Summary and Facts
Keluarga Utama Sdn Bhd (in liquidation) v Public Bank Bhd [2026] 10 MLJ 651 concerned a company in liquidation whose bank continued to apply monies in its current account to service the company's loan after winding up. The liquidator demanded that the account be closed and the balance remitted to him.
Legal Issues
Whether the bank had lawfully exercised its contractual and statutory right of set-off after the company was wound up.
Whether the right of set-off was preserved by s 526 of the Companies Act 2016.
High Court’s Findings
Clause 8 of the letter of offer expressly conferred on the bank a right of set-off - which existed long before the company was wound up.
Section 526 of the Companies Act 2016 preserves insolvency set-off arising from mutual dealings before the commencement of the winding up, as an exception to the pari passu principle.
The relevant transaction was the underlying loan arrangement executed in 2021, not the subsequent act of set-off, and it pre-dated the winding up by nearly two years.
The transaction fell outside the six-month twilight period and was not liable to be set aside.
The bank had lawfully applied the account monies to the loan and the liquidator's application was dismissed.
Practical Implications
A contractual right of set-off arising from dealings before winding up can survive liquidation and takes effect as an exception to the pari passu rule.
The key date is when the underlying arrangement was made, not when set-off is exercised; arrangements predating the twilight period are secure.
Lenders should ensure set-off clauses are clearly drafted in their facility documents, and liquidators should assess pre-existing mutual dealings before demanding remittance.