Tutorial 8 1

TUTORIAL 8
QUESTION 1
On 15.7.2019, Autoparts Sdn. Bhd. (‘ASB’) supplied auto parts worth RM1 million on
3 months’ credit terms, to Roadstar Sdn. Bhd. (‘RSB’). However, as RSB failed to pay
within the stipulated period, ASB issued a notice of demand dated 16.12.2019,
demanding payment of RM1 million within 14 days of the date thereof. The notice
was handed personally to George, the manager of RSB the same day. RSB failed to
pay within the specified period.
On 10.1.2020, ASB presented a winding up petition under section 465(1)(e) of the
Companies Act 2016 on the grounds that the RSB was unable to pay its debts. An
affidavit verifying the petition was filed together with the petition. The said petition
was served on both RSB’s solicitors, M/S H & S Advocates & Solicitors and also at
RSB’s place of business.
The petition is fixed for hearing on 15.4.2020.
RSB wish to set aside the winding-up petition on the grounds that they have land in
Singapore worth RM3 million, which, if realised would enable them to pay the debt.
Furthermore, they are also pursuing legal action against certain debtors in Malaysia
who owe them money amounting to RM500,000-00. RSB also dispute the amount of
the debt owing as some of the deliveries valued at about RM200,000-00 were
substandard and had to be returned.
RSB approach you to set aside the Creditor’s Petition and obtain an extension of time
to realise their assets to settle the balance due to ASB.
Advise RSB on the viability of setting aside the Creditor’s Petition and the best course
of action to pursue in the circumstances.
ANSWER
The first issue is whether RSB can set aside the creditors petition by ASB?
S.466(1)(a) of Companies Act 2016 states that if a company unable to pay the sum
which exceeds the limit set by the Minister and a creditor has served a notice of
demand, within 21 days of receipt of the notice, such a company is deemed to be
unable to pay its debts. The limit is RM10,000.
S.465(1)(e) of CA 2016 states that a company inability to pay debt can be wound up.
Rule 26 of Company (Winding Up) Rules 1972 states that every petition for
winding up shall be verified by an affidavit. Rule 18 states that it is sufficient to left it
or sent to the company last known address for service.
Applying to our situation, the notice of demand was served on 16/12/2019 and there
was no recorded response by RSB, ASB is entitled to institute a creditors petition for
winding up. In addition, the amount due and owing was RM 1 million, and as such,
the petition was valid in law.
In addition, based on the facts, the petition was presented with a Notice of Application
and an Affidavit, as per the Rules. The notice of demand was served on Mr Roger, the
Manager who would be a person authorised to accept service. However, the service of
the petition was effected on RSB’s solicitors, instead of RSB themselves.
But, as per the case of Cymun Development v Supermax Development, it was held
that as long as service had the effect of bringing it to the attention of the company, it
would be valid. RSB approaching us for our view on the matter would mean that they
already have knowledge of the situation at hand.
The test to pay off debts is known as commercial insolvency. It is defined in the case
of MBF Finance Bhd v Sri Hartamas Development which means current assets are not
enough to settle current liabilities. In the case of Sri Jeluda v Pentalink, if the
company cannot settle the debts within 21 days, a company is deemed to be
financially insolvent.
Applying to our situation, it is not possible for RSB to sell their land in Singapore on
time and pay off their debts within 21 days. RSB may try to oppose the petition on the
grounds that the notice of demand only stipulated 14 days for payment, but S 466(1)
(a) does not strictly say the time to pay up the debts in the notice must be 21 days as
well. Even if that were the case, the debts would have been due on the 7th of January
2020 and up till then, no payment was recorded. So, the petition is valid so far.
In conclusion, RSB cannot set aside the creditors petition by ASB as they has filed the
creditor petition in accordance with the law and RSB is commercially insolvent.
Therefore, there is no ground to set aside the petition.
The second issue is whether RSB can obtain a stay of proceeding?
S.470 CA 2016 provides that an applicant can apply to court to seek a stay of winding
up proceedings. S.471 of CA2016 states that if stay granted, no further action without
Court’s approval. S.492 of CA2016 provides that Court has power to stay winding-up
proceedings.
In the case of Vijayalakshmi Devi Nadchatiram v Dr. Mahadevan Nadchatiram &

Ors, the Court states that the granting of a stay under s. 243 CA1965 (S. 492(1) CA
2016) is discretionary. The onus on applicant to show a positive or sufficient case.
The attitude of the creditors, contributories and the liquidator is a relevant
consideration. In
exercising its discretion, the Court will consider the interests of the creditors and also
whether it is conducive or detrimental to commercial morality and the interests of the
public at large. A stay will be refused if there is evidence of misfeasance or of
irregularities demanding investigation
In the case of Ga-Seng Paper Marketing Sdn Bhd V. Percetakan Warni Sdn Bhd,
the factorsconsidered in exercising discretion of court in granting stay is the
company's total value of assets exceeded total debts and payment by company to
official receiver to settle judgment sum.
Applying to our situation, since ASB have erred in supplying the parts, in which they
had supplied defective parts worth up to Rm 200,000-00, and as such, their attitude as
creditors could be called into question. Furthermore, they had not given RSB the 21
days which should have been afforded to them to satisfy the debts, instead of the 14
days as stipulated in their notice of demand and this too would be an apt explanation
for their attitude.
However so, since RSB do not have the current assets to satisfy their debts, and as
proven earlier are actually commercially insolvent, they would not be able to present a
strong case for themselves as the burden is on them, to prove on a balance of
probabilities that they deserve a stay in proceedings. It would be impossible for them
to find a buyer for the land that is purportedly with RM 3 million, without any real
valuation/valuation report and they cannot be certain that they can recoup the amount
their creditors owe them within a short period of time.
The requirement for a stay to be granted in the case of Vijayalakshmi Devi

Nadchatiram v Dr. Mahadevan Nadchatiram & Ors and Ga-Seng Paper Marketing
Sdn Bhd v Percetakan Warni Sdn Bhd is not satisfied. Therefore, the stay of
proceedings is unlikely to be granted to RSB.

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TUTORIAL 8

The second issue is whether RSB can obtain a stay of proceeding?

In the case of Vijayalakshmi Devi Nadchatiram v Dr. Mahadevan Nadchatiram &

The requirement for a stay to be granted in the case of Vijayalakshmi Devi

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