22 August 2012

When Can a Liquidator Be Removed?

RWY Intern, Caroline Leong trying to make sense of the principles governing the laws when applying to remove a Liquidator

What Is a Liquidator and What Does a Liquidator Do?

A liquidator is a person who manages a company’s assets in the event that the company gets wound up. It should be noted that a company can be wound up in two ways, voluntarily or involuntarily. Involuntary winding up can also be described as the winding up of a company by the Court. When a company is wound up, only an approved liquidator or the Official Receiver may be appointed as the liquidator. Section 227 of the Companies Act 1965 lays out the process of the appointing a liquidator.

A liquidator’s responsibility is to sell the assets and use the proceeds to pay the company’s creditors. Basically he collects all the assets belonging to the company in liquidation before cashing it out to settle all the creditor’s claims. In the event that there are any surplus assets, he will distribute them to the company’s shareholders according to their entitlement.

This article will attempt to answer two questions. Can we remove a liquidator who is appointed by the court and if so, in what circumstances?

Section 232(1) of the Companies Act 1965 states as follows: -

(               " A liquidator appointed by the Court may resign or on cause shown be removed by the Court."

Ng Yok Gee & Anor v CTI Leather Sdn Bhd; Metro Brilliant Sdn Bhd & Ors (Interveners) (2006) 3 CLJ 360 is a case which sets outs the principles of law whereby a liquidator can be removed, which include:-

“The normal ground for removal is that the liquidator has a personal unfitness, has failed to act impartially or is in a position where his duty and interest are in conflict.”

“A liquidator who fails to investigate the affairs of the company to the prejudice of an applicant is in neglect of his duty and can be removed. (In re Sir John Moore Gold Mining Company (supra))”

The court will take into account certain factors such as the majority of creditors being unsatisfied with the liquidator (Re Oxford Building and Investment Co [1883-1884] 49 L.T 495) or whether it would be in the interest of the liquidation for him to be replaced (Chua Boon Chim v JM MacCormack [1979] 2 MLJ 156). In a recent local case, the court stated that it “must be shown that the liquidator can no longer act impartially and objectively to protect” the interest of the liquidation (Wong Sin Fan & 2 Ors v Ng Peak Yam @ Ng Peak Yeow & Anor (2012) 1 AMR 818, CA)

Therefore, the above Section 232(1) can be understood to mean that the court can remove a liquidator if it can be shown that his removal would be generally advantageous for those interested in the company’s assets (Re Adam Eyton, Limited, Ex Parte Charlesworth (1887) 36 Ch. D 229).

What about a situation where a liquidator faces a vote of no confidence?

As a result, this author feels that a vote of no confidence from the creditors should certainly be a factor to take into account. The judge in the case of Ng Yok Gee & Anor (2006) 3 CLJ 360 felt that it was “not a sufficient ground for removal of a liquidator that a substantial minority or even the majority of shareholders want the liquidator to be removed.” However, this was clarified when the judge in Bina Puri Sdn Bhd v Jambulingam Sethuraman-Raki [2012] 8 MLJ 141 reasoned that if the applicant had shown that “all the creditors and/or contributories play a significant role, the overriding consideration is that the court must be satisfied that it is against the interest of the liquidation.”

What if there is no personal misconduct on the part of the liquidator?

This brings us to the issue of how to define “cause shown”. There are several cases which can be referred to with regards to this. The English Court was of the opinion that the phrase “on due cause shewn” does not have to be confined to “personal unfitness in the liquidator” (Re Adam Eyton (1887) 36 Ch. D 229). In another case, the court was seen as having “a discretionary power to remove the liquidator appointed by a company without any proof of misconduct or unfitness on their part if, having regard to all the circumstance, it is of opinion that their removal will conduce to the more efficient winding up of the company” (Re Marseilles Extension Railway and Land Company [1867] L.R. 4 EQ 692). Furthermore, the court in Re Buildlead Ltd Quickson (South and West) Ltd v Katz and Another [2004] EWHC 2432 (Ch) interpreted a similar phrase, found in Section 108(2) Insolvency Act 1986, to mean:-

                     “The burden is on the applicant to show a good cause for removal of a liquidator, but it is well established that the statutory provision confers a wide discretion on the court which is not dependent on the proof of particular breaches of duty by the liquidator.”

Chi Liung Holdings Sdn Bhd v Soon Kok Seng (liquidator) Chi Liung & Sons Sdn Bhd [1996] 2 BLJ 9 is a Malaysian case stating that there need not be misconduct on the part of the liquidator to enable removal as long as it is “in the best interest of the company being liquidated”. If a liquidator acts “outside the scope of his appointment” or fails to “protect the interest of the creditors and/or contributories”, then he can be removed as well.

The judge in TR Hamzah & Yeang Sdn Bhd v City Centre Sdn Bhd [2012] 1 MLJ 383 clearly explains in his judgment that “cause shown” is to be interpreted in a manner that does not insist on personal misconduct for the removal of a liquidator:-

“There is no specific methodology or formula attached to the word 'cause shown'. The court is obliged to remove the liquidator in limine if he has failed to act within the spirit and intent of the several provisions of the CA 1965 and more importantly when he acts outside the scope of his appointment or order of court or failed to protect the interest of the creditors and/or contributories or is not justly, expeditiously and economically pursuing to conclude the liquidation process as it must not be forgotten that he is an officer of court and his acts or omission must not place the administration of justice to disrepute.”

However, there have been cases where the court takes a different stance. In the recent case of Wong Sin Fan & 2 Ors v Ng Peak Yam @ Ng Peak Yeow & Anor [2012] 1 AMR 818, the Court was seen to be of the opinion that “some unfitness in the liquidator must be shown in order to justify his removal”.

In conclusion there are conflicting authorities as to whether a liquidator can be removed in certain circumstances. However, this author sees this as an opportunity for common law in this area to expand and evolve but of course, it will take time. A judgment which can clarify the law once and for all will certainly be welcomed.

Caroline Leong
22nd August 2012

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