BRILLIANT STAR CONSTRUCTION (M) SDN BHD v EXYTE MALAYSIA SDN BHD

Case Significance

Illustrates the rule against using the winding-up jurisdiction to enforce a disputed debt: a petition presented to pressure a solvent company into paying a debt it disputes on substantial grounds, particularly where an arbitration clause governs, is an abuse of process liable to be struck out under Order 18 rule 19.

This High Court decision in the Commercial Division at Kuala Lumpur concerns the striking out of a winding-up petition founded on a disputed debt. The petitioner had presented a petition to wind up the respondent company under section 466(1)(a) of the Companies Act 2016 for an alleged debt, and the respondent applied to strike out the petition under Order 18 rule 19(b) and (d) of the Rules of Court 2012, contending that the debt was disputed on substantial grounds, that the petition was an abuse of process, and that the dispute ought to have been resolved by arbitration under the contract or by an ordinary suit. The court first disposed of the petitioner's preliminary objection, holding that where discrepancies do not affect the hearing of the application on its merits they are not fatal, and dismissed that objection. Turning to the merits of the strike-out application, the court found that the debt claimed by the petitioner was genuinely disputed — the correspondence showed the respondent maintaining its position — and held that presenting a winding-up petition to compel payment of a debt that is disputed on substantial grounds is an abuse of the process of the court. It is well established that winding up is not a legitimate means of debt collection where the debt is bona fide disputed, all the more so where the parties have agreed to arbitrate. The court accordingly struck out the petition. Delivered by Mohd Arief Emran bin Arifin J, the judgment is a useful illustration of the rule against using the winding-up jurisdiction to enforce a disputed debt: a petition presented to pressure a solvent company into paying a debt it disputes on substantial grounds, particularly where an arbitration clause governs the dispute, is an abuse of process liable to be struck out, and the creditor must pursue its claim by arbitration or an ordinary action.