Agility Logistics Sdn Bhd v Disya Supply and Trading Sdn. Bhd. (28NCC-243-07/2014)

Agility Logistics Sdn Bhd (Petitioner) had on 17.7.2014 filed a Petition (Enclosure 1) to wind up Disya Supply and Trading Sdn Bhd (the Respondent) under section 218(1) (e) of the Companies Act 1965 on the ground that the Respondent was unable to satisfy its debts to the Petitioner.

Prior to the filing of the Petition, the Petitioner had issued a Notice under Section 218 of the Companies Act 1965 (the 218 notice) dated 12.6.2014 against the Respondent, demanding for payment of the sum of RM254,892.58 being the outstanding sum for services rendered by the Petitioner to the Respondent in 2013.

The amount claimed by the Petitioner was supported and substantiated by a Statement of Account and invoices which were exhibited as Exhibit “A-2” in the Petition.

The 218 Notice was duly served on the Respondent at its registered address on 12.6.2014. However, the Respondent had failed to satisfy and/or neglected the demand made by the Petitioner. Hence, 3 Enclosure 1 was presented into this Court upon the expiry of the twenty one (21) days of the 218 notice.

The Respondent has opposed the Petition by filing Enclosure 14 [Affidavit in Opposition (Opposing Winding Up Petition)] on 17.12.2014, which was affirmed by Mahisham bin Ahmad, the director of the Respondent.

In opposing the Petition, the Respondent relied on the following grounds:

the filing of the petition in Shah Alam High Court is the wrong forum.

(ii) the Respondent’s company is a solvent company and capable to meet its financial obligations.

(iii) the amount claimed is disputed. 4 [7] Counsel for the Petitioner raised a preliminary objection in respect of the admissibility of Enclosure 14 on the ground that it was not filed in accordance to Rule 30(1) of the Companies (Winding Up) Rules 1972 (WUR), which requires that an affidavit in opposition to a winding up petition be filed at least seven days before the time appointed for hearing of the petition. [8] It was submitted by the Petitioner’s counsel that there was a failure on the part of the Respondent to comply with the Rules when it filed Enclosure 14 on 17.12.2014, which is beyond the seven days stipulated under Rule 30(1). [9] The Petitioner’s counsel further submitted that when the said Petition was first fixed for hearing for the first time on 15.10.2014, the Respondent did not file its Affidavit in Opposition. During the hearing, upon the request made by the Respondent’s counsel to the Court, the hearing of the Petition was adjourned to 19.11.2014. When the Petition was called for hearing for the second time on 19.11.2014, the Court was made to understand that the Respondent has yet to file its Affidavit in Opposition, but the Respondent’s counsel had informed 5 the court that the Respondent needs time to file an Affidavit in Opposition. The Court had acceded to the Respondent’s request and fixed the Petition for case management before the Senior Assistant Registrar (SAR) for parties to exhaust all affidavits. It was during this time, specifically on the 17.12.2014, that the Respondent filed Enclosure 14 and it was served on the Petitioner’s counsel on 18.12.2014. According to the Petitioner’s counsel, there was a delay of almost 29 days and the Respondent did not provide any explanation to the Court in respect of the delay. Hence, it is the contention of the Petitioner’s counsel that Enclosure 14 is a defective affidavit and must be disregarded by this Court. The Petitioner’s counsel further submitted that Rule 30(1) is one that is mandatory in nature and must be strictly complied with. [10] To support his contention, counsel for the Petitioner has brought to this Court’s attention to three cases, namely: (1) Constrajaya Sdn Bhd v Johor Coastal Development Sdn Bhd [2002] 6 CLJ 92; (2) Crocuses & Daffodils (M) Sdn Bhd v Development & Commercial Bank Bhd [1997] 3 CLJ 485; and (3) Gulf Business Construction

