Bludream City Development Sdn Bhd v. Pembinaan Bina Bumi Sdn Bhd [2024] 6 CLJ 149 (Court of Appeal)
Facts
The respondent (contractor) was engaged by the appellant (developer) to construct and complete building and infrastructure works for a project. The respondent had initiated CIPAA adjudication proceedings against the appellant for unpaid amount for works done in the project. The adjudicator, deciding in favour of the respondent, ordered the appellant to pay the respondent the adjudicated amount of RM5,510,197.91 (decision).
At the High Court, the appellant applied to set aside and stay the said decision while the respondent applied to enforce the same. The High Court dismissed the appellant’s application and allowed the respondent’s application.
In the meantime, the respondent had served on the appellant a statutory notice, pursuant to ss. 465(1)(e) and 466(1)(a) of the Companies Act 2016 (CA), demanding for payment of the sum RM6,175,669.10 premised on the decision. The appellant, however, neglected to satisfy the said debt. This prompted the respondent to institute a petition, at the High Court, to wind up the appellant. The petition was allowed. Hence, the present appeal.
In support of its appeal, the appellant submitted that: (i) a party who has successfully obtained an enforced adjudication decision could not proceed to rely on the adjudication decision to commence winding up proceedings when the adjudicated dispute had been referred for final determination either by arbitration or by the court. This was premised upon there being no express provision provided in the CIPAA, as well as depriving the appellant of its right to be heard in arbitration; and (ii) since the status of an adjudication decision was that of temporary finality only, the right to wind-up a company based on the decision was contrary to the legislative intent of the CIPAA. Otherwise, the company would be wound up based on an adjudication decision that had permanency from which the company could not recover.
Decision (dismissing appeal)
- This is a case of winding up of the appellant based on unpaid monies pursuant to an adjudicated decision made under the CIPAA and after the decision has been ordered to be enforced as a judgment of the court pursuant to s. 28(1) of the CIPAA.
- The law on winding up a company based on an adjudication decision has already been adequately settled by the court. The crux of it is the unpaid successful party who obtained the adjudication decision may opt to wind-up the non-paying party.
- That notwithstanding, the appellant implored the court that there is nowhere in the CIPAA that expressly provided for winding up as a remedy to enforce an adjudication decision unlike other remedies expressly prescribed in ss. 28 to 30 of the CIPAA. In other words, it is suggested that the court either has no jurisdiction or power to wind-up the company. The court is however of the view that albeit not so expressly provided in the CIPAA, winding up is plainly permissible as expressly stated in s. 31(2) of the CIPAA if the remedy is available in a written law. The remedy of winding up of the company for inability to pay debts is plainly provided in ss. 465 and 466 of the CA. As a matter of fact, this has already been dealt with in Likas Bay Precinct and there is nothing per incuriam in our view.
- It is trite and plain that a company may be wound-up on the grounds of inability to pay debts albeit the payment sought is not a judgment debt. This is commonly done for debt premised on unpaid invoices and thereafter upon the service of notice which invokes the statutory presumption accorded by s. 466(1)(a) of the CA. In such instances, it is also common that the non-paying party will seek a Fortuna injunction to restrain the commencement or continuation of the winding up proceeding. If it is established that there is a bona fide dispute on the alleged debt on substantial or reasonable grounds, either the Fortuna injunction will be granted or the winding up proceeding will be struck out.
- For winding up proceeding based on unpaid construction payment debts arising after the advent of the CIPAA, particularly where the debt is based on an adjudicated decision, it is critical to properly understand the notion of disputability of the debt. Put in another way, disputability must be seen in its proper context. In this regard, an unpaid debt unadjudicated in a CIPAA proceeding will be disputable if the non-paying party has prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt has been adjudicated, which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceases to be disputable in an ensuing winding up proceeding. This is because the disputed debt has been independently adjudicated by a neutral third party. More pertinently, it should not be open to the non-paying party to again dispute the debt when the sanctity of the adjudication decision has been preserved by the subsequent court orders refusing to set aside and/or stay as well as allowing enforcement of the adjudication decision as a judgment pursuant to ss. 27, 16 and 28 of the CIPAA, respectively. Consequently, it is immaterial in the winding up court that the non-paying still disputes the adjudicated debt and has referred the dispute to arbitration or the court for final determination. The disputability of the dispute can only be done in the arbitration or the court to enable the parties to finally re-contest the dispute de novo unabated by the adjudication decision as well as without attracting res judicata because the adjudication decision enjoyed temporary but not perpetual finality.
- The respondent will possibly be amongst many unsecured creditors with a claim on the appellant’s assets and there is no assurance that the adjudicated debt will be wholly recovered from the wound-up appellant. That aside, there is also often a significance lapse of time between the appellant entering into liquidation and the making of payment to the creditors by the liquidator. This is the commercial choice of the respondent, probably of last resort because the other enforcement remedies had been pursued without fruition. On the other hand, we have also duly considered and find that if the appellant is wound-up, the appellant, through the liquidator, may still recover from the respondent should the appellant ultimately succeed instead in the ongoing arbitration proceeding between them.
- The court has the jurisdiction and power to wind-up the appellant for failure to pay on the decision. Finally, the learned judge found that the appellant is unable to pay its debts based on the financial information adduced before him. The appellant is no longer operational as admitted during the judgment debtor summons proceeding. Furthermore, there were minimum sums only maintained by the appellant in its banks that are garnishable. It is plain that the appellant did not have cash flow solvency and that is sufficient to justify winding up based on s. 465(1)(e) of the CA.
Comment
- The unpaid successful party who had obtained an adjudication decision may opt to wind-up the non-paying party. An unpaid debt unadjudicated in a CIPAA proceedings would be disputable if the non-paying party had prima facie established a bona fide dispute of the debt on substantial or reasonable grounds. However, if the dispute on the debt had been adjudicated, which resulted in an adjudication decision obtained in favour of the unpaid party, the debt ceased to be disputable in an ensuing winding up proceeding. It is immaterial in the winding up court that the non-paying party still disputed the adjudicated debt and has referred the dispute to arbitration or the court for final determination.