Syed Gamal Bin Syed Kechik Al-Bukhary v Ace Credit (M) Sdn Bhd (WA-28PW-179-04/2024)

This is an application by the Applicant (Encl 1) under s. 471(1) of the Companies Act 2016 (“CA 2016”) and Order 92 rule 4 of the Rules of the High Court 2012 (“NoA Leave”). The NoA Leave is essentially for leave to continue with Civil Suit in WA-22NCC-62- 02/2023 (“the Action”).

I heard and granted the NoA Leave on 6.8.2024. These are my reasons.

The Action was commenced by the Applicant on 14.2.2023 against the Respondent (“Ace Credit”) and 2 individuals Chang Ai Nee and Choong Chee Meng, being the directors of Ace Credit (“the Ace Directors”). The Action was for sums due under 2 Investment Agreements (“the IAs”) entered into by the Applicant and Ace Credit and damages. And also, against the Ace Directors under guarantees (“the Guarantees”) guaranteeing the payments to the Applicant under the IAs.

The Action seeks the following remedies:

a declaration that the Defendants have defaulted on the IAs;

damages of RM8 million for the investment sum and the agreed profit or returns of RM1.41 million; S/N v6iHyiORxUmDHuch58mdug

interest on RM9.411 million at 5% per annum from the date of filing of the Action until full payment.

general damages;

aggravated or exemplary damages;

costs for stamping;

costs. [5] Ace Credit and the Ace Directors have filed Defences and Counterclaims alleging, inter alia, that the IAs and the Guarantees are part of an illegal moneylending transaction. [6] On 14 March 2024, Ace Credit was wound up. [7] The NoA Leave was filed on 22 April 2024 and heard on 6 August

The Action was fixed before YA Ong Chee Kwan shortly thereafter: on 15, 16, 19 and 20 August 2024. [8] In respect of the illegal moneylending defence (at para [19] b. of Encl 12) Counsel for the Applicant submits that the invalidity of the IAs and Guarantees cannot de adjudicated in the POD process, see paras [26] and [39] c. of Encl 12). [9] Curiously, the Liquidator on submission, did not even mention the illegality defence but instead took a ‘blinkered’ view that the Action only deals with a pure monetary claim. Indeed, Counsel for the S/N v6iHyiORxUmDHuch58mdug Applicant submits that in the Action, one of the agreed issues to be tried is whether the IAs were moneylending agreements, see para [28] b. of Encl 12. If true, then the Liquidator is being a little coy in his position on the moneylending defence. [10] I can therefore only surmise from the Liquidator’s silence, he does not depart from Ace Credit’s pleaded moneylending defence. SUMMARY OF THE ACTION & THE DEFENCE & COUNTERCLAIM [11] The Applicant’s case is as follows.

The Applicant was allegedly persuaded by a ‘relationship manager’ of Ace Credit to invest a total sum of RM8 million for short term returns of 15%. The maturity of these investments was 1 year from the date of the respective IA. The Applicant alleges that the Guarantees were important as he may not have entered into the IAs but for the Guarantees.

The IAs matured in October 2022 but no payments were made by Ace Credit.

