Pilecon Engineering Berhad v Cahaya Kelang Construction Sdn Bhd (B-02(NCC)(A)-2117-11/2022)

Schedule

Schedule 1 of the Deed of Settlement. Recital E of the First Deed states that the actual transfer consideration for the properties will be fixed at RM1,314,928.00, rather than the RM3,150,000.00 initially stated. [5] Clause 4 of the First Deed provides that in the event of default, no liability shall be attached to the second respondent and that Prizegard could only sue the first respondent for any outstanding payments. Clause 4 reads as follows:- Clause 4 “In the event PNSB (“the Second Respondent”) or the Debtor (“First Respondent”) defaults in any of their obligations or of the terms and conditions herein, the Creditor (“Prizegard”) shall be entitled to claim against the Debtor (“First Respondent”) for all the outstanding sums owing to the Creditor under this agreement”. [6] The respondents were only able to settle a portion of the debt, leaving an outstanding balance of RM1,835,072.00 as of 2007. On 15 August 2007, a Supplementary Agreement was entered into between Prizegard and the first and second respondents to address the remaining debt of RM1,835,072.00 (‘Second Deed’). According to this Second Deed, the second respondent agreed to settle the outstanding debt by transferring and assigning six properties to Prizegard, which included three condominiums and three double-storey houses. It was stipulated that the second respondent would not be held liable for any defaults on these obligations. Consequently, Prizegard could only pursue the first respondent for any remaining payments. Clause 3 states the following: “3. DEFAULT BY THE DEBTOR AND/OR PNSB In the event PNSB (Second Respondent) or the Debtor (First Respondent) defaults in any of their obligations or of the terms and conditions herein, the Creditor (Prizegard) shall be entitled to claim against the Debtor for all outstanding sums owing to the Creditor (Prizegard) under this agreement.” [7] The parties entered into a new deed dated 16 July 2009 (‘Third Deed’) to correct errors in the property descriptions. Under the Third Deed, the respondents agreed to transfer seven properties owned by the second respondent to Prizegard or its nominee companies as a complete and final settlement of the debt owed to Prizegard. As with the First and Second Deeds, Clause 3 of the Third Deed states that the second respondent will not incur any liability in the event of a default. Clause 3 reads as follows: Clause 3 “3. All other terms and conditions of the First Deed and of the First Supplementary Deed shall in so far as they are not in conflict with the terms and conditions herein, remain valid and binding on the parties hereto” [8] Prizegard owed the appellant a total of RM57,453,223.00. The appellant was informed about the settlement agreements between Prizegard and the respondents, as well as the properties involved in the contra-settlement. On 14 August 2009, the appellant, through a Directors’ Circular Resolution ('Board Resolution'), stated that Prizegard had agreed to settle RM1,835,072.00 of its debt by directly transferring the contra properties mentioned in the Third Deed to the appellant. The details of the Board Resolution are as follows: "RESOLVED: PARTIAL SETTLEMENT OF DEBTS OWING BY PRIZEGARD GEOTECHNIQUES SDN BHD BY CONTRA OF PROPERTIES THAT the acceptance by the Company of the settlement of RM1,835,072.00 from the total debts of RM57,453,223.00 owed by Prizegard Geotechnique Sdn Bhd ...("PGSB") to the Company as at 31 December 2006 by the direct transfer/assignment of the properties listed in the attached Schedule from Cahaya Kelang Construction Sdn Bhd ("CKC") and/or PNSB ACMAR Sdn Bhd ("PNSB") to the Company and/or it’s nominee(s) be hereby approved and ratified." [9] According to the Board Resolution, it was decided that the appellant will accept the transfer of the contra properties. These contra properties are to be transferred to some of the appellant’s creditors in order to settle part of its debts to them. The details are as follows: (i) one BBK Park apartment unit No.: 2A19-3P-B to be registered in the name of Innoprima Sdn Bhd; and (ii) one double storey terrace house properties to be transferred to Ng Yong Seong (NRIC No.: 550103-08-5411); and (iii) other 5 properties to Appellant or nominee(s). (These properties shall be referred to as the ‘Contra Properties’). [10] Prizegard was dissolved on 19 October 2009, approximately two months after the appellant’s Board Resolution was passed. [11] There were several attempts made between the appellant and the respondents to reach a settlement. The appellant claimed that on 26 April 2018, a representative of the second respondent acknowledged and admitted the debt of RM1,835,072.00 owed to the appellant. Additionally, the respondents proposed transferring several properties to the appellant as a settlement for this debt. The appellant also received an email from the second respondent’s legal department admitting the debt and requesting an extension of time to settle. [12] Based on these alleged admissions, the appellant issued a notice under section 465(1)(e) of the Companies Act 2016 (‘CA 2016’), dated 27 April 2021, to the second respondent. In response, the second respondent applied for a Fortuna injunction to prevent the appellant from filing a winding-up petition. However, no resolution was reached through these actions. Consequently, the appellant issued a letter of demand on 30 September 2021, requesting payment of the debt it claimed was owed by the respondents. The appellant subsequently filed this suit against the respondents through an Originating Summons, seeking judgment for the