Case Update: Two-Year Time Limit to Obtain Court Order to Reverse Dissolution of Company

The High Court decision inĀ Ketua Pengarah Hasil Dalam Negeri v Suruhanjaya Syarikat Malaysia and another (Grounds of Judgment dated 12 February 2019) held that there is a strict two-year time limit from the date of dissolution to obtain the Court Order to reverse the dissolution of a company. It is not enough to file the court application within that two-year period from dissolution.

This is in the context of interpreting section 535(1) of the Companies Act 2016 (CA 2016) (which is identical to the previous section 307(1) of the Companies Act 1965). This section states that “where a company has been dissolved, the Court may, at any time within two years after the date of the dissolution … make an order … declaring the dissolution to have been void.”

Background Facts

The company in this case was Mahabuilders Sdn Bhd and it underwent a members’ voluntary winding up.

On 1 March 2016, the directors of the company commenced the members’ voluntary winding up under section 257 of the Companies Act 1965 (CA 1965). The liquidator who was appointed was Abd Halim Bin Husin, who was the second defendant in this claim.

Just over two months later, on 20 May 2016, the liquidation process was complete. The company conducted its final meeting and lodged the return of the holding of this final meeting with the Registrar of Companies.

On 20 August 2016, i.e. after the expiration of three months after the lodging of the return of the holding of the final meeting, the dissolution of the company was completed under section 272(5) of the CA 1965.

Almost two years later, on 17 May 2018, the Director-General of Inland Revenue filed the Originating Summons to declare this dissolution as void pursuant to section 535(1) of the CA 2016. Since the company itself was already dissolved, this Originating Summons was filed against the Companies Commission of Malaysia and the liquidator.

In August 2018, the liquidator successfully applied to convert the Originating Summons process into a Writ process. This was in light of various disputes of fact in the matter. Trial was fixed to start in February 2019.

But in an application dated 31 January 2019, the liquidator applied for a preliminary determination of a question of law:

“Whether the court has the jurisdiction under section 535(1) of the CA 2016 to grant an order declaring the dissolution of a company void after the expiration of the two year period from the date of the company’s dissolution as prescribed within section 535(1) itself.”

Decision

The High Court followed the plain and obvious meaning of the wording of section 535(1) of the CA 2016. The provision required the Court Order to be made within the two-year time period from the date of dissolution. The wording does not refer to a time limit to the filing of the application.

Further, the Court also did not have the power to extend the two-year period. That power to extend the time limit was not stated in section 535 or anywhere else in the CA 2016.

The Court also noted that in repealing the CA 1965 and enacting the CA 2016, Parliament could have amended or removed the two-year time period in section 535(1) of the CA 2016 should it have intended to do so. But Malaysia’s Parliament has merely adopted the wording of section 307 of the CA 1965 in its entirety.

In contrast, jurisdictions such as Hong Kong and the United Kingdom had the same provision as section 535(1) of the CA 2016. But those jurisdictions subsequently amended their provisions. In Hong Kong, its provision was initially amended to allow for applications for extension of the two-year period. Subsequently, Hong Kong further amended the provision to allow for a 20-year period and for the time limit to run from the date on which the application was made instead of when the Court was made.

Therefore, the Court answered the question of law in the negative. The Court does not have the jurisdiction under section 535(1) of the CA 2016 to grant an order declaring the dissolution void after the expiration of the two-year period.

Comments

First, English case law has interpreted the equivalent provision differently. On very similar facts, the English High Court case of In re Scad Limited [1941] Ch 386 had the Inland Revenue Commissioners applied for an order to declare the dissolution of a company to be void. The company underwent a members’ voluntary winding up and was dissolved on 3 April 1939. On 31 March 1941, the Inland Revenue filed the application.

Section 294 of the English Companies Act 1929 provided thatĀ  where a company has been dissolved “the court may at any time within two years of the date of the dissolution … make an order … declaring the dissolution to have been void.”

In a very brief decision, the Court held that the litigants cannot control the date at which the Court makes its order. Hence, the Court interpreted the two-year period to referring to the period from the date of the dissolution and the date of the issue of the application for the order.

Secondly, it is interesting to see in this case, that the Inland Revenue Board applied to declare the dissolution of the company void. Reversing the dissolution would merely have the effect of having the company return to its winding up phase. But it would mean that the company would now be back in existence, although with all its assets having been used to pay any creditors and then the excess realised assets returned to the shareholders of the company.

Nonetheless, presumably, once the company is returned back to existence, it allows the Inland Revenue Board to pursue other legal remedies against the past directors of the company in terms of any personal liability. Or for the Inland Revenue Board to also query and pursue any legal remedies against the liquidator in this case. At [16] of the Grounds of Judgment, the Court referred to the fact that the Director-General of Inland Revenue had intended to issue certain letters to the company and the liquidator. Without the company in existence (due to the dissolution), the Inland Revenue Board would appear to be unable to exercise its powers against any past directors or officers of the dissolved company.

Thirdly, it would be worth considering amending section 535(1) of the CA 2016. There is to be a balance between having the finality of dissolution and allowing the Court to have enough time to consider the grounds for making an order . A fair balance would be to amend section 535(1) to allow for the two-year time period from the date of the dissolution and the date of making the application in Court. In bringing the application, the plaintiff will then not be penalised for the time taken in the Court process.

 

 

 

 

 

 

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