(M) Sdn Bhd [2010] 8 CLJ 775. 6 [11] Now, Rule 30(1) WUR reads as follows: 30(1) Affidavits in opposition to a petition that a company may be wound up shall be filed and a copy thereof served on the petitioner or his solicitor at least seven days before the time appointed for the hearing of the petition. [12] This Court fully acknowledges the time frame specified under Rule 30(1) with regards to filing an affidavit to oppose a winding up petition. However, with reference to the case at hand, this Court cannot agree with the contention of counsel for the Petitioner. A simple answer to the Petitioner counsel’s contention is this; firstly, when the Respondent’s counsel requested for adjournment during the two hearing dates, the Petitioner’s counsel did not raise any objections. The Petitioner’s counsel was aware that during the two adjourned hearing dates, the Respondent has yet to file the Affidavit in Opposition. If the Petitioner had taken a serious stance against the adjournments of the Petition and takes the position that affidavit in opposition must be filed seven days before 15.10.2014, the Petitioner should have raised its objection on that day with regard to the Respondent’s requests for an adjournment in view to file affidavit to 7 oppose the Petition. Perusing the Court’s minutes of what transpired during the two adjourned hearing dates, I have found not a single iota of objection raised by the Petitioner’s counsel. [13] Secondly, it is trite that the granting of adjournment and refusal of a request for adjournment of hearing is a discretionary matter. It is also trite that this discretionary power of the Court must be exercised judicially upon considerations of all factual circumstances surrounding the said application or case. Rule 30(1) specifies that an affidavit in opposition is to be filed and served seven days before the appointed date of hearing of the winding up petition. The Court is of the view that the purpose of such time frame is to allow sufficient time for the Petitioner to prepare and file its affidavit reply to that affidavit in opposition within three days from the date service of the Affidavit in Opposition on the Petitioner, as specified under Rule 30(2). Should the Respondent fail to observe the time frame, the Petitioner would face the prospect of not being able to comply with Rule 30(2). As this Court had mentioned earlier, if the Petitioner were to raise an objection to Respondent’s request of adjournment, the Court at that point in time would take due consideration of the reasons forwarded 8 by the Respondent for the adjournment, and will decide whether to grant or refuse the request. Since there was no objection raised by the Petitioner, this Court had since exercised its discretionary power by granting the two adjournments applied for by the Respondent. Therefore when the Petition was fixed for hearing on 13.4.2015, the time appointed for hearing of the Petition as specified under Rule 30(1) is on 13.4.2015, not on 17.10.2014 as submitted by counsel for the Petitioner. The Court disagrees with the contention raised by the Petitioner’s counsel and finds that the filing of Enclosure 14 on 17.12.2014 was well within time stipulated under Rule 30(1) as the time appointed for hearing of the Petition here is 13.4.2015, [14] This Court shall now address the grounds raised by the Respondent to oppose the winding up petition. Ground (i): the Shah Alam High Court is not the appropriate forum to file the winding up petition. [15] The Respondent submits that the Kuantan High Court would have been the proper forum for the filing of the winding up petition, as all 9 invoices and notice of demand issued by the Petitioner were addressed to the Respondent’s registered business address in Kuantan. The Respondent went on further to submit that the Shah Alam High Court is not the appropriate forum for filing of the winding up Petition, and its filing was motivated to cause inconvenience to the Respondent. [16] In respect of the issue of wrong forum raised by the Respondent, it is trite that the constitution and jurisdiction of the Malaysian courts are clearly enshrined in the Federal Constitution. Article 121(1) of the Federal Constitution constituted two High Courts having co-ordinate jurisdiction and status namely; (i) one in the States of Malaya, which shall be known as the High Court in Malaya and shall have its principal registry at such place in the States of Malaya as the Yang di-Pertuan Agong may determine; and (ii) one in the States of Sabah and Sarawak, which shall be known as the High Court in Sabah and Sarawak and shall have its principal registry at such place in the States of Sabah and Sarawak as the Yang di-Pertuan Agong may determine. 10 [17] The territorial jurisdiction of the two High Courts is defined under the section 3 of Courts of Judicature Act 1964 (CJA) which reads: “local jurisdiction” means-

in the case of the High Court in Malaya, the territory comprised in the States of Malaya, namely, Johore, Kedah, Kelantan, Malacca, Negeri Sembilan, Pahang, Penang, Perak, Perlis, Selangor, Terengganu (and) the Federal

in the case of the High Court in [Sabah and Sarawak], the territory comprised in the States of [Sabah, Sarawak] and the Federal Territory of Labuan.

