Ssm Management Sdn Bhd v Aeon Big (M) Sdn Bhd (W-02(NCC)(A)-1328-07/2017)

(a) The appellant's obligation to refund the deposit of RM1.1 million flows from the terms of the Lease Agreement and the termination of the Lease Agreement which has since been judicially ruled to be lawful.

(b) The 2017 Civil Suit filed by the appellant subsequent to the commencement of the winding up proceedings is not a genuine cross-claim and not one based on substantial grounds. The 2017 Civil Suit is an afterthought and devoid of real substance.

(c) Although the appellant is an exempt private company, its burden of proving that it is solvent is not different from the company that has the statutory obligation to file its annual return. Section 165A Companies Act 1965 does not dispense with the requirement for an exempt private company from having to prepare its audited accounts. The appellant has not rebutted the presumption of insolvency. The Instant Appeal [10] Before us, the appellant raised the same key arguments that were raised in the High Court and which were set out earlier. After due 6 consideration, we did not think the learned Judge was in error in his findings. We did not find any merit in the arguments raised before us. In relation to the issues and arguments raised, we considered and decided in the following fashion. No debt due and payable [11] The first complaint of the appellant was that there was no order in the 2014 Civil Suit to pay the alleged debt of RM1.1 million. Citing the case of Ahmad Shahrir bin Nazri v Nashrul Hazimie bin Ab Halim & Ors [2016] 10 MLJ 15, the appellant argued that the respondent ought to have asked for a consequential order for the deposit to be refunded. Having failed to do so, the appellant contended that the respondent could not use the winding up petition as a machinery for trying a common law action. A civil claim ought to have been filed to claim for the refund as decided in Hup Heng Poultry Industries Pte Ltd v Right Sdn Bhd [2015] MLJU 716. [12] With respect, we do not think there is any merit in the arguments raised as aforesaid. What is compelling is that there was a clear and unequivocal admission of indebtedness by the various attempts by the appellant to effect repayment of the sum of RM1.1 million being the deposit under the Lease Agreement before decision was pronounced in the 2014 7 Civil Suit. This sum was however returned by the respondent pending the outcome of the 2014 Civil Suit for specific performance of the Lease Agreement. [13] Even when faced with this admission, the appellant did not deny its liability to make the refund of the RM1.1 million. All the appellant did was to maintain its position that there was no order to refund in the 2014 Civil Suit. This position was rather disingenuous as by the terms of the Lease Agreement, there was an obligation to refund the deposit in the event of termination. We agree with the learned Judge that this obligation to pay flowed from the termination of the Lease Agreement, or in other words, was the legal consequence of the termination. [14] It was also pointless to argue that there must be a judgment for the sum of RM1.1 million before winding up proceedings can be commenced. It is trite law that a creditor is not required to obtain a judgment before issuing the statutory demand (see Morgan Guaranty Trust Company of New York v Lian Seng Properties Sdn Bhd [1991] 1 MLJ 95; Lafarge Concrete (Malaysia) Sdn Bhd v Gold Trend Builders Sdn Bhd [2012] 6 MLJ 817). Of course, if there is a judgment, a debtor would be hard-pressed to argue that the debt in question is disputed. Conversely, a debtor would be better placed to argue a bona fide dispute exists when there is no judgment. 8 Even then, the debtor must provide cogent reasons to show the existence of a bona fide dispute. The primary consideration is whether there is compelling evidence of an inability to pay a debt when it falls due whether under a judgment or otherwise. [15] In the instant case, the respondent was relying on the consequences attendant upon the decision in the 2014 Civil Suit and not on the judgment itself. We agree with the learned judge that the obligation to refund the deposit of RM1.1 million arose from the terms of the Lease Agreement pursuant to the judgment in the 2014 Civil Suit that the Lease Agreement had been lawfully terminated. For these reasons, this argument by the appellant cannot succeed. The existence of a substantial cross claim [16] In this context, the appellant asserted that there existed a substantial cross claim which far exceeded the sum of the alleged debt in the statutory notice. The background to the cross claim was that the land in the Lease Agreement is owned by Nobletree Dynamics Sdn Bhd (“Nobletree”). Nobletree had executed a Long Term Lease Agreement with the appellant on 9 May 2011. There was also purportedly a Supplemental Long Lease Agreement dated 14 June 2011 in which it was alleged that a total sum of 9 RM23,560,000.00 was paid by the appellant to Nobletree which sum was purportedly forfeited by Nobletree because of the respondent’s wrongful entry of a private caveat on the said land. The appellant is now seeking to prove these assertions in KL Suit No. WA-22NCVC-216-05/2017 filed on 2 May 2017 (“2017 Civil Suit”). [17] Now, the learned Judge expressed grave doubt as to whether this cross claim was genuine and of substance. On this score, we agree with the finding of the learned Judge and the reasons provided. The learned Judge in paragraphs [35] to [40] found as follows: “[35] There is no disputing this principle. But is the cross-claim genuine and of substance? It cannot be denied that the purported Supplemental Long Lease Agreement was never raised or mentioned by the Respondent. In fact, the Petitioner was first made aware of the allegations surrounding the forfeiture after the filing of the petition when it received the writ and statement of claim for the 2017 Civil Suit. [36] Instead, the Petitioner could furnish documentary evidence to demonstrate that the Respondent had never once mentioned even a word in relation to the alleged existence of this