A company is deemed unable to pay its debts if it cannot meet current liabilities as they fall due, and the burden of proof lies on the company to demonstrate solvency.

JUDGMENT

(Stay Of Winding Up Petition)

Kenneth St James JC:

Prelusion

[1] The Respondent (R) applies for a stay of this winding up proceeding pending the Ministry Of Education's (MOE's) payment of Interim Certificate No. 58 and Interim Certificate No 59 to R.

[2] Should a stay of proceedings be granted?

The Pertinent Facts And Chronology Of Proceedings

[3] The MOE awarded a contract to R to build a school. The Petitioner (P) granted banking facilities to R to carry out the construction contract. R defaulted. P filed a civil suit against R.

[4] On 12 April 2023, P and R recorded a Consent Order for R to pay P approximately RM2.812 million and other amounts (Judgment Debt). The Judgment Debt was to be paid from the contract payments the MOE pays R for the construction contract. But if R does not receive the contract payments from the MOE, the Judgment Debt must still be paid by R. R defaulted under the Consent Order.

[5] In June 2023, P issued and served the s 466 Companies Act 2016 statutory notice on R. R failed to comply.

[6] In July 2023, P presented this winding up Petition against R.

[7] In September 2023, R filed an application to stay this Petition. I fixed R's stay application and the Petition to be heard one-after-the-other on the same date - 31 May 2024.

The Law On Winding Up Petitions And Stay Of Winding Up Proceedings

[8] P petitions to wind up R under the following provisions of the Companies Act 2016 ( CA 2016).

[9] Section 465 (1)(e) of the CA 2016 provides that a company can be wound up if it is "unable to pay its debts". Section 465 (1)(h) provides that a company can also be wound up if it is just and equitable to wind it up.

[10] Section 466 (1)(a) is the deeming section that provides that a company is deemed to be "unable to pay its debts" if a creditor issues and serves on the company the prescribed statutory notice to demand the amount due and payable, and the company does not pay the amount after 21 days.

[11] R applies for a stay of the winding up proceedings under the following provisions of the CA 2016.

[12] Section 469 (1)(b) provides that on the hearing of the Petition, the Court can "adjourn the hearing conditionally or unconditionally".

[13] Section 469 (1)(c) provides that on the hearing of the Petition, the Court can "make any interim or any other Order that the Court thinks fit".

R's Stay Application

R's Ground For A Stay

[14] The purpose that R took the banking facility from P was to finance the performance of the construction contract with the MOE. R was required to open a Revenue Collection Account (operated not by R, but by P). This Revenue Collection Account was to receive the contract payments from the MOE.

[15] R submits that it defaulted in paying the Judgment Debt and hence failed to pay the amount demanded under the s 466 statutory notice solely because the MOE did not pay the contract proceeds into the Revenue Collection Account. In other words, this Petition would have been redundant if the MOE had made payments into R's account.

[16] R further submits that the MOE owes R the amount under Interim Certificate No 58 for approximately RM2.185 million, and the amount under Interim Certificate No 59 for approximately RM2.327 million. This combined amount of RM4.512 million is more than enough to satisfy the statutory notice demand for approximately RM2.865 million.

[17] R argues that once the MOE makes these payments, R will be able to pay the Judgment Debt to P.

[18] R produces a letter dated 7 August 2023 from the MOE, promising that the money will be paid over once the Ministry Of Economy and the Ministry Of Finance give their approval. R also produced another letter, which was dated 20 September 2023 from the MOE, making the same promise.

My Findings

[19] First — the asserted promise-to-pay from MOE was made in August 2023. At the hearing of R's stay application (on 31 May 2024), nine months had lapsed. No payment was made. R has not produced any evidence that MOE has paid R or paid money into the