In Victor Saw Seng Kee ((as joint liquidator of London Biscuits Bhd) (In liquidation)) v Wong Weng Foo & Co & Anor and other appeals [2025] MLJU 3886, the Federal Court made several significant rulings in relation to the exercise of powers by joint liquidators, appointment and removal of liquidators and in particular, the priority of termination benefits paid to employees retained by the liquidator to carry on the business of the company post-liquidation with the sanction of the Court, inter se unsecured debts of the company.
 
Facts
 
London Biscuits Berhad (“LBB”) was wound up by the High Court on 13 January 2020, where Mr. Lim San Peen (“LSP”) was appointed as liquidator. On 10 July 2020, LSP obtained Court sanction under paragraph 1(a) of Part II of the Twelfth Schedule read with section 486 of the Companies Act 2016 (“CA 2016”) to continue LBB’s business for an additional 180 days. LBB’s employees who were retained for the aforesaid purpose were paid termination benefits and indemnity in lieu of notice upon the termination of their employment, giving these payments priority over unsecured debts owing to creditors.
 
Wong Weng Foo & Co (“WWF”), an unsecured creditor of LBB, objected to these payments and challenged LSP’s conduct. LSP subsequently applied to the High Court on 6 May 2021 for his release and discharge upon retirement, and for Mr. Victor Saw (“VS”) to be appointed as his successor. This application was opposed by WWF, who separately filed an action seeking declarations of breach of duty against LSP, his removal, and an order to prevent VS’s appointment, nominating alternative liquidators instead.
 
Decision of the High Court
 
On 9 December 2021, the High Court directed that meetings be convened to select a new liquidator. The proposed candidates were VS, Mr. Gabriel Teo (“GT”), and Mr. Sathiea Seelean a/l Manickam.
 
At the creditors’ meeting on 24 February 2022, an overwhelming majority (98.5% in value and seven out of eight in number) voted in favour of VS (whilst GT only secured a negligible share of the votes). The High Court dismissed WWF’s application, finding that LSP had acted reasonably and lawfully, and allowed his discharge while appointing VS as the sole liquidator.
 
Decision of the Court of Appeal
 
On 30 October 2023, the Court of Appeal allowed WWF’s appeals in part, holding that the termination benefits and indemnity in lieu of notice were not entitled to priority under section 527 of the CA 2016, and set aside LSP’s release and discharge. However, the Court of Appeal affirmed VS’s appointment but ordered that WWF’s nominee, GT, be appointed as joint liquidator to safeguard the creditors’ interest.
 
Further, VS’s subsequent application for a stay of the Court of Appeal order dated 30 October 2023 – so that he could act unilaterally to pursue his application for leave to appeal at the Federal Court (without reference to the other liquidator, i.e. GT) was rejected by the Court of Appeal who held that joint liquidators must act collectively and that VS’s attempt to act alone was contrary to law.
 
Decision of the Federal Court
 
Leave to appeal was granted to VS, LSP and LBB on various questions of law (“QOL”). After considering the submissions by counsel for the respective parties, the Federal Court answered the QOLs on terms set out below.
 
VS’s Appeal (Appeal 61)
 
The sole question in VS’s appeal was:
 
VS’s QOL: Bearing in mind the principle of nemo judax in re sua (a man should not be a judge in his own cause), in the event a joint liquidator is in a position of conflict of interest, whether direct or indirect, in a subject matter, can the other non-conflicted joint liquidators act pursuant to section 478(2) of the CA 2016, without reference to or concurrence of the conflicted joint liquidator?
 
Answer: Affirmative.
 
The Federal Court held that a non-conflicted joint liquidator may act independently pursuant to section 478(2) of the CA 2016 which provides, inter alia, that where two or more liquidators are appointed by the court, the functions and powers of the liquidators may be carried out by any one of them or by both or all of them jointly, unless expressly provided otherwise by the court.
 
