Unwinding a Winding-Up, Revisited

I had earlier written about the ability of a Court to unwind, or set aside, its winding up Order. For a long while, the weight of authority suggested that a Court could not set aside a winding up Order. The Companies Act 1965 was silent on the possibility of such a setting aside and there was only a provision for a stay of winding up under section 243. I had suggested in my earlier post that there appeared to be a narrow exception of allowing for such a setting aside, and this was implicit in the Megah Teknik decision.

There is now an unreported High Court decision applying Megah Teknik and where Datuk Wong Kian Kheong JC allowed a setting aside of a winding up Order. The grounds of judgment of Panaron Sdn Bhd v Univac Switchgear Sdn Bhd can be downloaded from the KL High Court website (and it contains the watermark). In Panaron, the High Court had unknowingly granted two winding up Orders (one in the Shah Alam High Court and the second in the Kuala Lumpur High Court). Proofs of Debt (POD) were filed in the second winding up and the Official Receiver (OR) then realised there was the earlier first winding up Order. The OR filed an application in KL for a stay of the second winding up Order (under section 243) and to transfer the 5 PODs to the first winding up.

The Court (correctly, I think) rejected the reliance of section 243 for a stay of the second winding up. That section could not properly apply to these sort of facts. The Court instead relied on the decision of Megah Teknik to exercise its inherent jurisdiction to set aside the second winding up Order.

In my earlier article, I was of the view that: “… the Court ought to have jurisdiction to set aside a winding up Order. Echoing the words of Mohd. Azmi FCJ in Badiaddin, circumstances may exist where there is a “real need to set aside the defective order to enable the Court to do justice.”

This Panaron decision at least shows one instance where there is such a defective winding up Order falling within the Badiaddin principle. That allows the exceptional ability to set aside a winding up Order. Here, the Kuala Lumpur High Court had no jurisdiction to make the second winding up Order. I would also add that the second winding up proceedings should have been void for breaching section 226(3) where all legal actions are automatically stayed upon a winding up Order being made and cannot be commenced without leave of Court. This decision of Panaron appears to lay down a wider principle that if the winding up Court had no jurisdiction to grant the winding up Order in the first place, then that winding up Order can be set aside.

In future, this Panaron decision could possibly be extended, for example, to facts where there was defective service of the 218 Notice or the winding up Petition. The respondent company might not have known about the winding up proceedings and the Order is made in default of its appearance. Before Megah Teknik and this decision, such a company would have to convince the Court to apply section 243 for a stay of the winding up Order. Perhaps, Panaron and Megah Teknik now opens the door for the argument that the winding up Court had no jurisdiction to grant the winding up Order in the first place and therefore the Order can be set aside.

I would like to also add that the new Companies Bill (to amend the Companies Act 1965) will not specifically address the issue of whether the Court can set aside a winding up Order. The Bill will tweak the present section 243 stay provision to allow for two things. The first is that the stay of a winding up will take on a more natural meaning in that the stay is for a limited time only. Presumably, this is to allow for a stay of a winding up pending appeal for instance or for a short stay to give time for the company to settle the debts. There will be a new termination provision which allows for the winding up to be terminated (i.e. permanently). This suggests that the termination will also be prospective and takes effect from the date of the termination. It does not have the same effect of a setting aside. Therefore, the Court’s exercise of an inherent jurisdiction to set aside a winding up Order will still play a significant role in the future.


2 thoughts on “Unwinding a Winding-Up, Revisited

  1. Thanks for this. Last week, I successfully resisted a setting aside application before Hanipah J. The problem in that case was the company, while purportedly relying on sec 243, sought an order that the winding-up order be set aside. The judge ruled that sec 243 only allowed the court to stay a winding-up order, and not set it aside. The company alleged non-service of petition (per your last paragraph) and breach of a restraining order under sec 176 which the company had obtained between service of the petition but before the winding-up order. The judge accepted my argument that having been served with the petition, the company went behind the court’s and my client’s backs and applied for the RO in the Shah Alam High Court. The application was dismissed, with costs borne personally by the director who affirmed the affidavit in support of the application.

    • Thanks, Andrew. I have been in a similar situation as you. Respondent company had obtained an extension of an RO but had not notified the creditors, and did not appear on the hearing of the winding up Petition. We obtained the winding up Order. Respondent then attempted to first file an application to set aside. Court agreed, applying Vijayalakshmi and this was before Megah Teknik, that Court only had the power to stay under s.243. Respondent then filed another application for a stay but failed to meet the requirements under s.243 since couldn’t show lack of prejudice to all the creditors, etc.

      In your case, and similar to mine, if the Respondent had now relied on Megah Teknik and Panaron, I would think there is an argument that the winding up Order could be set aside for lack of jurisdiction. The RO can be obtained ex parte and then all court proceedings are stayed. Effect of the stay in the RO is not contingent on service of the RO.

      The new Companies Bill will also not address this problem of whether one stays or can set aside a winding up Order. I shall go edit my post to expand on my thoughts on the Companies Bill.

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