21 July 2010

Section 218 Companies Act 1965

The Companies Act 1965 (CA 1965) includes a provision which allows a party to file a Petition in High Court to wind up a Company. Today we look at one of the few provisions related to this issue, Section 218 of the CA 1965. 

We re-produce Section 218 below

218.  Circumstances in which company may be wound up by Court.

(1) The Court may order the winding up if -
(a) the company has by special resolution resolved that it be wound up by the Court;

(b) default is made by the company in lodging the statutory report or in holding the statutory meeting;

(c) the company does not commence business within a year from its incorporation or suspends its business for a whole year;

(d) the number of members is reduced in the case of a company (other than a company the whole of the issued shares in which are held by a holding company) below two;

(e) the company is unable to pay its debts;

(f) the directors have acted in the affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever which appears to be unfair or unjust to other members;

(g) an inspector appointed under Part IX has reported that he is of opinion -
(i) that the company cannot pay its debts and should be wound up; or

(ii) that it is in the interests of the public or of the shareholders or of the creditors that the company should be wound up;
(h) when the period, if any, fixed for the duration of the company by the memorandum or articles expires or the event, if any, occurs on the occurrence of which the memorandum or articles provide that the company is to be dissolved;

(i) the Court is of opinion that it is just and equitable that the company be wound up;

(j) the company has held a licence under the Banking and Financial Institutions Act 1989 (Act 372) or the Islamic Banking Act 1983 (Act 276) and that licence has been revoked or surrendered;

(k) the company has carried on Islamic banking business, licensed business, or scheduled business, or it has accepted, received or taken deposits in Malaysia, in contravention of the Banking and Financial Institutions Act 1989 or the Islamic Banking Act 1983, as the case may be;

(l) the company has held a licence under the Insurance Act 1996 and-
(i) that licence has been revoked;
(ii) Bank Negara Malaysia has been petitioned for its winding up under

subsection 58(4) of the Insurance Act 1996; or

(iii) an order under paragraph 59(4)(b) of the Insurance Act 1996 has been made in respect of it;
(m) the company is being used for unlawful purposes or any purpose prejudicial to or incompatible with peace, welfare, security, public order, good order or morality in Malaysia; or

(n) the company is being used for any purpose prejudicial to national security or public interest.
[Am. Act A1022]
DEFINITION of inability to pay debts.
(2) A company shall be deemed to be unable to pay its debts if -
(a) a creditor by assignment or otherwise to whom the company is indebted in a sum exceeding five hundred ringgit then due has served on the company by leaving at the registered office a demand under his hand or under the hand of his agent thereunto lawfully authorized requiring the company to pay the sum so due, and the company has for three weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor;

(b) execution or other process issued on a judgment, decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part; or

(c) it is proved to the satisfaction of the Court that the company is unable to pay its debts; and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company.

As you may see, Section 218 gives you a list of instances where one may file such a Petition. This is a popular method used by debtor to Petition the winding up of a Company which owes the debtor. 

In some instances, the very service of a Notice under that Section 218, would trigger the essential response to report to the Stock Exchange, if the Company targeted is a Public listed Company. 

There have also been a mixed responses from Judges whether the provision can be used if the Debtor has yet to attain Judgment against the owing Company. There have been cases where Debtors file this Petition to pressure the Company to settle the outstanding amount, even though that Debtor has not crystalized that debt into a Judgment. The case laws are split in the sense that some Judges opine that one must attain a Judgment first before proceeding to the Petition; whilst another line of authority felt that it is all right to file such a Petition, with or without a Judgment.

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