Case Update: Federal Court Confirms Jurisdiction to Set Aside a Winding Up Order

The Federal Court in grounds of judgment dated 22 November 2018 in the SKS Foam decision confirmed the Court’s jurisdiction to set aside a perfected winding up Order in certain limited instances.

The Court is able to exercise its jurisdiction under the Federal Court case of Badiaddin to set aside its own Order where the defect is of such a serious nature that there is a need to set aside the Order in the interests of justice.

Background Facts

The petitioner had filed a winding up petition against the respondent company, SKS Foam (M) Sdn Bhd, based on a judgment sum of approximately RM4 million.

The hearing of the winding up petition was fixed before the Deputy Registrar. No creditor or contributory appeared at the hearing of the petition. The respondent company, SKS Foam, also did not oppose the petition. The Deputy Registrar granted the winding up Order.

More than three years later, three parties who claimed to be contributories and/or creditors of SKS Foam (the Contributories) filed an application to intervene in the winding up proceedings and to set aside the winding up Order. The Contributories claimed that contrary to the winding up rules, the winding up Order was invalid as it was made by the Deputy Registrar and not the Judge. The petitioner took the position that there was a typographical error and applied to amend the Order. The High Court allowed the amendment application, and dismissed the Contributories’ setting aside application.

The Court of Appeal reversed the decision. It held that the winding up Order made by the Deputy Registrar was null and void and ought to be set aside.

Question of Law Posed to the Federal Court

Leave to appeal to the Federal Court was allowed on this question of law:

Whether the principle established in Badiaddin bin Mohd Mahidin v Arab Malaysian Finance Berhad [1998] 1 MLJ 393 confers jurisdiction upon a court to set aside a perfected winding-up order for breach of rule 5 of the Companies (Winding-Up) Rules 1972 having regard to the decision in Vijayalakshmi Devi d/o Nadchatiram v Jegadevan s/o Nadchatiram [1995] 2 CLJ 392.

 

The question of law was answered in the affirmative.

Decision on Setting Aside vs a Stay of a Winding Up Order

The Federal Court reiterated its Badiaddin jurisdiction to set aside its own Court Order. Apart from breach of rules of natural justice, the court could set aside an Order where there was a contravention which defied a substantive statutory prohibition. That would render the defective Order null and void on ground of illegality or lack of jurisdiction. The Federal Court had to therefore decide:

  1. Was there a breach of the winding up rules? Here, the provision in the winding up rules required a winding up petition to be heard before a Judge in open court.
  2. If there was a breach, was it the type of serious defect described in Badiaddin?
  3. If the breach was such a serious defect for the purposes of Badiaddin, can the court set aside the winding up Order?

The Federal Court held there was a clear breach of the provision in the winding up rules. The Order was made by a Deputy Registrar and not a High Court Judge in open court. This breach was a serious defect. The provision, rule 5(1)(a), was not a mere technicality or rule of practice. It is a rule that goes to the fundamental question of jurisdiction.

The next crucial issue was whether the Court could then proceed to set aside its winding up Order. It was argued that the Court could only rely on the express statutory provision in section 243 of the Companies Act 1965 to stay a winding up Order. The Companies Act 1965 did not allow for a setting aside of the winding up Order.

The Federal Court however emphasised that the Court retained its inherent jurisdiction to seti aside fundamentally irregular or seriously defective orders. This is not dependant on any express statutory provision. The Federal Court distinguished the earlier Court of Appeal decision in Vijayalakshmi which held that a winding up Order could not be discharged or rescinded after it had been made, and only a stay was allowed.

Lastly, there was a long delay of 3.5 years before the application for setting aside of the winding up Order. Nonetheless, the Federal Court held that the Deputy Registrar’s lack of jurisdiction was so fundamental and was incurable by any order of the Court.

The petition was therefore remitted to the High Court for hearing before a Judge in open court.

Commentary

This Federal Court decision now confirms once and for all the Court’s inherent jurisdiction to set aside a winding up Order in cases where there was such a serious defect that contravened a statutory prohibition. On The Malaysian Lawyer, I had earlier written about the Court of Appeal decision in this case.

Back in 2011, the Federal Court in Megah Teknik had also already suggested that there is the Badiaddin jurisdiction to set aside a perfected winding up Order. I had written about Megah Teknik over here.

With this SKS Foam decision, we now have confirmation that the Court does have such an inherent jurisdiction to set aside its own winding up Order. This power will now rest in parallel with the express provisions in the Companies Act 2016 that allows for a stay of a winding up Order or a termination of a winding up Order. Both a stay and a termination of winding up would only take effect prospectively. It is only the setting aside of a winding up Order that would unwind the winding up from the very start.

 

 

 

 

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