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2011 MarsdenLR 314
COURT OF APPEAL PUTRAJAYA
WONG SIN FAN & ORS – Appellant
Versus
NG PEAK YAM & ANOR – Respondent
[Civil Appeal No: W-02-(IM)-2880-2010]
Liquidators can only be removed for due cause under Companies Act 1965, established issues from prior proceedings cannot be relitigated; removal requests must show personal unfitness or conflict of interest.
Headnote:(A) Companies Act 1965 - Section 232(1) - Appeal against dismissal of application to remove liquidators - Allegations of misfeasance, breach of fiduciary duty, and negligence unfounded as established issues in prior oppression suit barred by issue estoppel - Liquidators pursued necessary actions for the liquidation and acted within the bounds of their duties. (Paras 1, 6, 18, 30, 80)
(B) Liquidators may only be removed by showing 'due cause' indicating personal unfitness or conflict of interest - A mere disagreement with their handling of duties does not suffice for removal. (Paras 36, 48, 79)
Facts of the case:
The appellants claimed that the liquidators acted improperly, including unauthorized payments and conflict of interest allegations regarding their responsibilities. They further contest the decision to voluntarily wind up the subsidiary company, Folin Food, and sought to remove the liquidators based on previous complaints, which had already been settled in an earlier consent order.
Findings of Court:
The appellants did not establish sufficient cause for the removal of the liquidators, whose actions were in compliance with the law and met the required standards of good faith and operational transparency.
Issues: The court examined issue estoppel regarding previously raised allegations in the oppression suit and the standards needed under the Companies Act for removing the liquidators.
Ratio Decidendi: The court determined that the consent order resolved earlier disputes, establishing a bar against re-litigating claims of the same nature, and concluded that the liquidators acted for the benefit of the company and met the necessary legal duties.
Result: Appeal dismissed with costs.
Key Points: - Liquidators may only be removed for due cause, indicating personal unfitness or a conflict of interest (!) (!) (!) . - The doctrine of issue estoppel and abuse of process bars re-litigation of issues already settled in a prior consent order (!) (!) (!) (!) (!) . - Removal requires showing that it is in the interest of the liquidation and that the liquidators cannot act impartially or are unfit (!) (!) (!) . - A consent order is a final determination of issues and can form the basis for issue estoppel, preventing further claims on the same matters (!) (!) . - The court will not interfere with a liquidator’s decisions unless they are unreasonable, involve fraud, or show a lack of good faith (!) (!) . - The application to remove liquidators was dismissed as an abuse of process, aimed at coercing an undervalued purchase of assets rather than in the interest of the company (!) (!) .
What are the grounds on which liquidators may be removed under the Companies Act 1965?
What constitutes an abuse of process in relation to prior litigation and a consent order?
What must be demonstrated to justify removing liquidators for the benefit of creditors and contributories?
| Table of Content |
|---|
| 1. grounds for liquidator's removal (Para 1 , 2) |
| 2. corporate structure and history of litigation (Para 3 , 4 , 5 , 6 , 7 , 9 , 10 , 12) |
| 3. prior consents and their implications (Para 8 , 11 , 14 , 15 , 18 , 19) |
| 4. doctrine of issue estoppel (Para 17 , 20 , 21 , 31) |
| 5. principles for removal of liquidators (Para 34 , 36) |
| 6. unfitness and conflict of interest standard (Para 38 , 39 , 41 , 42) |
| 7. payments and obligations of liquidators (Para 50 , 51 , 52 , 56 , 57) |
| 8. delay in liquidation process (Para 74 , 75 , 76 , 78) |
| 9. final judgment and court orders (Para 79 , 80) |
The Appeal
[1] This is an appeal against the decision of the learned High Court Judge made on 15 September 2010, whereby he dismissed the appellants' application vide Notice of Motion dated 19 April 2010 in encl 368 made under s 232(1) of the Companies Act 1965 for an order to remove the respondents as liquidators of Folin Brothers Sdn Bhd and replace them with one Yeap Chang Chuan; for leave to commence misfeasance proceedings against the liquidators and other consequential orders as set out in the prayers.
The Appellants' Notice Of Motion (Enclosure 368)
[2] The appellants sought to remove the respondents as liquidators on the ground that they have acted in breach of trust, in breach of their fiduciary duties and negligently. The allegations raised by the appellants as set out in their various affidavits are summarised as follows:
(a) that the respondents made unauthorised payments in relation to Kuala Lumpur High Court Petition No D4-26-74-2008 ("the Oppression Suit") for the benefit of the liquidators;
(b) that the respondents paid the bills of solicitors acting for Folin Brothers without taxation of their bills contrary to r 173 of the Winding Up Rules 1972;
(c) that the respondents made an unsubstantiated payment of fees to a law firm of Messrs Joseph Yeo;
(d) that the respondents failed to explain an apparent double payment of fees to a law firm of Messrs D Mathews;
(e) that the respondents ignored requests made by the Committee of Inspection for accounts of Folin Brothers;
(f) that the respondents failed to consider the wishes of the appellants and the Committee of Inspection on the disposal of assets of Folin Brothers;
(g) that the respondents failed to abide by the consent order dated 4 June 2009 in the Oppression Suit; and
(h) that the respondents' conduct in relation to the affairs of Folin Brothers' subsidiary, namely Folin Food, shows they are not fit and proper persons to be liquidators.
Factual Background
[3] Folin Brothers, a company incorporated under the Companies Act 1965 , was wound up in 1987 by Court upon the application of the 3rd appellant. The 1st and 2nd respondents were appointed as Joint Liquidators of the company in 1997 and are actually the 3rd set of liquidators so far appointed. Folin Brothers ceased operation many years ago and its only substantial assets are the shares it owns in its subsidiary, Folin Food Processing Sdn Bhd (Folin Food).
[4] Folin Food too ceased operation many years ago and for the greater part of the last 20 years only derived rental income from a commercial property it owns known as Lot 16. Folin Food has an issued and paid up capital of 1,000,007 units of shares of RM1 each. Folin Brothers is the registered shareholder of 1,000,000 shares in Folin Food and the Joint Liquidators (the respondents) each hold 1 share on trust for Folin Brothers. Folin Brothers owns over 99.9% of the shares of Folin Food. The liquidators are also directors of Folin Food by virtue of their position as liquidators of the holding company, Folin Brothers.
[5] The appellants each hold one share in Folin Food and the remaining two shares in Folin Food are registered in the names of the appellants' late brother, Wong Foh Ling and his eldest son, Wong Boon Sun. The appellants each own 25% of the issued and paid up share capital of Folin Brothers and the remaining balance 25% is registered in the names of the late Wong Foh Ling and
