The Limits of a Stay of Winding Up

The Court of Appeal in American International Assurance Bhd v Coordinated Services L Sdn Bhd [2012] 1 MLJ 369 had the opportunity to clarify the limits of a stay of winding up Order. In my earlier post on Unwinding a Winding Up, I had highlighted the differences between a stay and a setting aside of a winding up Order and the great difficulty in arguing that a winding up Order can be set aside.As a brief summary of the facts of this AIA case, subsequent to the winding up of the Respondent company, a director of the company had obtained and renewed a fire insurance policy with AIA. It was not obtained by the liquidator. When a claim was later made on the policy, AIA discovered that the company had been wound up and repudiated the policy. The company then successfully obtained before the High Court an Order under section 243 of the Companies Act 1965 for a permanent stay of the winding up and, which is relevant for this commentary, a validation of all dealings and agreements from the date of winding up until the date of the stay Order.

The Court of Appeal did not disturb the first limb of the Order allowing the permanent stay. However, for the second limb, the Court of Appeal held that the Court had no jurisdiction, whether under section 243 or any other provision under the Companies Act 1965, to allow for such validation for the period post-winding up Order until the stay Order.

While the principles on the grant of a stay of a winding up Order are now quite settled, this case does confirm that the effects of a stay of a winding up can only take place upon the date of the stay being granted. There is no retrospective effect which would allow for the unwinding of a winding up so that the stay takes effect as if there was never any winding up. Any of the effects and repercussions of winding up would remain up until the date of the stay. This is unlike a setting aside of a Court Order where the Court Order would be deemed as never having been granted (and where in a lot of circumstances, one could then argue that the Order and any effects of the Order are reversed).This decision highlights the difficulties under the present law where the Companies Act 1965 does not allow for a rescission or a setting aside of a winding up Order. While applicants may attempt roundabout ways of stretching applications of a section 243 stay or even a section 223 validation of disposition of properties, the present law does not appear to allow for the reversal of the effects of a winding up Order.

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One thought on “The Limits of a Stay of Winding Up

  1. Pingback: How to Unwind a Voluntary Winding Up | Of Counsel

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