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2011 MarsdenLR 4222
HIGH COURT MALAYA, KUALA LUMPUR
WIRAFLOR (MALAYSIA) SDN BHD – Appellant
Versus
BIO SCIENCE CAPITAL SDN BHD – Respondent
[Companies Winding-Up No. D-28Ncc-415-2010]
A liquidator can only be removed under Companies Act 1965, Section 232(1) upon showing due cause, evidenced by misconduct or conflict of interest, not mere suspicion.
Headnote:(A) Companies Act 1965 - Section 232(1) - Application to remove liquidator - Remedial action based on allegations of misconduct and conflict of interest - Claims of negligence not substantiated; liquidator acted on legal advice - Allegation of bias rejected due to lack of evidence supporting dependency on third-party accounting firm - Dismissal of applications seeking removal of liquidator. (Paras 1, 11, 15, 20, 33, 41, 55)
(B) Principles of Liquidation - The standard for liquidator removal is 'due cause' which necessitates proof of personal unfitness or conflict of interest. Mere suspicion is insufficient. (Paras 22, 30)
Facts of the case:
Two applications were made to remove the liquidator of a company in liquidation, supported by claims of misconduct related to the withdrawal of an ongoing suit and alleged bias due to the involvement of an accounting firm. The total debt claimed by unsecured creditors exceeded available assets.
Findings of Court:
The court found no evidence of negligence or conflict of interest and determined the liquidator had acted in good faith based on legal counsel. Insufficient grounds were shown for the removal.
Issues: Whether the liquidator should be removed for cause based on allegations of misconduct and bias.
Ratio Decidendi: The court concluded that a liquidator must act independently; merely delegating certain tasks does not amount to misconduct nor does association with advisory firms, warrant removal without substantial evidence.
Result: Applications dismissed with costs.
In both applications to remove the Liquidator the grounds are the founded on the same factual basis:-
(a) That Chong is guilty of 'misconduct' in having withdrawn Civil Suit No. D-22NCC-1038-2010 ('Suit No. 1038') resulting in loss of income for the Respondent through a claim for damages. This, it is contended amounts to a conflict of interest or misconduct as well as negligence, warranting his removal;
(b) It is further contended that the Liquidator acted in a manner that was biased and less than independent. The basis for these contentions is that the Liquidator has delegated his duties, quite substantially, to an employee of a firm of accountants known as Mustapharaj. It is further contended that the principal of this accounting firm, one Dato' Raj, has a relationship with various creditors of the Respondent including the Petitioner as well as another creditor of the Respondent, one Hasjuara Sdn. Bhd. as well as Affin Bank. As a consequence, the directors of the Respondent, who are also directors of the holding company, Global Health Sdn. Bhd. fear that in view of the close links between the Liquidator and the principal of Mustapharaj, and given the delegation of duties to an employee of the latter, there is a danger that the Liquidator will be less than independent in his conduct of the liquidation as borne out by his withdrawal of Suit No. 1038.
The Law Relating to the Removal of a Liquidator
Section 232 (1) of the Companies Act 1965 provides that the Court may remove a liquidator 'on cause shown':-
"A liquidator appointed by the Court may resign or on cause shown be removed by the Court."
In Abric Project Management & Anor v. Palmshine Plaza Sdn. Bhd. & Anor , ; Ramly Ali J. (now CJA) reviewed the leading cases of Re Sir John Moore Gold Mining Co [1879] 12 LR Ch D 325, Re Adam Eyton Limited; Ex parte Charlesworth [1887] 36 Ch 299 as well as several other cases and adopted the tests set out therein. I respectfully adopt His Lordship's decision formulating the relevant test to be applied:-
In Re Sir John Moore Gold Mining Co . (above), Jessel MR defined the words due cause to mean 'I should say that as a general rule, they point to some unfitness of the person - it may be from personal character, or from his connection with other parties, or from circumstances in which he is mixed up - some unfitness in a wide sense of the term.'
And in Re Adam Eyton Cotton LJ in commenting on the judgment of Jessel MR above held "... if the Court is satisfied on the evidence before it that it is against the interest of the liquidation, by which I mean all those who are interested in the company being liquidated, that a particular person should be made liquidator, then the Court has power to remove the present liquidator and of course then appoint some other person in his place.
In the same case Bowen L.J. stated:-
"... the due cause is to be measured by reference to the real, substantial, honest interest of the liquidation and to the purpose for which the liquidator is appointed. Of course fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation."
And in Re George A Bond & Co. Ltd . [1932] 32 SR (NSW) 301 Long Innes J. said:-
"... In my view neither suspicion alone, nor even a prima facie case which might be rebutted, would either justify or require removal unless there were reason for apprehension that the interests of the liquidation would be imperilled by the continuance in office of the suspect, or unless it were shown that such removal would before the advantage of those interested in the assets of the company."
In Advance Housing Pty. Ltd. (in liq) v. Newcastle Classic Developments Pty Ltd . [1994] 14 ACSR, Santow J. held inter alia that there must be a real and not merely theoretical possibility of conflict and that the guiding principle in the appointment by the Court of a liquidator is that he must be
