Fortuna injunction in Malaysia is commonly used in court proceedings in Malaysia. Our article explains what it is, the principles, and how to apply for it.
What is a Fortuna Injunction?
A Fortuna injunction is an order given by a court to prohibit a creditor from presenting a winding-up petition against a company. It is issued by the High Court of Malaya after the company applies for it.
As an introduction, an injunction is a type of court order given by the court at its discretion to order someone to do or abstain from doing an act. Many types of injunctions can be granted by the court under its inherent jurisdiction and the law, that is Specific Relief Act 1950 and that includes the Erinford injunction, Mareva injunction, and Fortuna injunction.
We will explain how a Fortuna injunction works in more detail below.
Under Section 466 of the Companies Act 2016, any creditor who has a legitimate claim for outstanding monies can serve a statutory notice to the debtor company for payment of the outstanding sum (this notice is commonly known as 's.466 notice’ or ‘winding up notice’). If the debtor company fails to pay the outstanding sum after 21 days of service of the notice, then the debtor is deemed to be unable to pay its debts.
After that, the creditor can exercise its rights to initiate winding-up proceedings by filing a winding-up petition against the debtor company to wind up that company. This puts pressure on the other business to repay the debts despite there are alleged disputes, as winding up has serious repercussions for companies.
If the creditor succeeds in the winding-up action, the debtor company will be put into liquidation, where its properties and assets will be sold to repay the creditors. In this situation and to prevent any abuse of the presentation of any winding-up petition, the laws provide the rights to the debtor company to apply for a Fortuna injunction to prevent any winding-up proceeding from being initiated against it.
Thus, after the debtor company is served with a s.466 notice by the creditor and within 21 days from the service, the debtor then can engage a solicitor and apply for a Fortuna injunction to prevent any further winding up proceeding being commenced against it.
Principles for Granting of Fortuna Injunction
The next question is, what principles do the Malaysian court base on for granting a Fortuna injunction?
In the case of Animation Theme Park Sdn Bhd v. Zj Advisory Sdn Bhd [2017] MLRHU 1212, the court adopted the test in the Australian case of Fortuna Holdings Pty Ltd v Deputy Federal Commissioner of Taxation (1976) 2 ACLR 349 whereby the Court held that a fortune injunction may be granted when it satisfied either of 2 principles below:
1st principle- The presentation of the petition might cause irreparable damage to the company when the proposed petition has no chance of success.
(in layman's words) To succeed under this principle, the applicant must show 2 things:
(a) First, the intended petition has no chance of success
The petition has no chance of success when it is based on a contested debt or a bona disputed debt whereby the debtor company has a good defence to it. An example can be a claim for non-payment for goods supplied to the debtor company but the company claims the goods are spoilt or in bad condition.
(b) Second, the presentation of such a petition (which has no chance of success) might produce irreparable damage to the company.
If the creditor obtains a judgment and claims for payment of judgment debt against the debtor company, that means the claim has a good chance to succeed. Thus, whether or not it causes irreparable damage and harm to the company is irrelevant.
2nd principle: 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.
(in layman words) To succeed under this principle, the applicant must show 3 things:
(a) The debt is disputed (not yet decided by the court).
(b) The presentation of the winding-up petition by the petitioner might cause irreparable damage to the company; and
(c) There is another way to enforce the payment of the debt, rather than through the winding-up proceeding.
This means that the plaintiff can initiate legal action against the defendant through the court process first to claim for the payment of the disputed debt.
The principles have also been applied in the courts in another case such as in the case of Mobikom Sdn Bhd v. Inmiss Communications Sdn. Bhd. [2006].
How to Apply For and Resist Fortuna Injunction
The petitioner can engage solicitors to apply to the High Court for the granting of a Fortuna injunction. To succeed, the debtor company should show and base its arguments that the winding up petition has no chance of success as it is based on a legitimate dispute and substantial dispute on the debt. Some of the cogent reasons that can be given are:
The debtor company has cross-claim (meaning has claims on related matters) against the creditor
Unlawful termination or breach of the contract by the creditor
On the other hand, to resist the application, the creditor should show to the judge that he has a good chance of success in the petition, that is there is a valid judgment or there is clear admission to the debt.
If any party is dissatisfied with the court order on the Fortuna injunction, they can appeal to a higher court, such as the Court of Appeal for intervention and rehearing. And if any party fails to comply with any court order, it can be liable for contempt of proceedings in a committal proceeding.
Conclusion
A fortuna injunction is an order by the court to restrain and prevent any winding up proceeding being initiated against any company. If you need any legal advice or legal services and are looking for a lawyer firm, please contact us, and we will assist you.
Frequently Asked Questions
1. How to oppose winding up petition Malaysia?
You can oppose winding up a petition in Malaysia by showing that the alleged debt is disputed. You can also apply for a Fortuna injunction to prevent any presentation of a winding-up petition against the debtor company.