… including, in either case, the territorial waters [and the air space above those States and the territorial waters]; [18] Given the definition local jurisdiction under section 3 of the CJA, if one of such High Court has jurisdiction over any cause or matter, it shall necessarily follow that any branch of the High Court within the same territorial limit shall likewise have jurisdiction thereon. [19] Thus, in the case before the court here it is not so much of dispute with regard to territorial limit, but which branch of the High Court of 11 Malaya is the forum convenient for the presentation of the winding up petition by the Petitioner. [20] The civil jurisdiction of the High Court of Sabah and Sarawak and that of the High Court of Malaya is provided in subsection 23(1) of the Courts of Judicature Act 1964 (“the Act”), which provides as follows:-

23.

Subject to the limitation contained in Article 128 of the Constitution the High Court shall have jurisdiction to try all civil proceedings where –

the cause of action arose; or

the defendant or one of the several defendants resides or has his place of business; or

the facts on which the proceedings are based exist or are alleged to have occurred; or

any land the ownership of which is disputed is situated, within the local jurisdiction of the Court and notwithstanding anything contained in this section in any case where all parties consent in writing within the local jurisdiction of the other High Court.” [21] It is well settled that the jurisdiction of the High Court as provided in subsection 23(1) of the Act, paragraphs (a), (b), (c) and (d) must be 12 read disjunctively. (See Malayan Banking Bhd v International Tin Council and another appeal [1989] 3 MLJ 286, Malacca Securities Sdn Bhd v Loke Yu [1998] 3 AMR 2501 and Mee Ying Enterprise Jewellers (suing as a firm) v Che Jah bte Abdullah [1992] 2 MLJ 263). [22] In the case of Sogelease Advance (Malaysia) Sdn Bhd v Kemajuan Tat Young Sdn Bhd 7 Ors [1999] 1 AMR 652), it was held that where the cause of action arose in the State of Malaya but the Defendants resides or have their place of business in Sarawak, it was held that the High Court of Malaya has jurisdiction by virtue of paragraph (a) of subsection 23(1) of the Act and that the High Court of Sabah and Sarawak has jurisdiction by virtue of paragraph (b) of the said subsection. [23] This Court is in agreement with the submission of the Petitioner’s counsel that even though the invoices and notice of demand were issued to the Respondent’s registered address in Kuantan, the agreement between the Petitioner and the Respondent which triggered the presentation of the Petition was due to the Respondent's 13 unpaid debts that arose in Shah Alam. When the Respondent failed to comply to the 218 notice, the breach had then occurred in Shah Alam when the Respondent failed to pay the amount owed to the Petitioner. The Petitioner’s office is located in Shah Alam, hence payment should be made in Shah Alam and the failure to do so renders the debt deemed unpaid. Further, it was not disputed that the Respondent had made a payment of RM10,000.00 to the Petitioner after the expiry of the 218 Notice, and this payment was made to the Petitioner in Shah Alam. This payment was a clear acceptance by the Respondent that the forum convenient is the Shah Alam High Court and the Respondent cannot now contend it is inconvenient for them when the Petition is filed at the Shah Alam High Court. It must also be noted that the Respondent had engaged a firm of solicitors which is based Kuala Lumpur, which is in close proximity to Shah Alam. This Court is therefore of the view that the Petitioner is entitled to present the winding up Petition in the Shah Alam High Court. Ground (ii): the Respondent’s company is a solvent company and capable to meet its financial obligations. 14 [24] The Petitioner’s Petition is premised on the presumption that the Respondent was unable to pay its debts to the Petitioner when it failed to make payment of the amount demanded in the section 218 notice within 21 days from the service of the said notice. This necessitates examination of the legal principles and scope of section 218(e) in particular the phrase 'unable to pay its debts'. Now, section 218(1)(e) reads:

