Twilight meets company liquidation: “Twilight period” – what is it?

Nurul Hanani A.
Legal Associate

Twilight period; what is it?

Have you guys heard of “twilight period”? No, it has nothing to do with the billion-dollar vampire-romance franchise.

This concerns the issue of undue preference, in the context of company liquidation.

What is a “twilight period”?

It is the 6-month period before a company goes into liquidation.

What is the issue with the twilight period?

Under the law, there is a doctrine known as “undue preference”. Simply put, it can be said to mean giving a creditor an unfair advantage, above other creditors. This is basically a fancy and proper way of saying “playing favourites.”

So, it’s all about fairness. Imagine a struggling company playing favourites with its creditors, giving one a great deal while leaving others in the lurch. That’s what undue preference is all about.

Section 528(1) of the Companies Act 2016 says this:

“Any transfer, mortgage, delivery of goods, payment, execution or other acts relating to property made or done by a company which is unable to pay its debts as they become due, from its own money in favour of any creditor or any person in trust for any creditor shall be deemed to have given such creditor a preference over other creditors in the event of the company being wound up on a winding up petition presented within 6 months from the date of making or doing the same and every such act shall be deemed fraudulent and void.”

Let’s break the provision down, so its clearer and easier to understand. There would be undue preference if:

  1. It involves acts, be it a transfer, mortgage, delivery of goods, payment, execution or any acts relating to property.
  2. Made or done by a company.
  3. That company is unable to pay its debts, from its own money, when they become due.  
  4. The acts in 1) above are made in favour of any creditor, or the trustee of a creditor.
  5. And, that the acts in 1) above are done 6 months prior to the company’s liquidation.

If all the above circumstances are present, then the transaction would be void. However, this is a rebuttable presumption. The onus is actually on the liquidator to prove why a transaction ought to be void.

Imagine a scenario:

  • Company A transferred several properties to Ali on 1.4.2024 (“Transfer”).
  • Then later, Company A could no longer fulfil its debts to creditors. Creditor is unhappy and starts winding up proceedings on 30.8.2024 (“Petition”).
  • The twilight period here is: 6 months before 30.8.2024 (which falls on 29.2.2024) to 30.8.2024.
  • The period between the Transfer to the date of Petition is 4 months and 29 days.
  • The transfer to Ali was done within the twilight period. And, it will be deemed fraudulent and void, unless Ali can show that the Transfer fell within certain exceptions below.

What if it was a genuine transaction? Will it be void too?

There are still exceptions to this. Well, Section 528(4) offers some leeway:

  1. It has to be in favour of any person dealing with the company.
  2. It has to be for valuable consideration; and
  3. The person dealing with the company must not have actual notice of the contravention.

The Federal Court in Silver Corridor Sdn Bhd v Gallant Acres Sdn Bhd & Anor [2016] 5 MLJ 1 set the test to rebut the presumption of undue preference as follows:

“[33]  A transfer or conveyance made during the twilight period either not in good faith or without valuable consideration is absolutely void as against the liquidator.”

It was also clarified that a “good faith” transaction would differ on case-to-case basis and the court would also have regard to the intention of the parties to determine the same.

Justice Mohamad Ariff also opined in the case of Tee Siew Kai (as the liquidator for Kumpulan Kerjaya Bhd (the receiver and manager appointed)) (in liquidation) v Affin Bank (formerly known as BSN Commercial Bank (M) Bhd) & Anor [2011] 4 MLJ 491, in determining whether there is a fraudulent (or undue) preference:

“The answer must surely lie with the question whether these have been created or made in the course of a normal, genuine commercial transaction. If so, there cannot be any issue of a fraudulent preference.”

There are also precedents where the court acknowledges the realities of commercial transactions to be “good faith” transactions, necessary in the course of business.

So, there you have it – a peek into the world of twilight meets company law, where fairness is key and shady deals don’t fly!


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