Introduction
When a company is wound up by a court order, a liquidator steps in to manage the company. Under Malaysian company law, the legal standing of such a company to bring or proceed with an action or proceeding is vested in the liquidator. If an action or proceeding is initiated by a wound-up company, the liquidator’s prior sanction(1) must be obtained. In Lai King Lung v Merais Sdn Bhd,(2) the apex court delivered a landmark judgment on the validity of retrospective sanction granted by liquidators.
Facts
In 2013, the respondent, a private limited company, commenced an action against the appellants in the High Court. The appellants filed a counterclaim against the respondent in the same suit. In September 2015, while the suit was ongoing, the respondent was wound up pursuant to an order of the winding-up court. In January 2016, the liquidator granted sanction to the respondent’s contributory and its solicitors to proceed with the suit before the High Court. Consequently, the suit continued, and the High Court dismissed both parties’ claims.
The issue arose when the respondent’s solicitors, acting on the instructions of the contributory, filed a notice of appeal with the Court of Appeal. Thereafter, the solicitors applied to the liquidator for sanction to file the notice of appeal and to proceed with the appeal before the Court of Appeal. The liquidator subsequently granted the sanction but stated that it was to apply retrospectively, effective one day before the filing of the notice of appeal.
At the Court of Appeal, no formal application was made by the respondent for leave nunc pro tunc, and such leave was not granted. The appellants challenged the validity of the retrospective sanction granted by the liquidator and filed a motion to strike out the respondent’s appeal. The Court of Appeal dismissed the appellants’ motion — hence the present appeal before the apex court.
Companies Act
Section 236(2)(a) of the Companies Act 1965 (now Section 486(1) read with Part (1)(a) of the 12th Schedule of the Companies Act 2016) provides as follows:
Powers of liquidator
(1) …
(2) The liquidator may –
(a) bring or defend any action or other legal proceeding in the name and on behalf of the company …(3) The exercise by the liquidator of the powers conferred by this section shall be subject to the control of the Court, and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers. (Emphasis added.)
Questions of Law
The key question of law before the apex court was whether the retrospective sanction granted under Section 236(2)(a) of the Companies Act 1965 was valid in the circumstances of the case, given that the liquidator had granted the sanction without the respondent obtaining leave of court nunc pro tunc.
Decision
In allowing the appeal, the apex court held that the respondent did not have the necessary legal standing when it filed the notice of appeal before the Court of Appeal. The sanction given by the liquidator, which was issued after the filing of the notice of appeal, had no retrospective effect. Furthermore, the liquidator had no power to grant retrospective sanction in the absence of express statutory provisions conferring such power.
Comment
Vernon Ong FCJ declined to answer the question of whether an application to the court for leave nunc pro tunc must be made by way of a formal application pursuant to Section 486(2) of the Companies Act 2016, as no such application was made in that case. This is significant, as it allows some leeway for litigants who are unable to obtain the liquidator’s sanction in time to make a formal application to the court to regularise matters — particularly in light of the unprecedented COVID-19 pandemic.
Author Information
This article is authored by:
Foo Joon Liang
Partner, Gan Partnership
joonliang@ganlaw.my
Lee Xin Div
Senior Associate, Gan Partnership
xindiv@ganlaw.my
Endnotes
(1) “Sanction” means “approval” in this article.
(2) Lai King Lung (acting in the name of Chris Lai, Yap & Partners) v Merais Sdn Bhd [2020] 6 AMR 217.