The Federal Court opined that GT was personally conflicted as the proceedings in VS’s appeal directly concerned GT’s appointment as a joint liquidator of LBB.
 
LSP’s Appeals (Appeals 63 and 64)
 
LSP’s three QOLs were answered by the Federal Court in the terms set out below:
 
LSP’s QOL 1: Where a liquidator has obtained authority of court under Schedule 12 Part II para 1(a) to carry on the business of the company, whether “cost and expenses of winding up” under limb 1(a) of section 527 of the CA 2016 can include Termination Benefits and Indemnity in lieu of Notice payable to employees who are continued to be employed post winding up of a company as part of the carrying on the business of the company?
 
Answer: Affirmative
 
LSP’s QOL 2: Whether the making of a payment by a liquidator of a company in good faith but which might be in breach of section 527 of the CA 2016 can constitute a ground on which the liquidator can be removed for cause?
 
Answer: Negative.
 
LSP’s QOL 3: Whether the making of a payment by a liquidator of a company in good faith but which might be in breach of section 527 of the CA 2016 can constitute a ground on which leave to commence legal proceedings can be granted against the liquidator?
 
Answer: Negative.
 
In gist, the Federal Court held that where a liquidator has obtained sanction to continue the business of the company, the “costs and expenses of winding up” prescribed under section 527(1)(a) of the CA 2016 can include Termination Benefits and Indemnity in lieu of Notice payable to employees who continued to be employed post winding up of a company as part of the carrying on the business of the company.
 
In deciding whether a liquidator could be removed for making payments in good faith, the Federal Court held that LSP’s decision to make the payments of termination benefits and indemnity in lieu of notice was reasonable and practical, facilitating the sale of LBB’s assets and business as a going concern which benefited creditors. The Federal Court added that the decision to retain employees is purely a commercial driven decision for which the Court should not interfere, as there was no error of law nor had LSP acted in any unreasonable manner.
 
The Federal Court reiterated the long-standing principle that the court should be slow to interfere with the liquidator’s decision unless his conduct is so unreasonable and absurd that no reasonable person would have acted that way (Ng Yok Gee & Anor v CTI Leather Sdn Bhd; Metro Brilliant Sdn Bhd & Ors (Interveners) [2006] 3 CLJ 360 and Wong Sin Fan & Ors v Ng Peak Yam & Anor [2013] 3 CLJ 17 (FC)). The court should also not interfere with a liquidator’s decision merely because its opinion might differ from that of the liquidator (Andrew Christopher Chuah Choong Eng Chuan v Ooi Woon Chee & Anor [2007] 2 CLJ 405).
 
According to the Federal Court, the Court of Appeal had erred in two respects. First, whilst the Court of Appeal correctly identified section 527(1) of the CA 2016 as the governing provision, it erred in restricting its analysis solely to limbs (b) and (c) of the said section, despite recognising the possible applicability of the other limbs of the provision. In particular, the Court of Appeal failed to consider whether the payments could have been properly classified as “costs and expenses of the winding up” as prescribed under section 527(1)(a) and instead concluded that such an act falls under section 527(1)(b) CA.
 
Second, the Federal Court opined that the Court of Appeal erred in relying on the Supreme Court’s decision in Indo Malaysia Engineering Co Bhd v Muniandy Rengasamy [1990] 3 MLJ 301 (“Indo Malaysia”), where the company was under receivership and not liquidation. In Indo Malaysia, the Supreme Court held that termination benefits payments to employees by the receivers appointed under a debenture did not fall within the definition of “wages and salaries” under section 292(1) of the Companies Act 1965 (section 527(1) CA 2016). As the Supreme Court in Indo Malaysia did not address whether such payments, in the context of liquidation and employee retention for the benefit of the liquidation process, could be considered part of the “costs and expenses of winding up”, that decision is clearly distinguishable from the instant case on its facts and issues.
 
