LAW 4712-Winding Up-03 PDF

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LAW 4712 – BANKRUPTCY/INSOLVENCY, WINDING UP &FORECLOSURE QUIZ – 10% marksQUESTION 1:Ranskop Sdn Bhd is a company registered in Malaysia, whose main activity is the manufacturing of iron rods used in heavy construction projects for high rise buildings. Due to the competitive market in the indust...

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LAW 4712 – BANKRUPTCY/INSOLVENCY, WINDING UP & FORECLOSURE QUIZ – 10% marks

QUESTION 1:

Ranskop Sdn Bhd is a company registered in Malaysia, whose main activity is the manufacturing of iron rods used in heavy construction projects for high rise buildings. Due to the competitive market in the industry, Ranskop Sdn Bhd is unable to meet the demands of its creditors. Build Bank Bhd, a debenture holder secured by a floating charge on the sum of RM50,000.00 owed by Ranskop Sdn Bhd.

a) Build Bank Bhd intend to initiate a legal action against Ranskop Sdn Bhd for the said sum owed. Kindly advise Build Bank Bhd on the matter. (1 marks)

Build Bank Bhd can take legal action against Ranskop Sdn Bhd by requesting a court order for winding up, as Section 464 (1) (b) of the Companies Act 2012 states that any creditor, whether contingent or prospective, can petition the court for a petition for the winding up of a company.And by virtue of s465 (1) (e) the court may order winding up if the debtor is unable to pay its debt. So, since Ranskop is unable to pay its debt to Build Bank Bhd, Build Bank can apply to the court for an order to wind up Ranskop Sdn Bhd.

b) Kindly provide the flow of the winding up procedure for Build Bank Bhd to initiate legal action against Ranskop Sdn Bhd. (4 marks) There are three stages for winding up. The first one is, the statutory notice.When a creditor wishes to start winding-up proceedings against a business, the first step is for the creditor to issue a notice under Section 466 of the Companies Act 2016 demanding that the amount owed by the firm to the creditor be paid. To qualify for this notification, the creditor must owe the firm a minimum of RM 10,000.00 that has not been paid. This notification must be served correctly on the corporation. After receiving this notification, the firm has 21 days to pay the creditor the funds asked, failing which the firm would be considered insolvent and unable to fulfil its obligations. Second stage is winding up petition, Within Rule 23A (1) (a) of the Companies (Winding-up) Rules 1972, the petitioner must make a deposit of RM3,000 with the Director General of Insolvency before submitting the winding-up petition, according to Rule 26 of the

Companies (Winding-up) Rules 1972. Following the expiration of 21 days after the serving of the notice of demand under Section 466 (1) of the Companies Act 2016, the creditor shall submit the petition for winding-up in Form 2 or 3 with such amendments as circumstances may necessitate under Rule 23 of the Companies (Winding-up) Rules 1972. The petition must be accompanied by an affidavit of verification. Four days after the petition was filed Rule 25 (1) of the Companies (Winding-up) Rules 1972 states that the registered office or, if none, the primary or last known location address for service must be specified. Every petition must be served at the company's headquarters, or if none are accessible, it must be left at the premises, or by such business. It may be left with any member, servant, or officer of the means as the court directs. Where it is an involuntary winding-up, it must be served on the liquidator appointed for the purpose, according to Rule 25 (2) of the Companies (Winding-up) Rules 1972. Forms 5 or 6 should be used for service affidavits. When a petition is brought by someone other than a liquidator, it must be physically served on the liquidation. The petition must be served on the respondent, the Director General of Insolvency, and the Registrar of Companies, according to Rule 25 (3) of the Companies (Winding-up) Rules 1972. And the third stage is post winding up. If the firm is unable to demonstrate that there is a genuine disagreement over the alleged debt, the Court will most likely order the firm to be wound up. If the Court issues this order, a liquidator will be appointed to take control of the firm and its assets, liquidate them, and distribute the profits to the business's creditors. While the business would continue to exist, the appointment of a liquidator would result in the directors losing control over the business's management and operations. Regardless, the directors are not entirely free of accountability for the corporation. One key task placed on directors, for example, is the drafting and submission of the company's statement of affairs with the liquidator.

c) Would it be any different if Build Bank Bhd initiates the legal action for winding up on August 18, 2020? (1 mark)

No. Under the Federal Government Gazzate, ‘PRESCRIPTION OF AMOUNT OF INDEBTEDNESS OF COMPANY” stated that

COMPANIES ACT 2016 IN exercise of the

powers conferred by paragraph 466(1)(a) of the Companies Act 2016 [Act 777], the Minister prescribes that the amount of indebtedness of a company for the purposes of that paragraph shall be an amount exceeding ten thousand ringgit with effect from 31 January 2017.

d) If Ranskop Sdn Bhd intends to oppose the said winding up application, how is it being done? (1 marks)

Ranskop may apply for Fortuna injuction. A special Court ruling ordering that the creditor refrain from filing a winding-up petition against the corporation. If successful, the corporation would be able to prevent the creditor from filing for bankruptcy. The Court must be satisfied of two reasons in order to award a Fortuna Injunction: the winding-up petition has little prospect of success or is bound to fail; or the creditor plans to commence winding-up procedures on a disputed debt, which will cause irreparable harm to the firm. Based on these reasons, a corporation may be able to avoid the beginning of winding-up proceedings against it if the firm can demonstrate that the debt claimed by the creditor is legitimately challenged. Cases in which the Court would grant a Fortuna Injunction include those in which: (1) the creditor is attempting to pressure the company to pay a dispute debt; or (2) the creditor is attempting to pursue repayment of a sum on demand despite an agreement over the terms of such repayment already in place. A small or technical issue, such as a small argument over quantity, is typically insufficient for the Court to award a Fortuna Injunction.

e) If the Winding up Order has been granted, Price-Water Sdn Bhd had been appointed as liquidator, explain the appointment and duties of Price-Water Sdn Bhd? (1 mark) Price Water Sdn Bhd will be tasked with assuming management of the company and its assets, liquidating them, and distributing the cash to the company's creditors. While the corporation would continue to exist, the directors would lose control over the management and operations of the firm. Regardless, directors are not wholly immune from corporate responsibility. One significant obligation put on directors, for example, is the preparation and submission to the liquidator of the company's statement of affairs.

QUESTION 2:

In the case of TENAGA NASIONAL BERHAD v. BRIGHT RIMS MANUFACTURING SDN BHD [2020] 1 LNS 1908, kindly explain “However, in my view, such averment by the Respondent are mere bare assertions without any credible evidence in support thereof” and summarized decision of the case. (1 mark)

Additionally, the Respondent requested to stay the Petition on the grounds that they could pay their debts and were still a viable business with fresh contracts in the pipeline. However, in my opinion, the Respondent's statements are only naked claims devoid of any convincing evidence in support. On the contrary, it is self-evident that the Respondent acknowledges the debt and has failed to pay it within the time limit specified in the statutory notice of demand.

QUESTION 3:

In the case of AIRASIA X BERHAD v. BOC AVIATION LIMITED & ORS [2021] 1 LNS 188, the Court granted the application of the application under Section 366 (1) of the Companies Act 2016 Applicant, what are the ground of the said application under PN17? (1 mark) The sole reason AAX was not designated as a PN17 business is that Bursa Malaysia gave AAX temporary respite from compliance with Paragraph 8.04 of the Main LR until June 2021....