sum of RM1,835,072.00 against the respondents jointly and severally. [13] The issues deliberated by the High Court were as follows: (i) Whether the appellant’s claim is void for undue preference under section 528 of the CA 2016; (ii) Restrictive Clauses in the First, Second and Third Deeds between Prizegard and the respondents; (iii) Privity of contract; and (iv) Whether the appellant’s claim was time barred. [14] The High Court found in favour of the respondents and had on 27 October 2022 dismissed the appellant’s Originating Summons with costs of RM8,000.00. Findings (i) Whether the appellant’s claim is void for undue preference under section 528 of the CA 2016 [15] The High Court observed that the appellant's claim against the respondents was based on the purported assignment of a debt amounting to RM1,835,072.00 from Prizegard to the appellant, as evidenced by the Board Resolution dated 14 August 2009. Notably, Prizegard was wound up approximately two months after this resolution was passed. The High Court highlighted that Prizegard was a wholly owned subsidiary of the appellant and was in serious financial distress, with its debts exceeding its assets. The court opined that the appellant must have been aware of Prizegard's financial situation and the impending winding-up petition that Prizegard was facing. [16] The High Court ruled that the proposed contra of properties, which the appelant claimed to have initiated with Prizegard through the Board Resolution dated 4 August 2009, was void due to a violation of Section 528 of the CA 2016), as the transaction occurred less than six months before Prizegard's winding-up. The court believed this reason alone was sufficient to dismiss the appellant’s suit. [17] The appellant contended that the High Court erred in applying Section 528 CA 2016 retrospectively, as this act only came into effect on 31 January 2017. The appellant argued that any statutory provision should not be considered retrospective unless explicitly stated within the act itself. It asserted that its Board Resolution dated 14 August 2009, was enacted nine years prior to the implementation of CA 2016. [18] The crux of the appellant's claim against the respondents hinges on the debt owed by Prizegard to the appellant. The foundation of this claim is rooted in the Board Resolution, which resolved to accept the contra arrangement involving the properties of the second respondent. These facts form the essence of the appellant's case. [19] It is undisputed that Prizegard was wound up and a liquidator was appointed on 19 October 2009. The petition was based on Prizegard's substantial debt of RM65,056,697.00. It is also undisputed that Prizegard was wound up approximately two months after the appellant's Board Resolution. The central issue is whether the transaction outlined in the Board Resolution constitutes an undue preference, which is prohibited under Company Law. The relevant provision in the current Companies Act 2016 is section 528, which states the following: Section 528 Undue preference (1) Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which is unable to pay its debts, as the debts become due, from its own money in favour of any creditor or any person in trust for any creditor shall be deemed to have given such creditor a preference over other creditors in the event of the company being wound up on a winding up petition presented within six months from the date of making or doing the same and every such act shall be deemed fraudulent and void. (2) The date of presentation of the winding up petition shall be- (a) in the case of winding up by Court- (i) the date of the presentation of petition; or (ii) where prior to the presentation of the petition a resolution has been passed by the company for voluntary winding up, the date upon which the resolution to wind up the company voluntarily is passed; and (b) in the case of voluntary winding up, the date upon which the winding up is deemed by this Act to have commenced. (3) Any transfer or assignment by a company of all its property to the trustees for the benefit of all its creditors shall be void. (4) Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company in contravention of this section shall be void except if it is in favour of any person dealing with the company for valuable consideration and without any actual notice of the contravention. (5) For the purposes of this section, "valuable consideration" means a consideration fair and reasonable money value in relation to- (a) the value of the property conveyed, assigned or transferred; or (b) the known or reasonably anticipated benefits of the contract, dealing or transaction. (6) For the purposes of this section, "notice" includes knowledge of inability to pay a debt by the company or any winding up proceedings against the company or of the facts sufficient to indicate to the person dealing with the wound up company. [20] In summary, any transfer, payment, execution, or other action involving property that occurs against a company unable to pay its debts when they are due, and in favour of any creditor, will be considered as granting that creditor a preference over other creditors if the company is wound up pursuant to a winding-up petition filed within six months from the date of that action. Such transactions will be deemed fraudulent and void if they fall under this provision. [21] There is no doubt that the Board Resolution was passed within six months of the date Prizegard was wound up and is therefore prohibited under Section 528 CA 2016. The issue raised by the appellant is whether the High Court erred in applying Section 528 of the CA 2016, given that the Board Resolution and