Demands were made with no response. [12] Ex Facie, the Action is a monetary claim for a refund of the investment and for the promised returns thereon. However, there are also claims for declarations of a breach of the IAs and for the liability under the Guarantees. S/N v6iHyiORxUmDHuch58mdug [13] Ace Credit and the Ace Directors added another dimension to the Action by raising illegality claiming that the advances under the IAs were illegal moneylending loans. Further, Ace Credit filed a counterclaim for unjust enrichment. THE LEGAL BASIS OF THE NoA [14] The NoA was filed under s. 471(1) of the CA 2016. S. 471(1) provides: “471(1) When a winding up order has been made or an interim liquidator has been appointed, no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and in accordance with such terms as the Court imposes.” [15] So, on the winding up of Ace Credit on 14 March 2024, an automatic stay of the Action came into effect. The Action, being an action or proceeding against Ace Credit within s. 471(1), required leave of Court before the same could be proceeded with, see Lai King Lung (practising as advocate and solicitor under the name and style of Messrs Chris Lai, Yap & Partners, advocates and solicitors) & Anor v. Merais Sdn Bhd [2020] 5 MLJ 614 at [21]. And see CGU Insurance Bhd v Aseam Security Paper Mills Sdn Bhd and Other Appeals [2002] 2 MLJ 1, where the Federal Court held that ‘proceeding against the company’ within s. 471(1) must intend to fasten liability on the company in liquidation or its assets. [16] The Action intends just that. It is plain that leave is required under s. 471(1). S/N v6iHyiORxUmDHuch58mdug THE RATIONALE FOR THE STAY UNDER S. 171(1) [17] The underlying rationale of s. 471(1) (previously, s. 223 of the Companies Act, 1965) is as stated in Mosbert Berhad (in liq.) v. Stella D’Çruz [1985] 2 MLJ 446, the Supreme Court held: “… it cannot be disputed that the primary object of winding up is the collection and distribution of the assets of the company pari passu amongst unsecured creditors after payment of preferential debts. And the purpose of the statutory provision is to ensure that all claims against the company in liquidation which can be determined by cheap and summary procedure available in a winding up are not made the subject of expensive litigation. The provision is designed to prevent unnecessary multiplicity of suits which may result in dissipating the assets of the company.” [18] In Shencourt Sdn Bhd v Perumahan NCK Sdn Bhd [2008] 5 MLJ 191, the Court of Appeal after citing Mosbert (supra) held: “It is clear based on the above cited case authority leave to proceed would only be granted when the plaintiff's claim cannot be adequately dealt with in winding up of the defendant’s company or when the plaintiff is seeking a remedy which cannot be given in the winding up of the defendant’s company.” [19] In Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd (in liquidation) [2017] 6 MLJ 661, the Court of Appeal held at [24]: “… The leave mechanism ensures ‘that all claims against the company in liquidation which can be determined by cheap and summary procedure available in a winding up are not made the subject of expensive litigation. The provision is designed to prevent unnecessary multiplicity of suits which may result in dissipating the assets of the company’. Although this has been explained as the availability of remedy test, that if the relief sought can be obtained in the liquidation proceedings through the filing of a proof of debt, leave must be refused, the reasoning for this test must not be overlooked. At the end of the day, S/N v6iHyiORxUmDHuch58mdug it is what is available for distribution pari passu amongst the unsecured creditors of the company that is paramount. The concerns on costs of expensive litigation including multiple suits litigation are obviously legitimate and not misplaced.” [Emphasis mine] [20] And finally, In Dubon Bhd (in liquidation) v Wisma Cosway Management Corp [2020] 4 MLJ 288, Nallini Pathmanathan FCJ in delivering the judgment of the Federal Court held at para 41: “[41] As such the High Court judge was correct in applying the test he did, premised on the well known principles cited, inter alia, in Mosbert Berhad (in liquidation) v Stella D’ Cruz [1985] 2 MLJ 446 and more recently by the Court of Appeal in Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd (in liquidation) [2017] 6 MLJ 661; [2017] 1 LNS 1576. The test is that set out in the old English decision of Re Cuthbert Lead Smelting Co Ltd [1886] WN 84 which held that if the party applying for leave could obtain all the relief in the winding up, leave would be refused. If that party’s claim cannot however be adequately dealt with in the winding up or if the remedy sought cannot be granted in the winding up proceedings then leave would be granted. (Emphasis added.)” [21] In short, the policy behind s. 471(1) is to preserve the assets of the wound up company from being expended in unnecessary and expensive curial proceedings. [22] The principles as to when leave will be granted were considered in Mesuntung Property Sdn Bhd v Kimlin Housing Development Sdn Bhd [2014] 4 MLJ 886. The Court of Appeal, after reviewing a host of authorities, held: “From the above authorities, the appellant has the burden of satisfying the court of two criteria: S/N v6iHyiORxUmDHuch58mdug

the appellant’s claim cannot be adequately dealt with by the winding up court; and

