Court confirmed the presumption of insolvency under Companies Act, emphasizing the unsecured creditor's entitlement despite opposition from the company.

Clement Skinner JC:

This is the hearing of a petition presented for the winding-up of WWL Corrugators Sdn. Bhd., (hereafter the company) under s. 218 of the Companies Act 1965 (hereafter the Act) at the instance of Genting Sanyen Industrial Paper Sdn. Bhd. (hereafter the petitioner) on the grounds that the company being unable to pay its debts, it is just and equitable that it should be wound-up.

Prior to the presentation of this petition, the petitioner had by letter made demand, twice, to the company for payment of a sum of RM797,924.12 in accordance with the provisions of s. 218(2)(a) of the Act. The first request was made on 5 May 1998 and the second on 12 June 1998. No payment having been received from the company, this petition was presented on 1 August 1998. Due notice has been given to all concerned of the presentation of this petition by publishing such fact in the New Straits Times as well as the Star newspaper on 5 October 1998; and in the Government Gazette of 22 October 1998.

Only the company has given notice of its intention to appear for the purpose of opposing the petition. No creditor of the company has done so. This does not mean however that there are no other creditors to the company because there is a major creditor in the person of BSN Commercial Bank (M) Berhad (hereafter the bank) in whose favour the company had on 12 February 1996 executed a debenture by way of a fixed and floating charge over all its present and future assets as security for banking facilities of RM3.7 million granted to the company.

Some two months after the presentation of this petition, the bank on 12 October 1998, in exercise of its rights under the debenture, appointed one Lim Tian Huat (hereafter the receiver and manager) as the receiver and manager of all the assets and business of the company. The instrument of appointment states that the receiver and manager shall be the agent of the company.

Before me, counsel for the petitioner submitted that the consequence in law of the company neglecting to comply with the statutory demand for payment pursuant to s. 218(2)(a) of the Act is that a presumption of insolvency has arisen and unless the company can show that it is able to pay its debts, a winding-up order should be made. In support, counsel referred to the case of Sri Hartamas Development Sdn. Bhd. v. MBf Finance Bhd. [1992] 2 MLJ 313 where Gunn Chit Tuan SCJ (as he then was) speaking for the Supreme Court said at p. 320:

... the presumption of insolvency arises when the requirements of s. 218(2)(a) of the Act have been satisfied and it is for the company to prove it is able to pay its debts.

I should point out however that the presumption of insolvency is a rebutable one (see Securicor (M) Sdn. Bhd. v. Universal Cars Sdn. Bhd. [1988] 1 MLJ 84).

Learned counsel for the company concedes that a presumption of insolvency has arisen against the company but submits that although it is suggested that a winding-up order follows as a matter of course, a reading of ss. 218 and 221 of the Act shows that on the hearing of a petition, a winding-up court is vested with a discretion to make a variety of orders including to dismiss a petition and that in this case, for the reasons hereafter stated, discretion should be exercised in favour of the company and the petition either dismissed or alternatively suspended until such time as the receivership is not beneficial to all creditors or is uplifted.

The submission that there is an overiding discretion reposed in the court is well supported by authority because whilst it is accepted that as between a creditor and a company as his debtor, the creditor who proves insolvency is prima facie entitled to a winding-up order, (see the judgment of Buckley J at p. 331 in Re Crigglestone Coal Co. Ltd. [1906] 2 Ch 327) there are numerous cases, both local and Commonwealth, in which the overiding discretion of the court to refuse a winding-up is recognised, (see Kim Wah Theatre Sdn. Bhd.