Liquidators cannot be held personally liable for breaches of contracts by the company in liquidation; claims must be directed at the company, not the liquidator.

Nallini Pathmanathan FCJ:

Introduction

[1] This appeal relates to the law applicable to the grant of leave for the commencement of proceedings against a liquidator in his personal capacity. Although the law in this area is settled, this judgment is necessary to restate the principles of law in this area of insolvency, in view of the decisions of the Court of Appeal and the High Court, which run contrary to the established position under company and insolvency law.

[2] One Machang Indah Development Sdn Bhd (in liquidation) ("Machang") filed an application in the High Court seeking leave to proceed against the liquidator of another company, one Merger Acceptance Sdn Bhd (in liquidation) ("Merger") in his personal capacity. The basis for the application was that the applicant Machang had allegedly suffered losses by reason of a claimed breach of a joint venture agreement and/or power of attorney entered into between itself and Merger. In short, the proposed claim was for damages against the liquidator personally, by reason of an alleged breach of contract between the two companies in liquidation.

[3] The primary issue therefore was whether the liquidator of Merger, Tee Siew Kai who was the appellant before us ("the liquidator"), was personally liable in damages to Machang for an alleged breach of contract by Merger.

[4] The High Court granted leave for Machang to proceed against the liquidator in his personal capacity. The Court of Appeal upheld the decision of the High Court. Leave was granted by this Court in respect of the following sole question of law:

"Whether a party (such as the respondent/Machang in the instant case) who is neither a creditor nor a contributory of a wound-up company (such as Merger in the instant case ("the Wound-Up Company") is entitled to obtain leave to sue the liquidator of the Wound-Up Company, in his personal capacity, for losses allegedly suffered by the said party arising from an alleged breach of the joint venture agreement and/or power of attorney entered into between the said party (Machang) and the Wound-Up Company ("Merger")."

[Emphasis Ours]

[5] We heard this appeal on 14 August 2019 and unanimously allowed it with costs, answering the question of law in the negative. We also handed down an oral summary of our reasons, indicating that full grounds would be furnished at a later date. We set out our full grounds below.

Salient Background Facts

[6] As stated at the outset, the appellant, Tee Siew Kai is the liquidator of Merger.

[7] Merger was the registered owner of 17 pieces of land in Mukim 17, Daerah Seberang Perai Tengah, Pulau Pinang ("the Lands").

[8] On 29 September 1995, Merger entered into a joint venture agreement ("JVA") with Machang (in liquidation) to jointly develop and complete a light industrial estate project ("the project"). Pursuant to cl 6.1 of the JVA, any profit or any loss arising out of the project was to be shared by Merger and Machang in the ratio of 60:40.

[9] Merger appointed Machang as its attorney in respect of the Lands vide an irrevocable power of attorney ("PA") dated 29 September 1995. Machang was also as the appointed project manager under a Project Management Agreement ("PMA") executed on the same date namely 29 September 1995.

[10] In summary, the JVA, PA and PMA were all entered into on 29 September 1995.

[11] Ten years later, on 17 June 2002, Merger was wound up in the High Court in Penang pursuant to a winding-up petition initiated by two petitioners.

[12] Seven years later, on 19 November 2009, Machang was also wound up and one Wong Weng Foo was appointed as its liquidator.

[13] Sometime prior to it being wound up, Machang had abandoned the project. The Lands were however, by that stage, sub-divided into individual lots.

[14] Pursuant to an order of Court dated 28 August 2013, the liquidator, ie Tee Siew Kai was appointed as the liquidator of Merger, in substitution of the Official Receiver.

[15] As of the date of the liquidator's appointment in August 2013, the