Injunctions against winding-up must be made before they are filed

The law as it now stands allows a creditor to issue a statutory demand under section 218 of the Companies Act to claim for an undisputed debt. After 21 days, the debtor company is deemed unable to pay its debts, and a winding-up petition can be filed.

Once a winding-up petition is filed, the creditor may advertise and gazette the petition, which would ordinarily result in the debtor's accounts being frozen by its banks. Even if the debtor disputes the debt, the dispute may be raised too late in the day because once its accounts are frozen, the debtor can effectively be driven out of business.

This method has caused many a debtor to pay up even on disputed debts, for fear of having its accounts frozen.

Of course, one possibility is to injunct the winding-up proceedings. By the latest decision of People Realty Sdn Bhd v Red Rock Construction Sdn Bhd, the Court of Appeal held that the Court has no power to injunct the advertisement and gazetting of the petition. This means that once a winding-up petition is filed, there is virtually no way for the debtor who disputes the debt to stop the advertisement, effectively rendering it virtually impossible for the debtor to stop the banks from freezing its accounts.

The only remedy, therefore, is to injunct the proceedings before the winding-up proceedings are commenced. This means that any debtor who receives a section 218 notice and who intends to dispute the debt must commence injunction proceedings immediately. Otherwise, justice may be delayed, and effectively denied.

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