Poney Garments Sdn Bhd v Bambika Sdn Bhd (WA-24NCC-571-10/2023)

This judgment concerns an originating summons filed by a company seeking a declaration that a statutory demand issued against it under section 466(1)(a) of the Companies Act 2016 (“CA 2016”) is invalid, and for a Fortuna injunction to restrain the presentation of a winding up petition pursuant to that demand. The dispute centres on a long-standing business arrangement between the parties for the consignment and retail of apparel. The Plaintiff contends that the debt claimed in the statutory demand is premised on a letter of intent that was signed by its officer without authority and as part of a conspiracy with the Defendant's director to defraud the Plaintiff. Conversely, the Defendant argues that the debt is undisputed as the Plaintiff had performed the contract and settled invoices without protest for four years, and is therefore estopped from challenging the liability now. The key issues that arise are whether there is a bona fide dispute over the debt on substantial grounds, whether the Plaintiff is deemed unable to pay its debts by reason of its failure to comply with the statutory demand thereby giving rise to a presumption of insolvency, and whether any potential damage to the Plaintiff if a winding up petition is presented is relevant in light of the Plaintiff's challenge to the petition's tenability.

The Defendant, Bambika Sdn Bhd, had been supplying the Plaintiff, Poney Garments Sdn Bhd, with third party consignment loungewear/pyjamas-type baby and children's clothing for retail sale at the Plaintiff's business premises since 2019, and innerwear since around 2021. From 2019 until early 2023, consignment dealings between the parties were coordinated by Patt Woei Sheun, the Chief Operating Officer of the Plaintiff.

In early 2023, there was a change in the management of the Plaintiff company. The Plaintiff's new management began communicating directly with the Defendant via email. The Defendant's emails were signed off by “E H Lim”. The Plaintiff also attempted to speak to “E H Lim” by phone. Around March 2023, the Plaintiff spoke with a representative of the Defendant, “Miss Ho”, who identified herself as an employee. A physical meeting was arranged between the Plaintiff and the Defendant for 20.03.2023.

On 20.03.2023, the Plaintiff's representative met with the Defendant's representative Ho Karen. Ho Karen introduced herself as the Defendant's employee and admitted to signing off on email correspondence with the Plaintiff as “E H Lim”. At this meeting, the Plaintiff discovered that Ho Karen was the wife of Patt Woei Sheun.

On 19.04.2023, in response to the Plaintiff's request for any consignment agreement between the parties, Ho Karen emailed the Plaintiff a copy of a Letter of Intent dated 18.10.2019 (“the Letter of Intent”). The Letter of Intent was signed by Patt Woei Sheun (on behalf of the Plaintiff) and Lim Eng Haw (on behalf of the Defendant). It provided for a 30% trade margin for the Defendant and mentioned the possibility of a further formal Concessionaire Agreement. However, no formal agreement materialised in the 4 years thereafter.

On 01.03.2023, Patt Woei Sheun tendered his resignation from the Plaintiff, effective 31.03.2023. He continued to have access to the Plaintiff's office until 30.04.2023 for the purpose of handover.

In June 2023, the Plaintiff proposed to the Defendant to revise the trade margin in the Letter of Intent. The Defendant declined. The parties then agreed to suspend the consignment arrangement effective 01.08.2023.

On 29.08.2023, the Plaintiff discovered that the Defendant was selling the Plaintiff's branded products at Paradigm Mall, Petaling Jaya.

On 30.08.2023, the Plaintiff conducted an SSM search on the Defendant, which revealed that Ho Karen was the sole shareholder and director of the Defendant. The Plaintiff then suspended payments to the Defendant. On 01.09.2023, the Plaintiff sent a letter to the Defendant to cease use of the Plaintiff's “Poney” trademark.

On 27.09.2023, the Defendant issued a statutory demand under Section 466(1)(a) CA 2016 (“the Statutory Demand”) against the Plaintiff for the sum of RM733,347.02.

The Plaintiff lodged two police reports, number dated 10.10.2023 and 16.10.2023 respectively.

On 12.10.2023, the Plaintiff's solicitors wrote to the Defendant's solicitors seeking an undertaking to withhold winding up proceedings. The Defendant's solicitors did not respond.

On 18.10.2023, the Plaintiff commenced this action seeking a declaration that the Statutory Demand is invalid and a Fortuna injunction to restrain the Defendant from filing a winding up petition against the Plaintiff.

In this Originating Summons, the Plaintiff, is seeking the following: a) A declaration that the Statutory Demand dated 27.09.2023 issued by the Defendant, under Section 466(1)(a) CA 2016 for the sum of RM733,347.02 is erroneous in law, void and invalid; and b) A Fortuna injunction to restrain the Defendant from filing and proceeding with any winding up petition against the Plaintiff pursuant to the Statutory Demand.

The grounds relied on by the Plaintiff are: a) There is a bona fide dispute over the debt claimed in the Statutory Demand as the sum is premised on the Letter of Intent dated 18.10.2019 which the Plaintiff contends was signed by its Chief Operating Officer Patt Woei Sheun without authority and as part of a conspiracy with the Defendant's director Ho Karen (Patt's wife) to defraud the Plaintiff; b) The Statutory Demand is an abuse of process as it is not based on any judgment or order of court for a debt that is immediately due and payable; and c) The Plaintiff is a solvent going concern with retained earnings, assets and a healthy revenue stream. Therefore, it should not be presumed to be unable to pay its debts and liable to be wound up.

