When Lawyers Become Creditors: Can a Legal Firm Push for a Client’s Winding-Up? – Country Heights Holdings Berhad vs. Tetuan Chellam Wong  [2024] MLJU 2262

A legal firm filing a winding-up petition against its own client sounds like the stuff of courtroom drama, but it’s precisely what unfolded in the case of Country Heights Holdings Berhad vs. Tetuan Chellam Wong  [2024] MLJU 2262. This recent High Court decision sheds light on an unusual yet impactful question: can a law firm, engaged in a professional relationship with a client, seek the company’s dissolution over unpaid fees?

The short answer? YES, under certain circumstances, a legal firm can pursue a winding-up petition. However, the details of this case make it clear that the court’s decision wasn’t made lightly.

Country Heights Holdings Berhad (‘Country Heights’), a prominent Malaysian company, had engaged Tetuan Chellam Wong for a significant legal exercise: asset sales, due diligence, and other transactions for several high-value properties. Over time, Tetuan Chellam Wong issued three invoices to Country Heights, totalling RM425,000.00. Country Heights, however, remained silent, neither disputing nor paying the invoices. When the law firm served a statutory demand under Section 466 of the Companies Act 2016, Country Heights sought a Fortuna injunction to prevent the firm from initiating a winding-up petition.

The argument? Country Heights claimed the debt was “disputed,” asserting that the former CEO, who had hired Tetuan Chellam Wong, lacked proper authority. This, they claimed, warranted an injunction to halt the winding-up process, as the debt wasn’t clear-cut.

While it may feel unorthodox for a law firm to attempt winding up its own client, the High Court ultimately decided that Tetuan Chellam Wong had every right to proceed with the petition. The reasons are:

1.  Absence of a Bona Fide Dispute

The High Court found that Country Heights hadn’t raised any legitimate dispute about the debt at the time of invoicing. In legal terms, silence can sometimes imply consent. By not responding to the invoices for months, Country Heights indirectly accepted the fees as valid. The High Court reasoned that if the company had any issue with the amount billed or the work performed, it should have voiced it earlier.

2. Authority of the CEO

The High Court ruled that the appointment made by Country Heights’ former CEO was valid. The “indoor management rule” came into play here, which means that external parties, like Tetuan Chellam Wong, are not obligated to verify every internal company approval. As long as they were dealing with the CEO, who had apparent authority, they were justified in assuming the engagement was legitimate.

3. Law Firms as Creditors

Law firms, like any other service provider, have the right to expect prompt payment for their services. If unpaid, they hold the same rights as other creditors. While professional ethics bind lawyers, the law does not prevent them from recovering debts—even if it means moving for a winding-up petition.

These ruling underscores the importance of clear communication and timely payment. For companies, it’s a warning: ignoring invoices from your own legal counsel can create a presumption of insolvency. Delays or silence over disputed fees can leave the impression that you don’t contest the debt, making it easier for law firms to pursue drastic measures like winding-up petitions.

For legal firms, this case reinforces that their role as a trusted advisor doesn’t bar them from acting as a creditor. Though pursuing a winding-up petition might not be their first choice, it’s a powerful tool if a client remains persistently delinquent on payments. The decision also shows that while winding-up petitions are a last resort, they are a legitimate course of action for law firms looking to recover substantial debts.

The ruling in Country Heights Holdings Berhad vs. Tetuan Chellam Wong is a reminder of the dual role law firms play: both as trusted advisors and as service providers entitled to timely compensation. This case has brought clarity to an area many considered grey. While it’s not ideal for firms to have to petition for a client’s winding-up, the High Court’s decision shows that the law upholds the rights of legal providers to pursue their fees—right up to the doors of liquidation.

In conclusion, the decision brings new gravity to the age-old client-lawyer relationship. In today’s world, where professional lines can blur, this case emphasises a critical point: legal advice is not just guidance; it’s also a service, and like any other service, it must be compensated.

Disclaimer: This article is for informational purposes only and does not constitute any legal advice. If you have any questions or require further information on this matter, please do not hesitate to contact us directly.