules shall be invalidated by any formal defect or any irregularity, unless the court is of the opinion that substantial injustice has been caused by the defect or irregularity, and that the injustice cannot be remedied by any order of the court ”.

His Lordship VC George J, held that firstly, the requirement of Rule 24 (a) for publication in the Government gazette seven clear days prior to the date of hearing had not been met. Secondly, despite the statutory presumption and the statutory prima facie position in view of the evidence given in this case, but there was no publication of the Federal gazette dated 24th of November 1983 until 12th of December 1983. Lastly, the court has power to dispense or give out with any notice and give such directions as it deemed fit. A new date for hearing was fixed.

In the Supreme Court case of NKM Holdings Sdn. Bhd v Pan Malaysia Wood Bhd [1987] 1 MLJ 39 his Lordship Seah SCJ, held that the learned judge had correctly exercised his discretion in dispensing with the advertisement. Secondly, advertisement of a winding up petition in the gazette is a statutory requirement and deliberation of non-compliance of the provision may result in adverse or bad consequences. Lastly, it was held that the duty of the court is to expound and illustrate the language of the Act in accordance with the settled rules of construction. The court has nothing to do with the policy of the Act which it may be called upon to interpret. His Lordship went on to say, “ I agree with Mr. Davidson that the need to gazette has indeed and definitely deteriorated into a mere formality and in the fact of the existence of widely circulated daily newspapers has perhaps become an anachronism or historical object ”.

After the petition has been presented, the petitioner or his solicitor shall on a day to be appointed by the Registrar attend before the Registrar followed by the Rule of 32. The solicitor must show to the court that the following has been done which as follows:-

Rule 32 (a) -      the petition has been duly gazetted and advertised
Rule 32 (b) -      the prescribed affidavit verifying the statements therein and the                                                                                      affidavit of service, if any, have been duly filed
Rule 32 (c) -      the consent in writing of the approved liquidator nominated by the petition has been obtained and filed
Rule 32 (d) -      the provisions of this rule as to the petitions have been duly complied
Moreover, according to Rule 32 (e) of Companies (Winding-Up) Rules, a sum of three hundred dollars has been deposited to cover the fees and expenses to be incurred by the approved liquidator or the official receiver as the case may be. This deposit shall be refunded to the petitioner by the liquidator before taking any action under Section 292 (priorities of payment). Pursuant to Rule 32 (2), the court will not make an order for dismissal or adjournment of the petition of any petitioner who has not, prior to the hearing of the petition, attended before the Registrar at the time appointed and satisfied him in the manner required by the rule.

Every person who intends to appear on the hearing of the petition shall serve on the petitioner or his solicitor’s notice of his intention to do so. The notice shall be signed by the person or by his solicitor and shall give the address of the person signing it and if posted, to post in ordinary course of post to reach the address not later than 12 pm of the day previous to the day appointed for the hearing of the petition, Rule 28 (1).

The notice of intention to appear may be in Form 8, Rule 28 (2). Pursuant to Rule 28 (3) a person who fails to comply with this rule shall, notwithstanding special leave of the court, be allowed to appear on the hearing of the petition.

An affidavit to oppose the petition may be filed by a respondent. Pursuant to Rule 30 (1), an affidavit in opposition to a petition that a company may be wound up shall be filed and a copy thereof served on the petitioner or his solicitor at least seven days before the time appointed for the hearing of the petition. Whereas an affidavit in reply to an affidavit filed in opposition to a petition (including a further affidavit in support of any of the facts alleged in the petition) shall be filed within three [ 3 ] days of the date of the service on the petitioner of the affidavit in opposition and a copy of the affidavit in reply shall be forthwith served on the opposing petitioner or solicitor, Rule 30 (2).

Pursuant to Rule 34 of companies act when an order is made for the winding up of a company the petitioner shall forthwith inform the liquidator in Form 10 and within fourteen days gazette and advertise a notice in Form 12 of the making of the order serve upon the liquidator a copy of the order, Rule 34 (1) (b) serve on the official receiver and the Registrar of Companies, accordance with Rule 34 (1) (c) of Companies (Winding-Up) Rules 1972.

At last, pursuant to Rule 34 (2), a copy of the winding up order required by Section 226 (2) must be served on the secretary of the company either personally or by prepaid letter at the registered office or if there is no registered office its principal or last known place of business. Pursuant to Rule 32 (3), the winding up order in Form 11 shall contain at the foot a notice stating that it will be the duty of the persons at the time, secretary or chief officer of the company concur in making out a 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.

As a conclusion, such a Winding-Up Proceeding against Khoo Thor Sdn. Bhd. as a debtor due to amount owing for a sum of RM 4 Million to Suci Sdn. Bhd must be followed thoroughly accordance with the manner of procedures and step subscribed and illustrated under relevant provision of Companies Act 1965 and the Winding-Up Rules 1972 beside tendering documents before hearing of a Winding-Up petition such as affidavit of support the statement prescribed along petition of Winding-Up.

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