The court affirmed that deferring a winding up to evade tax constitutes illegality, impacting the discretion applied under the Companies Act.

Abdul Malek Ahmad JCA:

The petitioners in the court below, who are the appellants before us, had sought a court order to wind up the first respondent, who is the only respondent in this appeal, on the grounds that it had by special resolution resolved that it be wound up by the court and that it was just and equitable that it be wound up under s. 218(l)(a) and (i) respectively of the Companies Act 1965 (hereinafter "the Act").

At all material times, the shareholders of the first respondent were the second, third, fourth, fifth and sixth respondents. On 11 June 1991, the first respondent at an extraordinary general meeting passed a resolution approving the sale of Lots 2063 and 651 Mukim of Kuala Lumpur to Bolton Properties Berhad (hereinafter "Bolton") for RM6,034,123. It was also resolved that approval be given for the purchase of 500,000 shares in Bolton together with the bonus and rights entitlement from Kenneison Brothers Berhad for RM1,600,000.

It was the first petitioner's proposal that the first respondent be wound up after the sale of the land to enable the immediate distribution of the proceeds among the shareholders after the sale. At the extraordinary general meeting on 18 June 1991, approval was given for the said land to be sold to Bolton for RM5,500,000 and that the first respondent be wound up three months after the completion of the sale. Notwithstanding the resolution, the winding up did not take place and the petitioners are not happy that the directors of the first respondent are still conducting the company's affairs.

A number of preliminary objections were raised in court at the hearing of the winding up petition by learned counsel for the second, fourth and seventh respondents. The first was that the petitioners were not members of the first respondent and were not pursuing relief under s. 181 of the Act. This was conceded to by learned counsel for the petitioners.

The next preliminary objection was that this was a hybrid petition as para 22 and 23 of the petition relate to s. 181 of the Act whereas para. 24 of the petition referred to s. 218 of the Act.

The reply from learned counsel for the petitioners was that paras. 22 and 23 are to be ignored but it was not wrong to bring in the second, fourth and seventh respondents as they were directors of the first respondent apart from being shareholders against whom they had obtained a court order restraining them from holding an annual general meeting. Learned counsel for the said respondents immediately gave his undertaking that they would not convene any meeting pending the outcome of the petition.

The learned judge ordered the petitioners to amend the petition relying on Lai Kim Loi v. Dato Lai Fook Kim & Anor [1989] 2 MLJ 290 and the matter was accordingly adjourned.

Learned counsel for the respondents at the continued hearing referred to para. 11 of the affidavit of the seventh respondent filed on 18 August 1994 which stated that the board of directors of the first respondent had been advised by their tax consultant that should the company be wound up, the gain from the sale of the property from which real property gain tax of RM264,564 had been paid might subsequently be reviewed and reassessed as being an income from trading by the Department of Inland Revenue and with the imposition of this income and development tax and with the tax on the proceeds of the compulsory acquisition of part of the property in 1989 by the State Government, the additional tax would be in the region of RM2,176,393. This would result in lower dividends for the shareholders of the first respondent upon winding up. In view of this, the board of directors of the first respondent felt it was best to prolong the period before the voluntary winding up proposed by the special resolution on 18 June 1991.

It was the argument of learned counsel for the petitioners that the court was condoning the tax evasion tactic of the first respondent if it chose to defer the winding