Recent Development of Powers & Roles of Liquidators in Malaysia

Recently, the Malaysian Federal Court has recently decided on legal issues revolving around the scope of powers and liabilities of liquidators, which is a major development in the law of corporate insolvency in the case of Victor Saw Seng Kee v. Wong Weng Foo & Co & Anor.

4 appeals were heard whereby the main issues deliberated are as follows:-

1. Authorisation of joint liquidators where one is conflicted;

2. The role of creditors in the appointment of joint liquidators;

3. Whether termination benefits and indemnity in lieu of notice constitute costs and expenses of winding up; and

4. Whether payments made in good faith but in breach of Section 527 of the Malaysian Companies Act 2016 (priority payment principle) can justify removal of a liquidator;

The Federal Court, has affirmed that Section 478(2) of the Companies Act 2016 allows joint liquidators to act individually unless specified otherwise. ​ As a basis of their decision, the court has considered the principle of “nemo judex in re sua” (no one should be a judge in their own cause) as a basis as to when a non-conflicted joint liquidator can act independently when another is conflicted. ​

It was also affirmed that the majority wishes of creditors must be considered when appointing additional liquidators, especially in a scenario where such creditors favoured the appointment of a single liquidator.  The court should be slow in appointing additional liquidators without involvement by the creditors.

The Federal Court also affirmed that termination benefits (of employees that were employed after the company has been wound up) can be classified as costs of winding up under Section 527 of the Companies Act 2016. ​The court affirmed that payments made to retain employees post-liquidation are valid expenses.  For context purposes, in Malaysia the liquidator is allowed to carry on the business of the company up to a period of 180 days from the date the company is wound up, if it is in the interest of the winding-up to do so.  It is on these basis that the payments to the employees were made by the liquidator.