We have assisted numerous client with winding-up proceedings:
Can you rely on the Companies Act to wound up a money lending company? The short answer is no. The long answer can be seen in the recent Court of Appeal case of Litar Sistem Adilkap Sdn Bhd v. Lee Teak Hock & Anor1.
Brief facts of the case
Litar Sistem, a company that engages in the business of driving institute, was formed in 1993. Teak Hock and his son were appointed as directors and shareholders of Litar Sistem on separate occasions. Somewhere in 2019 (after both of them were removed as directors of the company), Teak Hock and son initiated winding-up proceedings against Litar Sistem.
What happened? Well:
- There were three resolutions passed on separate occasions:
- In the first resolution, a money lending business belonging to a director and also the biggest shareholder of Litar System is transferred to Litar System without any payment.
- In the second resolution, the whole money lending enterprise was to be taken over by Litar System in consideration for a sum of monies. However, the transaction failed to materialize even though there was evidence that a sum of money was paid to the enterprise.
- In the third resolution, a sum of money was to be transferred to the enterprise.
- At this juncture, it must be noted that Teak Hock signed all three resolutions.
- A decade later, another amount of monies were transferred from Litar Sistem to the enterprise. The money was duly returned to Litar Sistem.
- Both Teak Hock and son was subsequently removed as directors of Litar Sistem on the basis of alleged misappropriation of company funds.
- Aggrieved, both Teak Hock and son retaliated by initiating the suit mentioned above, on the basis that the company was engaging in moneylending business illegally.
Teak Hock’s claim
Teak Hock’s claim (amongst others) was that by engaging in illegal moneylending business, Litar Sistem had contravened section 465(1)(j) of the Companies Act2 (CA).
Section 465 (1)(j) states that a court may order a company to be wound up if:
“the company has carried on a licensed business without being duly licensed or the company has accepted, received or taken deposits in Malaysia, in contravention of the Financial Services Act3 (FSA) or the Islamic Financial Services Act4 (IFSA).”
The court’s decision
The High Court agreed with Teak Hock and ordered Litar Sistem to be wound up. In coming to its decision, the High Court held that:
- Even though money paid to Litar Sistem, the enterprise was never transferred to Litar Sistem;
- Litar Sistem represented to the public that it was involved in the moneylending business despite not having a license for it; and
- Litar Sistem financial statement also showed the same.
However, on appeal, the Court of Appeal reversed the High Court’s finding and set aside the winding-up order.
The court’s rationale
In coming to its decision, the Court of appeal noted that:
- Section 465(1)(j) of the CA must be read together with FSA and IFSA. This is because the word “license business” was not specifically defined under the CA. In fact, the CA specifically states5 that the word “license business” has the meaning assigned to it under the FSA and IFSA.
- Section 2 of the FSA states that the word “licensed business” means banking business, insurance business, or investment banking business while section 2 of the IFSA states that the word “licensed business” means Islamic banking business, takaful business, international Islamic banking business, or international takaful business.
- As the word “moneylending” was not within the meaning of “licensed business” in both the sections, Teak Hock cannot rely on Section 465(1)(j) to maintain his claim against Litar Sistem.
- Furthermore, a company that is without a valid license must be involved in the definition set out in both section 2 of the FSA and IFSA before a claim under section 465(1)(j) can be made against the company.
- Last but not least, the court noted that in the event a company operates without a valid license as defined under both section 2 of the FSA and IFSA, the appropriate party to institute a winding-up procedure against the company is Bank Negara and no one else6.
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