The Plaintiff submits that the Originating Summons is properly constituted and competent before the court. The key arguments advanced by the Plaintiff are: a) The Originating Summons is not fundamentally defective for omitting to specify Sections 50 and 51 of the Specific Relief Act 1950 as the enabling provisions for the Fortuna injunction sought. Such an omission is a curable irregularity that does not occasion any miscarriage of justice or prejudice to the Defendant, as the Defendant was fully aware of the nature of the application and had ample opportunity to defend it. The overriding principle of justice in Order 1A and the curative provision in Order 2 Rule 3 of the Rules of Court 2012 (“ROC”) permit the court to remedy such technical non-compliance unless it has caused a substantial miscarriage of justice or irremediable prejudice. b) Prayer 2 of the Originating Summons which seeks to restrain the Defendant from presenting a winding up petition until the debt claimed in the statutory demand “is determined by the court pursuant to a civil suit to be filed” ought to be allowed as it is not oppressive. In any event, the court retains the discretion under Prayer 5 to grant further or other relief as it deems fit and appropriate. 8 c) There is a genuine dispute over the debt claimed in the Defendant's statutory demand, supported by substantial evidence. Firstly, the Letter of Intent dated 18.10.2019, which forms the basis of the Defendant's claim, was signed by Patt Woei Sheun without the knowledge, authority, approval or resolution of the Plaintiff's board. Secondly, the 30% trade margin for the Defendant in the Letter of Intent is highly irregular and unfair, as the Plaintiff's standard third-party consignment contracts provide for a minimum 40% margin for the Plaintiff as consignee. Thirdly, Ho Karen, the sole shareholder and director of the Defendant, deliberately concealed her relationship as the wife of Patt Woei Sheun and her involvement in the Defendant by masquerading as "E H Lim" in email correspondence. Lastly, the Plaintiff discovered these matters that call into question the bona fides of the Letter of Intent and the Defendant's claim only after receipt of the Defendant's statutory demand. d) In the light of evidence of fraud and conspiracy by Patt Woei Sheun and Ho Karen to defraud and cause detriment to the Plaintiff through the Letter of Intent, any presumption of insolvency under section 466 CA 2016 is displaced. The credibility of the Defendant's claim premised on such a tainted letter of intent is seriously damaged and it is not for the 9 winding up court but a court of civil jurisdiction to determine the issues through a trial. e) The Plaintiff will suffer severe and irreparable damage to its business reputation and goodwill if the Defendant is allowed to present a winding up petition at this stage. The Plaintiff which operates 40 outlets and employs 140 staff may lose the confidence of its trade creditors, suppliers, banks and employees by the mere presentation of a winding up petition, even if it is eventually struck out. These are losses that cannot be compensated monetarily and warrants an injunction until the parties' disputes are determined fully in a civil suit.

The Defendant submits that the Plaintiff's Originating Summons is fundamentally defective, without merit and an abuse of process. The key arguments advanced by the Defendant are: a) The Originating Summons is fatally defective and liable to be struck out as the Plaintiff failed to comply with the mandatory requirement in Order 7 Rule 2(1A) ROC to specify the statutory provisions under which the Fortuna injunction is sought ie Sections 50 and 51 of the Specific Relief Act 1950. The Plaintiff's 10 omission goes beyond a mere irregularity and cannot be cured by resorting to Orders 1A and 2 ROC. b) Prayer 2 of the Originating Summons which seeks to restrain the Defendant from presenting a winding up petition “pursuant to the statutory demand” is oppressive as it has an unlimited, open-ended perpetual effect of preventing the Defendant from exercising its statutory rights. c) The Defendant argues the debt of RM733,347.02 in the statutory demand is not genuinely disputed. The Plaintiff is precluded from challenging the Letter of Intent after performing the contract for 4 years without protest. The Defendant could assume Patt Woei Sheun had authority under the indoor management rule. The Plaintiff made payments and admitted the debt in emails, forming binding contracts. The 30% margin claim alone does not prove fraud. Ho Karen's involvement came after the contract and the Plaintiff continued dealing despite knowing her role. d) Since the debt is not bona fide disputed on substantial grounds and the Plaintiff failed to settle the outstanding sum within 21 days of the statutory demand, a presumption of insolvency arises under Section 466(1)(a) CA 2016. The Defendant's intended winding up petition filed on this basis is not 11 bound to fail but carries good prospects of success. Therefore, the question of any potential damage to the Plaintiff becomes irrelevant and immaterial. e) The Plaintiff is deemed unable to pay its debts under section 466 CA 2016 and commercially insolvent. The test is whether the company can meet current liabilities immediately as they fall due, not whether assets exceed liabilities. The Plaintiff cannot rely on retained earnings or financial position to avoid paying the Defendant's invoices for over 10 months. The persistent failure to settle the outstanding sum despite the statutory demand shows the Plaintiff is insolvent and unable to pay its debts.

A Fortuna injunction is an equitable remedy that restrains a creditor from presenting, proceeding with or advertising a winding up petition against a debtor company. It derives its name from the Australian case of Fortuna Holdings Pty Ltd v Deputy Commissioner of Taxation [1978] VR 83 where the court laid down the principles for granting such injunctions.

In Malaysia, the legal position on Fortuna injunctions has been lucidly explained by the Court of Appeal in the leading cases of Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 MLJ 316 and Pacific & Orient Insurance Co Bhd v Muniammah Mudiandy [2011] 1 CLJ 947.