the appellant has a prima facie case against the respondent.” [23] However, these 2 criteria are not the only criteria that govern the grant of leave. They may be primary, but they are not exclusive. In Ogilvie-Grant & Anor v East Liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669 the Court held that it was impossible to state in an exhaustive manner, all the circumstances in which leave to proceed may be appropriate. These must remain within the general discretion of the Court. [24] In Mesuntung itself, the Court of Appeal adopted Bruno Phillipe Fehrenbach v Pegawai Penerima, Malaysia (selaku pelikuidasi Han Pacific Sdn Bhd) [1999] 5 MLJ 321, which set out various other factors that may be considered in a s. 471(1) leave application, which states: “In the context of our s 226(3) of the Companies Act 1965, leave would readily be given by the court if all the requirements are fulfilled. It is a correct statement of the law to say and I so say that the court considers whether leave to proceed should be granted by looking at the nature of the plaintiff's claim, the balance of convenience and the justice of the case (Re Gordon Grant & Grant Pty Ltd; Re Stuart Bros Pty Ltd (1995) 16 ACSR 451; and Speiser v Locums Financial Management Pty Ltd [1997] 22 ACSR 478 [15 ACLC 278] (SC NSW)). Thus, in a situation where it is unlikely that the plaintiff will obtain any advantage over the creditors and that no prejudice will be caused either to the creditors or to the orderly winding up of the company, leave will be granted as a matter of course (Re Gordon Grant & Grant Pty Ltd; and Ex p Walker (1982) 6 ACLR 423). The court in Re Coastal Constructions Pty Ltd (In Liquidation) (1994) 13 ACSR 329 in determining whether leave to proceed should be granted was of the view that there was a necessity to examine the amount and seriousness of the claim, the degree of complexity of the legal and factual issues involved and, lastly, the stage which the proceedings have reached. It must not be forgotten that the S/N v6iHyiORxUmDHuch58mdug applicant too must establish that he or she has a prima facie case meaning that the applicant must show that there is a real dispute between the parties (Zempilas v JN Taylor Holdings Ltd (In Prov Liq)

3 ACSR 755 (SC SA); and Vagrand Pty Ltd (In Liq) v Fielding

41 FCR 550 [113 ALR 128]). All these are factual situations where the courts are willing to grant leave to the applicants. [Emphasis mine] [25] All these considerations are aimed at preserving the assets of the wound up company, which are to be distributed to stakeholders in the winding up, ordinarily, the creditors. As such, where expensive litigation could be avoided by claims being dealt within the winding up. i.e., in a cheaper, summary and expedient manner through the proof of debt process (per Mosbert (supra)), then leave will be refused. This is typically so where the claim is a pure monetary claim, see Industrial Property Management Sdn. Bhd. v. Biaxis (M) Sdn. Bhd. [2023] MLJU 200 at [41] to [42] and 51] to [52] and Efra Marketing Sdn. Bhd. v ZN Solution Builders Sdn. Bhd. (KJC Engineering Sdn. Bhd., proposed intervener) [2023] MLJU 2552 at [33]. [26] The approach is therefore fundamentally one of convenience and expedience. The question is reduced largely to one of choosing between alternative forms of procedure, commonly described as the ‘balance of convenience’. [27] In this context, the competing submissions here are as follows. Counsel for Ace and the Liquidator submits that the claims in the Action may be dealt with in the POD process and so leave should not be granted. Counsel for the Applicant, on the other hand, S/N v6iHyiORxUmDHuch58mdug submits (primarily) that the said claims can only be dealt with by a civil Court and leave should granted. THE ACTION [28] The starting point in the analysis is, as stated above, that all claims against the wound up company should be adjudicated in the POD process within the Winding Up, instead of expensive and drawn out curial proceedings. In monetary claims, the applicant must show circumstances that will overcome the imperative to have all claims dealt with within the insolvency regime. In Ronelp Marine Ltd and other companies v STX Offshore & Shipbuilding Co Ltd [2016] EWHC 2228 (Ch), it was held that: “31. … As Patten J pointed out in AES Barry Ltd v TXU Europe Energy Trading [2004] EWHC 1757 at [24] it will only be in “exceptional” cases that the court gives a creditor, whose claim is simply a monetary one, a right by the taking of proceedings to override and pre-empt the statutory machinery. The term “exceptional” is protean: but in this context I think it means that the applicant creditor must demonstrate a circumstance or combination of circumstances of sufficient weight to overcome the strong imperative to have all the claims dealt with in the same way (and in the instant case by the insolvency court).” [29] The Applicant has raised various circumstances and factors that point toward granting leave to continue with the Action. S/N v6iHyiORxUmDHuch58mdug THE FACTORS POD Process Inadequate [30] Counsel for Ace Credit submits that the claims in the Action are monetary and must be dealt within the POD process. [31] However, while the Action may be seen as a monetary one being for the investments made and the agreed returns, there is also a claim for a declaration. Counsel for the Applicant submits that a declaration is not a remedy that can be granted by a liquidator in a POD exercise, see Cecily Kee Ling Ling v. Valiantview Construction Sdn. Bhd. (Kuala Kencana Development Sdn. Bhd. and 6 others, applicants) [2019] MLJU 32 at [12]. There is force in that submission. [32] More importantly, it is Ace Credit and the Ace Directors who resist the NoA Leave by maintaining in their Counterclaim that the IAs are illegal moneylending transactions. The Liquidator of Ace Credit by his silence does not depart from the illegality defence. Ace Credit also makes a claim for unjust enrichment. With respect, I am of the opinion that these defences and claims requiring a determination of whether the IAs are illegal moneylending, cannot be determined by the Liquidator in a POD exercise. They require a trial. [33] In Ronelp Marine Ltd and other companies v STX Offshore & Shipbuilding Co Ltd [2016] EWHC 2228 (Ch), the issue of illegality of the contracts in question was a consideration in giving leave: S/N v6iHyiORxUmDHuch58mdug “31. Unsecured money claims are, of course, amongst the claims to be addressed in the rehabilitation plan and would inevitably be caught in any liquidation process in the event that the rehabilitation plan is rejected. As Patten J pointed out in AES Barry Ltd v TXU Europe Energy Trading [2004] EWHC 1757 at [24] it will only be in “exceptional” cases that the court gives a creditor, whose claim is simply a monetary one, a right by the taking of proceedings to override and pre-empt the statutory machinery. The term “exceptional” is protean: but in this context I think it means that the applicant creditor must demonstrate a circumstance or combination of circumstances of sufficient weight to overcome the strong imperative to have all the claims dealt with in the same way (and in the instant case by the insolvency court). …

