Fortuna Injunction in Malaysia-Prevent Winding-Up Petition

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What is a Fortuna Injunction?

Fortuna Injunction, which got its name from the Australian case of Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation¹, is an injunction generally used in a scenario where a company is trying to prevent a creditor of the company from presenting a winding-up petition against them.

Its purpose is simple- to prevent the company creditors from filing a winding-up petition under Section 466 of the Companies Act² without any valid justification of doing so.

So what are principles governing the application for a Fortuna Injunction?

The Principles

The principles can be found in the case of Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd³ (which adopted the Australian case of Fortuna Holdings) which held that:

“Fortuna Holdings made it clear that the courts have established a 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. It was also clear that two distinct branches emanate from the principle — of which the first applies in cases where the presentation of the petition may produce irreparable damage to the company and where the proposed petition has no chance of success, and the second 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.”

The two principles were expounded in many cases, for example, in Pacific & Orient Insurance Co Bhd v Muniammah Muniandy⁴, the court noted that:

1. The first principle is that an injunction of that nature may be granted by the 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 an injunction under this principle, the applicant must satisfy both limbs of the principle
   1. The intended petition has no chance of success, as a matter of law as well as a matter of fact; and
   2. The presentation of such a petition (which has no chance of success) might produce irreparable damage to the company.
2. The second principle 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 that might produce irreparable damage to the company, rather than by a suitable alternative procedure. It must be noted that this principle applies only to disputed debt i.e. It does not apply to cases where the debt in question is undisputed. As long as the debt cannot be disputed, it is not a consequence of whether or not it will cause irreparable damage to the company if presented.

Example of Cases

In Comintel Sdn Bhd v U Television Sdn Bhd & Anor⁵, U Television successfully obtained a claim against Comintel for monies stemming from services provided to Comintel (the matter was fought all the way to the Federal Court). Unhappy with the decision, Comintel commenced a review application to the Federal Court and at the same time filed a Fortuna injunction to among others restrain the U Television from presenting a winding-up petition against them.

Their argument (amongst others) was since it had filed a review application at the Federal Court to review the apex court’s own decision reversing those of the Court of Appeal and the High Court, the sum demanded by the U Television in their winding-up notice as per the statutory demand was bona fide disputed.

The court dismissed the application, claiming the review application did not amount to a bona fide dispute of the judgment debt, in view of the Federal Court decision which was at present a valid, binding and enforceable order. It is after all trite law that orders and judgments of the court must be treated with respect and require strict obedience, until and unless set aside. Thus, this line of argument was without merit. The court, more so a winding-up court, cannot go behind a valid judgment of the court, except in cases of fraud or illegality, which was not the contention of the Comintel.

In Klass Corp (M) Sdn Bhd v MKRS Management Sdn Bhd⁶ , MKRS sued Klass Corp for debt that is due to MKRS. The claim was allowed by the Session Court. Aggrieved by the decision, Klass Corp filed an appeal against the decision of the Session Court in the High Court. While the appeal was pending:

1. MKRS filed a winding up petition against Klass Corp, and
2. Klass Corp filed a erinford injunction (more of it in another article), claiming that the presentation of a winding up petition would result in negative repercussions to the Klass Corp, the project it was working on, and on public interest.

The High Court rejected the injunction application, noting that Klass Corp should have pursued a Fortuna Injunction instead. However, even if Klass Corp were to apply for a Fortuna Injunction, the application would fail on the basis that:

1. The debt is not disputed by Klass Corp;
2. The allegation that a winding-up petition would result in negative repercussions to the Klass Corp was mere speculation; and
3. The predicament above can be solved by Klass Corp paying up the debt that is due to MKRS.

Others related article:

1. Winding Up 101-Type of Winding Up and The General Winding Up Procedure
2. To Restrain or Not To Restrain Winding-up Proceeding

Need to know more about Fortuna Injunction and Winding-Up? Consult with out lawyer:

1. [1978] VR 83.

2. 2016.

3. [2007] 3 MLJ 316.

4. [2010] MLJU 2217.

5. [2019] 12 MLJ 667.

6. [2018] 9 MLJ 305.