Liquidator's discretion under Companies Act allows administrative decisions without the need for detailed justifications or reasons provided to the aggrieved party.

Enclosure 15 and 17 are the applications by the Plaintiff/Applicant to set aside the sanction granted to Messers Seelan & Associates by the Director of Insolvency as the Official Receiver (OR) of the Defendant to pursue/defend the action against the Plaintiff.

Brief Background

The Applicant initiated an action in the High Court suit D22-252-2009 on 11.2.2009 (suit 252) for the sum of RM2,149,836.05 as at 25.3.2008 with interest accruing thereon at the rate of 3.5% per annum above the Base Lending Rate of the Applicant on the principal outstanding of RM1,610,001.00. The Applicant had commenced a legal action against the guarantors for the Respondent on 2.4.2008 for the same amount in the High Court suit D22-436-2008 (436). Both suits have been consolidated on 26.5.2009. The Respondent was then wound up on 24.2.2011 by RHB Bank and the OR was appointed as the Liquidator for the Respondent.

The OR upon the application by the Respondent granted sanction to Messer Seelan and Associates to defend the action.

Law and finding

After considering the submissions of the Parties the court dismissed the application. The reasons for the decision are as follows.

It is the contention of the Applicant that the ORs lack of justification tor failed to provide reasons in granting the sanction shows that the OR failed to exercise his discretion accordingly. According to the learned counsel for the Applicant that it is incumbent upon the OR to give reasons to support his decision and to inform the party aggrieved by such decision. The ORs decision to grant leave must be on an informed basis and not made purely as an administrative decision. The case of Ketua Pengarah Insolvensi v. Dato Chen Lip Keong & Ors was referred.

It is further submitted that the OR did not carry out an in depth study of the merits of the case to satisfy himself on the chances of success in the trial or to seek legal opinion on the strength of the case. It is insufficient for the OR to merely declare that he has the right to grant leave pursuant to section 236(2)(a) of the Companies Act . The learned Counsel for the Applicant submitted that the OR had given the sanction without considering the Respondent state of financial affairs.

Section 236 of the Companies Act deals with the powers of the Liquidator:

"(1) The liquidator may with the authority either of the Court or of the committee of inspection:-

(a) carry on the business of the company so far as is necessary for the beneficial winding up thereof, but the authority shall not be necessary to so carry on the business during the four weeks next after the date of the winding up order;

(b) subject to section 292 pay any class of creditors in full;

(c) make any compromise or arrangement with creditors or persons claiming to be creditors or having or alleging themselves to have any claim, present or future, certain or contingent, ascertained or sounding only in damages against the company, or whereby the company may be rendered liable;

(d) compromise any calls and liabilities to calls, debts and liabilities capable of resulting in debts and any claims, present or future, certain or contingent, ascertained or sounding only in damages subsisting or supposed to subsist between the company and a contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or the winding up of the company, on such terms as are agreed, and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof; and

(e) appoint an advocate to assist him in his duties.

(2) The liquidator may:-

(a) bring or defend any action or other legal proceeding in the name and on behalf of the company;

(b) compromise any debt due to the company other than calls and liabilities for calls and other than a debt where the amoun