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2021 MarsdenLR 2633
COURT OF APPEAL PUTRAJAYA
KUMPULAN LIZIZ SDN BHD (IN LIQUIDATION) – Appellant
Versus
PEMBINAAN AZAM JAYA SDN BHD – Respondent
[Civil Appeal No: S-02(NCvC)(A)-1922-12/2020]
Winding up petitions cannot be sustained if the debts claimed are genuinely disputed on substantial grounds; disputes should be resolved through civil proceedings.
Headnote:(A) Companies Act 2016 – Sections 465(1)(e) and 466(1)(a) – Winding up petition – Petitioner's claim for return of advance payment under a Joint Venture Agreement is disputed by respondent as the debt is alleged to be contingent upon various unresolved financial obligations and misrepresentations made before termination of the agreement – The High Court erroneously ordered winding up without ascertaining if the respondent's debt was genuinely undisputed. (Paras 127, 153, 154)
Facts of the case: The petitioner alleged that the respondent had to return an advance payment of RM8,679,245.28 following the termination of their Joint Venture Agreement (JVA) for a construction project, but the respondent claimed the debt was disputed and involved various unresolved contractual obligations.
Findings of Court: The court noted substantial disputes surrounding the claimed debt and the validity of the advance payment request – The winding up petition was set aside due to these uncertainties.
Issues: The main issue addressed was whether the petition for winding up could stand given the allegations of a bona fide dispute over the claimed debt based on the JVA.
Ratio Decidendi: The court emphasized that winding up petitions should not proceed when the debt is contested on substantial grounds, and proper resolution of these disputes should involve civil proceedings rather than an application for winding up.
Result: The winding up order was set aside.
[1] As is so often in the business world, and the construction industry is no exception, cash is king and cash flow is critical. Often times a contractor who has done work and is not paid, would seek various means to recover payment. Some may issue a winding up notice followed by a petition to wind up.
[2] Others would proceed to commence a civil action and to obtain summary judgment for work done, and more so when a certificate of payment had been issued. Some would proceed with adjudication under the Construction Industry Payment and Adjudication Act 2012 ("CIPAA") and then thereafter, to enforce the Adjudication Decision as if it is a judgment of the Court and many, armed with an enforcement order under s 28 of the CIPAA, would proceed with a winding up petition to recover what is presumably a debt no longer in dispute.
[3] However in this case it is the employer who is the petitioner in a construction contract, petitioning to wind up its contractor on ground that the contractor had repudiated the contract and that there is a certain sum representing an advance payment, which the employer having received it from its principal, had passed on the contractor's portion to its contractor, the respondent in the winding up petition and the appellant here.
[4] The winding up Court had agreed that there is no dispute on the fact that the Advance Payment had to be returned to the petitioner, as the debt is not in dispute and so a winding up order was made against the respondent below.
[5] The respondent had argued that the debt is in dispute and that the petitioner had not obtained judgment for the debt. Apparently upon the execution of a joint-venture agreement ("JVA") between the petitioner and the respondent for a Pan Borneo Highway Sabah Project, Package 6 ("the Project"), the parties had agreed on a 8%:92% sharing of the contract sum of RM 972,020,000.00 ("Main Contract Sum") to be received from the petitioner's principal.
[6] In other words it was a total-subcontracting by the petitioner to the respondent; the petitioner would take a 8% cut and passed on the obligation and burden of executing the works to the respondent contractor.
[7] The petitioner had in turn being awarded the Project by BHP Borneo Highway PDP Sdn Bhd ("BHP") as the Project Delivery Partner ("PDP"), who in turn had been awarded the Project by the Government of Malaysia/State Government of Sabah, collectively referred to as the Owner.
[8] It was BHP that had advanced to the petitioner a sum of RM10 million under the Contract between them and on 1 May 2018, the respondent requested the petitioner to advance them 92% of the advance given by the BHP to the petitioner for the costs and expenses in mobilisation, securing the Advance Payment Bond, the Performance Bond or Guarantee, the insurances and various other expenses necessary to start the works on the Project as was the agreed arrangement under the JVA.
[9] Based on the JVA upon BHP paying the progress claims to the Petitioner's bank account at Maybank, 92% of the progress payments received will be transferred to the respondent's bank account at Maybank.
At The High Court
[10] It is not in dispute that the sum of RM8,679,245.28 was received by the respondent from the petitioner which sum is derived from RM9.2 million less the GST paid to the Royal Malaysian Custom.
[11] There is no evidence of any complaint of the works done by the respondent. The petitioner argued that it was the respondent who had on their own accord, terminated the JVA which termination the petitioner had accepted.
[12] The respondent on the other hand contended that there was much interference in the finance of the respondent by the petitioner with respect to who may receive what payment from the monies paid direct from the Main Contractor BHP into the special accounts of the respondent set up for the purpose of the JV Contract, that made it impossible for them to continue with the JV.
[13] The respondent also argued that th
