In the Court
of Appeal case of Lafarge Concrete
(M) Sdn Bhd v Gold Trend Builders Sdn Bhd [2012] 6 MLJ 817, it was held
that:-
"...[5] Before us, it was again contended by
the respondent that there was a bona fide dispute as to the debt. The finding
of the court below was that there was a bona fide dispute as to the debt. But
it was also at the same time the finding of the court below that the debt was
agreed to be settled by eight instalments (see 22AR) and that the respondent
had only paid three instalments (see 22AR). If that were so, then what could
have been in dispute? Having regard
to the clear and unequivocal admission of the debt in 59AR, was the court below
entitled to come to the conclusion that there was a bona fide dispute? (see
Re Sunshine Securities (Pte) Ltd; Sunshine Securities (Pte) Ltd & anor v
Official Receiver and Liquidator of Mosbert Acceptance Ltd [1978] 1 MLJ 57,
where it was held by the Court of Appeal of Singapore that given the clear and
unequivocal admission of the debt, the trial judge was entitled to conclude
that there was no bona fide dispute). Could the finding of bona fide dispute
stand up to scrutiny?
[6] Before we proceed to
answer those questions, we should perhaps say that a creditor is not required to obtain a judgment before serving a
statutory demand ...' (The Law of Company Liquidation (4th Ed),
by Andrew R Keay at p 83) and 'whether
or not judgment had been obtained, an unpaid creditor is, as a general rule,
entitled to a winding-up order against a company which is insolvent' (The
Law of Company Liquidation (4th Ed), by Andrew R Keay at p 91). Where there is no judgment, it is not uncommon
for companies to argue that the debt is disputed. But 'in order to oppose a winding up petition, the respondent
must raise a bona fide dispute in both a subjective and objective sense. It
must be honestly believed to exist and must be based on substantial or reasonable
grounds -- BMC Construction Sdn Bhd v Dataran Rentas Sdn Bhd
[2001] 1 MLJ 356 ' (Chan & Koh on Malaysian Company Law (2nd Ed), at
para 22.145).
[7] In BMC Construction
Sdn Bhd v Dataran Rentas Sdn Bhd, the respondent opposed the winding up
petition on the ground that it had a cross-claim or set-off against the petitioner
for defective works. The respondent also produced letters from its bankers to
substantiate that it was solvent and had the means to settle the claim of the
petitioner. On what constitutes a bona fide dispute, the court first surveyed
the law and then summarised it as follows:
The respondent's point of view is that a dispute
automatically arises whenever there are opposing assertions. Perhaps it is
true, that whenever there are opposing assertions, there is no agreement on the
matters diametrically asserted. Perhaps, in that sense of argument, debate or
controversy, it is true that there is dispute whenever there are opposing
assertions. But it is patently not true that a bona fide dispute automatically
arises whenever there are opposing assertions. For whether or not there is a
bona fide dispute wholly depends upon the evidence (see Chip Yew Brick Works
Sdn Bhd v Chang Heer Enterprise Sdn Bhd [1988] 1 CLJ 5). 'The debt must be
disputed on some substantial grounds' (Morgan Guaranty Trust Co of New York
v Lian Seng Properties Sdn Bhd [1986] 2 MLJ 374, 376; [1991] 1 CLJ 260;
[1991] 1 CLJ 317 (Rep) [1991] 1 MLJ 95, 97 per Hashim Yeop A Sani CJ). The
facts must indicate that there is a substantial dispute (Re Nima Travel Sdn
Bhd). '... it is not sufficient ... to say 'we dispute the claim'. (The
respondent) must bring forward a prima facie case which satisfies the court
that there is something to be tried, either before the court itself, or in an
action, or by some other proceeding' (Re Great Britain Mutual Life Assurance
Society [1880] 16 Ch D 246, 253 per Jessel MR). 'Dispute means not just
differences arising out of a party's refusal to do something but controversy
over contestable matters. Mere refusal to pay is not a dispute. See the cases
of Elf Petroleum SE Asia Pte Ltd v Winelf Petroleum Sdn Bhd [1986] 1 MLJ
177; [1984] 1 LNS 166 andKSM Insurance v Ong Ah Ba & Anor [1986] 1
MLJ 237; [1984] 1 LNS 147, both decisions by George J, (as he then was)' (Perbadanan
Kemajuan Negeri Perak v Asean Security Paper Mills Sdn Bhd [1991] 3 CLJ
2400, ; [1991] 1 CLJ 362 (Rep), per Hashim Yeop A Sani CJ, and cited inTan
Kok Cheng & Sons Realty Co Sdn Bhd v Urn Ah Pat [1996] 1 CLJ 231, 236).