The Court may order the winding up if –

if the company is unable to pay its debts. [25] In the case of Lian Keow Sdn Bhd (In Liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd [1988] 2 MLJ 449, Seah SJ delivering the decision of the Supreme Court in giving the meaning of the words ‘unable to pay its debts’ at page 454 said: “The meaning of the words ‘a person unable to pay his debt as they become due from his money’ in s 53(1) of the Bankruptcy Act 1967 (as amended) was considered by me in the unreported case of In Re Chong Khian (Bankrupt) (Kuching High Court No K45 of 1978). 15 After referring to some passages in the Australian cases of Bank of Australasia v Hall (1907) 4 CLR 1514 (at pp 1528 and 1543) Rees v Bank of New South Wales (1963-64) 111 CLR 210 (at pp 218 and 230) I held that the question whether a debtor was solvent at a particular time was a question of fact. I also made the following observations: “The question is not whether the debtor would be able, if time were given to him, to pay his debts out of his assets, but whether he is presently able to do so with moneys actually available …” And ‘If … the debtor’s position is such that he has property … which if realize would produce sufficient money to pay all his indebtedness, and if that property is in such a position as to title and otherwise that it could be realized in time to meet the indebtedness as the claims mature … He cannot be said to be unable to pay his debts as they become due from his own moneys …’ In short, the question is not whether the debtor’s assets exceed his liabilities as appeared in the books of the debtor, but whether there a moneys presently available to the debtor, or which he is able to realize in time to meet the debts as they become due. It is not sufficient that the assets might be realizable at some future date after the debts have become due and payable.” [26] The Privy Council in the case of Malayan Plant (Pte) Ltd v Moscow Narodny Bank Ltd [1980] 2 MLJ 53, had cited the following 16 observations from Buckley on the Companies Act (13th Ed) at page 460: "In such a case it is useless to say that if its assets are realized there will be ample to pay twenty shillings in the pound: this is not the test. A company may be at the same time insolvent and wealthy. It may have wealth locked up in investments not presently realizable; but although this be so, yet if it have not assets available to meet its current liabilities it is commercially insolvent and may be wound up.” [27] In the case of Hotel Royal Ltd Bhd v Tina Travel & Agencies Sdn Bhd [1990] 1 MLJ 21 Siti Norma J (as her Ladyship then was) in dismissing an application to oppose the petition and granted an order to wind up the company held that the test for the solvency of a company does not depend on the presence of their realizable assets. In her Ladyship’s judgment, reference was made to the meaning of phrase unable to pay its debts in McPherson The Law of company Liquidation (3rd Ed) in which at page 22, she said: ‘The scope or the meaning to be given to the phrase ‘unable to pay its debts’ appearing in s 218(1)(e) of the Companies Act 1965 is as explained by McPherson J in his books The Law of company Liquidation (3rd Ed) at page follows: 17 “The phrase ‘unable to pay its debts’ is susceptible of two interpretations. One meaning which may properly be attached to it is that a company is unable to pay its debts if it is shown to be financially insolvent in the sense that its liabilities exceeds its assets. But to require proof of this in every case would impose upon an applicant the often near-impossible task of establishing the true financial position of the company, and the weight of authority undoubtedly supports the view that the primary meaning to the phrase is insolvency in the commercial sense – that is inability to meet current demands irrespective of whether the company is possessed of assets which, if realized, would enable it to discharge its liabilities in full”.’ [28] In the case of MBf Finance Bhd v Sri Hartamas Development Sdn Bhd [1992] 3 CLJ (Rep) 55, it was held by Zakaria Yatim J (as he then was) that the presumption of insolvency is not rebutted by a contention that the company had many assets locked up in pieces of land. Zakaria Yatim J had referred to the Privy Council’s decision in the case of Malayan Plant (Pte) Ltd and at page 65, he said this: “What the company was saying was that it had assets but all the assets were locked up in landed properties. In my opinion the company had failed to show that it was not insolvent. In Malayan Plant (Pte) Ltd v Moscow Narodny Bank 18 Ltd [1980] 2 MLJ 53 (an appeal from the Singapore Court of Appeal), the Privy Council in its decision at p 54 said: …” [29] Abdul Malik Ishak J (as he then was) in the case of Pioneer Concrete (M) Sdn Bhd v Celini Corp Sdn Bhd [1998] 3 MLJ 810 has laid down the test of commercial insolvency in which at page 814 he had said this: “... It is germane to mention that the test of commercial insolvency is simple. It is this. Whether the company is unable to meet its current debts as they fall due? A company may have substantial wealth which cannot be realized immediately and if that happens the company is said to be unable to pay its debts within the purview and ambit of s 218(1)(e) of the Companies Act 1965 and this is so even though on liquidation the company will be able to meet all its liabilities: Re Sunshine Securities (Pte) Ltd; Sunshine Securities (Pte) Ltd & Anor v Official Receiver and Liquidator of Mosbert Acceptance Ltd [1978] 1 MLJ 57; Wei Giap Construction Co (Pte) Ltd v Intraco Ltd [1979] 2 MLJ 4; Malayan Plant (Pte) Ltd v Moscow Narodny Bank Ltd [1980] 2 MLJ 53; of Hotel Royal Ltd Bhd v Tina Travel & Agencies Sdn Bhd [1990] 1 MLJ 21; MBf Finance Bhd v Sri Hartamas Development Sdn Bhd [1992] 1 CLJ 160 at p 169; Lian Keow Sdn Bhd (in liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 and PT Anekapangan Dwitama v Far East Food Industries Sdn Bhd [1995] 1 MLJ 21 at p 29.” (emphasis added) 19 [30] Coming back to the present case, the Respondent in its effort to rebut the presumption of insolvency and inability to pay the debts contended that the company is running an active business with ongoing and future projects. To support this, the Respondent relied on two contentions, namely; (i) the Respondent’s 2013 Reports and Financial Statement (Exhibit “MBA-1”) prepared by Wan Nadzir & Co, a chartered accounting firm which shows that the Respondent’s current available assets both liquidated and unliquidated as at 31.12.2013 is RM359,228.00, which is more than what is claimed by the Petitioner; (ii) the Respondent’s holding company, Syamiras Group Sdn. Bhd has two other subsidiary companies which are Disya Resources Sdn Bhd and Syamiras Services Sdn Bhd. These two sister companies of the Respondent have more than enough available fund to cover the Respondent’s debt. In support of this contention, the Respondent had exhibited Exhibit “MBA-2” and Exhibit “MBA-3” in Enclosure 14 to show the liquidated assets and unliquidated of these two companies as at 31.12.2013. [31] In respect of the first contention, it must be noted that the Respondent had referred this Court to its 2013 Reports and Financial Statement. 20 However, the recent official search conducted on the Respondent’s company by the Petitioner shows otherwise. The summary of financial information dated 10.6.2014, i.e before the presentation of the petition [Exhibit “LKP-2”, Enclosure 15, Petitioner’s affidavit in Reply (1)] shows that the current assets of the Respondent is valued at RM150,871.00 and with current liabilities of RM89,422.00 and negative RM38,551.00 being the Reserves. No profit was recorded by the company, but it posted losses at the sum of RM38,551.00. An official search dated 23.12.2014 (Exhibit “LKP-3", Enclosure 15) shows that the Respondent's current liabilities is RM415,581.00 with negative RM78,795.00 being the Reserves and the most recent official search conducted on 26.1.2015 (Exhibit “LKP-7”, Enclosure 15) from the Registrar of Companies shows that the financial status of the Respondent remains unchanged. [32] As such, the summary of the financial information at the time when the Petition was presented clearly shows that upon taking into account the Respondent’s current assets against its current liabilities was at a negative balance. This clearly shows there was no profit recorded but instead the Respondent posted losses of RM38,551.00. 