Stay of Execution of Judgment May Be Insufficient To Prevent Winding Up

The Court of Appeal in Juara Inspirasi (M) Sdn Bhd v Tan Soon Ping [2012] 1 MLJ 50 considered an appeal against the grant of a winding up order based on a judgment debt. The primary finding was on the respondent company’s failure to file an Affidavit in Opposition (see the oft-cited decision of Crocuses & Dafodils).

The interesting point was that the Appellant (the debtor company in the High Court) raised the argument that there was an ad interim stay of the judgment at the time of the winding up order. As the company’s solicitors had not exhibited the stay order, there was no direct evidence before the High Court and it could be said that the High Court proceeded to make obiter findings.

The Court of Appeal nonetheless agreed with the High Court that a stay of execution of a judgment would not necessarily extend to staying or preventing a winding up because winding up is not a form of execution.

Strictly speaking, that is true in that winding up is not an execution proceeding. The forms of execution are spelled out in the Rules of High Court 1980 (and now the Rules of Court 2012) and it is well accepted that procedures like winding up and bankruptcy are not forms of execution. However, where there is a stay of execution of the judgment, for all intents and purposes, no further proceedings should be taken based on the judgment. The judgment debtor need not pay the judgment sum over to the judgment creditor with the stay of execution in place.

The strict application of this Court of Appeal decision would mean that even where there is a stay of execution of a judgment, the judgment creditor could still issue a 218 notice against the judgment debtor company. The debtor may then have to go through the process of applying for an injunction to restrain the presentation of the petition. It may then be debatable whether such an injunction can be obtained since the question is whether there is any bona fidedispute of debt. If the petition were to be filed and proceeded to hearing, the debtor may find itself at a real risk of being wound up notwithstanding the stay of execution. Just like in this case, the Court found that the debtor company was insolvent and there were other supporting creditors for the petition.

This shows the importance of ensuring that the wording of the stay of execution application and the eventual Order is drafted as wide as possible to include a stay of execution and to prevent or stay any further step in any winding up proceedings. So for instance in the unreported decision of Poh Loy Earthworks Sdn Bhd v Mascon Sdn Bhd, the High Court stayed the hearing of the Petition as there was a stay order drafted in general terms “staying the judgment” rather than specifically staying the execution of the judgment.

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