'The dispute must be bona fide in both a subjective and objective sense. Thus
it must be honestly believed to exist and must be based on substantial or reasonable
grounds. Substantial means having substance and not frivolous and which the
court should therefore ignore' (Palmer's Company Law (23th Ed), p 1117;
see also Salak Park Development Sdn Bhd v Fajar Menyensing Sdn Bhd
[1994] 4 CLJ 580). To just say 'we
dispute the claim', is most definitely not enough.
[8] 'Obviously a bare
allegation by the company that a dispute exists cannot be allowed to deprive a
creditor of the remedy which the statute confers on her or him ... It is, of
course, impossible to predict in advance precisely what will constitute a
'substantial' ground but a suggested test is that there must be 'so much doubt
and question about the liability to pay the debt as that the court see there is
a question to be decided' or in the words of Sir George Jessel, the duty of a
company to 'bring forward a prima facie case which satisfies the court that
there is something to be tried' ... Whether there is in fact ground for the
dispute depends upon the evidence ...' (The Law of Company Liquidation
(4th Ed), by Andrew R Keay at p 99). 'Where
there is a bona fide dispute as to the debt, the company cannot be said to have
neglected to pay on a statutory notice' (Palmer's Company Law (23rd Ed),
at p 1117), and a petition based on a debt which is disputed on substantial
grounds will fail (see Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd
& ors and another application [1994] 2 MLJ 789). 'Where the company
disputes the debt in good faith and on reasonable grounds, the court will not
make a winding up order ... [However] It is not satisfactory for the company
simply to claim that it has a defence to the creditor's claim; it must show
that it has a viable defence in law and produce prima facie proof of the facts
to which it relies ... If there is no
genuine dispute the court will make an order' (Corporate Insolvency,
Law and Practice (2nd Ed), by Bailey, Groves and Smith at p 7.97).
[9] The making of a winding up order is not entirely a
discretionary matter once a debt is established and not satisfied. 'One does
not like to say positively that no case could occur in which it would be right
to refuse it, but ordinarily speaking, it is the duty of the court to direct a
winding up' (Bowes v Hope Life Insurance Society Ltd
(1865) 11 HLC 389 per Lord Cranworth). There is however authority for the
proposition that Lord Cranworth's principle had been too widely stated (see The
Law of Company Liquidation (4th Ed), by Andrew R Keay at p 92). Since our s 218 provides that the court
'may order a winding up of a company', the discretion whether to make an order
for winding up lies with the court. Such discretion is however not unbridled.
In Genting Sanyen Industrial Paper Sdn Bhd v WWL Corrugators Sdn Bhd
[2000] 5 MLJ 33; [2000] 1 CLJ 27, Clement Skinner JC, as he then was, balanced
the two sides as follows:
The submission that there is an overriding discretion
reposed in the court is well supported by authority because whilst it is
accepted that as between a creditor and a company as his debtor, the creditor
who proves insolvency is prima facie entitled to a winding-up order, (see the
judgment of Buckley J at p 331 in Re Crigglestone Coal Co Ltd [1906] 2
Ch 327) there are numerous cases, both local and Commonwealth, in which the
overriding discretion of the court to refuse a winding up is recognised, (see Kim
Wah Theatre Sdn Bhd v Fuhlum Development Sdn Bhd [1990] 2 MLJ 511; Cetico
Sdn Bhd v The Tropical Veneer Co Bhd [1987] CLJ 511; Re P & J Macrae
Ltd [1961] 1 All ER 302).
However ... the overriding discretion of the court, like
any other judicial discretion, is fairly strictly regulated and is exercised in
accordance with principles that are well defined. Counsel referred to The
Law of Company Liquidation, (3rd Ed), by J O' Donovan at p 61 where the
author discusses the discretion of the court in these terms:
Its power to refuse an order is, however, fairly strictly
regulated and is exercised in accordance with principles that are relatively
well defined. There are, in fact, certainly no more than five, and probably
only four, reasons which will justify the court in refusing to make an order on
the application of an unpaid creditor.
These are (1) the applicant's debt amounts to less than
$1,000; (2) the debt is bona fide disputed by the company; (3) the company has
paid or tendered payment of applicant's debt; (4) winding-up is opposed by
other creditors;.
