A winding-up petition is an abuse of process when the underlying debt is bona fide disputed on substantial grounds. Additionally, parties who habitually conduct business by ignoring corporate boundaries are estopped from asserting the separate personality of subsidiaries to defeat set-off claims.

[1] This appeal is directed against the order of the High Court winding up the appellant company. The underlying facts are these.

[2] The appellant and another company, Dapan Holdings Sdn Bhd are both common subsidiaries of Karambunai Resorts Bhd. The respondent and a company called Hypervictory Sdn Bhd are common subsidiaries of B.I.G. Industries Berhad. Dapan Holdings is the developer of the Bandar Sierra housing project. The appellant is the main contractor for that project. By an agreement dated 10 September 2004, Dapan Holdings granted a company called Zillion Rank Sdn Bhd the exclusive licence to extract rocks and quarry products from the site of the Bandar Sierra project. In September 2004, Zillion appointed Hypervictory as its sub-contractor to carry out the quarrying works. At about the same time, the respondent commenced the sale of ready mixed concrete to the appellant for use at Bandar Sierra. Later, the respondent took the position that it was owed a sum of RM817,877.76 by the appellant. It served the appellant with a statutory demand under s. 218 of the Companies Act 1965 and then presented a winding up petition on the ground that the demand had not been complied with.

[3] Now, there is no doubt that the case has been complicated by the existence of wholly owned subsidiaries. Yet it is clear from the evidence on record that for the purposes of the dealings between them, the parties to the several transactions, including the appellant and the respondent treated the cross transactions between the respective subsidiaries as forming a set-off as between them. Indeed, there is evidence of previous instances of claims outside the immediate arrangement between the appellant and the respondent but involving the other common subsidiaries on either side being set off with no objections from the respondent. In short, during the course of their dealing they chose to disregard the separate and individual corporate personality of the other companies with which each was associated and instead treated the holding company and subsidiary as one and the same corporate individual. Each side is therefore estopped from relying on the corporate veil of the other companies to defeat the other's legitimate claims. The most recent and authoritative statement of the doctrine is to be found in the speech of Lord Scott of Foscote in Yeoman's Row Management Limited and Another v. Cobbe [2008] UKHL 55 in the following terms:

[4] It is apparent from the judgment of the learned judge that he did not sufficiently direct himself upon the documentary evidence that supported the appellant's right of a set-off against the respondent in respect of transactions between common subsidiary companies on either side. In our judgment where the learned judge erred was in his acceptance without more of the version put forward by the respondent in its affidavits when those allegations were credibly denied by the appellant in its affidavits. To reiterate, the learned judge appears to have overlooked the evidence of the conventional basis on which the parties conducted themselves towards each other. To quote from the judgment of Dixon J in Grundt v. Great Boulder Pty Gold Mines Ltd [1937] 59 CLR 641:

[5] It remains now for us to decide whether the respondent was entitled to petition to wind up the appellant in reliance of the s. 218 notice when the debt it claimed was bona fide disputed on substantial grounds. In this regards we find it unnecessary to do more than quote from the judgment of this court delivered by Mohd Ghazali JCA in Syarikat Mohd Noor Yusof Sdn Bhd v. Polibina Engineering Enterprise Sdn Bhd [2