By Bryan Boo
Our previous article entitled “Corporate Rescue Mechanisms – Saving The Company Before It Sinks” explored some of the corporate rescue mechanisms that are made available under the Companies Act 2016 to companies that are facing financial distress. These mechanisms are hopefully able to rescue a company from financial distress and save the company from the jaws of being wound up.
There are a number of ways in which a company may be wound up, one of which is a compulsory winding up. A compulsory winding up is where the company is wound up through a court process. This route to wind up a company is initiated by a creditor serving what is colloquially known as a Notice pursuant to Section 466 of the Companies Act 2016 (“Section 466 Notice“) on the company. The company is then given 21 days to pay the debt demanded in the Section 466 Notice, failure of which the creditor may proceed to present a winding up petition. This then commences the court proceedings.
However, the company may be of the view that the winding up proceeding was wrongfully initiated against them. This will have a grave impact not only on the company’s business but also the reputation of the company. Where the company is of the view that the winding up proceeding was wrongfully initiated against them and is desirous to resist the winding up proceedings, the company may consider filing for a Fortuna Injunction.
The Fortuna Injunction
Before a discussion on the Fortuna Injunction, one must first understand what is an injunction. Simply put, an injunction is an order from the Court that either prohibits a party from doing something or compels a party to do something. There are different types of injunctions, each with each own specific purpose, one of which is the Fortuna Injunction.
In gist, the specific purpose of a Fortuna Injunction is to prevent a creditor from presenting a winding up petition. As such, if the company succeeds in obtaining a Fortuna Injunction, the creditor will not be able to initiate winding up proceedings against the company. However, as the purpose of a Fortuna Injunction is to prevent a creditor from presenting the winding up petition, it stands to reason that an application for a Fortuna Injunction must be made before the presentation of the winding up petition.
When can a Fortuna Injunction be granted?
Drawing reliance on the well-established case regarding Fortuna Injunction, Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia as well as the Malaysian Court of Appeal case of Pacific & Orient Insurance Co Bhd v Muniammah Muniandy, a Fortuna Injunction may be granted on one of two grounds:
- if the winding up petition is presented, the petition would have no chance of success and would cause irreparable harm to the company; or
- the creditor is intending to present a winding-up petition on a disputed claim instead of a suitable alternative procedure and the presentation of the winding up petition would cause irreparable harm to the company.
Notwithstanding the grounds above, it must be noted that a Fortuna Injunction is a discretionary remedy and the courts have been persuaded by reasons apart from those listed above.
As mentioned above, the repercussions where a winding up proceeding is wrongfully initiated may be very grave. The winding up proceeding requires advertisement of the winding up petition in newspapers. This will cause the reputation of the company to be affected, may cause other creditors to panic and cause business deals to fall through. The Fortuna Injunction provides protection and is a remedy available to prevent the disastrous repercussions where a creditor is intending to present a winding up petition but there is no cogent reasons to wind up the company.