MAR'S PARAGON RESOURCES SDN BHD v LMS TECHNOLOGY DISTRIBUTIONS SDN BHD

Case Significance

Confirms that a failure to comply with a consent judgment and a subsequent statutory notice triggers the presumption of insolvency, and that a company which asserts an ability to pay but persists in non-payment is not solvent on the commercial cash-flow test, justifying a winding-up order.

This High Court decision in the Commercial Division at Kuala Lumpur concerns a winding-up petition presented under sections 465(1)(e) and 466(1)(a) of the Companies Act 2016. The petitioner and the respondent occupied adjoining floors of a building, and the dispute had originated when renovation works carried out by the respondent caused inter-floor leakage into the petitioner's premises. The petitioner had earlier sued the respondent in the Sessions Court, and the parties settled that action by a consent judgment under which the respondent agreed to carry out repair works to the petitioner's premises within a stipulated period, failing which the petitioner could engage a contractor to do so. When the respondent failed to comply with the consent judgment, the petitioner served a statutory notice and, on the respondent's failure to satisfy it, presented this winding-up petition. The Court held that the consent judgment remained valid and binding, and that the respondent's failure to comply with the statutory notice gave rise to the statutory presumption that it was unable to pay its debts. It applied the test of commercial or cash-flow insolvency — whether the company is able to pay its debts as they fall due — and observed that a company cannot be regarded as solvent where it asserts an ability to pay but persists in not doing so, the burden being on the company to show that it can meet the current demand of the creditor. Noting also that a lender, or judgment creditor, is entitled to pursue all the remedies available to it against a defaulting party, the Court was satisfied that it was just and equitable to wind up the company. It allowed the petition with costs fixed at RM6,000, subject to allocatur. The decision reflects that a consent judgment carries the same binding force as any other judgment, and that persistent non-compliance with it, once crystallised into an unmet statutory demand, can properly ground a company's winding up.