In my judgment the following factors are of relevance in the instant case.

First, although the claim is a monetary one it is (and is acknowledged to be) a particularly complex one: one point in particular requires consideration.

It arises from the issue whether according to English law the underlying Dalian contracts are unenforceable on the ground of illegality.” [Emphasis mine] [34] As in Ronelp, although the Action may seem a monetary one, the Counterclaim that claims the IA’s and Guarantees are illegal warrants granting leave. Indeed, illegality invalidating contracts can be difficult and complex, particularly when unjust enrichment is pleaded. As in Ronelp, these issues should be determined by a civil court and not by the liquidator in the proof of debt process. The Additional Claim against the Ace Directors [35] Further, the Action is also against the Guarantors, who claim that the Guarantees are equally tainted with illegality. Again, these claims should similarly be dealt with in a trial and should be heard S/N v6iHyiORxUmDHuch58mdug together with the claim against Ace Credit on the allegedly illegal IAs. [36] There would be an unnecessary wastage of costs to separate and duplicate the adjudication of the claims against Ace Credit and those against the Guarantors, one in a POD exercise and one in a civil Court. This could also result in different decisions on principally the same facts and similar issues of law. Although not conclusive, this is nevertheless a factor to take into consideration in deciding whether to grant leave, see Ogilvie-Grant & Anor v East (supra) at p 673. Prima Facie Case [37] The Applicant has to show that he has a prima facie case, which simply means a serious dispute, see Mesuntung (supra) at para [27]. Again, the need to show a serious dispute is to prevent the wound up company from being embroilled in frivolous and expensive litigation, see Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd (in liquidation) [2017] 6 MLJ 661, at [39]. [38] Here, the Action is based on the IAs with claims for declarations and damages. It is noted that Ace Credit does not challenge the existence of the IAs. The only response is that the IAs are illegal. The claim and the illegality Counterclaim, in my mind, constitutes a serious dispute within Mesuntung. I regret I cannot accept, as Counsel for Ace Credit submits, that this is a straightforward monetary claim. S/N v6iHyiORxUmDHuch58mdug The Stage of the Action [39] This is an important consideration, see the summary in Bruno Phillipe Fehrenbach as adopted in Mesuntung Property at para 25 (above). The Action is at an advanced stage, with a trial fixed just 9 days after the hearing of the NoA Leave on 6 August 2024. As such, if at the hearing of the NoA Leave, no leave was granted, the costs and expenses incurred in preparing the Action for trial would have been wasted, see Ronelp Marine (supra) at [39]. No Advantage Over Other Creditors [40] The Applicant will have no advantage over the other creditors of Ace Credit. The order for leave which I have granted, does not extend to taking any steps to enforce any judgment which may be obtained in the proceedings against the assets of the company. Such steps should only be taken with the leave of the Winding up Court. This was the nature of the Order in Fielding and another v Vagrand Pty Ltd (in liq) (1992) 9 ACSR 505 at 512. [41] In short, the Applicant must participate in the distribution of the assets of Ace Credit pari passu with the other creditors. The pari passu rule is indeed, the cornerstone