21 The Court further take note that as at December 2014, the losses recorded by the Respondent had increased to RM40,244.00. This Court is of the considered view that having a negative balance and running at a loss clearly establishes the insolvency of the Respondent and the fact that the Respondent is unable to meet its financial obligation. [33] With regards to the Respondent’s second contention that its sister companies have more than enough fund to cover the debt owing to the Petitioner, this Court opines that the fact that sister companies have funds more than the amount owing to the creditor does not prove that the Respondent is solvent and is able to pay its debt. The legal position remains that it is incumbent upon the Respondent itself to prove that at the time of the presentation of the Petition, it has the fund or immediately realizable assets to pay its dues when the debt is demanded. Additionally, the sister companies are separate legal entities which are alien to the Petitioner as the Petitioner does not have any dealings with both sister companies. This Court is of the view that the available of funds in the sister companies do not in any way prove the Respondent’s solvency and ability to meet its financial 22 obligations. Thus, this contention could not be used as a justification to challenge the winding up petition. Ground (iii): the amount claimed is disputed. [34] It was the contention of the Respondent that it has no obligation to make payment to the Petitioner as the debt of RM 244,892.58 claimed by the Petitioner is not owed by the Respondent but by another party. The reason why the Respondent alleged so was due to the terms of delivery invoices issued by the Petitioner, being the basis of the Petitioner’s claim, is on CIF terms. CIF being the abbreviation for Cost, Insurance and Freight is a term which means that the cost of bringing the goods (insurance and freight) to any destination will be borne by the seller and not the buyer. In this regard, one of the invoices, specifically Invoice No: 0008008875 for RM105,742.20 is based on CIF terms. The Respondent submits that since the Respondent is the buyer of the goods, the amount of RM105,742.20 claimed by the Petitioner should not be borne by the Respondent. 23 [35] This Court has no reason to disagree with the Petitioner’s counsel’s submission that the CIF terms raised by the Respondent to dispute the debt is only appearing for the first time when the Respondent filed its Affidavit in Opposition (Enclosure 14) on 17.12.2014. Prior to this, since as early as 2013 when the parties started their business relationship, there was no mention at all of CIF terms nor did the Respondent ever disputed invoices that were sent to it for services rendered by the Petitioner since 2013. The Respondent did not raise any objection towards the 218 Notice issue against them which was premised on the unpaid invoices. The Court takes cognisance of the fact that after the expiry of the 21 days of the 218 Notice, the Respondent had paid the sum of RM10,000.00 to the Petitioner. Further, the Respondent did not dispute the debt of RM244,892.58 and in fact, the Respondent has vide its letter dated 8.10.2014 [Exhibit “LKP-4”, Enclosure 17 (Petitioner’s Affidavit in Reply (2)] which was addressed to the Petitioner’s solicitors had admitted the amount and proposed to settle the outstanding sum in the next 90 days. In reply to this letter, the Petitioner through its solicitor’s letter dated 10.10.2014 (Exhibit “LKP-5”, Enclosure 17) counter proposed that the sum of RM244,892.58 together with the legal fees 24 should be paid by way of Bank Draft on/before 14.11.2014 which was accepted by the Respondent through its letter dated 14.10.2014 (Exhibit “LKP-6”, Enclosure 17). [36] The Respondent in its correspondences had never raised the CIF term but had in their own letters acknowledged and admitted its indebtedness to the Petitioner. (See Chip Yew Bricks Works Sdn Bhd v Chang Heer Enterprise Sdn Bhd [1988] 2 MLJ 447). This Court agrees with the Petitioner’s counsel that the CIF term raised by the Respondent is clearly an afterthought and such issue was not bona fide on the part of the Respondent. [37] Based on the aforementioned reasons, the Respondent had failed to rebut the presumption that it is unable to pay its debts. Hence, prayers (10(i) and (ii)), of Enclosure 1 is allowed with costs of RM5000/- to the Petitioner. 25 ….………………………………… (DATUK AZIMAH BINTI OMAR) Judicial Commissioner High Court of Shah Alam (LJC) Selangor Darul Ehsan Dated the 13th day of April, 2015. For the Petitioner - Messrs Affendi Zahari Mr. Ahmad Amir bin Mahmood