Blogothers

Fortuna Injunction – To Prevent Abuse Of Winding Up Mechanism

Posted

Winding up proceedings is normally commenced when Notice pursuant to Section 466 of the Companies Act 2016 (“Section 466 Notice”) is served, there is a very strict timeline and the hearing of the winding-up petition is fast. Some companies would employ this way to embarrass the debtor in order to force them into settling the payment.

There are however ways in place to prevent such abuse. When a Section 466 Notice is served and there is no cogent reason for the company to be wound up, the company can protect itself by obtaining a Fortuna Injunction from the court.

In order to obtain Fortuna Injunction, there must be a prima facie inference that the statutory demand and threat to present a winding up petition were made for collateral purpose.

  1. UNDER WHAT LAWS FORTUNA INJUNCTION IS GRANTED IN MALAYSIA?

In the case of TAN KOK TONG VS HOE HONG TRADING CO SDN BHD (2007) 2 MLJ 305 in the Court of  Appeal of Malaysia , it is held that the court has inherent jurisdiction to order a Fortuna Injunction so as to prevent an abuse of court process. This Fortuna Injunction is granted under Section 50 and 51(2) of the Specific Relief Act 1950 which is shown as below:-

50  Preventive relief how granted

Preventive relief is granted at the discretion of the court by injunction, temporary or perpetual.

51 Temporary and perpetual injunctions  

(1)Temporary injunctions are such as are to continue until a specified time, or until the further order of the court. They may be granted at any period of a suit, and are regulated by the law relating to civil procedure.

(2) A perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the suit; the defendant is thereby perpetually enjoined from the assertion of a right, or from the commission of an act, which would be contrary to the rights of the plaintiff.

2.WHERE THE PRINCIPLE OF FORTUNA INJUNCTION IS DERIVED FROM?

It was explicitly explained in the case of  MOBIKOM SDN BHD V INMISS COMMUNICATIONS SDN BHD [2007] 3 CLJ 295  in the COURT OF APPEAL of Malaysia where Gopal Sri Ram JCA delivering the judgment of the court held that:-

The kind of injunction by which an intended winding up petition is sought to be restrained is known as a “Fortuna injunction” taking its name from the case in which the juridical basis for the relief was first explained. See, Fortuna Holdings Pty Ltd v. The Deputy Commissioner of Taxation [1978] VR 83. In that case, McGarvie J discussed the basis on which a court acts to restrain the presentation of a winding up petition and the two branches of the principle that guide courts in the grant of an injunction. In respect of the basis, his Honour said this:

When a court restrains the presentation of a winding up petition to that court it exercises part of its inherent jurisdiction to prevent abuse of its process. Mann v. Goldstein[1968] 1 WLR 1091, at pp. 1093-4; [1968] 2 All ER 769. Usually a court acts against abuse of its process after proceedings have been commenced. Thus, existing proceedings may be stayed or dismissed, or documents delivered as a step in the proceedings may be struck out. This is done to relieve a party to the proceedings from an oppressive and damaging situation in which he has been placed through abuse of court process. The law has long recognized that with proceedings to wind up a company, intervention after the commencement of proceedings would often be too late to relieve the company of oppression and damage. The courts have recognized that irreparable damage may be done to a company merely through public knowledge of the presentation of a petition. Usually the damage flows from the loss of commercial reputation which results. The courts have also been conscious of the pressure which may be put on a company, by a person with a disputed claim against it, threatening to present a winding up petition unless the company meets his claim. While that threat exists, the company, in order to avoid the damage involved in the presentation of a petition, is pressed to meet the claim although it may have substantial and genuine grounds for regarding itself as not required to do so.

The decisions of the courts have established the principle that the presentation of a winding up petition may be restrained by injunction where its presentation would amount to an abuse of the process of the court. The courts apply this principle similarly to restrain the advertisement of a petition already presented. The principle enables companies to be protected from threatened or apprehended oppression and damage from abuse of court process.

3)THE TWO PRINCIPLES IN OBTAINING FORTUNA INJUNCTION

In the case of Pacific & Orient Insurance Co Bhd V. Muniammah Muniandy [2011] 1 CLJ 947  in the Court of Appeal, Putrajaya it was held at the para 26 that:-

The first principle laid down in that case in that an injunction of that nature may be granted by court where the presentation of the petition might produce irreparable damage to the company and where the proposed petition has no chance of success. In order to succeed in getting injunction under this principle, the applicant must satisfy both limbs of the principle ie,:

(i) the intended petition has no chance of success, as a matter of law as well as a matter of fact; and

(ii) the presentation of such petition (which has no chance of success) might produce irreparable damage to the company.

The second principle established in the Fortuna case is that an injunction of that nature may be granted in cases where a petitioner proposing to present a petition has chosen to assert a disputed claim, by a procedure which might produce irreparable damage to the company, rather than by a suitable alternative procedure.

This principle applies only to disputed debt. It does not apply to cases where the debt in question is undisputed.

4)WHEN & WHERE YOU MUST START TO DO THIS INJUNCTION?

