Country Earth Sdn Bhd v Pesaka Technologies Sdn Bhd (WA-28NCC-925-12/2021)

The Petitioner has applied to this Court to wind up the Respondent based on the grounds stated in the Winding Up Petition dated 20.12.2021 in enclosure 1 (Petition) and pursuant to section 465(1)(e) of the Companies Act 2016.

The Petition had averred inter alia as follows :

(a) the Petitioner had vide the Letter of Acceptance dated 16.5.2011 entered into a contract for the project known as “The Development of a Small Hydro Electric Power Plant under the SREP (Small Renewable Energy Power) at Sungai Brooke, Lojing, Gua Musang, Kelantan. Civil & Structural Works – PTSB/C & S/TRQDoc -04-11/RQ-2011/0” (Project);

(b) the Petitioner had issued various Interim Payment Certificates (IPC) to the Respondent but the Respondent had failed to pay IPC’s No. 21, 23, 24, 25 & 26;

(c) even though the Certificate of Practical Completion (CPC) was issued by the Project Engineer, the Respondent had failed to return the Retention Sum amounting to RM2,907,560.49;

(d) thus the Petitioner was claiming the said sum of RM2,907,560.49 and the return of a Bank Guarantee amounting to RM2,090,000; copy 3

(e) the Petitioner had commenced Arbitration Proceedings wherein the Arbitrator had inter alia awarded the Petitioner the sum of RM2,187,642.43 and dismissed the Respondent’s counterclaim (Award);

(f) the Petitioner did not receive the sums due under the Award and thereafter registered the Award pursuant to section 38 of the Arbitration Act 2005 on 19.1.2019;

(g) the Petitioner then issued a statutory notice of demand dated 23.7.2021 (Demand) for the sums as per the Award and that 21 days has since lapsed since the Demand but the Respondent has failed, refused and/or neglected to pay the said sums demanded

(h) the Respondent is thus deemed to be unable to pay its debts. Respondents Submissions

On 10.8.2006, the Respondent was incorporated in Malaysia as a private limited company. At all material times, the Respondent is the developer and operator of a hydropower plant known as Sungai Brooke Hydropower Station, in Lojing, Gua Musang, Kelantan (the “Power Plant”).

The Respondent obtained financing facilities from the Bank to inter alia finance the construction and operations of the Power Plant. copy 4

As security for the repayment of the facilities, the Respondent created fixed floating charges in favour of the Bank over inter alia its undertakings and assets, in a Debenture dated 11.06.2010 and a Supplementary Debenture dated 08.09.2010.

The Respondent defaulted under facilities to the Bank. On 06.06.2018, the Bank appointed the R&M over the Respondent.

(a) All assets, businesses and undertakings of the Respondent are vested in the R&M for securing repayment to the Bank.

(b) To date the Power Plant continues to provide energy supply generated from the Power Plant and this comprises part of the assets and revenue stream of the Respondent.

At one time, and as with all operating power plants, the Respondent experiences operational issues and the Power Plant undergoes amongst others, repairs and maintenance works on a regular basis to ensure continued operations.

Notwithstanding the receivership, and the sums owed to the Bank, the Respondent incurs costs and expenses to preserve and upkeep the plant and machinery and equipment in the Power Plant. The R&M ensure that the plant remains in operation to sustain its value. The R&M continues to maintain energy supply for the purposes of covering operations costs and if possible, to pay the Bank as secured creditor.

The R&M maintains that despite the receivership administration, the R&M yielded positive results in an increase in the energy output produced – by more than 3 times. copy 5

(a) The Power Plant has both its turbines in successful running condition.

(b) The shunt reactor of the plant has been duly commissioned enabling connectivity of the Power Plant to the national grid to increase and provide for a wider coverage of power supply.

The Power Plant has maintained operations albeit with reduced supply occasioned by the Covid-19 pandemic which nationwide economic downturn affected the energy needs of the East Coast region. Upon initiation of the for-phase National Recovery Plan, since 15.06.2021, the Respondent has now begun to re-generate positive cash flows to sustain its operation.

The main secured creditor of the Respondent is the Bank which is owed separate judgment sums of RM75,429,406.46, RM357,805.62, RM20,909,446.04, RM296,109.62 and RM94,317.12 as at 08.01.2018 under a High Court Judgment dated 10.08.2018.

The R&M has engaged with the relevant authorities including state officials, power distributors and the energy commission with a view towards preserving various essential relationships such as the concession according to the Respondent under,

(a) the Concession Agreement dated 24.05.2010 with the Government of the State of Kelantan, and

(b) the energy supply in the Feed in Tariff Renewable Energy Power Purchase Agreement (the FIT-REPPA) dated 01.05.201 with Tenaga Nasional Berhad. copy 6

Both agreements are kept intact and are maintained with the Respondent paying ongoing due and also outstanding dues exceeding RM1 million under the Concession Agreement. The R&M successfully maintains the Respondent to avoid adverse triggering effects which ban be occasioned by liquidation such as a termination of the Concession Agreement and the FIT-REPPA, which would bring an end to the energy supply services rendered. Court’s Findings

After carefully considering the Petition and the averments thereto as well as the Respondent’s contentions in its Affidavit in Opposition, I have found as follows:

(a) the Respondent has no other assets and that the Project is the only source of revenue for the Respondent;

(b) the Project provides electricity to the surrounding areas and the community dependent on it;

(c) there is a strong possibility that the Concession Agreement and FIT REPPA signed for the Project will be terminated if the Respondent Company is wound up;

(d) the plant and machinery of the Respondent, will in the event of a winding up order being made, be disposed of as scrap material as the same are very specific in nature and not easily disposable in the market; copy 7

(e) the Receiver & Manager (R&M) has continued to preserve the operations and business of the Respondent whereby the cash flow of the Respondent has been maintained and the energy output of the Power Plant has improved;

(f) the R&M has stated that the Petitioner will be paid its debt from the surplus after settlement of the sums due to the secured and preferential creditors.

