Malaysia - CIMB Islamic Bank Berhad v Wellcom Communications (NS) Court Of Appeal [2019] 1 LNS 135 .

Legal News & Analysis - Asia Pacific - Malaysia - Dispute Resolution

1 May, 2019

 

This appeal arose from an unprecedented application for stay made by the respondents in the High Court after the High Court dismissed the respondents' application for a judicial management order pursuant to section 404 of the Companies Act 2016.

There was no judicial precedent to stay an order of dismissal of an originating summons or writ prior to this case. CIMB Bank appealed against the stay order on grounds that the stay was an abuse of process as the stay order allowed a company who had admitted to having an inability to pay its debts to continue with the business, thereby depriving creditors from taking any action. The respondents relied on the case of Ong Koh Hou @ Won Kok Fong v DA Land Sdn Bhd [2018] 1 LNS 827 in making the application for stay.

The appeal was allowed.

Facts

The respondents’ application for judicial management was dismissed by the High Court. The respondents applied for a stay of the “no order”. The consequence is that the respondents obtained a second bite at the cherry which gave them interim statutory protection by virtue of the moratorium offered by the Companies Act 2016.

The Court of Appeal held that the High Court had failed to appreciate the reason of granting an order for stay and the effect which has caused CIMB Bank to be prejudiced because, as a secured creditor, it was deprived of its rights to recover sums due and payable by the first respondent despite the clear admission of the respondents' inability to pay their debts. The High Court ought to have dismissed the stay application. DA Land is not a precedent for the proposition to stay the dismissal of originating process.
 
Malayan Banking Bhd v Gan Bee San & Ors and Anor Appeal; SKS Foam (M) Sdn Bhd (Intervener) Federal Court [2019] 1 CLJ 575
 
This appeal was before the Federal Court pursuant to Maybank’s appeal against the Court of Appeal’s order to set aside a winding-up order issued by a Deputy Registrar. Leave was granted to Maybank for the following question of law:
 
Whether the principle established in Badiaddin Mohd Mahidin v Arab Malaysian Finance Berhad [1998] 1 MLJ 393 confers jurisdiction upon a court to set aside a perfected winding up order for breach of rule 5 of the Companies (Winding-Up) Rules 1972 having regard to the decision in Vijayalakshmi Devi d/o Nadchatiram v Jegadevan s/o Nadchatiram [1995] 2 CLJ 392.”
 
The question was answered in the affirmative and Maybank’s appeal was dismissed.  

Facts

Upon Maybank’s petition for winding up, SKS Foam (M) Sdn Bhd was wound up by an order of Court issued by a Deputy Registrar in 2013. The Court of Appeal held that a winding-up order made by a Deputy Registrar was null and void as it contravened rule 5(1)(a) of the Companies (Winding-Up) Rules 1972 which provides that petitions for winding-up shall be heard before a judge in open court.
 
The Federal Court discussed the extent of application of the principle enunciated in Badiaddin Mohd Mahidin v Arab Malaysian Finance Berhad[1998] 1 MLJ 393. 

That case relates to the court’s inherent jurisdiction to set aside a final order ex debito justitiae if it is proven to be null and void on grounds of illegality or lack of jurisdiction. The contravention must be of a serious nature to justify setting it aside in the interest of justice and not merely on procedural requirements.
 
The Federal Court held that rule 5(1)(a) is not a mere technicality or rule of practice but it goes to the fundamental question of jurisdiction. Therefore, the winding-up order issued by the Deputy Registrar was within the category of contravention set out in the case of Badiaddin and is null and void for lack of jurisdiction.
 
Section 243 of the Companies Act 1965 is silent on the power of the court to set aside an irregularly obtained winding-up order made without jurisdiction. The case of Vijayalakshmi Devi d/o Nadchatiram v Jegadevan s/o Nadchatiram [1995] 2 CLJ 392 provides that a winding-up order cannot be discharged or rescinded and the only remedy is a stay.

The Federal Court held that both section 243 and Vijayalakshmi have the effect of removing the court’s inherent jurisdiction to set aside a fundamentally irregular or seriously defective order. This is a proper case for the order of the Deputy Registrar to be set aside in the interest of justice. 

 

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For further information, please contact:

 

Marinah Rahmat , Shearn Delamore & Co​

marinah.rahmat@shearndelamore.com