Winding Up vs Arbitration: No to Stay but Court has Discretion to Dismiss the Winding Up

The Malaysian Courts continue to tackle the issue of the effect of an arbitration agreement on the litigant’s ability to present a winding up petition based on a debt. This is in the context of a purported debt arising from a contract containing the arbitration clause. There have been conflicting High Court decisions on this point, especially on the issue of whether the Court can stay the winding up pursuant to section 10 of the Arbitration Act 2005 (AA 2005).

The recent High Court decision in Awangsa Bina Sdn Bhd v Mayland Avenue Sdn Bhd (Grounds of Judgment dated 2 May 2019) decided that it would not stay the winding up proceedings under the AA 2005. Nonetheless, the Court agreed with the authorities from the UK, Singapore and Hong Kong to apply the test of whether there is a prima facie dispute of the debt. Since there was, the winding up petition was dismissed. The decision provides a useful summary of the cases in Malaysia and other jurisdictions. Continue reading

Case Update: Federal Court Rules on Scope of An International Arbitration under Malaysia’s Arbitration Act 2005

In its recent grounds of judgment dated 31 October 2018, the Federal Court in the Jan De Nul decision clarified the effect of an international arbitration and the applicability of certain provisions of the Arbitration Act 2005 (AA 2005). The Federal Court also overruled the decision in the Court of Appeal AJWA case. The dispute gave rise to two separate appeals, one in relation to section 42 of the AA 2005 and another relating to the setting aside under section 37 of the AA 2005. This decision only deals with the section 42 aspect.

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Case Update: Winding Up Petition Cannot be Stayed Pending Reference to Arbitration

In an earlier article ‘Arbitration and Liquidation: Never the Twain Shall Meet?, I had examined the possible tension between the contractual bargain to arbitration and the statutory right to bring winding up proceedings based on a debt. Would an arbitration agreement trump the statutory winding up process?

The recent High Court decision in NFC Labuan Shipleasing I Ltd v Semua Chemical Shipping Sdn Bhd [2017] MLJU 900; [2017] 1 LNS 943 found that there cannot be a stay under the Arbitration Act 2005 (AA 2005) of a winding up petition. A winding up petition is not a claim for payment. It is a class action in the public interest as part of a statutory regime. Therefore, it was held that a winding up petition is not a ‘proceeding’ that is susceptible to a stay pending arbitration. Further, a winding up petition does not concern a matter that is subject to an arbitration agreement. Continue reading