Payments of termination benefits and indemnity in lieu of notice do not constitute wages or salary and cannot be prioritized over unsecured creditors in liquidation proceedings.

Introduction

[1] The appellant in this case is a former auditor of London Biscuits Berhad, a company which is in liquidation (referred to in this judgment as the "Company"). The Company owes the appellant approximately RM393,571.00 in outstanding fees that had been billed between 2014 and 2016.

[2] The Company was once a biscuit and cake manufacturer that was listed on Bursa Malaysia. It was wound up on 13 January 2020. Mr Lim San Peen, an insolvency practitioner with Price Waterhouse Coopers Advisory Services Sdn Bhd ("PwC"), was appointed the liquidator of the Company.

[3] Once he was appointed as liquidator, Mr Lim did not immediately terminate the services of the employees of the Company. They remained on the payroll for a period of about four months before they were terminated. Upon termination, they were paid termination benefits and an indemnity in lieu of notice.

[4] Before the High Court, Mr Lim San Peen applied to be discharged and released as the liquidator of the Company and for one Victor Saw to be appointed in his stead. Among the reasons advanced for this application (referred to here as the "Discharge Application") was the fact that Mr Lim was due to complete his tenure with PwC. It was suggested that the appointment of Mr Saw, who had been assisting Mr Lim in the liquidation of the Company, would provide continuity to the liquidation process.

[5] The appellant made a separate application (the "Leave Application") to the High Court for an order that (among others) leave be granted to the appellant for proceedings to be commenced against Mr Lim San Peen for certain contended breaches of his duties as the liquidator of the Company.

[6] The appellant intervened in the Discharge Application. It opposed the Discharge Application because (amongst others) once the Court ordered the release and discharge of Mr Lim, he could not thereafter be made liable for alleged breaches that were said to have occurred during his tenure as liquidator.

[7] In the Leave Application, the appellant had not only sought for leave to commence proceedings against Mr Lim, but also had sought for an order declaring that he was in breach of his duties in respect of certain specific contentions. Before us, the claim for declaratory reliefs was discontinued. The appellant maintained only the substantive prayers for leave to commence proceedings against Mr Lim, and for a liquidator nominated by it to be appointed as the new liquidator (instead of Mr Saw).

[8] The grounds upon which the appellant sought to oppose the Discharge Application and to advance the Leave Application were substantially similar. There were seventeen grounds raised in total. For reasons that will be apparent, we do not consider it necessary or even helpful to enumerate all of them here. We would only observe that some of the grounds raised merited serious consideration, but the inclusion of certain other tenuous grounds served only to detract from the force of counsel's arguments.

[9] The learned High Court Judge hearing the applications allowed the Discharge Application and dismissed the Leave Application, against which decisions the appellant now appeals.

Analysis And Decision

[10] In our considered view, the payment by the liquidator of termination benefits and indemnity in lieu of notice to the then employees of the Company in priority to the claims of the unsecured creditors amounted to a preference that was not permitted by the terms of the Companies Act 2016 . For this reason, the appeal against the dismissal of the L