of insolvency law, see the Court of Appeal in Malaysian Trustee Bhd. v. Transmile Group Bhd. & Ors [2012] 3 MLJ 679 at [22]. [42] I cannot see how the Applicant will have an advantage over the other creditors of Ace Credit. S/N v6iHyiORxUmDHuch58mdug CONCLUSION [43] As stated above, Ace Credit submits that the Action is, in essence, a monetary claim under the IAs. But when the counterclaim is examined, it can be seen that the illegality defence is inextricably linked with and goes to the root of the IAs and thus, the very Action itself. The Action should be resolved in a civil Court. [44] Further, I take the Liquidator’s silence on the moneylending defence to mean that he maintains Ace Credit’s pleadings and accordingly, that the IAs and Guarantees are illegal moneylending transactions (see paras 9 and 10 above). As such, it may not be appropriate for the Liquidator to adjudicate this issue which is at the heart of the Ace Credit’s defence to the Action. Indeed, it would be best if the claims and the defences be adjudicated by an independent civil Court. I have not forgotten Counsel for the Applicant’s complaint (at para 43 of Encl. 12) that the Liquidator had prejudged the nature of the Action by claiming the substratum of the Action had not changed and remains a monetary one. [45] When these and the other aforesaid ‘Factors’ are seen in totality, leave ought to be granted. Dated 18th September 2024 ...................t.t.......................... YA Tuan Saheran Suhendran Judicial Commissioner High Court of Malaya Kuala Lumpur S/N v6iHyiORxUmDHuch58mdug COUNSEL FOR THE APPLICANT: WAN ZAFRAN PAWANCHEEK SOLICITORS FOR THE APPLICANT: TETUAN WAN MARICAN HAMZAH & SHAIK (AMPANG) COUNSEL FOR THE RESPONDENT: LOO MAN KEITH SOLICITORS FOR RESPONDENT: TETUAN PETER LING & VAN GEYZEL (KUALA LUMPUR) Cases Referred to: • Lai King Lung (practising as advocate and solicitor under the name and style of Messrs Chris Lai, Yap & Partners, advocates and solicitors) & Anor v. Merais Sdn Bhd [2020] 5 MLJ 614 • CGU Insurance Bhd v Aseam Security Paper Mills Sdn Bhd and Other Appeals [2002] 2 MLJ 1 • Mosbert Berhad (in liq.) v. Stella D’Çruz [1985] 2 MLJ 446 • Shencourt Sdn Bhd v Perumahan NCK Sdn Bhd [2008] 5 MLJ 191 • Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd (in liquidation) [2017] 6 MLJ 661 • Dubon Bhd (in liquidation) v Wisma Cosway Management Corp [2020] 4 MLJ 288 • Mesuntung Property Sdn Bhd v Kimlin Housing Development Sdn Bhd [2014] 4 MLJ 886 • Ogilvie-Grant & Anor v East Liquidator of Gordon Grant and Grant Pty Ltd (1983) 7 ACLR 669 • Bruno Phillipe Fehrenbach v Pegawai Penerima, Malaysia (selaku pelikuidasi Han Pacific Sdn Bhd) [1999] 5 MLJ 321 • Industrial Property Management Sdn. Bhd. v. Biaxis (M) Sdn. Bhd. [2023] MLJU 200 • Efra Marketing Sdn. Bhd. v ZN Solution Builders Sdn. Bhd. (KJC Engineering Sdn. Bhd., proposed intervener) [2023] MLJU 2552 • Cecily Kee Ling Ling v. Valiantview Construction Sdn. Bhd. (Kuala Kencana Development Sdn. Bhd. and six others, applicants) [2019] MLJU 32 • Ronelp Marine Ltd and other companies v STX Offshore & Shipbuilding Co Ltd [2016] EWHC 2228 (Ch) • Ogilvie-Grant & Anor v East (supra) at p 673. S/N v6iHyiORxUmDHuch58mdug • Ganda Setia Cemerlang Sdn Bhd & Anor v Maika Holdings Bhd (in liquidation) [2017] 6 MLJ 661 • Fielding and another v Vagrand Pty Ltd (in liq) (1992) 9 ACSR 505 • Malaysian Trustee Bhd. v. Transmile Group Bhd. & Ors [2012] 3 MLJ 679 Legislation referred to: • Companies Act, 2016 • Companies Act, 1965 Decision date: 06.08.2024 S/N v6iHyiORxUmDHuch58mdug