Westech Sdn Bhd (in voluntary liquidation) v Thong Weng Lock (as surviving partner of Thong Kee Trading Co) [2014] 3 MLJ 427

Westech Sdn Bhd (in voluntary liquidation) v Thong Weng Lock (as surviving partner of Thong Kee Trading Co) [2014] 3 MLJ 427

Court of Appeal (Putrajaya)

The Requirement of Leave from Court after Winding Up

Facts

1.    Thong Weng Lock (‘Plaintiff’), a partner of Thong Kee Trading Co, filed a suit under the name of the partnership against Westech Sdn Bhd (‘Defendant’) and the Sessions Court gave judgment in favour of the Plaintiff.

2.    In the Sessions Court judgment, it was specified that if the Defendant failed to return the empty gas cylinders to the Plaintiff, the Defendant was required to pay the Plaintiff damages in the sum of RM68,250.00 with interest.

3.    The Defendant offered to return the gas cylinders to the Plaintiff in accordance with the terms of the Sessions Court judgment but the Plaintiff refused to accept delivery the of the cylinders.

4.    The Defendant then filed an application pursuant to Order 31 rule 11 of the Subordinate Courts Rules 1980 to record in the cause book that the Sessions Court judgment had been satisfied. When the application was rejected by the Sessions Court, the Defendant appealed to the High Court.

5.    The High Court reversed the decision of the Sessions Court and allowed the Defendant’s application.

6.    Dissatisfied with the decision of the High Court, the Plaintiff applied for and obtained leave to appeal to the Court of Appeal. Pending disposal of the appeal, the Defendant went into voluntary liquidation.

7.    At the hearing of the appeal, the Defendant raised the preliminary objection that the appeal was incompetent because the Plaintiff had not obtained leave pursuant to Section 263(2) of the Companies Act 1965 (Act 125) [now in Section 451(2) of the Companies Act 2016 (Act 777)] to proceed with the appeal against the Defendant.

8.    The Court of Appeal upheld the preliminary objection and ordered the appeal to be struck off with costs.

9.    The Plaintiff then filed an originating motion pursuant to Section 263(2) of Act 125 at the High Court for leave to proceed against the Defendant.

10.  By way of this motion, the Plaintiff sought to set aside the order of the Court of Appeal dismissing the Plaintiff’s appeal and sought to have the appeal reinstated.

11.  The High Court judge allowed the Plaintiff’s motion and granted leave to the Plaintiff.

12.  Hence, the Defendant appeal by submitting that the Plaintiff was barred by the principle of res judicata from re-opening the issue that leave was required before it could proceed against the Defendant, as this issue had already been considered by the Court of Appeal in the form of a preliminary objection.

Issue

1.    Whether the Plaintiff requires leave to appeal under Section 263(2) Act 125 against the High Court’s order reversing the Sessions Court’s order of the Defendant’s said application pursuant to Order 31 rule 11 of the Subordinate Courts Rules 1980.

Ratios

1.   Whether the Plaintiff requires leave to appeal under Section 263(2) of Act 125.

(a)   According to Section 263(2) of Act 125, after the commencement of the winding up, no action or proceeding shall be proceeded with, or commenced against the company, except by with of the Court and subject to such terms as the Court imposes.

(b)   It was submitted by the Plaintiff’s counsel that the said application in the Sessions Court was commenced by the Defendant to have the Sessions Court’s judgment of 20 January 1998 be recorded in the cause book as being satisfied.

(c)   When the application was dismissed by the Sessions Court and, the High Court reversed it, the Plaintiff’s action in pursuing the appeal to the Court of Appeal against the High Court’s reversal of the Sessions Court’s order was purely a defensive step. For that, it was submitted no leave is required and Section 263(2) of Act 125 does not apply.

(d)   It was also argued that the rationale for Section 263(2) of Act 125 is to prevent unnecessary litigation which will burden the company in liquidation with expenses and prevent unnecessary depletion of assets for distribution to unsecured creditors.

(e)   Moreover, it was submitted that the provision is applicable to insolvent companies. However, in the present case, the company is voluntarily wound up; so it is implicit by virtue of the declaration of solvency under Section 257 of Act 125, the company in question is solvent.

(f)     Hence, Section 263(2) of Act 125 does not apply to members’ voluntary winding up companies.

(g)   It was further submitted that the Court of Appeal’s order in upholding the preliminary objection in the said appeal on the ground that no leave was obtained to prosecute the appeal has left the Plaintiff with no choice but to file an application for leave notwithstanding the Plaintiff’s genuine belief that leave is and was not required in this instance.

(h)   Furthermore, the exercise of power under Section 263(2) of Act 125 is a matter of pure discretion and it is treated as an absolute discretion as in the case Re Aro Co Ltd [1980] Ch 196.

(i)     As decided by the Court, the language in Section 263(2) of  Act 125 is patently clear that no action or proceeding is to be commenced or proceeded with against a company after the commencement of a winding up is made except with leave of the court.

(j)     The section makes no distinction between a voluntary winding up by members of the company or winding up by a creditor on the ground of the company’s insolvency.

(k)    The rationale for this section is explained by Seah SCJ in Mosbert Berhad (in liquidation) v Stella D’cruz [1985] 2 MLJ 446 (at p 447) as follows:

“But in our opinion, this practice of the Court should be adopted and followed for these reasons, viz., it cannot be disputed that the primary object of winding up is the collection and distribution of the assets of the company pari passu amongst unsecured creditors after payment of preferential debts.”

(l)     Therefore, the Court disagreed with the view expressed by the learned counsel for the Plaintiff that Section 263 of Act 125 does not apply to voluntary winding up.

(m) The Court agreed that the granting of leave under Section 263(2) of Act 125 is an exercise of discretion by the court.

(n)   However, on the authorities, the granting of leave is an exception rather than a norm; and the only ground to be considered whether leave should or should not be granted is whether the claim can or cannot be dealt with adequately in the winding up or whether the remedy can or cannot be given in a winding up proceedings.

(o)   According to the Court, the learned High Court judge had fallen into error when she ruled that the Court of Appeal’s order is not a final order because it is an order in relation to a preliminary objection and the appeal proper has not been heard on the merits; and therefore, the doctrine of res judicata does not apply.

(p)   Therefore, the Court concurred that the learned High Court judge had not adequately and judiciously considered the law as pronounced by the Supreme Court in Asia Commercial Finance Ltd and the Court of Appeal in Hartecon JV Sdn Bhd on the application of this doctrine.

(q)   The case of Hartecon JV Sdn Bhd & Anor v Hartela Contractors Ltd [1996] 2 MLJ 57 is an authority for the principle that res judicata applies to a ruling on procedural as well as substantive issue.

(r)     Further in the same case, Gopal Sri Ram JCA (as he then was) said that a decision on a preliminary objection rendered the point taken res judicata.

(s)    To conclude, the Court decided that the learned High Court judge had not given judicial consideration to the Defendant’s submission that the Plaintiff had, in arguing the said appeal, took the position that no leave is required to prosecute the said appeal.

Decision

1.    The Court of Appeal allowed this appeal by the Defendant with cost.

Key Take Away

1.    Section 263(2) of Act 125 highlighted that no action or proceeding is to be commenced or proceeded with against a company after the commencement of a winding up is made except with leave of the court.

2.    Therefore, it should be noted that this provision applies to all types of voluntary winding up, including voluntary winding up by company members and voluntary winding up by a creditor.

3.    In conclusion, a leave of court is required if any party wishes to initiate any proceeding following the winding up of a company, whether the winding up is voluntary by members or otherwise.

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