purported Supplemental Long Lease Agreement. First, in the Lease Agreement between the Petitioner and the Respondent, only the Main Lease Agreement dated 1 May 2011 between the Respondent with Nobletree was disclosed and there is no mention of the purported Supplemental Long Lease Agreement at all. [37] Secondly, neither was there any mention about the purported Supplemental Long Lease Agreement in the correspondences between 10 the Petitioner's solicitors and the Respondent in respect of the Lease Agreement. [38] Thirdly, since the commencement of the Petitioner's 2014 Civil Suit on 13 March 2014 against the Respondent, and until delivery of the Court decision on 29 July 2016 after full trial, the Respondent never raised or pleaded the existence of the Supplemental Long Lease Agreement. [39] Fourthly, the Respondent also did not reply to any of the several letters of demand sent by the Petitioner's solicitors nor raise the existence of the Supplemental Long Lease Agreement when the Respondent's solicitors did eventually make a reply to the Petitioner's 218 Notice. [40] In short, the Respondent produced nothing apart from the writ and statement of claim which in any event were tellingly only filed subsequent to the commencement of the winding up proceedings by the Petitioner. Not even the Supplemental Long Lease Agreement was exhibited. Not to mention the absence of any attempt to show relevant documentation such as resolutions authorising the execution of the same or that evidencing the purported payment of the RM23,560,000 to Nobletree.” [18] In the event, the learned Judge found the cross claim to be an “afterthought and devoid of real substance”. In other words, it was not a genuine claim based on substantial grounds. The appellant now contends that the learned Judge had failed to appreciate the appellant’s claim in the 2017 Civil Suit and was not entitled to adjudicate upon a matter pending in the civil court. We do not agree. In our view, the learned judge was entitled to consider if the cross claim was genuine and based on substantial grounds. As alluded to earlier, the findings by the learned Judge in this 11 context were clearly warranted. Again, we were not persuaded that this argument had any merit. Whether the Appellant is a solvent company [19] In its final key argument, the appellant contended that it was indeed a solvent company and was able to pay its debt as and when it accrues. In this respect, the appellant relied upon two documents. The first was the Auditors’ Statement dated 30 December 2016 (“Auditors’ Statement”) and the second was the Certificate Relating to an Exempt Private Company also dated 30 December 2016 (“EPC Certificate”). In essence, these two documents provide that the appellant had kept proper accounting records and other books for the year 2016 and that the appellant appeared to have been able to meet its liabilities as and when they fall due. [20] In this regard, it is settled law that once a company has failed to comply with the statutory demand, there is a presumption of insolvency against it. The onus then shifts to the company to show that it is able to pay all its debts at the material time. The test of insolvency, as the learned Judge correctly noted, is the test of commercial insolvency or cash flow insolvency in that the company must be able to pay its debts when they fall due and not at some future date. In other words, the company must be 12 willing and able to meet the current demand of the creditor. In this way, a company cannot be said to be solvent when it asserts that it is able to pay the debt but persists in not doing so. [21] Now, the learned Judge considered that the appellant had failed to show that it was solvent. The learned Judge took the view that the two documents presented were insufficient. Instead, the appellant ought to have produced its audited financial statements. The appellant, before us, criticised this approach and submitted that the two documents were provided as part of the appellant’s statutory obligation under the CA 2016 and must be taken as the true and accurate reflection of the appellant’s solvency. In short, the appellant was in effect contending that a winding up court should not go beyond the two documents in determining whether the presumption of insolvency has been rebutted. [22] On this score, we do not think there is merit in the appellant’s submission. In our view, any attempt to displace the presumption of insolvency must go beyond opinions of insolvency by auditors. We agree that rather than mere assertions of insolvency even by professionals, a company must produce the best evidence of its financial position in the form of audited statements and accounts. The appellant, even if it was an 13 exempt private company, had an obligation under the law to maintain audited accounts. [23] Having failed to produce its latest audited financial statements, as noted by the learned Judge, we agreed with the finding that the appellant fell far short of establishing its solvency. Given the presumption of insolvency, the appellant ought to have taken seriously its duty and burden of displacing the presumption by putting all its card on the table and not hide merely behind opinions of the auditors through the two documents. In this context, we have also noted that the appellant failed to respond to six letters of demand, which we agree had weakened the probative force of the argument against insolvency as advanced by the appellant. In the upshot, this contention of solvency must fail. The Result [24] In the circumstances, and for the reasons provided, we were not persuaded that the decision of the learned Judge was plainly wrong. On the contrary, the learned Judge had exercised his discretion correctly. The appeal was therefore dismissed with costs of RM10,000.00. The order of the High Court was affirmed. Deposit to be refunded. 14 Dated: 12 February 2019 Signed (HARMINDAR SINGH DHALIWAL) Judge Court of Appeal Malaysia Counsel / Solicitors: For the Appellant: Kelvin Seet Wan Nam (with him Dennis Yuean) (M/s Cheang & Ariff) For the Respondent: R Jayasingam (M/s BH Lawrence & Co)