the winding-up of Prizegard occurred nine years before the CA 2016 came into effect. [22] The CA 2016 came into force on 31 January 2017. We agree with the appellant’s argument that Section 528 of the CA 2016 cannot be applied retroactively. It is settled law that any statutory provision cannot be applied retroactively unless explicitly stated in the provision or the Act. The Federal Court’s ruling in Ireka Engineering & Construction Sdn Bhd [2020] 1 MLJ 311 is relevant: “[42] … The trite general principle is that an Act of Parliament is not intended to have a retrospective operation unless a contrary intention is evinced in express and unmistakable terms or in a language which is such that it plainly requires such a construction. Another principle of statutory interpretation which applies with equal force is that legislation to regulate human conduct ought to deal with future acts and ought not to change the character of past transactions carried on upon the faith of the existing law (Q.C Thornton: Legislative Drafting, 4th Ed at p 135).” (emphasis added) [23] The High Court made an error in law by applying section 528 of the Companies Act 2016 (CA 2016). However, this does not exempt the appellant from being subject to the undue preference principle. Instead, the earlier Companies Act 1965 (CA 1965) applies in this case. A comparable provision exists in section 293 of the CA 1965, which states the following: Section 293 Undue preference (1) Any transfer, mortgage, delivery of goods, payment, execution or other act relating to property made or done by or against a company which, had it been made or done by or against an individual, would in his bankruptcy under the law of bankruptcy be void or voidable shall, in the event of the company being wound up, be void or voidable in like manner. (2) For the purposes of this section the date which corresponds with the date of presentation of the bankruptcy petition in the case of an individual shall be- (a) in the case of a winding up by the Court- (i) the date of the presentation of the petition; or (ii) where before the presentation of the petition a resolution has been passed by the company for voluntary winding up the date upon which the resolution to wind up the company voluntarily, is passed, whichever is the earlier; and (b) in the case of a voluntary winding up the date upon which the winding up is deemed by this Act to have commenced. (3) Any transfer or assignment by a company of all its property to trustees for the benefit of all its creditors shall be void. (emphasis added) [24] The law on undue preference is designed to protect the creditors of insolvent companies by preventing these companies from favouring one creditor or a select group of creditors at the expense of others. If a company were allowed to do this, it would unfairly benefit the chosen creditor(s), harming the interests of the remaining creditors. In the case of Sime Diamond Leasing (Malaysia) Sdn Bhd v JB Precision Moulding Industries Sdn Bhd [1998] 4 CLJ 556, the Federal Court addressed this issue: “The principle of central importance underlying s. 293(1) of the Act is that where a debtor company, has at a relevant time, given a preference to any person, the Liquidator may apply to the court for an order under the section setting aside the preference. The object of the rules of bankruptcy as to fraudulent preferences is to prevent a creditor from obtaining for himself an unfair advantage at the expense of other creditors by concluding a transaction with the company during what has been called the twilight period which precedes winding up.” (p.568-569) [25] Although the High Court made an error in applying section 528 of CA 2016, the appellant's Board Resolution is still classified as an undue preference transaction under section 293 of CA 1965 as the resolution was passed approximately two months before Prizegard was wound up. Consequently, the appellant's claim would effectively give preference to an unsecured debt, rendering it void. (ii) Restrictive Clause in the First, Second and Third Deeds between Prizegard and the respondents [26] The High Court referred to clause 4 of the First Deed, as well as clauses 3 of the Second and Third Deeds. It observed that these clauses state that Prizegard could only claim from the first respondent, and not the second respondent, in the event of a default. As a result, the High Court concluded that the appellant had no cause of action against the second respondent. Furthermore, the Court noted that the clauses specify that Prizegard is only entitled to seek claims from the first respondent for any outstanding sums owed in cases of default. The High Court held that the appellant's Board Resolution regarding the transfer of properties as a contra against the debt, is inoperative and unenforceable. [27] The High Court also held that the appellant had no locus standi to sue the respondents for the debt of RM1,835,072.00 as the Board Resolution was specifically for the transfer or assignment of the contra properties, not for a monetary debt. The High Court opined that the appellant’s monetary claim in this suit was outside the ambit of its Board Resolution. The High Court further held that Prizegard’s remedy in the event of a default was to sue for the outstanding sums owed. This provision was clearly stated in clause 4 of the First Deed, and clause 3 of the Second and Third Deeds. Ultimately, the High Court concluded that the appellant’s Board Resolution, which intended to create a contra of properties, was inoperative and unenforceable. [28] The appellant did not address whether its claim could be made against the second respondent. We have thoroughly