A 3 Min Read On Fortuna Injunction
What is a fortuna injunction?
Fortuna injunction is generally used or relied upon by a company when they want to prevent their creditors from winding up the company (by applying for a winding-up petition against the company) under section 466 of the Companies Act without any valid justification for doing so.
Fortuna injunction got its name from the Australian case of Fortuna Holdings Pty Ltd v The Deputy Commissioner of Taxation, which was adopted in Mobikom Sdn Bhd v Inmiss Communications Sdn Bhd. In Mobikom, the court explained the what and why behind the creation of Fortuna injunction:
“Fortuna Holdings made it clear that the courts have established a principle that the presentation of a winding-up petition may be restrained by injunction where its presentation would amount to an abuse of the process of the court. It was also clear that two distinct branches emanate from the principle — of which the first applies in cases where the presentation of the petition may produce irreparable damage to the company and where the proposed petition has no chance of success, and the second in cases where a petitioner proposing to present a petition has chosen to assert a disputed claim, by a procedure which might produce irreparable damage to the company, rather than by a suitable alternative procedure.”
The first and second branches were further explained and expounded in Pacific & Orient Insurance Co Bhd v Muniammah Muniandy.
In that case, the court noted that the first branch is usually utilized by the court in cases where the winding-up petition might produce irreparable damage to the company. Not only that, chances are the court will not even entertain the request i.e. it has 0% of succeeding from the get-go.
In order to succeed in obtaining an injunction against its creditors under this branch, the company must show that:
- The intended petition has no chance of success, as a matter of law as well as a matter of fact; and
- The presentation of such a petition (which has no chance of success) might produce irreparable damage to the company.
The second branch, as the court noted, is usually granted in cases where a petitioner proposing to present a petition that has chosen to assert a disputed claim, via procedures that might cause more harm than good, when they have the option to choose the lesser evil i.e. when they could have chosen a more suitable alternative procedure.
It must also be noted that this branch of the Fortuna injunction only applies in cases where the debt is disputed.
Example of cases
In Comintel Sdn Bhd v U Television Sdn Bhd & Anor, U Television provided services to Comintel. However, Comintel refuses to pay. Aggrieved, U Television sued and was successful in clawing back their monies from Comintel in the Federal Court.
Commented commenced a review application in the Federal Court and at the same time filed a Fortuna injunction to (among others) restrain U Television from presenting a winding-up petition against them. In the Federal Court, they argued that since it had filed a review application to review the decision given, the sum that U Television wanted to claw back was technically disputed until the case was settled.
The court dismissed the application, claiming the review application did not amount to a bona fide dispute of the judgment debt, in view of the Federal Court decision which was at present a valid, binding, and enforceable order. It is after all trite law that orders and judgments of the court must be treated with respect and require strict obedience, until and unless set aside. Thus, this line of argument was without merit. The court, more so a winding-up court, cannot go behind a valid judgment of the court, except in cases of fraud or illegality, which was not the contention of the Comintel.
In Klass Corp (M) Sdn Bhd v MKRS Management Sdn Bhd, MKRS sued Klass Corp for debt that is due to MKRS (and manage to secure its claim against Klass Corp). Klass Corp appealed. While the appeal was pending:
- MKRS filed a winding-up petition against Klass Corp, and
- Klass Corp filed an erinford injunction, on the basis that the winding-up petition would result in negative repercussions to Klass Corp in terms of its branding.
The High Court did not entertain the Klass Corp application.
In coming to its decision, the court noted that Klass Corp should have pursued a Fortuna injunction. However, even Fortuna injunction would hold water in this case, as:
- The debt is not disputed by Klass Corp;
- The allegation that a winding-up petition would result in negative repercussions to the Klass Corp was mere speculation; and
- The predicament above can be solved by Klass Corp paying up the debt that is due to MKRS.
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