In Mobikom, the Court of Appeal recognised the situations where an injunction may be granted to restrain the presentation of a winding up petition. Gopal Sri Ram JCA (as he then was) stated: "[5] The kind of injunction by which an intended winding up petition is sought to be restrained is known as a 'Fortuna injunction' taking its name from the case in which the juridical basis for the relief was first explained. See, Fortuna Holdings Pty Ltd v. The Deputy Commissioner of Taxation [1978] VR 83. In that case, McGarvie J discussed the basis on which a court acts to restrain the presentation of a winding up petition and the two branches of the principle that guide courts in the grant of an injunction. In respect of the basis, his Honour said this: When a court restrains the presentation of a winding up petition to that court it exercises part of its inherent jurisdiction to prevent abuse of its process. Mann v. Goldstein[1968] 1 WLR 1091, at pp 1093-4; [1968] 2 All ER 769. Usually a court acts against abuse of its process after proceedings have been commenced. Thus, existing proceedings may be stayed or dismissed, or documents delivered as a step in the proceedings may be struck out. This is done to relieve a party to the proceedings from an oppressive and damaging situation in which he has been placed through abuse of court process. The law has long recognized that with proceedings to wind up a company, intervention after the commencement of proceedings would often be too late to relieve the company of oppression and damage. The courts have recognized that irreparable damage may be done to a company merely through public knowledge of the presentation of a petition. Usually the damage flows from the loss of commercial reputation which 13 results. The courts have also been conscious of the pressure which may be put on a company, by a person with a disputed claim against it, threatening to present a winding up petition unless, the company meets his claim. While that threat exists, the company, in order to avoid the damage involved in the presentation of a petition, is pressed to meet the claim although it may have substantial and genuine grounds for regarding itself as not required to do so. The decisions of the courts have established the principle that the presentation of a winding up petition may be restrained by injunction where its presentation would amount to an abuse of the process of the court. The courts apply this principle similarly to restrain the advertisement of a petition already presented. The principle enables companies to be protected from threatened or apprehended oppression and damage from abuse of court process. The basis on which the courts have intervened in the cases cited by counsel, has been that presentation of a winding up petition might of itself cause irreparable damage to the company. Given that basis, the application of the principle which entitles the courts to intervene to prevent abuse of process, depends on the existence of different elements in two distinct situations considered in the authorities.” [Emphasis added]

From Mobikom, the principles that could be derived are that an injunction restraining the presentation of a winding up petition can be granted where: 14 a) The petition might produce irreparable damage to the company and where the proposed petition has no chance of success; OR b) A petitioner proposing to present a petition has chosen to assert a disputed claim, by a procedure which might produce irreparable damage to the company, rather than by a suitable alternative procedure.

Subsequently in Pacific & Orient, the Court of Appeal in explaining the principles of a Fortuna injunction emphasised the requirement to show that the intended petition is bound to fail: “[5] ... An injunction of that nature may be granted by court where the presentation of the petition might produce irreparable damage to the company and where the proposed petition has no chance of success. This principle was not applicable to the present case. The respondent had obtained a valid and enforceable judgment against the insured as well as the insurer (appellant). The intended petition if filed was not bound to fail. He had a good chance to succeed. Therefore whether or not it caused irreparable damage is of no consequence ...” [emphasis added]

The two key factors are whether the debt is bona fide disputed on substantial grounds and whether the intended petition is bound to fail or carries any prospects of success. If the debt is genuinely and credibly disputed, then the 15 petitioner ought not present a winding up petition at all but should sue the debtor in a civil action first to establish the liability.

Conversely, if the debt cannot be bona fide disputed on substantial grounds, then the question of whether the intended petition might cause any damage to the company becomes irrelevant. Once it is shown that there is no triable dispute over the debt, then any consequence to the company from the filing of the petition is beside the point. The winding up process should be allowed to take its course.

The courts have held that a mere assertion of a dispute is insufficient. The debtor must demonstrate a bona fide dispute on substantial grounds. It is not enough that there is merely a serious question to be tried. The Court of Appeal in Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [2007] 4 MLJ 355 made it clear that the test for granting a Fortuna injunction is whether there is a genuine and substantial dispute over the debt, not whether there is a serious issue to be tried. In this regard, the American Cyanamid principles which are usually applied for interlocutory injunctions do not apply.

Subsequent High Court decisions have emphasised that once it is shown that the debt is not bona fide disputed, then the winding up petition filed on that basis cannot be said to be bound to fail and the question of damage to the 16 company becomes immaterial. For instance, in Triterra Metropolis Sdn Bhd v Qingjian Holding Group (Malaysia) Sdn Bhd [2022] MLJU 947, the High Court held: “There is no substantial ground raised by the Plaintiff to show that there is a bona fide dispute in relation to the debt claimed by the Defendant. Hence, it cannot be said that the intended Winding Up Petition has no chance of success, as a matter of law as well as a matter of fact (Pacific & Orient Insurance (supra)).”

Similarly, in United Malaya Stores Sdn Bhd v S Selapa Sivalingam & Anor [2022] 6 CLJ 469, the High Court dismissed the alleged damage to the plaintiff as irrelevant: “With utmost respect, I am of the view that the plaintiff's claim of irreparable damage, fears and hardship alluded earlier, cannot override the defendants' statutory right as a creditor to enforce the debt owed, much less constitute any real ground for a Fortuna injunction.”

This is entirely consistent with the observation of the High Court in HSC Logistics Sdn Bhd v Teong Tiek Wah [2023] 7 CLJ 916 that: “If Fortuna injunctions are granted on the basis of a potential detriment to a company subject to a petition for winding up, ss. 464 and 465 will be rendered dead letter law. As noted in para. [25] above, irreparable damage alone is not sufficient reason for the granting of a Fortuna injunction.”

The overarching theme that emerges from the authorities is this - the primary consideration is whether the debt is disputed bona fide and on substantial grounds. Potential 17 damage is a secondary factor that only becomes material if the debt is genuinely disputed in the first place. If there is no bona fide dispute and the petition is not hopeless, then damage alone cannot justify an injunction to restrain an otherwise legitimate statutory remedy.

The Defendant raised a preliminary objection to the Plaintiff's Originating Summons under Enclosure 1 on the ground that it is fundamentally defective for omitting to specify the legal provisions supporting the reliefs sought, which in this case is a Fortuna Injunction, in breach of Order 7 Rule 2(1A) ROC.

The Defendant submitted that the failure to cite Sections 50 and 51 of the Specific Relief Act 1950 which govern Fortuna Injunctions in the Originating Summons is fatal and renders it incompetent. The Defendant relied on the decision of Dato Sri Tan Hean Leng @ Tek Hean Leng v Tai May Chean & Anor [2016] MLJU 1590 (HC) which held that an originating process must strictly comply with the mandatory requirements in Order 7 ROC, particularly Order 7 Rule 2(1A). Any non-compliance constitutes a fundamental irregularity which cannot be cured by resorting to the court's discretion to remedy irregularities under Orders 1A and 2 ROC.

