The Edge Interview

I was a speaker at the Malaysian Legal and Corporate Conference 2015 today. I then gave a short interview to The Edge to explain a bit more on the expected changes in the upcoming Companies Bill.

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Time can be Extended for Affidavits in Winding Up

In winding up proceedings, the Companies (Winding-up) Rules 1972 provide for strict timelines for the filing of the affidavits. Rule 30 provides that the affidavit in opposition to the Petition shall be filed and served at least 7 days before the hearing of the Petition. In turn, the Petitioner’s affidavit in reply to the affidavit in opposition shall be filed and served within 3 days of the date of service of the affidavit in opposition. This makes the timeline very tight, especially for the Petitioner’s affidavit in reply.

Since the Court of Appeal decision in Crocuses & Daffodils (M) Sdn Bhd v Development & Commercial Bank Bhd [1997] 2 MLJ 756, there has been a line of authorities which has applied these timelines strictly. This is due to the use of the word “shall” in the Rule 30.

Court of Appeal decision in Kilo Asset

In the recent unreported grounds of judgment in Hiew Tai Hong v Kilo Asset Sdn Bhd, the Court of Appeal had to consider the issue as to whether there could be an extension of time to allow for the late filing of the various affidavits in a winding up Petition. In this case, the winding up petition involved a shareholder dispute where the petition relied largely on the just and equitable grounds. Extensive facts and the history between the shareholders were set out in the petition. This was not a case where the petition was based on an inability to pay debt and where a creditor was petitioning for winding up.

While the affidavits in opposition by the respondent were filed in time, the Petitioner filed his three affidavits in reply well past the 3-day timeline as set out in Rule 30. The Respondent then filed further affidavits in opposition.  Presumably because of an objection raised on the late filing of the affidavits in reply, the Petitioner filed an application for an extension of time. This application was based on Rule 193 which allows for enlargement or abridgment of time and Rule 194 which provides that no proceedings shall be invalidated by any formal defect or any irregularity unless the Court views that substantial injustice has been caused.

The High Court Judge dismissed the Petitioner’s extension of time application and therefore disregarded the Petitioner’s affidavits in reply. As the High Court Judge viewed that the Respondent’s affidavits in opposition was therefore left unanswered, the Petition was dismissed.

On appeal, the Court of Appeal allowed the extension of time and ordered that the Petition be remitted back to the High Court for a full hearing. Firstly, the Court of Appeal was guided by the wordings of Rules 193 and 194 which would allow for an extension of time. These Rules were not referred to in the judgment of Crocuses & Daffodils. This is consistent with the current approach of the Courts to have regard to the justice of the case and not only to the technical non-compliance.

Secondly, the Court of Appeal also made a distinction between the present just and equitable winding up Petition and a Petition based on an inability to pay a debt (the latter being the Petition in Crocuses & Daffodils). In a just and equitable winding up Petition, involving a dispute among the shareholders and allegations against the directors, it is common for the facts to be hotly disputed and  where there is the possibility of cross-examination of deponents as well. Therefore, it would not be possible for the Court to adopt such a rigid approach to non-compliance.

Commentary

This decision is welcomed in taking a step away from a mechanical rigid approach for such affidavit timelines. Instead, the Court weighs up the justice of the case in deciding whether to allow for an extension of time or not. This is even more important in such a just and equitable winding up scenario where the facts are commonly disputed and where it is very common to have an extensive exchange of affidavits.

In practice, for a just and equitable winding up petition, the solicitors commonly agree among themselves for an extension of time for the filing and exchange of affidavits. It can be very difficult for the Petitioner to comply with the 3-day rule to file in the affidavit in reply. Rule 30 is also silent in allowing for the further filing of affidavits since no timeline is provided. This decision however appears to only apply in the context of such a Petition based on the just and equitable ground. A party seeking such an extension of time must still file in an application under Rules 193 and 194.

However, this decision does not go so far as to outright overrule the Crocuse & Daffodils approach in maintaining strict timelines for the inability to pay debt scenario. It can also be quite common to have a lengthy exchange of affidavits if the debt is heavily in dispute. Nonetheless, to prevent the risk of such a technical objection, all parties had best still comply strictly with the timelines set out in Rule 30.

 

 

Shareholder Oppression Action Not Arbitrable

The Singapore High Court in the Silica Investors case (Silica Investors Ltd v Tomolugen Holdings Limited and others [2014] SGHC 101) refused a stay of an oppression action initiated by a shareholder pending a reference to arbitration. The Court found that based on the facts of the case, the minority oppression claim was non-arbitrable. There were relevant parties, including other shareholders, who were not parties to the arbitration. Further, the Plaintiff in the oppression action was seeking for remedies that the arbitral tribunal could not grant, including winding up.

Briefly, there was an arbitration clause in an agreement between only two of the shareholders. The Plaintiff filed an oppression action against both the party to the arbitration agreement as well as against non-parties (being the directors and some of the other shareholders of the Company). The Plaintiff sought a share buy-out order, an alternative prayer for winding up, and for several declaratory orders.

The Judge took great lengths in looking at the developments in Australia, Canada and the UK, and the academic commentary arising from those cases. In particular, the Judge distinguished the English Court of Appeal decision in Fulham Football Club (1987) Ltd v Richards and another [2012] Ch 333 (where an unfair prejudice action was stayed pending arbitration) as the unfair prejudice relief in that case was for a specific injunction Order. There was no possibility of a share buy-out or winding up in that case.

This is a fascinating area of the law where there is still no clear answer on the right balance to be struck. On the one hand, there is the policy of interpreting an arbitration clause as wide as possible in order for contracting parties to be bound by their bargain to go to the exclusive forum of arbitration. On the other hand, parties e.g. shareholders, may still want to rely on their statutory remedies and the Court will have to consider whether a dispute is arbitrable or not.

The Companies Bill 2013

The Companies Commission of Malaysia (CCM) has issued its Public Consultation document enclosing the present draft of the Companies Bill 2013. The Bill, if passed in its present form, will greatly expand the present Companies Act 1965 where the Bill contains more than 631 sections compared with the 374 of the present Act.

For those who read the Bill, it is advisable to also read it together with the Final Report of the Corporate Law Reform Committee of the CCM issued back in 2008. This report formed the basis and contained the recommendations which were largely adopted within the Bill.

It will take a while for all the practitioners to digest all of these new provisions. My quick observation, from an insolvency practitioner point of view, is that the new Bill contains welcomed-additions to attempt to clarify the law of receivership while introducing more flexible corporate rescue mechanisms such as judicial management and the corporate voluntary arrangement.

I hope to share some of my thoughts on the Bill once I have had a bit more time to read through it all.

Another Commentary on the Decision of Jet-Tech

I had earlier written about the Federal Court decision of Jet-Tech Materials Sdn Bhd & Anor v Yushiro Chemical Industry Co Ltd & Ors and another appeal [2013] 2 MLJ 297 and its sweeping finding that breaches of shareholders agreement cannot form the basis for an oppression action under section 181 of the Companies Act 1965.

For a more detailed commentary on Jet-Tech do click on over to Weng Tchung’s view on this decision. It is a recommended read.