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2025 MarsdenLR 4956
COURT OF APPEAL PUTRAJAYA
PILECON ENGINEERING BERHAD – Appellant
Versus
CAHAYA KELANG CONSTRUCTION SDN BHD & ANOR – Respondent
[Civil Appeal No: B-02(NCC)(A)-2117-11/2022]
Debt assignment must comply with legal requirements; otherwise, it is deemed void, particularly under the undue preference rules in insolvency contexts.
Headnote:(A) Companies Act 2016 - Section 528 - Companies Act 1965 - Section 293 - Undue preference - Claim by appellant against respondents for debt assignment rejected for being void under s 528 due to timing within the winding-up period - Appellant did not validly establish assignment of debt from subsidiary. (Paras 16, 22, 31)
(B) Privity of contract - Invalid assignment claim due to lack of proposed written documentation supporting debt assignment - Board Resolution described as self-serving and unenforceable against respondents. (Paras 30, 34)
(C) Limitation - Court elected not to determine issues of limitation and estoppel due to pending factual disputes. (Paras 35, 36)
Facts of the case:
The appellant sought to recover RM1,835,072.00 allegedly owed by respondents following multiple settlement deeds involving a subsidiary. The High Court ruled the assignment of the debt void due to undue preference laws and rejected the claim based on the lack of enforceable assignment.
Findings of Court:
The High Court dismissed the appellant's claim and emphasized that any assignment must comply with legal requirements, and the High Court's prior determinations stood correct.
Issues: Whether the claim was void for undue preference, existence of restrictive clauses in deeds, validity of the debt assignment, and its time-barred status.
Ratio Decidendi: The High Court held that the assignment was void under s 528 CA 2016 as it occurred within the undue preference period prior to winding-up. Furthermore, a Board Resolution without written confirmation from the assignor results in an unenforceable assignment.
Result: Appeal dismissed with costs.
| Table of Content |
|---|
| 1. appellant's claim based on assigned debt (Para 1 , 2) |
| 2. details of construction contracts and debts (Para 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10) |
| 3. high court's dismissal and disputes (Para 11 , 13 , 14) |
| 4. undue preference under company law (Para 15 , 16 , 24) |
| 5. appellant's arguments on statutory application (Para 17 , 18) |
| 6. non-retroactive application of ca 2016 (Para 20 , 22) |
| 7. validity of assignment of debt (Para 26 , 27 , 30) |
| 8. lack of cause of action against second respondent (Para 28 , 29) |
| 9. high court's view on limitation and acknowledgment (Para 35 , 36) |
Introduction
[1] The appellant's claim against the respondents was based on the latter's debt to another company, which is a wholly owned subsidiary of the appellant. The appellant asserted that this debt had been assigned to it and sought to enforce the claim.
[2] The High Court dismissed the appellant's claim for several reasons, one of which was that the alleged assignment of the debt was invalid.
Brief Facts
[3] The appellant's subsidiary, Prizegard Geotechnics Sdn Bhd ('Prizegard'), was appointed by the first and second respondents as a contractor to undertake some construction works. Prizegard was owed a sum of RM4,500,000.00 for the works done.
[4] Prizegard subsequently entered into a Deed of Settlement dated 9 December 2004, with the first and second respondents to resolve the debt ("First Deed"). Under this First Deed, the first respondent agreed to partially settle the debt with a cash payment of RM1,350,000.00. Of this amount, RM950,000.00 has already been paid, leaving a remaining balance of RM400,000.00, which is to be paid in eight equal installments of RM50,000.00 each. The remaining debt of RM3,150,000.00 is to be settled through the transfer of six properties registered in the name of the second respondent to Prizegard or its nominee companies, as outlined in Schedule 1 of the Deed of Settlement. Recital E of the First Deed states that the actual transfer consideration for the properties will be fixed at RM1,314,928.00, rather than the RM3,150,000.00 initially stated.
[5] Clause 4 of the First Deed provides that in the event of default, no liability shall be attached to the second respondent and that Prizegard could only sue the first respondent for any outstanding payments. Clause 4 reads as follows:
Clause 4
"In the event PNSB ("the Second Respondent") or the Debtor ("First Respondent") defaults in any of their obligations or of the terms and conditions herein, the Creditor ("Prizegard") shall be entitled to claim against the Debtor ("First Respondent") for all the outstanding sums owing to the Creditor under this agreement".
[6] The respondents were only able to settle a portion of the debt, leaving an outstanding balance of RM1,835,072.00 as of 2007. On 15 August 2007, a Supplementary Agreement was entered into between Prizegard and the first and second respondents to address the remaining debt of RM1,835,072.00 ('Second Deed'). According to this Second Deed, the second respondent agreed to settle the outstanding debt by transferring and assigning six properties to Prizegard, which included three condominiums and three double-storey houses. It was stipulated that the second respondent would not be held liable for any defaults on these obligations. Consequently, Prizegard could only pursue the first respondent for any remaining payments. Clause 3 states the following:
"3. DEFAULT BY THE DEBTOR AND/OR PNSB
In the event PNSB (Second Respondent) or the Debtor (First Respondent) defaults in any of their obligations or of the terms and conditions herein, the Creditor (Prizegard) shall be entitled to claim against the Debtor for all outstanding sums owing to the Creditor (Prizegard) under this agreement."
[7] The parties entered into a new deed dated 16 July 2009 ('Third Deed') to correct errors in the property descriptions. Under the Third Deed, the respondents agreed to transfer seven properties owned by the second respondent to