reviewed clause 4 of the First Deed, clause 3 of the Second Deed and Third Deed. These clauses clearly state that Prizegard can only pursue a claim against the first respondent, not the second respondent. Therefore, we agree with the High Court that the appellant’s claim against the second respondent must fail, as there is no valid cause of action against that party. The appellant's rights, if any exist, are only against the first respondent. [29] The basis of the appellant’s claim as evident from the Board Resolution is to take a transfer of the contra properties, and not for the assignment of the monetary debt. As the clauses in the various deeds state that a failure on the respondents’ part would only entitle Prizegard to claim for the monetary debt, the High Court was correct in holding that the appellant’s claim must fail as it sought for a transfer of the contra properties and not for the monetary sum due. We therefore find no error in the High Court’s finding. (iii) Privity of Contract [30] The High Court held that there was no valid and enforceable assignment of Prizegard's debt to the appellant, as the appellant had relied solely on its Board Resolution to justify the assignment. The Court stated that the assignment would only be valid if Prizegard, the assignor, had executed a document indicating its agreement to assign its debt to the appellant. Consequently, the High Court concluded that the appellant could not claim the debt, as there was no valid and enforceable assignment. [31] The appellant argued that privity of contract was not a defense that the respondents could invoke, since they had acknowledged the debt. It contended that the assignment of the debt was therefore valid and binding, regardless of the respondents' agreement. [32] Regarding the High Court's finding that the assignment was invalid because the original debt pertained to properties rather than a liquidated sum, the appellant maintained that this was an irrelevant consideration due to the respondents' acknowledgment of the debt. The appellant argued that the debt could be quantified as a liquidated amount, allowing it to pursue a claim for a liquidated sum while choosing not to claim the assigned properties. [33] We find no merits in the appellant's argument that privity of contract was not a valid defense for the respondents, given their admission of the debt, and that the debt assignment was valid and binding regardless of their agreement. An assignment is only valid if it is in writing and signed by the assignor, in this case, Prizegard. This requirement is established under Section 4(3) of the Civil Law Act 1956, which states as follows: 4. Administration of insolvent estates, and winding-up of companies …….. (3) Any absolute assignment, by writing, under the hand of the assignor, not purporting to be by way of charge only, of any debt or other legal chose in action, of which express notice in writing has been given to the debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the debt or chose in action, shall be, and be deemed to have been, effectual in law, subject to all equities which would have been entitled to priority over the right of the assignee under the law as it existed in the State before the date of the coming into force of this Act, to pass and transfer the legal right to the debt or chose in action, from the date of the notice, and all legal and other remedies for the same, and the power to give a good discharge for the same, without the concurrence of the assignor. (emphasis added) [34] The Board Resolution from the appellant was self-serving because it claims to assign the contra properties to itself without any written documentation to confirm Prizegard’s assignment. Therefore, the High Court was correct in determining that there was no valid and enforceable assignment that the appellant could enforce. (iv) Limitation, estoppel and admission [35] The High Court elected not to decide on this issue since the appellant’s claim failed on all other issues that the court addressed. The High Court, however, opined that it would have ordered the issue of limitation to be tried by viva voce evidence, as there were factual disputes that could not be adequately resolved through affidavit evidence alone. [36] The appellant contended that the High Court should have taken into account the facts they relied on to support their claim that the respondents had acknowledged the debt. The appellant did not dispute that the original debt would have been time-barred as of 2016, save for the respondents' written acknowledgment. This acknowledgment meant that the appellant's claim was considered to have accrued on the date of the acknowledgment. Furthermore, the appellant argued that the respondents are estopped from disputing the debt due to their acknowledgment. [37] We agree with the High Court’s decision not to address this issue, as it would require viva voce evidence because of the existing factual disputes. We are not inclined to interfere with the High Court's discretion. In any case, it was sufficient to dismiss the appellant's claim based on the other issues raised without needing to explore this particular issue. Conclusion [38] We are satisfied that the High Court’s findings of fact were not plainly wrong and we see no reason to disturb them. We therefore dismiss the appellant’s appeal with costs of RM30,000.00 subject to allocatur. Dated: 29 July 2025 - sgd - (MOHAMED ZAINI MAZLAN) JUDGE COURT OF APPEAL, MALAYSIA Counsel for the Appellant Ivanpal Singh Grewal, Derrick Chan & Pang Li We [Messrs A.J Ariffin, Yeo & Harpal] Counsel for the Respondent Goik Kenzu & Christie Ling Chui Lin [Messrs Goik, Ramesh & Loo] _