A company’s failure to comply with a court order requiring repayment creates a presumption of insolvency, justifying winding-up proceedings under the Companies Act.

Introduction

[1] The parties will be referred to like what they were referred to at the High Court. Thus, Israq Holding Sdn Bhd (382287-H) will be referred to as the petitioner while Gulf Business Construction (M) Sdn Bhd (307134-P) will be referred to as the respondent.

The Facts And The Analysis Thereto

[2] On 3 June 2005, the petitioner as the plaintiff in the originating summons no: D2-24-123-2005 obtained an order against the respondent who was the second defendant in that originating summons and against Tetuan Par Govind & Co who was the first defendant in that originating summons directing them to jointly and severally release and refund to the petitioner the trust money of RM504,000 together with the interest accrued thereto, if any. That Court order can be seen at p 46 to 48 of the appeal record at Jilid 2.

[3] The Court order dated 3 June 2005 has not been set aside nor varied. It remains as a Court order and it is contempt to disobey an order of the Court. It is no answer to an action for contempt to argue that the Court order should not have been made. The correct course to take would be to challenge the Court order by applying to have it set aside. In Hadkinson v. Hadkinson [1952] P 285, CA, at p 288, Romer LJ put it nicely in these salient words:-

It is the plain and unqualified obligation of every person against, or in respect of whom, an order is made by a Court of competent jurisdiction, to obey it unless and until that order is discharged. The uncompromising nature of this obligation is shown by the fact that it extends even to cases where the person affected by an order believes it to be irregular or even void.

[4] In the same vein, Lord Donaldson of Lymington MR said in Johnson v. Walton [1990] 1 FLR 350, CA, at p 352, that:-

It cannot be too clearly stated that, when an injunctive order is made or when an undertaking is given, it operates until it is revoked on appeal or by the Court itself, and it has to be obeyed whether or not it should have been granted or accepted in the first place.

[5] Now, even if the Court order was not made jointly and severally against both the respondent and Tetuan Par Govind & Co, yet either one of them would still have to bear the whole of that liability all by itself up to the limit of the judgment on the strength of the authority of the case of Dynasty Rangers Sdn Bhd & Anor v. Perak Meat Industries Sdn Bhd, 2002 MarsdenLR 1827 .

[6] Premised upon the Court order, a notice under s 218(1)(e) of the Companies Act 1965 dated 28 March 2006 was issued and served on the respondent's company secretary on 30 March 2006. Of course, the inability to pay the debts is the most commonly relied ground for winding-up a company. An inability to pay is proved by service of the statutory notice under s 218(2) of the or by other proof of insolvency. According to the case of Morgan Guaranty Trust Co of New York v. Lian Seng Properties Sdn Bhd , 1991 MarsdenLR 926 , prima facie a creditor, like the petitioner here, who has not been paid has the right to file a petition for winding-up whatever its other motives may be.

[7] The test to ascertain commercial insolvency is rather simple. It is this. That the company is unable to meet the current debts as they fall due. And such a company may still be categorised as "unable to pay its debts" even though the company has substantial wealth which cannot be realised immediately and even though on liquidation the company will be able to meet all its liabilities (Re Sunshine Securities (Pte) Ltd, Sunshine Securities (Pte) Ltd & Anor v. Official Receiver And Liquidator of Mosbert Acceptance Ltd; Wei Giap Construction Co (Pte.) Ltd v. Intraco Ltd, [1979] 2 MLJ 4;