Articles


Be forewarned Mr.Liquidator: You will be removed for unconscionable conduct, smacks of partiality, unfitness, any tardy or lackadasical attitude!

By

Ranjan N.Chandran (Partner, Commercial & Construction Department)
April 11, 2021


Hakem Arabi & Associates

Introduction


This Write-Up considers the recent decision of the Court of Appeal in the case of Jagdis Singh Banta Singh & Anor V Retuen Green Sdn Bhd 2021 3 CLJ 355 on an application for the Removal of a Court appointed Liquidator pursuant to S.482 (b) of the Companies Act 2016.



Brief Facts


  • The Appellants Jagdis Singh and a company known as Marvellous Existence Sdn Bhd (‘Marvelous Existence’) filed an application to remove the Liquidator of Return 2 Green Sdn Bhd.
  • Return 2 Green was wound up on 14th September 2012 by the Petitioner TSLK Sdn Bhd (‘TSLK’).
  • The Appellants are the creditors of Return 2 Green.
  • The 1st claim for the Removal of the Liquidator was that in the year 2010, the erstwhile Director of Return 2 Green, a Ramaness Parasuraman had asked the Appellants to avail of an investment opportunity in the company which was accepted, by Jagdis Singh and his brother in law Dr.Gurnam Singh by paying RM4,750,000 through Marvellous Existence.
  • The said payment was acknowledged by Ramaness or Return 2 Green by the issuance of 990,000 shares to 13 individuals which included Jagdis.
  • An agreement was caused to be prepared by Ramaness that RM 3,500,000 was acknowledged receipt and owed to the Appellants.
  • The Appellants however did not sign the said agreement since the actual amount owed was RM 4,750,000.
  • Appellants adduced the evidence of the receipts of payment to show proof that they were creditors of Return 2 Green.
  • The Liquidator did not produce any evidence to rebut these payments made and did not reject the Appellants proof of Debt
  • .
  • The 2nd claim for the Removal of the Liquidator was that the liquidation of Return 2 Green was not conducted fairly to recover the assets for the benefit of the creditors.
  • The gravamen of the Appellant was that the Liquidator was assisting the Petitioner, TSLK to gain control of the only valuable asset of Return 2 Green which is machinery.


Decision of the court


JCA Ravinthran Paramaguru



  • There was no evidence by the Liquidator in the 6 years liquidation of Return 2 Green that the Appellants had failed to furnish the proof of payment and receipts for the RM4,750,000 made.
  • There was no Notice of Rejection of the Appellants Proof of Debt in that 6 years liquidation period. [Rule 92 Companies (Winding-Up Rules)1972].
  • Only in the application for the removal of the liquidator did the Liquidator contend for the very first time that he had rejected the Appellants proof of debt.
  • That the Rejection of the Poof of Debt should not be kept under the sleeve of the liquidator and announced suddenly in the proceedings launched for the removal.
  • That although the Appellants were not able to produce all the receipts of payment of the RM4,750,000 investment, there was sufficient evidence adduced to show proof of being a contingent creditor.
  • That the liquidator’s reliance on a Settlement Agreement between the Petitioner TSKL and Return 2 Green was misplaced since the TSKL had elected to enforce their rights to a liquidated debt by proceedings with the winding up petition.
  • That the liquidators action in improperly surrendering the only valuable asset of Return 2 Green, ie the Machinery to TSKL an Unsecured Creditor, without notifying the other creditors seriously called into question his impartiality and the objectivity in the conduct of his duties.
  • That the Liquidator was tardy and lackadaisical in recovering the monies of Return 2 Green since he only requested the bank statement of one bank account operated by Return 2 Green at HSBC and failed to request for the bank statements of the other two banks RHB and Maybank operated accounts.
  • The Court held that the failing on the part of the liquidator were not human errors made in good faith but serious errors of judgment that very likely prevented the honest administration of the liquidation.
  • As a consequence of the Appeal being allowed the Liquidator was removed from his office.


Observations


This decision of Jagdis Singh expresses the strong sentiments of the Court in punishing Liquidator’s by removing them from office, if they do not perform their duties as officers appointed by the Court and be accountable to the Court. Liquidators must act in the best interest of the company in liquidation, with the paramount consideration of protecting the interest of the creditors of the company in liquidation.

Fair-play in the interest of justice and fairness in favour of the Liquidator cannot be expected from the Court, if the Liquidator does not keep the Court duly informed of his actions or seeks Directions to sanction the decisions made in liquidation.

In this regard, it is noteworthy that the Jagdis case made specific reference to two (2) Australian decisions on the duties of a liquidator, both of which are indeed instructive on the duties of a liquidator on how they should conduct themselves as follows:-

  1. The Australian case of Duffy V Super Centre Development Corp Ltd [1967] 1 NSWR 382 at 383 where Street J said as follows:-

    “ the decisions the liquidator makes from time-to time are in effect made under the authority of the Court itself. The winding up is by the Court, which for the purposes the liquidator is. As such he is entrusted with the reputation of the Court for impartial and proper dispatch of duties. No lesser standard in that regard is to be expected of the liquidator than of a court of a judge”.


  2. The Australian case of Commissioner for Corporate Affairs V Peter William Harvey [1980] VR 669 where Marks J had this to say:-

    “ The duties of a liquidator need to be clearly understood. Fundamentally, he must administer the estate strictly in accordance with the duties and obligations specifically imposed on him by the Companies Act and its Rules. It is obvious that everything to be done in a competent administration is not and cannot be specifically prescribed. Preserving the assets, giving proper attention to the administration, acting with due dispatch and ensuring adequate knowledge and understanding of the affairs if the companies are matters of common sense. If there is a difficulty at any stage of the administration, then it is the clear duty of the liquidator to inform the Court and take directions”.