Hong Leong Bank Berhad v B-Mathavon stores (M) Sdn Bhd (WA-28NCC-138-02/2019)

The Petitioner is a bank who had granted 4 separate facilities to the Respondent being an overdraft facility, 2 term loan facilities and a letter of trust facility (Financing Facilities).

The Respondent is in the business of dealer, retailer and wholesaler of all kinds of stainless steel, brassware, bangles, clothes, novelties and sundry goods as stated in the Suruhanjaya Syarikat Malaysia (SSM) search.

The Petitioner had on 19.12.2017 obtained a judgment in default of appearance against the Respondent (which judgment was later amended on 25.1.2018) (JID) at the Shah Alam High Court (SAHC) for various sums in respect of the outstanding amounts due under 2 the Financing Facilities. Thereafter a Statutory Notice pursuant to Section 465(1)(e) of the Companies Act 2016 demanding the sum outstanding under the said Financing Facilities totalling RM5,398,956.00 was issued by the Petitioner to the Respondent (Statutory Notice) which was duly served on 9.1.2019 on the Respondent at 4 p.m.

As the Respondent had failed, refused and/or neglected to abide with the Statutory Notice by failing to pay the sum demanded within 21 days thereafter, the Petitioner then took out a Winding Up Petition on the 20.2.2019 against the Respondent pursuant to Section 464(1)(b) and Section 465(1)(e) of the Companies Act 2016 (Petition).

The said Petition was served on the Respondent on 22.2.2019. On 29.3.2019, the Respondent’s solicitor, Messrs Reza, Rahim & Rajivan, then Filed a Notice of Appointment of Solicitors and accordingly on the same date filed an application to Stay the proceedings pursuant to Section 470 of the Companies Act 2016 (Enclosure 11) until the disposal of the Respondents application to set aside the JID. Various Affidavits and written submissions were filed thereto by both the Petitioner and the Respondent, and thereafter after hearing the respective submissions on Enclosure 11, the Court had on 24.7.2019 dismissed the said Enclosure 11 with costs of RM6,000.

In the meantime, an Affidavit In Opposition was also filed by the Respondent on 14.6.2019 (Enclosure 9) which inter alia stated. 3

that the Petition was an abuse of process as the Petitioner also had a charge over the Respondents property known as Lot 272 Seksyen 20 Bandar George Town Daerah Timur Laut Pulau Pinang and had applied for an order for sale of the said property at the Pulau Pinang High Court; and

(ii) the debt was denied and the interest charged by the Petitioner in the Statutory Notice and the Petition was excessive.

The said Messrs Reza, Rahim & Rajivan then applied to discharge themselves as the Respondent’s solicitor on 5.9.2019 and on 4.10.2019, Messrs Santhi Mohan & Associates then took over as the Respondent’s new solicitor. It is pertinent to note that no new Affidavits or applications of any kind were filed by the Respondent thereafter and that the Respondent had requested on 4.11.2019 as well as on 13.12.2019 for an adjournment of the matter pending settlement. In between the said dates, the matter was fixed for case management of the Petition on 18.11.2019 wherein this Court was informed that the settlement negotiations had failed. On 13,12,2019, the Court was informed that the Respondent’s company director had just passed away and as there was a proposal to make payment to the Petitioner through a third party, the Court had agreed to grant a further adjournment of the matter on 13.12.2019 to 20.12.2019 for hearing of the Petition at the request of the Respondent’s solicitor. 4

On the hearing of the Petition on 20.12.2019, this Court was then informed by the respective counsels of the fact that the matter had still not been settled. This Court then after taking into account the number of postponements of the hearing of the Petition on no less than 11 separate occasions before the Judge, and the fact that the settlement negotiations had failed, informed the parties that the hearing of the Petition would proceed wherein the Petitioner’s counsel had prayed for an order in terms of the Petition as the Petition papers were in order and that the Registrar’s Certificate on 29.3.2019. When given the opportunity by this Court to submit, the Respondent’s counsel informed the Court, despite the fact that the Respondent’s solicitor had come on record to represent the Respondent slightly more than 2 months prior, that she did not have any cause papers in relation to the Petition with her and neither did she have the Affidavit In Opposition with her and as such did not proceed to make any submissions to this Court.

