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

Amendments to the Subordinate Courts Act 1948

Press Release: Proposed changes to Subordinate Courts Act are too drastic and require proper study

The Malaysian Bar is concerned that the far-reaching amendments to the Subordinate Courts Act 1948 are being tabled for adoption in Parliament without a detailed and thorough impact assessment exercise, and exhaustive consideration of the ramifications. The proposed amendments contemplate increasing the limits in monetary jurisdiction of, among others, the Sessions Court (from RM250,000 to RM1,000,000), and the Magistrates Court (from RM25,000 to RM100,000).  Such a sudden and substantial expansion, representing a four-fold increase, is too large, and immediately calls into question the ability of the current capacity of the Subordinate Courts to handle the corresponding increase in workload.  Allocation of resources is also a significant issue, as the upsurge in workload will similarly require an increase in the number of judges and court infrastructure.  No details have been provided as to how these concerns will be addressed.  Although there are inflationary-based arguments that justify a reasonable enlargement in the monetary jurisdiction of the Subordinate Courts after 16 years, an extensive study is crucial to ensure the amendments do not subject litigants in Malaysia to hardship and place undue stress and pressure on the present structure and resources of the Subordinate Courts.  A gradual and incremental increase would be a more appropriate and realistic move, which would also be less likely to adversely impact on the capacity of the Subordinate Courts to handle and dispose of such claims in an effective and efficient manner. The Malaysian Bar is also concerned about the competence and judicial experience of judicial officers of the Subordinate Courts to effectively deal with claims of such financial magnitude.  An essential consideration is whether they possess the necessary experience and qualifications to preside over such matters, and the adequacy of the training they must necessarily be given. The proposed amendments also contemplate conferring additional jurisdiction on the Sessions Court, allowing it to grant equitable remedies such as injunctions and declaratory relief, provided the claim is within its (enlarged) monetary jurisdiction.  The Malaysian Bar has reservations that the relatively short time spent as judicial officers in the Subordinate Courts and the resultant lack of experience do not adequately equip the judicial officers to deliberate upon and grant equitable remedies, which involve complex legal principles and can have harsh and serious consequences on a litigant.  Conferring such power, especially the power to grant an injunction directing a party to do, or refrain from doing, a particular act, will potentially result in adverse consequences arising from imprudent or erroneous decisions. The Malaysian Bar believes that a more appropriate and realistic boundary between the Subordinate Courts and the High Court should be based on the relative complexity of the subject matter of the claim rather than the claim amount alone, to ensure that more complex matters are heard by High Court Judges who possess greater experience and knowledge of legal principles.  We call on the Government to defer the Amendment Bill until a comprehensive study is undertaken to address the myriad issues posed by the proposed amendments, and the Bar Council is consulted and given a full opportunity to provide its views.  The Bar Council is presently working closely with the Judiciary on the formulation of the Combined Rules of Court and considerations of enlarging the jurisdiction of the Subordinate Courts ought to be discussed and dealt with comprehensively in tandem with this.  Lim Chee Wee Vice-President Malaysian Bar 2 July 2010

Civil Procedure - Summary Judgment

In the Rules of High Court 1980 and Subordinate Courts Rule 1980, one will find provisions which allow parties with claims to pursue a quick Judgment against the other side. This is referred to as Summary Judgment. You will find it in Order 14 and Order 26A, respectively.

A party with a claim would usually refer to the Plaintiff suing a Defendant, but a Defendant with a Counter Claim against the Plaintiff may also apply the same.

Basically the party seeking Summary Judgment would have to show the Judge that they have a claim so good that a Trial is not necessary. Usually Banks suing defaulting borrowers will use this procedure for a quick Judgment.

The party facing this application would need to show at least one of these in Court:-

1. that there are issues which can only be ventilated and decided in a Trial, or

2. some other reason which the Court deems fit to call for a Trial.

In DCB Bank v NS Bahtera [1999] 2 AMR 1790, the High Court held that a party seeking summary judgment has to show at least a prima facie case against the other party, before the other party is expected to show one of the 2 above rebuttals.

Injunction

Usually an Injunction is described as an Order to stop an act. There are many types of Injunction, but generally, the interim/interlocutory injunction is the usual Injunction sought in Court.

The Rules of High Court 1980 has a specific provision to guide Judges & Lawyers on the procedure to apply for an Injunction, specifically Rule 29. The most famous case quoted would be the American Cynamid case where the English Court gave a guide on when to grant an Injunction. In Malaysia, the case of Keet Gerald adopted and adapted the English legal principles from that American Cynamid case.

The most significant requirement would be the need to retain the position of the Plaintiff. The Court would have to be persuaded that failure to grant the Injunction may cause irreparable damage to the Plaintiff.

Judges in Malaysia do not grant Injunctions freely. Ask any Civil Litigation lawyer, and they will tell you that it is difficult to persuade a Judge to grant the order. Usually it would need strong evidence in support of the Plaintiff to bring the Judge to the Plaintiff's side.

A lawyer would usually file a Writ or an Originating Summon to initiate a suit against the other party. The Suit would have the usual prayers of a mandatory Injunction against the Defendant though in practise, once an interim/interlocutory Injunction is granted, that may see the conclusion of the matter.

The lawyer would also file a Summon in Chamber (SIC) to seek an ex-parte, interim/interlocutory Injunction; and that SIC would be backed up by an Affidavit explaining the reasons for the need to have an Injunction against the Defendant. A Certificate of Urgency is filed together with that SIC to seek leave from the Registrar that the Plaintiff's case be heard as soon as possible, usually on the very day the SIC is filed.

When this SIC is heard before the Judge and if an Injunction is granted; this is an ex-parte interim/interlocutory Injunctions - which is an order granted without the presence of the Defendant, and is usually granted if the circumstances warrant the Court to intervene quickly. The law demands an undertaking from the Plaintiff that should the Injunction be deemed incorrect later, the Plaintiff must compensate the Defendant.

About 21 days later, the Court will fix a new date where the Defendant now may appear in Court to contest the Injunction. Amongst lawyers, this is called the Inter-parte Injunction.

Injunction applications amongst the Civil Litigation lawyers is usually seen as tough, particularly since these kind of applications usually must be filed quickly (sometimes within hours of receiving instructions from the client) and challenging to the lawyer.

In future postings, RWL will comment on popular Injunctions like the Mareva Injunctions, the Anton Pillar Injunction & the Erinford Injunction.

Summary Judgment

In the Rules of High Court 1980 and Subordinate Courts Rule 1980, one will find provisions which allow parties with claims to pursue a quick Judgment against the other side. This is referred to as Summary Judgment. You will find it in Order 14 andOrder 26A, respectively.

A party with a claim would usually refer to the Plaintiff suing a Defendant, but a Defendant with a Counter Claim against the Plaintiff may also apply the same.

Basically the party seeking Summary Judgment would have to show the Judge that they have a claim so good that a Trial is not necessary. Usually Banks suing defaulting borrowers will use this procedure for a quick Judgment.

The party facing this application would need to show at least one of these in Court:-

1. that there are issues which can only be ventilated and decided in a Trial, or

2. some other reason which the Court deems fit to call for a Trial.

In DCB Bank v NS Bahtera [1999] 2 AMR 1790, the High Court held that a party seeking summary judgment has to show at least a prima facie case against the other party, before the other party is expected to show one of the 2 above rebuttals.