Member Article

Background facts

The respondent, Bina Puri Sdn Bhd (“Bina Puri), obtained an adjudication award dated 31 December 2016 (“Adjudication Award”) against the appellant, Likas Bay Precinct Sdn Bhd (“Likas”), pursuant to the Construction Industry Payment and Adjudication Act 2012 (“CIPAA 2012”) whereby Likas had to pay Bina Puri certified sums amounting to RM16,439,628.24 (“Adjudicated Sum”).

Bina Puri served a statutory notice of demand pursuant to section 465 of the Companies Act 2016 on Likas. Bina Puri stated that Likas had neglected and failed to pay or satisfy the Adjudicated Sum or any part thereof or to secure or compound for it to the reasonable satisfaction of Bina Puri.

Bina Puri presented the petition dated 17 March 2017 to wind up Likas pursuant to sections 465(1)(e) and (1)(h) of the Companies Act 2016 on the ground that Likas was unable to pay its debt and that it was just and equitable that Likas be wound up.

Likas resisted the petition on the grounds that the statutory notice which was premised on an adjudication award was defective as under the award no payments were ordered to be paid to Bina Puri by the adjudicator but, instead, the payments were ordered to be made by Likas to the KLRCA; and it was not just and equitable for Likas to be wound up when it was expecting progress payment amounting to RM18,606,483.03 from Malaysia Building Society Bhd (“MBSB”) which was the financier for Yayasan Universiti Malaysia Sabah. Furthermore, Likas had a gross development value amounting to RM237,817,686 in connection with the construction of a proposed 25-storey student hostel for Yayasan Universiti Malaysia Sabah.

Bina Puri also submitted that Likas’s current bank balance was not enough to pay the debts owed to Bina Puri as at 5 April 2017, the amount available in Likas’s bank accounts only totalled up to RM6,162.38.

Decision of the High Court²

The High Court granted the winding up order as applied by Bina Puri. Likas appealed the decision of the High Court to the Court of Appeal.

Decision of the Court of Appeal

Having considered the submissions of the parties, the Court of Appeal dismissed the appeal and affirmed the High Court’s decision.

The Court of Appeal at paragraph [10] stated the three points that were raised before them by Likas were as follows:

• the winding up notice by Bina Puri had been premature in that the adjudication decision had not been registered with the High Court which would convert it to a High Court order pursuant to section 28 of the CIPAA;
• the adjudication order did not name Bina Puri as the recipient of the monies due from Likas, as such it was wrong for Bina Puri to pursue this petition in the circumstances, in the sense that there was nothing owing to it under the adjudicator’s order; and
• it was also the complaint of Likas that it was not just and equitable for the High Court to have granted the

The non-registration of the Adjudication Award

On the point of the non-registration of the Adjudication Award, Likas argued that there was no judgment that could be used by Bina Puri as a basis to file the winding up petition against Likas given that the Adjudication Award was not registered pursuant to section 28 of CIPAA 2012.

Likas further argued that the registration of the Adjudication Award was a prerequisite that must be complied with by Bina Puri prior to the undertaking of the winding up proceedings.

In support of this point, Likas relied on the case of Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd³ (“Mobikom”) which was in relation to the Arbitration Act 1952 as well as the case of Hing Nyit Enterprise Sdn Bhd v Bina Puri Construction Sdn Bhd⁴.

The Court of Appeal distinguished the case of Mobikom and held that the language used under section 28 of CIPAA 2012 does not convey an interpretation which suggests that the decision of the adjudicator must be registered with the High Court before a statutory notice under section 465(1)(e) and (h) of the Companies Act 2016 could be issued.

The Court of Appeal held that as there was no application to set aside the Adjudication Award, the Adjudication Award was good and proper as a basis upon which a winding up petition notice against Likas may be filed for a debt in the amount as stated in the Adjudication Award.

As such, the Court of Appeal found that for the purpose of filing a winding up notice under section 465 of the Companies Act 2016, a successful litigant in an adjudication proceeding need not register the adjudication decision under section 28 of CIPAA 2012.

Further, in relation to section 31 of CIPAA 2012 which deals with the concurrent exercise of remedies, the Court of Appeal observed that the successful party in adjudication can also rely on section 31 as there is nothing in the language used in both sections 28 and 31 of CIPAA 2012 which suggests that section 31 is subject to section 28. Therefore, the Court of Appeal was of the view that the winding up petition was not premature.

The Adjudication Award did not name Bina Puri as the recipient of the monies due from Likas

Likas submitted that the Adjudication Award did not direct that payments were to be made by Likas to Bina Puri. Likas contended that instead payments were to be made to the KLRCA.

The Court of Appeal agreed with the High Court and found that the payments due from Likas referred to in the order were for the benefit of Bina Puri. It was undisputed that the Adjudication Award was issued pursuant to an adjudication proceeding which had involved only Bina Puri and Likas as litigating parties. Bina Puri was the party that had claimed from Likas for work it had performed for Likas under an agreement between them that was not in dispute.

Considering Likas’s clear passivity when the action was taken against it by Bina Puri, the Court of Appeal agreed with the submission of Bina Puri that the belated demur by Likas was but an afterthought devoid of any merit, aimed at staving off the winding up notice.

It was not just and equitable for the High Court to have granted the petition

Likas submitted that it was not just and equitable for the company to be wound up when it was expecting progress payment amounting to RM18,606,483.03 from MBSB which was the financier for Yayasan Universiti Malaysia Sabah and that the company had a gross development value amounting to RM237,817,686 in connection with the construction of a proposed 25-storey student hostel for Yayasan Universiti Malaysia Sabah. In response, Bina Puri took the position that Likas’s bank balance was not enough to pay Bina Puri.

The Court of Appeal agreed with the High Court that Likas’s current bank balance was not enough to pay the debts to Bina Puri. The Court of Appeal further stated that a company may be at the same time insolvent and wealthy. The company may have wealth locked up in investments not presently realisable, yet if it has no assets available to meet

its current liabilities it is commercially insolvent and may be wound up. The Court of Appeal held that there was nothing objectionable regarding the statutory demand as well as the petition to wind up Likas by Bina Puri in the circumstances of this case.

Conclusion

The effect of this decision is that a successful claimant in adjudication proceedings need not register the adjudication decision pursuant to section 28 of CIPAA 2012 before issuing a statutory demand under section 465 of the Companies Act 2016. The application to wind up a company will be further bolstered by the fact that there was no application by the company to set aside the Adjudication Award (which means that the Adjudication Award is final and binding).

It would be just and equitable to wind up a company if the company did not have enough funds in its bank account to pay the sum stated in an adjudication decision.

1 [2019] 3 MLJ 244.

2 Bina Puri Sdn Bhd v Likas Bay Precinct Sdn Bhd [2018] MLJU 864.

3 [2007] 3 MLJ 316.

4 Case No. BKI-28NCC-6/2015.

Written By:

Roshan Sunther

Dispute Resolution Practice Group

For further information regarding dispute resolution matters, please contact our Dispute Resolution Practice Group.