The Court finds the fact that the Respondent had failed to prove to this Court in its Affidavit In Opposition and no submissions were made on the issue that the debt was in dispute other than raising the issue of the interest chargeable which I find is of no substance as this was in accordance with the JID obtained against the Respondent as stated in paragraph 5 of the Petition, which JID until set aside is in law a good and valid and enforceable judgment. See Pembinaan KSY Sdn Bhd v Lian Seng Properties Sdn Bhd (1991) 1 5 CLJ Rep 343. Accordingly, I hold that the Respondent was not able to pay its debts in accordance with Section 465(1)(e) of the Companies Act 2016 and as stated in Sri Hartamas Development Sdn Bhd v MBF Finanace Bhd (1992) 1 CLJ Rep 3030 or that the debt was disputed on substantial grounds as per the dicta of the Supreme Court in Morgan Guaranty Trust Co New York v Lian Seng Properties Sdn Bhd [1991] 1 MLJ 95.

As to the charge in existence over the Respondent’s property wherein the Petitioner was allegedly in the midst of obtaining an order for sale, I hold that foreclosing on the said property charged does not turn the judgment debt into a disputed debt and that and I find authority for that proposition in the Court of Appeal case of RHB Bank Bhd v Malaysia Pacific Corporation Bhd & Anor [2018] 6 CLJ 55 where in a judgment by Mary Lim JCA her Ladyship had stated that “At the material time, the charge was created over the subject property in order to secure the credit facilities. It could not have been created to secure any debt, certainly not in the sense envisaged under s. 218(2)(a) of the Companies Act 1965 as none was in existence at the time the charge was created and registered. Until and unless the respondent breached its obligations to repay the appellant, there was no debt to secure, and the appellant would not be entitled to foreclose on the subject property. However, the moment the respondent is in breach, the appellant has a right to sue in personam to recover the monies due while the charge gives the appellant a right ad rem to foreclose on the charged property. Therefore, foreclosing on the subject property does not and cannot be said to amount to realising the security to the debt within the purpose and intent of s. 218(2)(a) such as to turn the 6 judgment debt into a disputed debt (emphasis mine). The reading and construction given by the learned judge to the presence of the charge, that it is "valuable security" that disentitled the appellant from issuing a notice under s. 218 of the Companies Act 1965 was clearly erroneous. Such reading and construction meant that the contractual terms that the appellant was entitled to pursue all remedies "simultaneously, contemporaneously or successively to recover the monies lent..." as recognised by the Federal Court in Chan Boi Loi v. Public Bank Bhd (supra) would be rendered meaningless and of no effect. It would mean that the appellant would have to enforce its rights to recover the facilities afforded to the respondent either one at a time or pursue certain actions first before pursuing other remedies. And, even then, the appellant would only be able to contemplate initiating winding-up proceedings where there is still balance due of the judgment debt to be settled. Such a reading runs counter to both settled principles and to the terms of the contract, and in neither case is this court in the position to change nor are we so inclined. Such a construction and conclusion as reached by the learned judge also runs contrary to another settled principle, that winding-up proceedings are not enforcement or execution proceedings, though in this case, they may appear to be part of the appellant's efforts to enforce the summary judgment.”

This Court also finds that the Respondent had failed to provide any evidence to substantiate the fact that the Respondent was commercially solvent as per the tests referred to in Lafarge Concrete (Malaysia) Sdn Bhd v Gold Trend Builders Sdn Bhd [2012] 6 MLJ 817. In fact a perusal of the Affidavit in Opposition does not 7 even make reference to the ability or otherwise of the Respondent to pay the debt or any mention that the Respondent is solvent.

Thus after taking into account all of the above factors into consideration and the fact that Respondent’s current lawyers had come on record to represent the Respondent since 4.10.2019, which was more than 2 months before the hearing date of 20.12.2019, but were not able to make any submissions to this Court, this Court thereafter proceeded to grant order in terms of the Petition, being prayers 10 (a) to wind up the Respondent Company, prayer 10 (b) to appoint the Official Receiver as the Interim Liquidator of the Respondent company pursuant to Section 477(1)(a) of the Companies Act 2016 and prayer 10 (e) to award costs of RM15,000 as requested by the Petitioner. Dated 20th Februari 2019 NADZARIN WOK NORDIN JUDICIAL COMMISSIONER KUALA LUMPUR HIGH COURT Parties: Satish A/L Vasudevan Nair for the Petitioner Messrs Satish Alli & Associates Shanti Mohan for the Respondent Messrs Shanti Mohan & Associates