It is settled law that the Winding Up Court has a discretion whether or not to wind up the Respondent. Authority for this can be found in cases such as Wong Thai Kuai & Anor and Kansas Corp Sdm Bhd [2007] 4 MLJ 33 and Pilecon Engineering Bhd v Remaja Jaya Sdn Bhd [1997] 1 MLJ 808 where in the latter it was held that: “the use of the permissive 'may' in ss 218 and 221 of the Act – rather than the mandatory 'must' – gives the court a discretion whether or not to wind up the company.”

Although Wong Thai Kuai (supra) and Pilecon Engineering Bhd (supra) were decided on the basis of the Companies Act 1965, I hold that the same principle applies under the present Companies Act 2016 whereby the word “may” is used in Section 465(1) of the Companies Act 2016 which reads:

(a) the company has by special resolution resolved that the company is to be wound up by the Court; copy 8

(b) the company defaults in lodging the statutory declaration under subsection 190(3);

(c) the company does not commence business within a year from its incorporation or suspends its business for a whole year;

(d) the company has no member;

(e) the company is unable to pay its debts;

(f) the directors have acted in the affairs of the company in the directors’ own interests rather than in the interests of the members as a whole or acted in any other manner which appears to be unfair or unjust to members;

(g) when the period, if any, fixed for the duration of the company by the constitution expires or the event, if any, occurs on the occurrence of which the constitution provide that the company is to be dissolved;

(h) the Court is of the opinion that it is just and equitable that the company be wound up;

(i) the company has held a licence under the Financial Services Act 2013 or the Islamic Financial Services Act 2013, and that the licence has been revoked or surrendered;

(j) the company has carried on a licensed business without being duly licensed or the company has accepted, received or taken deposits in Malaysia, in contravention of the Financial copy 9 Services Act 2013 or the Islamic Financial Services Act 2013, as the case may be;

(k) the company is being used for unlawful purposes or any purpose prejudicial to or incompatible with peace, welfare, security, public interest, public order, good order or morality in Malaysia; or

(l) the Minister has made a declaration under section 590.

After taking into consideration the above findings, I have in coming to my decision herein hereby hold that the preservation of the value of the Respondent as a going concern is an important factor to be taken into account herein. This would entail that the respondent’s business, licence and operations be kept intact to preserve and eventually realise the Respondent as an ongoing entity. In this respect, I would quote Pilecon Engineering Bhd (supra) where the learned Judge had also stated ‘…the wishes of the creditors alone will not decide the winding up or otherwise of the company. The court, being invested with a wide discretion, will look into all aspects including the commercial viability of allowing the company to continue to function. In this case, 32 creditors who were also the house buyers have opposed this petition. The company has no other assets. Nothing can be gained by granting the order, whereas one final chance ought to be given to the RM to fulfill their obligations. I can do no better than repeat the words of Buckley J in Re Crigglestoneat p 332: The company will often put forward, as it if were matter of defence, that there are no assets to wind up. It is not a matter of defence copy 10 at all. The court has often refused an order upon that ground, but not because it lies in the debtor's mouth to say that he is not amenable to the jurisdiction because he has no property, but because the court does not make an order when no benefit can result. If the order will be useful (not necessarily fruitful) there is jurisdiction to make it. (emphasis mine)”

I further repeat what this Court has stated in Airofluid Alliance Sdn Bhd v TN Syngergy Sdn Bhd [2021] 1 LNS 135 quoting Pilecon Engineering Bhd (supra) where I had held as follows: “…The court, being invested with a wide discretion, will look into all aspects including the commercial viability of allowing the company to continue to function."

I further hold that the preservation of the assets of the Respondent would in my view be beneficial to the creditors of the Respondent and the Respondent itself as compared to a winding up of the Respondent. In particular, I hold that the public interest element herein i.e for the energy supply to continue to be made to the local community and that the livelihood of the community, are itself major factors to this Court to exercise its discretion not to wind up the Respondent.

Thus, after balancing the right of the Petitioner to apply to this Court to wind up the Respondent against the factual matrix and considerations mentioned herein above, this Court hereby dismisses the Petition with no order as to costs. Dated: 01st of August 2022 copy 11 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE KUALA LUMPUR HIGH COURT Parties: Thalia Rohaina binti Abdul Latiff for the Petitioner [Messrs Rohaina & Co.] Teoh Chye Yi and Ng Sai Yeang for the Respondent [Messrs Tetuan Raja, Darryl & Loh] Angel Ngu for the Bank Pembangunan Malaysia [Messrs Lee Hishammuddin Allen & Gledhill]