In response, the Plaintiff contended that the omission is a curable irregularity that does not occasion substantial miscarriage of justice or prejudice to the Defendant. The Defendant is aware of the nature of the application and has not been denied the right to defend the matter. The Plaintiff relied on the overriding principle of justice in Order 1A ROC and submitted that the court should not allow preliminary objections based on technical non-compliance unless it has caused a substantial miscarriage of justice or prejudice that cannot be cured by an amendment or order for costs. The Plaintiff cited several authorities for this proposition including Dania bin Ab Rahman & Anor v Felcra Training and Consultancy Sdn Bhd [2020] MLJU 2554 (HC) and Group Components Automotive Sdn Bhd v Perusahaan Otomobil Nasional Sdn Bhd [2022] MLJU 1402 (HC).

Having heard the parties' submissions and upon perusing the cause papers, I am satisfied that the Defendant's objection is well-founded and should be upheld.

Order 7 Rule 2(1A) ROC expressly stipulates that every originating summons shall state in its intitulement any provision of the ROC and any provision of any written law under which the court is being moved. The rationale for this rule, as lucidly explained by the Court of Appeal in Cheow Chew Khoon (T/A Cathay Hotel) v Abdul Johari bin Abdul Rahman [1995] 1 MLJ 457, is to prevent litigants from being taken by surprise. An originating process requiring an intitulement must state with sufficient particularity, either in 19 its heading or in its body, the statute or rule of court under which the court is being moved. Otherwise, it would be an embarrassing pleading that is liable to be struck out.

Plainly, Order 7 Rule 2(1A) ROC imposes a mandatory requirement, signified by the use of the word “shall”. In Dato Sri Tan Hean Leng, the court held unequivocally that a failure to include an intitulement of the rule of court or statute under which the court is moved cannot be remedied. It is a fundamental defect that goes beyond a mere irregularity.

The court further observed that Orders 1A and 2 ROC are not and cannot be the true answer to every transgression of the rules of court. Where rules are mandatory and non-compliance is not satisfactorily explained, considerations of prejudice and miscarriage of justice become secondary. The court will not countenance an intentional breach or reckless disregard for mandatory requirements.

In the present case, the Plaintiff failed to specify in the Originating Summons that the Fortuna Injunction is sought pursuant to Sections 50 and 51 of the Specific Relief Act

This is not a situation of a wrong intitulement, but a complete omission of the enabling statutory provisions. No explanation was offered by the Plaintiff for this non-compliance. [38] I do not think that the Plaintiff can take refuge in the overriding principle of justice in Order 1A or the court's power to cure irregularities in Order 2 Rule 1 ROC. The omission here is not a mere irregularity that can be cured, but a defect that goes to the very competence of the originating process. To ignore this simply because there is no prejudice or injustice would be to disregard the mandatory nature of Order 7 Rule 2(1A) ROC and render it nugatory. That is not what the Rules Committee intended when it introduced this provision in 2012. [39] The cases cited by the Plaintiff are distinguishable as they do not deal with originating processes or the mandatory requirements of Order 7. At any rate, the Court of Appeal's warning in Uthayakumar a/l Ponnusamy v YAB Dato' Sri Najib bin Tun Razak Perdana Menteri Malaysia & Ors [2017] 1 MLJ 235 bears heeding - that the absence of any intitulement citing the legal provision either in the heading or body of an originating process cannot be classified as a mere irregularity. It amounts to an embarrassing pleading which ought to be struck out without hearing its merits. [40] For these reasons, I am constrained to find that the Plaintiff's Originating Summons is fundamentally defective and must dismissed. The failure to specify the enabling statutory provisions under which the Fortuna Injunction is sought is fatal to the competence of the action. It deprives the Defendant of advance notice of the case it has to meet. This defect cannot be remedied by relying on Orders 1A and 2 ROC, as Order 7 Rule 2(1A) ROC is couched in mandatory terms and prescribes the necessary particulars that every originating summons must contain. [41] While this court is minded to uphold the Defendant's preliminary objection, in an abundance of caution and to fully ventilate the issues, I shall proceed to examine the substantive merits of the case, lest I be found to have fallen into error in my determination on the preliminary objection. No Bona Fide Dispute of Debt on Substantial Grounds [42] The Defendant contends that the Plaintiff is estopped by its conduct from challenging the validity and enforceability of the Letter of Intent and the invoices issued by the Defendant claiming outstanding debt from the Plaintiff. The Defendant contends that the Plaintiff cannot dispute its liability, having performed the contract for four years without protest. The Defendant further submits that the Plaintiff's allegations of fraud are mere afterthoughts and unsubstantiated, aimed at stifling the Defendant's statutory rights to recover the debt through winding up proceedings. [43] The Plaintiff argues that the Letter of Intent was signed by its then Chief Operating Officer, Patt Woei Sheun, without the Plaintiff's consent, knowledge or approval. The Plaintiff points to the absence of the Letter of Intent in its records and denies that the Executive Director Ms Ng Siew Lee ever received a copy. Further, the Plaintiff contends that the 30% trade margin for the Defendant's benefit was so commercially unsustainable that it raises an inference of fraudulent and unfair dealing by Patt in cahoots with the Defendant's director Ho Karen and former shareholder Lim Eng Haw. The Plaintiff highlights that Ho Karen is Patt's wife and had been disguising herself as “E H Lim” in email correspondence, showing an intention to conceal her involvement and relationship. [44] Having considered the evidence and rival submissions, I find in favour of the Defendant. The doctrine of estoppel operates to prevent the Plaintiff from going back on its word and resiling from its contractual obligations at this late stage. [45] The material facts are these. On 18.10.2019, the Plaintiff through Patt and the Defendant through Lim Eng Haw executed a Letter of Intent agreeing to a consignment arrangement with a 30% trade margin for the Defendant.

