Can you present a winding up petition based on an adjudication decision?
by Karen Ng Yueh Ying, Partner, Yatiswara, Ng & Chan
The Court of Appeal recently discussed the issue as to whether one can present a winding up petition based on an adjudication decision in the case of Sime Darby Energy Solution Sdn Bhd (sebelum ini dikenali sebagai Sime Darby Offshore Engineering Sdn Bhd) v RZH Setia Jaya Sdn Bhd [2021] MLJU 1494.
In this case, the Appellant obtained an adjudication decision on 31.10.2019 against the Respondent in the amount of RM1,806,538.76. In November 2019, the Appellant filed an application into Court to enforce the adjudication decision. On 12.12.2019, the Respondent filed an application to set aside the said adjudication decision.
On 3.1.2020, the Respondent was served with a statutory notice dated 31.12.2019 under section 466(1)(a) of the Companies Act 2016 (commonly known as a winding up notice), demanding for payment of the adjudicated amount. The Respondent then filed an Originating Summons for an injunction to restrain the Appellant from presenting a winding up petition (commonly known as a ‘Fortuna Injunction’).
The High Court Judge granted an ex parte interim injunction on 22.1.2020. In April 2020, the Respondent also filed an Originating Summons to stay the adjudication pending the arbitration.
On 4.6.2020, the High Court Judge granted an injunction to restrain the Appellant from presenting a winding up petition against the Respondent.
On appeal to the Court of Appeal, the Court of Appeal disagreed with the High Court’s decision and made, amongst others, the following remarks:
- that the Respondent did not act timeously as the Respondent’s Notice of Arbitration was only served on the Appellant on 10.6.2020 (which was more than 7 months after the receipt of the adjudication decision) and that the Respondent’s counsel informed the High Court Judge that the Respondent had initiated the arbitration proceedings on 4.6.2020 when it has not commenced the same;
- the Respondent’s admission of a debt due to the Appellant in the sum of RM1,463,603.39 as evidenced by its Payment Response is an admitted debt and cannot be considered a disputed debt based on which the grant of an injunction to restrain the presentation of a winding up petition would be justified. Any application to grant the order under such circumstances should be regarded as an abuse of process of the Court.
The Court of Appeal in this case held that the law is settled with the Court of Appeal decision in Likas Bay Precinct Sdn Bhd v Bina Puri Sdn Bhd [2019] 3 MLJ 244. It was held in Likas Bay that one may proceed to wind up a company based on an adjudication decision under the Construction Industry Payment and Adjudication Act 2012 (“CIPAA”), even without having to first apply to enforce the same under section 28 of CIPAA.
The Court of Appeal also discussed the High Court case of ASM Development (KL) Sdn Bhd v Econpile (M) Sdn Bhd [2020] MLJU 282 which distinguished the principle or the facts in Likas Bay. In this case, the High Court restrained Econpile from presenting a winding up petition against ASM based on an adjudication decision.
The Court of Appeal further held as follows:
“It is important to bear in mind that the Court of Appeal in Likas Bay pronounced in no uncertain terms without qualification that a party who is armed with an adjudication decision in its favour would be entitled to present a winding up petition based on the award.
However, in ADM Development (supra) a contrary view was expressed that it does not mean the opposing party cannot challenge the petition or even the statutory notice. The debt under the adjudication decision can still be disputed and the Court will have to decide whether it is so.
With respect, to our minds, this does not equate to entitling the party ordered to make payment under the adjudication decision to an order to restrain the successful party from presenting a winding up petition as the former has a statutory right to challenge the statutory notice or petition before the winding up Court. Until and unless the adjudication decision is set aside, it can in law form the basis for the statutory notice which was the position in the present instance. Whether or not the Respondent had a bona fide cross-claim against the Appellant on merits to challenge the petition is a matter to be adjudged by the winding up Court. We are not convinced that an unproven cross-claim can be the basis for restraining the filing of an winding up petition based on a valid and enforceable adjudication decision.”
It must be noted that the focus of the Court of Appeal’s decision in this case is whether a Fortuna Injunction is sustainable in light of the existence of an adjudication decision, and not whether a party may wind up another company based on an adjudication decision. The distinction between the two is important because the principles governing the grant of a Fortuna Injunction and the principles in challenging a winding up petition are different.
With this decision, the Court of Appeal has once again confirmed that one may rely on an adjudication decision obtained pursuant to the CIPAA to present a winding up petition against a company and that it is for the winding up Court to decide whether or not the other party has a bona fide cross-claim to challenge the winding up petition.