In the case of Permata Trans Offshore Sdn. Bhd. V. New Wing Energy Sdn. Bhd. [2019] 1 LNS 1273 in the Kuala Lumpur High Court, Ong Chee Kwan Judicial Commissioner answer this question in this case wherein the said injunctive relief was filed after the winding up proceedings had been filed in the court by the Defendant.


Does the Court have jurisdiction to grant an injunctive relief to restrain winding up proceedings after the winding up petition has been presented? Would the winding up court be the more appropriate forum to consider and if deems fit grant such injunctive relief? This judgment seeks to provide some clarity to these questions.

In the present case, the Defendant had filed a Winding Up Petition at the High Court Kuala Lumpur on 9.5.2019. This means that at the time when the Plaintiff filed its Originating Summons and the application for the Fortuna Injunction under Enclosure 2 on 30.5.2019, the Winding Up Court’s jurisdiction has already been invoked and has seized of the matter. The Winding Up Court had in fact fixed a case management on 28.5.2019.

[42] The Plaintiff was aware of the Winding Up Petition as the Petition and the Affidavit in Support were served directly on the Plaintiff at the Plaintiff’s registered address on 27.5.2019. The Plaintiff should more appropriately apply to the Winding Up Court if it is of the opinion that the Winding Up Petition has been filed in abuse of the court process.

[43] Given the aforesaid and based on the reasons that I have set out above, this Court finds that this is not a case where it should exercise its jurisdiction to hear the Plaintiff’s application under Enclosure 2. The Plaintiff should seek its remedies, if any, before the Winding Up Court.

I am in the opinion that this injunction should be filed soonest possible even before the winding up petition has been filed by the opposing party. If it has been filed by the opposing party, then it shall be filed at the court that conducts the winding up proceedings.

5)THE DEBT IN QUESTION MUST BE UNDISPUTED

In the case of Delsol Offshore Sdn Bhd V. Arus Jaya Oil & Gas Sdn Bhd [2019] 1 LNS 1518 in the Kuala Lumpur High Court, Judicial Commissioner Ong Chee Kwan  held that:_
This principle applies only to disputed debt. It does not apply to cases where the debt in question is undisputed. As long as the debt cannot be disputed, it is not consequence whether or not it will cause irreparable damage to the company, if presented. A valid and enforceable judgment of court as in the present case, (unless set aside or stayed) cannot be considered a disputed debt. The law is settled on this point. Therefore, an order for injunction as prayed for by the appellant in the present case, also cannot be granted under this principle.”

In the case of RHB Bank Bhd. V. Malaysia Pacific Corporation Bhd. & Another Appeal  [2018] 6 CLJ 55  in the  Court Of Appeal, Putrajaya, it was held that:-

The observations of this court in Mobikom must be understood to have been made in that context, that once a debt on which a petition is based is bona fide disputed, it matters not that the debtor company is in fact insolvent. In our view, where the debt is disputed, it would be in the interest of justice that an injunction be granted. A debt may be said to be in bona fide dispute where the award upon which the debt arises is challenged. Since the challenge, which is permitted under the Arbitration Act 2005, was already pending in court at the material time, the presentation of the winding-up petition in those circumstances ought to be restrained.

In another case of Empire Multiple Sdn. Bhd. V. Pasukhas Sdn. Bhd. [2019] 1 LNS 1325 In The Ipoh High Court, Mohd Radzi Harun Judicial Commissioner held that:-

[16] It is my finding that having satisfied that the Plaintiff had fulfilled the requisite conditions for the issuance of the Fortuna Injunction, commencing at the ex parte stage, the winding up of the Plaintiff company at this stage is not only premature but would result in a non-reparable damage to the Plaintiff company.

[17] Based on all the considerations as enumerated in the proceeding paragraphs, I had allowed the Plaintiff’s application and a Fortuna Injunction was granted to restrain the Defendant from continuing with its winding up proceeding against the Plaintiff pursuant to the s. 466 Notice, until the final disposal of the Plaintiff’s appeal and arbitration proceeding between the Plaintiff and Defendant. I also granted an injunction to restrain the Defendant from advertising the winding up petition in any newspapers until final disposal of the Plaintiff’s appeal and arbitration proceeding between the Plaintiff and Defendant.

In a nutshell, in this context, the said debt must be disputed in order for the court to grant this fortuna injunction to restrain the winding up proceedings.

Don’t forget to ‘SUBSCRIBE’ and ‘LIKE’ our Facebook page, Youtube Channel and Instagram
YOUTUBE Channel: http://bit.ly/ngkeewaylegal
FB Page: http://bit.ly/ngkeewaylegalfb
Free FB Law Group:
https://www.facebook.com/groups/ngkeewaylegal/
Instagram Link: https://www.instagram.com/messrs_ng_kee_way_co/

Messrs. Ng Kee Way & Co. 黄志威律师事务所
Address:No. 29-2, Tingkat 2, Jalan Puteri 5/7, Bandar Puteri, 47100 Puchong, Selangor
H/P:03-8060 0267/ 016-5574 789
Email:info@ngkeewaylegal.com.my
Website:www.ngkeewaylegal.com.my