In the midst of this, the Plaintiff requested the Defendant in June 2023 for an increase in trade margin which the Defendant declined. On 27.09.2023, the Defendant issued the Statutory Demand under section 466 CA 2016 against the Plaintiff for outstanding sums of RM733,347.02. It was after this on 10.10.2023 and 16.10.2023 that the Plaintiff lodged two police reports alleging fraud by Patt and Ho Karen concerning the Letter of Intent. [46] It is trite as held in Boustead Trading (1985) Sdn Bhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331 (FC) that a party who receives a contract document and does not protest the terms, but instead makes payment is bound by those terms. In that case, a 14-day limit for objections was imposed and the Federal Court held it would be unconscionable for the customer to question the validity of that term after silently complying with it and influencing the bank's conduct. The customer had a choice not to be bound but did not take that road. Similarly, the High Court cases of Sykt Tan Thian Siong Sdn Bhd v Sykt Siaw Teck Hwa Realty & Development Sdn Bhd [1983] 1 CLJ 878 and YK Fung Securities Sdn Bhd v Ronald Yeoh Kheng Kian [1989] 3 MLJ 490 establish the proposition that failure to query an account creates an estoppel against raising disputes later, except where there is evidence of fraud. [47] Here, not only did the Plaintiff not protest the terms of the Letter of Intent, it proceeded to perform the contract for four years, rendering sales reports, receiving invoices and making payments. If the Plaintiff was genuinely aggrieved by the terms, it had every chance to object from the inception, but chose instead to adhere to the bargain. To turn around now and cry foul is simply unacceptable and inequitable. [48] I reject the argument that the 30% trade margin was so unfair that it justifies an inference of fraud. Whilst the margin may be less favourable to the Plaintiff than its usual trade margin of 40%, that alone does not prove dishonesty without more. Commercial parties are generally free to strike hard bargains and the courts are slow to interfere. There are insufficient particulars of false representations, direct evidence of dishonest intention or reliance on deception. An unfavourable term cannot itself impugn the validity of an agreement performed without demur for an extended period. [49] Neither does Ho Karen's alleged concealment of her involvement or relationship assist the Plaintiff's case. There is nothing to show Lim or Ho Karen made false representations about the ownership and management of the Defendant's company to induce the Plaintiff to enter into the contract. The Plaintiff does not point to any specific exchanges or documents where such representations were made and relied upon. Moreover, the Plaintiff's own pleaded case is that Ho Karen only became a shareholder and director of the Defendant on 22.03.2021, more than a year after the Letter of Intent was signed on 18.10.2019. This suggests that her involvement and influence at the time of contract formation was minimal. [50] Importantly, the Plaintiff continued dealing with the Defendant and did not terminate the contract even after Patt's resignation in March 2023 or upon discovering in August 2023 that Ho Karen was the wife of Patt and owner of the Defendant company. If there had been any genuine grounds to suspect fraud, it would have been natural to immediately cease all business with the alleged fraudster. But the Plaintiff persisted in the relationship, which strongly undermines its present claims of being defrauded. [51] The authorities are clear that contracting parties are bound by their objectively manifested intentions and the court will not rewrite the agreement to make it more favourable to one side. The Plaintiff must abide by the terms it had agreed to. As lucidly explained by the Federal Court in Berjaya Times Square Sdn Bhd v M-Concept Sdn Bhd [2010] 1 CLJ 269 and Catajaya Sdn Bhd v Shoppoint Sdn Bhd [2021] 3 CLJ 159, it is not for the court to improve the instrument before it or introduce terms to make it fairer or more reasonable. The court is only concerned with discerning the meaning of the contract by applying settled principles of interpretation. [52] Looking at the overall picture, it is evident that the Plaintiff's allegations of fraud and conspiracy only surfaced as an afterthought following the issuance of the statutory demand. It is a belated attempt to challenge a contract it had voluntarily performed without protest for four years. There is simply no credible basis to establish a bona fide dispute of the debt claimed by the Defendant on substantial grounds, which is the relevant threshold for a Fortuna injunction as held by the Court of Appeal in Tan Kok Tong v Hoe Hong Trading Co Sdn Bhd [supra]. [53] On the facts here, it would be wholly inequitable to restrain the Defendant from pursuing its statutory rights and remedies to recover the admitted debt from the Plaintiff through winding up proceedings or otherwise. The Plaintiff is estopped by its own conduct from seeking to avoid its contractual obligations. The Plaintiff had led the Defendant to believe that it would honour the agreement. The Defendant had acted on that belief. This is a classic case for the application of the doctrine of estoppel to hold the Plaintiff to its representations. [54] In conclusion, I find that the Plaintiff is barred from challenging the validity and enforceability of the Letter of Intent and the invoices claiming debt owed to the Defendant. The Plaintiff's allegations of fraud are not credible and appear to be a mere device to stifle the Defendant's lawful recovery actions. Irreparable damage to the Plaintiff [55] The Plaintiff contends that if the Defendant is allowed to present a winding up petition, it will suffer severe and irreparable damage to its business and reputation. The Plaintiff which operates a children's clothing business highlights that it has 40 outlets across Malaysia employing about 140 workers. It fears that suppliers may withdraw credit, the banks may recall facilities, and it would lose the confidence of its trade creditors if winding up proceedings were initiated. The Plaintiff therefore pleads for a Fortuna injunction to restrain the presentation of a winding up petition by the Defendant. [56] On the other hand, the Defendant submits that any potential damage to the Plaintiff is both legally and factually irrelevant in deciding whether to grant an injunction. The Defendant argues that since there is no bona fide dispute of the debt on substantial grounds, and the Plaintiff had failed to comply with the statutory demand despite having admitted the unpaid sums due, the intended winding up petition is not bound to fail and carries good prospects of success. In such circumstances, the question of irreparable damage is immaterial and should not be considered at all. [57] I agree with the Defendant's submission which is consistent with established authorities and principles. [58] In Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [supra], the Court of Appeal recognised two disjunctive situations where an injunction may be granted to restrain the presentation of a winding up petition: a) Where the intended petition has no chance of success and its presentation might cause irreparable damage; or b) Where the petitioner asserts a disputed claim which if presented would cause irreparable damage rather than pursuing available alternative remedies. [59] The conjunctive requirements are made clearer by the Court of Appeal in Pacific & Orient Insurance Co Bhd v Muniammah Muniandy [supra] - an applicant seeking a Fortuna injunction must satisfy the court that firstly, the intended winding up petition has no chance of success as a matter of law or fact; and secondly, the presentation of such a hopeless petition might produce irreparable damage. Critically, the Court of Appeal emphasised that this principle applies only to disputed debts and not undisputed debts. If the debt cannot be bona fide disputed on substantial grounds, then whether the petition causes any irreparable damage is wholly irrelevant. [60] Subsequent High Court decisions have all recognised that the issue of damage is subordinate to the primary requirement that the intended petition is bound to fail. If that requirement is not met, then there is no necessity to even consider any potential damage. [61] Applying these principles to the present case, I am unable to find any merit in the Plaintiff's argument on irreparable damage. [62] In my earlier ruling, I have already concluded that there is no bona fide dispute of the debt demanded by the Defendant on substantial grounds. The parties had executed a valid and enforceable Letter of Intent on 18.10.2019 for a consignment arrangement with a 30% trade margin for the Defendant. This was not a one-off transaction but a continuing relationship that subsisted for four years, during which the Plaintiff sent monthly sales reports, received a total of 50 invoices, and made payment for 36 of those invoices without any protest or demur. The Plaintiff only started defaulting on the invoices around October 2022. Despite this, the Plaintiff had still on 14.07.2023 and 26.07.2023 admitted in emails to the Defendant that the outstanding payments were due, save for disputing late payment charges. When the Defendant issued the Statutory Demand on 27.09.2023, the Plaintiff did not settle the sums within 21 days. [63] I find that the Plaintiff is estopped by its own conduct and admissions from challenging the validity of the Letter of Intent and its liability under the invoices. The Plaintiff's present allegations of fraud by its former Chief Operating Officer Patt Woei Sheun in conspiracy with the Defendant's director Ho Karen and former shareholder Lim Eng Haw are not credible and amount to a mere afterthought to evade contractual obligations that it had voluntarily assumed and performed without objection since 2019. The Plaintiff failed to adduce any convincing contemporaneous evidence to substantiate its claims of misrepresentation, dishonest intention or reliance on deception in relation to the Letter of Intent and consignment arrangement. [64] In other words, there is simply no bona fide dispute that the Plaintiff had failed to settle the outstanding debt of RM733,337.02 demanded by the Defendant's statutory notice dated 27.09.2023. This is an undisputed debt. Given the Plaintiff's inability to pay, a statutory presumption of insolvency arises under section 466(1)(a) CA 2016. The Defendant therefore possesses a statutory entitlement to present a just and equitable winding up petition, which cannot be said to be bound to fail but instead has a reasonably good chance of success. [65] In such circumstances, the Court of Appeal's decision in Pacific & Orient Insurance (supra) is clear that any potential irreparable damage becomes irrelevant. It was held that: “This principle was not applicable to the present case. The respondent had obtained a valid and enforceable judgment against the insured as well as the insurer (appellant). The intended petition if filed was not bound to fail. He had a good chance to succeed. Therefore whether or not it caused irreparable damage is of no consequence ...” [66] Subsequently, in Triterra Metropolis Sdn Bhd v Qingjian Holding Group (Malaysia) Sdn Bhd [supra], the High Court cited Pacific & Orient Insurance (supra) and ruled that “…for the reasons stated above I am of the considered view that there is no substantial ground raised by the Plaintiff to show that there is a bona fide dispute in relation to the debt claimed by the Defendant. Hence, it cannot be said that the intended Winding Up Petition has no chance of success, as a matter of law as well as a matter of fact (Pacific & Orient Insurance (supra)).” The court therefore did not consider the plaintiff's arguments on irreparable damage. [67] Indeed, the High Court in United Malaya Stores Sdn Bhd v S Selapa Sivalingam & Anor [supra] observed that “With utmost respect, I am of the view that the plaintiff's claim of irreparable damage, fears and hardship alluded earlier, cannot override the defendants' statutory right as a creditor to enforce the debt owed, much less constitute any real ground for a Fortuna injunction.” [68] Similarly, in the recent case of HSC Logistics Sdn Bhd v Teong Tiek Wah [supra] 7 CLJ 916, the High Court cautioned that irreparable damage alone is insufficient for granting a Fortuna injunction, in the following terms: “[33] Since irreparable damage is almost always a fallout as a result of the filing of a winding up petition, does this mean that a Fortuna injunction should be granted as a matter of course. The answer surely has to be in the negative. If Fortuna injunctions are granted on the basis of a potential detriment to a company subject to a petition for winding up, ss. 464 and 465 will be rendered dead letter law. As noted in para. [25] above, irreparable damage alone is not sufficient reason for the granting of a Fortuna injunction. [34] This is where the requirement of “no chance of success” becomes imperative. If a petitioner has a chance of succeeding in his, her or its application for the compulsory winding up of a company, the winding up process must be allowed to take its usual course under the Companies Act

