High Court Clarifies Threshold For Fortuna Injunctions

Download

A Fortuna injunction is an equitable remedy used to restrain the presentation or advertisement of a winding-up petition on the consideration that such a petition, if presented based on a disputed debt, may cause irreparable harm to the company. The recent High Court decision in Perusahaan Otomobil Nasional Sdn Bhd v UCM Automotive Systems Sdn Bhd [2025] CLJU 846 (the Proton case) reaffirms the well-established test applicable to Fortuna injunction under Malaysian law.

The Law On Fortuna Injunction

The principles governing Fortuna injunctions are well settled in Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation of the Commonwealth of Australia [1978] VR 83, which have been consistently applied by Malaysian courts including the leading case of Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd [2007] 3 MLJ 316. The test requires the applicant to establish both these limbs:

1. That the presentation of the winding-up petition would cause irreparable harm to the company; and

2. That the petition has no chance of success, typically because the alleged debt is bona fide disputed on substantial grounds.

This alert focuses on the second limb - on what basis an alleged debt can be considered bona fide disputed on substantial grounds as this formed the crux of the court’s analysis in the Proton case.

Courts have consistently held that not every dispute raised by a debtor company is sufficient to justify a Fortuna injunction. As stated in Pacific & Orient Insurance Co. Bhd. v Muniamah Muniandy [2011] 1 CLJ 947, the dispute must go beyond a mere assertion and must raise a serious and substantial controversy requiring resolution at trial.

In this respect, Malaysian courts have adopted a pragmatic approach. While the standard for "bona fide dispute on substantial grounds" is not as high as establishing a full defence, it still requires credible evidence showing that the debt is genuinely contested. Bare denials, tactical disputes or disputes raised only after a statutory notice is issued are often viewed with scepticism.

Moreover, courts are mindful not to allow the Fortuna injunction mechanism to be used by solvent companies to indefinitely delay payment or avoid the consequences of statutory demands. This balancing act between creditor’s rights and debtor’s protections remains at the heart of Fortuna jurisprudence.

Background Facts 

In the Proton case, the Plaintiff (Proton) sought to restrain the Defendant (UCM) from presenting a winding-up petition under Section 466(1)(a) of the Companies Act 2016. Proton argued that the debt claimed by UCM was disputed and that the threat of a winding-up petition was an abuse of process. The following key grounds were relied upon by Proton:

a) The outstanding invoices were partially paid, and the remaining sum was disputed due to issues such as offset arrangements, defective goods and missing supporting documents.

b) UCM’s imposition of interest was unilaterally imposed and contrary to past practice.

c) Certain claims had been fully settled through contra exercises

d) Part of the claims including inventory holding costs fell outside the scope of the statutory notice.

e) A winding-up petition will cause reputational damage and commercial impact to Proton, resulting in irreparable harm.

Findings Of The High Court

The High Court dismissed Proton’s application for a Fortuna injunction, holding that Proton had failed to satisfy both limbs of the applicable test.

On the issue of whether the debt was bona fide disputed on substantial grounds, the court found as follows:

a) Proton’s payments made after the issuance of the statutory notice amounting to over RM2 million were viewed as a tacit admission of liability by conduct. 

b) Invoices that were previously unpaid remained largely undisputed in substance and inconsistencies cited by Proton were found insufficient to amount to a genuine or substantial challenge.

c) Invoices issued by UCM explicitly provided for interest at 10% per annum and there had been no prior objection to this term. 

d) The court referred to Tec D (Malaysia) Sdn Bhd v Refinenetworks Sdn Bhd[2022] MLJU 2238 and Boustead Trading (1985) SdnBhd v Arab-Malaysian Merchant Bank Bhd [1995] 3 MLJ 331 noting that partial payments and failure to promptly contest invoices could amount to an admission of indebtedness.

e) Mere silence or bare denials were insufficient to establish a bona fide dispute.

Based on the above, the High Court agreed with UCM that although the sum of RM1,473,024.00 was not specified in the statutory notice, since Proton had admitted and verified the sum to be payable to UCM, Proton was obliged to pay the sum. There was no room for the sum to be disputed before the court.

On the issue of irreparable damage, the High Court found that Proton’s solvency and the potential reputational harm that will arise from the winding-up petition were not in themselves a sufficient ground to restrain the filing of a winding-up petition, especially where the debt is not genuinely disputed. The court cited Bangkok Bank Bhd v Tan Ngee Hong Construction Sdn Bhd [2019] 12 MLJ 354, reaffirming that mere refusal to pay does not constitute a dispute. Further, the presumption of insolvency arises when a company neglects or refuses to meet a statutory demand. The actual solvency of a company would count for nothing if it persists in non-payment.  

Conclusion

The High Court's decision in the Proton case reinforces the strict application of the Fortuna injunction test. It serves as a clear reminder that a company seeking to restrain the filing of a winding-up petition must put forward concrete and credible evidence of a genuine dispute over the debt and cannot rely on partial payments, belated objection or bare assertion. This ruling also affirms that claims of irreparable harm must be grounded in more than just commercial inconvenience or reputational risk.

This case continues the judiciary’s trend of recognising insolvency proceedings as an effective tool for debt collection so long as they are not misused or abused.

26 May 2025