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Case Update: Court of Appeal Affirms That a Liquidator of a Wound-Up Company Has No Power To Grant a Sanction or Delegate His Power to Another Person

posted 3 months ago

On 16.11.2023, the Court of Appeal upheld the High Court decision in Small Medium Enterprise Development Bank Malaysia Berhad v Oren Venture Sdn Bhd & Ors and another case [2022] MLJU 410 (“SME Case”).

High Court

In July 2020, Small Medium Enterprise Development Bank Malaysia Berhad (“Bank”) filed a suit against Oren Venture Sdn Bhd (“Company”) and the Company’s directors (“Suit 286”). In May 2021, the Company filed a second legal suit against the Bank (“Suit 102”).

On 25 May 2021, the Company was wound by the Kuala Lumpur High Court. This means, the Company was wound up after Suit 286 and Suit 102 were filed but yet to be disposed of. The Court appointed the Director-General of Insolvency (“DGI”) as the liquidator of the Company.

In connection thereto, a contributory of the Company obtained a sanction from the liquidator in order for the Company to continue with the legal proceedings. The said sanction allowed the contributory to defend Suit 286 and to continue with Suit 102.

The High Court sought a preliminary determination on:-

Whether a liquidator of a wound-up company can issue a sanction or delegate his power under Item (a) of the Twelfth Schedule of the Companies Act, 2016 to any other person to bring or defend any action or other legal proceedings in the name and on behalf of that company.”

The High Court answered in the negative and therefore, the liquidator does not have the power to issue a sanction.

Court of Appeal

The Court of Appeal upheld the High Court decision. From the brief grounds pronounced by the Court of Appeal, it was held that “Berdasarkan Item A Jadual 12 kepada Akta Syarikat 2016, Pegawai Penerima tidak boleh mewakilkan kuasa-kuasa statutorinya kepada pihak ketiga. Oleh itu rayuan ditolak dan keputusan Mahkamah Tinggi dikekalkan.”. In other words, the Court of Appeal held that the liquidator could not delegate his statutory power under Item (a) of the Twelfth Schedule of the Companies Act, 2016 to another person.

Subsequent to the Court of Appeal’s decision, it then begs the question as to its retrospective effect and the practice in Malaysia in respect of liquidator granting sanction to a creditor or a contributory to bring, continue with or defend any action or other legal proceedings in the name and on behalf of a wound-up company. At this juncture, the full written grounds of the Court of Appeal is yet to be made available. If there is no mention of prospective overruling, the Court of Appeal decision would have retrospective effect.

As at the publication of this article, there is no leave application to appeal to the Federal Court.

Differing High Court Decisions Prior to the Court of Appeal Decision

Ooi Kim Geik v Ng King Chong & Ors [2022] MLJU 3630 – the High Court held that the liquidator has power under the Companies Act, 2016 to grant sanction to contributory, and hence, the sanction that was issued by the liquidator is valid. This case did not follow the decision in the SME Case.

KL Landmark Development Sdn Bhd v Jalex Sdn Bhd [2022] MLJU 2449 – the High Court held that the liquidator has no power to issue the sanction and hence, the sanction is invalid. This case followed the decision in the SME Case.

Conclusion

Following the Court of Appeal’s decision in SME Case, the position is now certain that:-

  1. A liquidator does not have power to issue a sanction or delegate his power under Item (a) of the Twelfth Schedule of the Companies Act, 2016.

  2. A liquidator must first decide whether to bring, continue with or defend an action or other legal proceedings in the name and on behalf of the wound-up company.

  3. If the liquidator refuses to do so, a creditor or contributory may apply to the Winding-Up Court under section 486(2) of the Companies Act, 2016 for an order to compel the liquidator to act, or for a Court-sanction.

  4. Without the liquidator’s refusal and the Court’s sanction, the creditor or contributory cannot bring, continue with or defend an action or other legal proceedings in the name and on behalf of the wound-up company.

About the Author

Tey Siaw Ling
Senior Associate
Dispute Resolution, Employment & Labour
Harold & Lam Partnership
[email protected]

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