The process should not be hindered through the granting of a Fortuna injunction. To do so would be curtailing the legitimate rights of would-be petitioners. To do so would be permitting applicants for Fortuna injunctions to abuse the process of the court.” (Emphasis added) [69] I am persuaded by the logic and force of the authorities discussed above that the Plaintiff's arguments on irreparable damage are misplaced and legally irrelevant. Having failed to show a bona fide dispute of the debt on substantial grounds, the Plaintiff cannot restrain the Defendant from pursuing its statutory rights simply by raising the spectre of potential damage - which in any case is speculative and remains unproven. [70] If a Fortuna injunction is granted in this instance, it would undermine the legislative intent in providing a statutory remedy for creditors to wind up companies that are unable to pay their debts, upon the expiry of a 21 day notice period. Whilst the presentation of a winding up petition may affect a company's reputation and business, that cannot mean that any assertion of likely damage warrants the court's intervention to injunct the petition and deprive legitimate creditors of their statutory rights and remedies. [71] In the final analysis, the requirement that the intended petition has no chance of success is an essential prerequisite and safeguard before a Fortuna injunction may be considered at all. If the petitioner has some prospects of obtaining a winding up order, then the petition should be allowed to proceed in accordance with CA 2016, without being stifled by an injunction. The court is only concerned with whether the debt is bona fide disputed on substantial grounds. If it is not, then that is the end of the matter. The winding up process must take its course. Questions of potential damage are neither here nor there. [72] For the reasons above, the Plaintiff's argument that it may suffer potential business disruption and damage to its reputation if the Defendant is allowed to present a winding up petition is wholly irrelevant and provides no basis for a Fortuna injunction. The Defendant has a reasonable chance of obtaining a winding up order and should not be restrained from pursuing its statutory rights. Any likely damage or hardship to the Plaintiff cannot override the Defendant's legitimate interest to recover the unpaid debt through winding up proceedings as the law entitles it to. The Plaintiff Commercially Insolvent [73] The Plaintiff submits that it is a solvent, sustainable and ongoing concern, with a paid up capital of RM3,400,000, reserves of RM3,335,710 and retained earnings of RM1,209,548 as shown in the SSM search. Further, the Plaintiff contends that its latest financial statements for the year ended 28.02.2023 disclosed assets of RM65,535,935 against liabilities of RM57,580,677, and that it had generated revenues of RM43,705,626 whilst recording a profit after tax of RM815,294. The Plaintiff operates 40 outlets in Malaysia and employs 140 staff. On this basis, the Plaintiff argues that it is not insolvent and should not be presumed unable to pay its debts. [74] The Defendant challenges this position. It points out that the Plaintiff had started defaulting on the Defendant's invoices since October 2022 and accumulated outstanding sums of RM733,347.02 over a period of one year. When the Defendant issued the Statutory Demand on 27.09.2023, the Plaintiff failed to make payment within 21 days. The Defendant relies on the Plaintiff's failure to settle this debt despite having sufficient time and notice to submit that it is commercially insolvent and triggers the deeming provision in section 466(1)(a) CA 2016. The Defendant further highlights that the Plaintiff cannot rely on its general financial position to avoid the presumption of insolvency when it neglects to pay an undisputed debt that is due and owing. [75] I am persuaded that the Plaintiff is unable to pay its debts within the meaning of section 466 CA 2016 and must be presumed to be insolvent in the circumstances. [76] The evidence shows that the parties have had a long-standing business relationship governed by the Letter of Intent dated 18.10.2019 for consignment of the Plaintiff's apparel. The Defendant had issued a total of 50 invoices to the Plaintiff between 18.10.2019 to 31.08.2023, of which the Plaintiff paid 36 invoices without protest. However, from around 31.10.2022, the Plaintiff started delaying and defaulting on the following 12 invoices: No. Invoice No. Date Amount 1 IV-00038 31.10.2022 RM87,267.57 2 IV-00039 30.11.2022 RM83,498.64 3 IV-00040 31.12.2022 RM130,107.32 4 IV-00041 31.01.2023 RM115,492.24 5 IV-00043 31.03.2023 RM79,835.29 6 DN-00004 30.04.2023 RM12.46 7 IV-00044 30.04.2023 RM104,640.68 8 CS-00003 17.05.2023 RM1,014.30 9 IV-00045 31.05.2023 RM51,558.63 10 IV-00046 30.06.2023 RM70,876.96 11 IV-00048 31.07.2023 RM44,730.03 12 IV-00051 31.08.2023 RM2,446.69 [77] This shows a persistent pattern of the Plaintiff neglecting to pay the Defendant's invoices over a period of 11 months from October 2022 to August 2023. [78] The Plaintiff does not dispute receiving the above invoices. In fact, the Plaintiff had through emails dated 14.07.2023 and 26.07.2023 expressly admitted to the outstanding payments, save that it objected to the late payment interests imposed by the Defendant. [79] It was against this backdrop of the Plaintiff's continued failure to make payment that the Defendant issued the Statutory Demand on 27.09.2023 demanding the outstanding debt of RM733,347.02. This notice is a precursor for winding up proceedings and requires the Plaintiff to settle the demanded sum within 21 days, failing which the Plaintiff shall be deemed unable to pay its debts. [80] The Plaintiff failed to make payment within 21 days. To date, the outstanding sum of RM733,347.02 remains due and owing to the Defendant. [81] Section 466(1)(a) CA 2016 creates a statutory presumption in the following terms: “A company shall be deemed to be unable to pay its debts if the company is indebted in a sum exceeding the amount as may be prescribed by the Minister and a creditor by assignment or otherwise has served a notice of demand, by himself or his agent, requiring the company to pay the sum due by leaving the notice at the registered office of the company, and the company has for twenty-one days after the service of the demand neglected to pay the sum or to secure or compound for it to the satisfaction of the creditor.” [82] The Court of Appeal in Lafarge Concrete (M) Sdn Bhd v Gold Trend Builders Sdn Bhd [2012] 6 MLJ 817 explained that the failure of a company to pay a sum demanded within 21 days will impose a presumption that the company is insolvent and unable to pay its debts. The company bears the burden of rebutting this presumption. As Gopal Sri Ram JCA (as he then was) elucidated: “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 ...” [83] Where there has been a failure to pay a sum demanded within twenty-one days, the presumption that the company is insolvent and unable to pay its debts is automatic. And it is for the company to rebut that presumption. There is no need for a petitioning creditor to prove “insolvency” under any other sub-paragraph of Section 466(1) CA 2016 before a court may make up its mind to wind up a company under sub-para (a) of that subsection. [84] The principles governing commercial insolvency are well established. The Federal Court in Lian Keow Sdn Bhd (in liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449 held that the question is not whether the company's assets exceed its liabilities, but whether there are presently available funds to meet the demanded debt. It is not sufficient that assets may be realisable in the future. [85] This was echoed by the Court of Appeal in Gulf Business Construction (M) Sdn Bhd v Israq Holding Sdn Bhd [2010] 5 MLJ 34 which ruled: “The test of commercial insolvency is simple. It is that the company is unable to meet current demands upon it, regardless of whether it has assets which, if realised, would enable it to discharge its liabilities in full ... A company may be at the same time insolvent and wealthy. It may have wealth locked up in investments not presently realisable; but although this is so, yet if it has not assets available to meet current liabilities it is commercially insolvent and may be wound up.” [86] Applying these principles, I find on the evidence that the Plaintiff is commercially insolvent and deemed unable to pay its debts within the meaning of section 466(1)(a) CA