[10] In its affidavit
affirmed on 31 December 2008 (see 127-132AR), the respondent contended (i) that
the respondent was not indebted to the appellant in the sum of RM43,876.66 (see
128AR at para 5), (ii) that the s 218 notice was premature by reason of the
settlement which gave eight months to the respondent to settle the debt of
RM53,701.65 (see 128AR at para 6), (iii) that the respondent had paid three
instalments of RM6,712.71 (see 128-129AR, at paras 7-9), (iv) that there was no
notice of termination of the settlement (see 129AR at para 10), (v) that the
appellant readily accepted the third instalment after issuance of the s 218
notice (see 129AR at para 11), (v) that the s 218 notice was therefore bad and
could not terminate the settlement (see 129AR at para 12), and (vi) that the
amount of debt as stated in the petition was wrong and therefore had no legal
effect (see 129AR at para 13). And on the matter of its solvency, the
respondent contended that it had unappropriated profits of RM2,759,276 for the
year ended 31 December 2006 (see 132AR at para 26).
[11] But with respect, we do
not see how the respondent, by that affidavit, could have raised a doubt or
question on the liability of the respondent to the appellant. If at all, the
respondent only confirmed that the debt was true and due. To take it from the
start, at 128AR and 130AR (paras 6 and 14), the respondent admitted that the
total debt was RM53,701.65 (RM50,000 plus RM3,701.65). At 128-129AR (paras
7-9), the respondent admitted that only three instalments (a total of
RM20,138.13) had been paid. In other words, the respondent admitted that five
instalments had not been paid. And at 129AR (para 11), the respondent admitted
that the third instalment was only paid after issuance of the s 218 notice.
When it was issued, the petition stated that the outstanding debt was
RM36,574.58 for goods sold and delivered, and RM7,302.08 for accrued interest,
as it stood at 3 April 2007. But by affidavit dated 17 October 2008, the petition
was corrected to reflect the payment of the third instalment which had reduced
the outstanding debt from RM36,574.58-RM29,861.87 for goods sold and delivered
(see 126AR). After the correction, the petition only claimed RM29,861.87 for
goods and sold and delivered. And that debt for goods sold and delivered could
not be disputed. The respondent admitted that the principal sum was RM50,000.
Payment of three instalments (or RM20,138.13) left a balance of RM29,861.87,
which was the exact sum claimed for goods and sold and delivered. The other
claim was for RM7,302.08, for interest accrued up till 3 April 2008. The total
claim of the appellant was therefore made up of RM29,861.87, which could not be
disputed, and RM7,302.08, which as the agreed interest could also not be
disputed. The total claim was for RM37,163.95. There was simply no basis to say
that the appellant claimed RM43,876.66. Based
on admitted sums and figures, the ultimate sum of RM37,163.95 was true and
correct. There was no bona fide dispute as to that debt. It could not be to the
contrary. The three instalments were fully credited. The claimed interest
was for that period up till 3 April 2008. Since interest was not claimed for
the period after 3 April 2008, it was absurd to argue that the payment of the
third instalment on 20 August 2008 affected the computation of the interest.
[12] There was also no
question that the debt of RM37,163.95 was due, albeit that the settlement gave
eight months to the respondent to settle the debt. The first instalment fell
due in July 2007 and the eighth and last instalment fell due in February 2008.
Hence, by the time the appellant issued the s 218 notice in April 2008, all
instalments were already overdue, by reason of the effluxion of time and not by
reason of any default of payment of any one instalment. With respect, the issue
of prior termination of the settlement was an absolute red herring. The time granted
by the appellant for payment by instalments had passed. And when that had
passed, the appellant was more than entitled to issue the s 218 notice in April
2008, to demand for payment of the then six overdue instalments and agreed
interest. Acceptance of the third instalment after issuance of the s 218 notice
was of no consequence, as the correct amount was claimed. If at all, the
payment of only the third instalment but not the entire debt proved that the
respondent was unable to pay its debt to the appellant.
[13] The appellant's demand
for payment of a sum that far exceeded RM500 was not met within three weeks
(see YPJE Consultancy Service Sdn Bhd v Heller Factoring (M) Sdn Bhd
(fomerly known as Matang Factoring Sdn Bhd) [1996] 2 MLJ 482; [1996] 3 CLJ
51,60). There was no legitimate reason for the respondent to withhold payment.
The requirements of s 218(2)(a) of
the CA
had been met. Pursuant to s
218(2)(a) of the CA, the respondent
'shall be deemed to be unable to pay its debts'. ' ... the presumption of
insolvency ... arises if the requirements of the section relating to the demand
have been complied with' (Sri Hartamas Development Sdn Bhd v MBf Finance Bhd
[1992] 1 MLJ 313; [1992] 1 CLJ 637; [1992] 1 CLJ 303 (Rep) per Gunn Chit Tuan
SCJ, as he then was). Without any
bona fide dispute, 'it is for the respondent to prove that it is able to pay
its debts' (Sri Hartamas at p 641)...."
