Construction Litigation: When A Judgment Debt Becomes Due

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Most construction projects involve drawn-out legal disputes that sometimes span years and frequently include parties filing countless lawsuits, adjudications, arbitrations, appeals and so forth. In the process, necessarily, there will be winners and “runners-up”. However, what happens when these “runners-up” face winding-up proceedings over outstanding judgment debts?

Recently,  High Court in Lucksoon Metal Works Sdn Bhd v Propel Synergy Sn Bhd [2025] MLJU 110, the High Court dismissed an application for a Fortuna Injunction (an order from court to restrain a creditor from filing and presenting a winding-up petition) amid an ongoing litigation saga involving Lucksoon Metal Works Sdn Bhd (Plaintiff).  

Background

The nub of this dispute revolved around a construction project for a hotel development in Melaka (Project). The Plaintiff was a subcontractor involved with, among others, the design and installation of aluminium cladding and a curtain walling system within the Project. Propel Synergy Sdn Bhd  (Defendant) was the Plaintiff’s employer. Subsequently, disputes arose between the Plaintiff, the Defendant and various other parties related to the Project. At the time of the Fortuna Injunction application, the Plaintiff’s position was as follows:

a)      the High Court had ruled in favour of both the Plaintiff and the Defendant (where the Plaintiff was held to owe approximately more than RM 1 million to the Defendant) (“High Court Judgment”);

b)      the Court of Appeal had affirmed the High Court Judgment (“Court of Appeal Judgment”);

c)      the Plaintiff had filed an application for leave to appeal to the Federal Court;

d)      the Defendant had issued a winding-up notice pursuant to section 466(1)(a) of the Companies Act 2016 to the Plaintiff based on the High Court Judgment (“Defendant’s Statutory Notice”); and

e)      the Plaintiff had issued a winding-up notice pursuant to section 466(1)(a) of the Companies Act 2016 to the Defendant based on the High Court Judgment.

Broadly speaking, the grounds for the Plaintiff’s Fortuna Injunction application were as follows:

a)      There exists a bona fide dispute over the judgment debt; and

b)      The Plaintiff is solvent.

The Existence Of A Bona Fide Disputed Debt

The Plaintiff contended that High Court Judgment constituted a disputed debt on the grounds that, amongst others, the Plaintiff had filed an application for leave to appeal to the Federal Court, with a hearing date already fixed.

At this juncture, it bears stating that no stay of execution was ordered over the Court of Appeal Judgment. On this basis, the High Court did not subscribe to the Plaintiff’s contentions. The High Court observed that:

“The Plaintiff's pending application for leave to appeal to the Federal Court does not automatically create a bona fide dispute over the judgment debt, particularly in the absence of a stay of execution.”

 Commercial Solvency

Based on the High Court’s judgment, it would appear that the Plaintiff’s case attesting its solvency is restricted to future realisable assets in the form of engagement in numerous ongoing multi-million-ringgit construction projects (amounting to approximately more than RM130,000,000). The High Court held that the Plaintiff failed to demonstrate its solvency:

“In the present case, while the Plaintiff has highlighted several ongoing projects with substantial contract values, it has not demonstrated any present ability to satisfy the judgment debt. The Court of Appeal in Lafarge Concrete (M) Sdn Bhd v Gold Trend Builders Sdn Bhd [2012] 6 MLJ 817 explained that the failure to pay a demanded sum within 21 days imposes a presumption of insolvency which the company bears the burden of rebutting. The Plaintiff has not discharged this burden.”

In doing so, the High Court emphasised the legal test for solvency:

“As held by the Federal Court in Lian Keow Sdn Bhd (in liquidation) & Anor v Overseas Credit Finance (M) Sdn Bhd & Ors [1988] 2 MLJ 449, the pertinent question is not whether the company's assets exceed its liabilities, but whether there are presently available funds to meet the demanded debt. The mere possibility of future realisable assets is insufficient.”

Commentary – Wholly Meritless?

In essence, the Plaintiff utilised novel factual arguments to substantiate its application for a Fortuna Injunction. To sum-up, the High Court did not find merit in the arguments presented by the Plaintiff and dismissed the Plaintiff’s application entirely.

Therefore, as at the date of judgment, the Defendant is entitled to bring winding-up proceedings against the Plaintiff. One may argue that the application above was wholly meritless. In law, the answer is an unequivocal “yes”. However, the pragmatic observer would disagree. 

Conclusion

The High Court’s judgment in Lucksoon Metal Works Sdn Bhd v Propel Synergy Sdn Bhd offers useful guidance for construction industry players who are embroiled in or contemplating litigation:

a)      in the absence of a stay of execution, ongoing litigation does not preclude a judgment debt from being enforced;

b)      a company may be simultaneously insolvent and wealthy if it cannot meet its current debts despite being asset-rich; and

c)      winding-up proceedings are a multi-faceted mode of asset recovery and must be strategically utilised to avoid being delayed or defeated.

6 June 2025