[87] The Plaintiff neglected to pay the Defendant's invoices which were issued in the ordinary course of their business dealings over a period of 11 months from October 2022 to August 2023. There is no credible suggestion that these invoices were suddenly foisted upon the Plaintiff without basis. They arose from a long-standing commercial arrangement that the Plaintiff had voluntarily participated in and benefited from. The Plaintiff in fact does not dispute the receipt of the invoices nor its liability for the underlying transactions and sums. [88] When the Defendant issued the Statutory Demand on 27.09.2023 requiring payment within 21 days, the Plaintiff failed to settle the outstanding debt of RM733,347.02. The 21 days expired on 18.10.2023. To date, the Plaintiff has still not paid this sum despite having every opportunity to do so. [89] The Plaintiff's failure to pay this undisputed debt as demanded within the statutorily prescribed time automatically triggers the presumption of insolvency in section 466(1)(a) CA 2016. The evidential burden to rebut this presumption lies on the Plaintiff. However, the Plaintiff has not adduced any convincing evidence to show that it is in fact able to meet this current demand. [90] I am of the view that the Plaintiff's attempt to rely on its general assets and revenue position is misconceived and unavailing. The availability of reserves or future receivables does not assist when the Plaintiff has neglected to apply any of those funds to settle the Defendant's outstanding invoices for the past one year. Assets that are not readily realisable to meet current liabilities are irrelevant to the question of commercial insolvency. A company can be balance sheet solvent with assets exceeding liabilities, but still be deemed unable to pay its debts if it fails to honour undisputed obligations that have fallen due. [91] This point was recognised by the High Court in Klass Corporation (M) Sdn Bhd v MKRS Management Sdn Bhd [2018] 9 MLJ 305 that: “…the excuse of the solvency of a judgment debtor cannot be accepted as of right to be a basis justifying the grant of an injunction preventing a judgment creditor from exercising its statutory right to present a winding up petition against the judgment debtor for the debtor's failure to pay on the winding up notice. I would think it correct in principle that as a general rule, a debtor cannot legitimately hide behind the shield of solvency to stave off threat of winding up but at the same time conveniently and unfairly refuse settlement of an undisputed debt.” [92] Similarly, in United Malaya Stores Sdn Bhd v S Selapa Sivalingam & Anor [supra], the High Court dismissed a plaintiff's argument that it had cash reserves which proved its solvency. The court found that the plaintiff's ability to pay the amount claimed by the defendants to be due and owing to the defendants was lacking as it had failed to pay up within 21 days and thereby invoke the presumption of being 'unable to pay its debts' pursuant to section 466(1) CA

2016.” [93] Here, the debt of RM733,347.02 is sizeable and comparable to around 60% of the Plaintiff's entire paid up capital and reserves. The Plaintiff's refusal and failure to apply any portion of its alleged reserves, earnings and assets to settle this outstanding sum for more than 12 months, even after a statutory demand, leads to the inexorable conclusion that it is unable to pay its debts when due. [94] The Defendant as an unpaid trade creditor should not be made to wait indefinitely to recover a valid business debt whilst the Plaintiff sits on funds claiming solvency. Commercial realities and standards of mercantile dealings demand that legitimate debts be acknowledged and satisfied when called upon. A company that is able to pay must be ready and willing to do so when a debt falls due. The converse is true - an ostensibly asset-rich company that time and again neglects to pay its debts cannot be considered solvent in a real business sense. It is this lack of a present ability to meet current demands that section 466(1)(a) CA 2016 addresses and for which it presumes insolvency. [95] In the premises, I find that the Plaintiff is deemed unable to pay its debts and must be presumed insolvent under section 466(1)(a) CA 2016. The Plaintiff had failed to rebut this statutory presumption. A general assertion of asset sufficiency and balance sheet solvency does not displace the reality of the Plaintiff's continued failure to pay the Defendant's invoices and statutory demand. The Plaintiff's pattern of withholding payments over one year even before alleging any dispute establishes its commercial insolvency and inability to honour its undisputed debt obligations. Conclusion [96] The Plaintiff's Originating Summons is fundamentally defective for failing to comply with the mandatory requirements of Order 7 Rule 2(1A) ROC. There is no bona fide dispute over the debt claimed by the Defendant, and the Plaintiff is deemed unable to pay its debts under section 466(1)(a) CA 2016, giving rise to a presumption of insolvency. The Defendant's intended winding up petition therefore cannot be said to be bound to fail, rendering the issue of potential damage to the Plaintiff irrelevant. In the circumstances, the Originating Summons is dismissed with costs. 27 March 2024 ATAN MUSTAFFA YUSSOF AHMAD Judge Kuala Lumpur High Court (Commercial Division) Counsel: For the Plaintiff: Chong Ian Shin (Messrs Arulampalam & Co) For the Defendant: Eloise Tan (Messrs Low & Partners)