The Federal Court reiterated the established principles on the removal of a provisional liquidator (or liquidator), which may be summarised as follows:
 

The Federal Court referred to the following cases in support of the foregoing principles: Wong Sin Fan & Ors v Ng Peak Yam & Anor [2013] 3 CLJ 17 (FC) and Ng Yok Gee & Anor v CTI Leather Sdn Bhd; Metro Brilliant Sdn Bhd & Ors (Interveners) [2006] 3 CLJ 360.
 
The Federal Court then referred to Tan Kim Chuan v Tan Kim Tian & Ors And Another Appeal [2022] 10 CLJ 503 which emphasised that a liquidator is an independent entity and is the guardian of the assets of a wound-up company. Hence, any change of an agreed arrangement must be considered with great care, especially since there is a difference of views amongst the contributories impacting the whole liquidation process of the wound-up company.
 
The Federal Court noted that whilst the courts are generally reluctant to refuse a resignation by a liquidator, section 491(4) of the CA 2016 provides a safeguard that an order for the release and discharge of a liquidator may be revoked if it is obtained by fraud or by suppression or concealment of any material fact.
 
In the opinion of the Federal Court, the Court of Appeal had failed to consider the well-established legal principles governing the removal of a liquidator and instead removed LSP solely on the basis of an alleged breach of section 527(1) of the CA 2016. In doing so, the Court of Appeal failed to give due consideration to the serious and far-reaching consequences of an order for removal, which inevitably impugns LSP’s professional standing and reputation.
 
LBB’s Appeal (Appeal 62)
 
The QOLs raised by LBB and the Federal Court’s response thereto are set out below.
 
LBB’s QOL 1: Whether the Court must take into account the wishes of a majority of creditors and/or contributories, in number and/or in value, in deciding on the appointment of an additional liquidator as joint liquidator?
 
Answer: Affirmative.
 
LBB’s QOL 2: Whether the Court’s appointment of an additional liquidator as joint liquidator is appropriate and/or suitable in circumstances where a majority of the creditors and/or contributories, in number and/or in value, of the said company have voted in favour of a single liquidator candidate, and a joint appointment was never contemplated and voted on?
 
Answer: Negative.
 
LBB’s QOL 3: Whether it is desirable and/or beneficial that, before the Court considers appointing a joint liquidator in addition to an existing sole liquidator, prior notice be given to the creditors and contributories for them to be heard and/or to seek their views in that regard?
 
Answer: Affirmative.
 
LBB’s QOL 4: Whether in a case where the Court is considering a joint liquidator in addition to an existing sole liquidator whose appointment was made after the views of the creditors and contributories have been sought pursuant to section 521 of the CA 2016, the same mechanism should be resorted to?
 
Answer: Affirmative.
 
The Federal Court’s grounds of judgment do not appear to set out the basis on which the Federal Court arrived at its answers to LBB’s QOLs, except to acknowledge that VS’s counsel had highlighted that the creditors who had by majority, appointed a single liquidator for the liquidation of LBB had no opportunity to put forward their views or raise their concerns to the Court of Appeal on the appointment of GT as a joint liquidator. Thus, the Court of Appeal did not have the benefit of the views and wishes of the creditors on this issue.
 
It is possible that the Federal Court arrived at its decision on LBB’s QOLs by reason of section 521 of the CA 2016 which, among others, provides that “The Court may, as to all matters relating to the winding up of a company, have regard to the wishes of the creditors or contributories as proved to the Court by sufficient evidence…” and that the Court of Appeal had not sought the views of the creditors or contributories in making the decision to appoint GT as a joint liquidator of LBB.
 
For, amongst others, the reasons stated above, the Federal Court allowed the appeals and restored the High Court Order.
 
Comments
 
This decision of the Federal Court is significant for Malaysian insolvency law for the following reasons:
 
First, it confirms that, unless expressly ordered otherwise, a non-conflicted joint liquidator may act independently pursuant to section 478(2) of the CA 2016 when the other joint liquidator is conflicted. This clarification is significant, as it may help prevent potential standstills in a liquidation process when one joint liquidator is unable to act.
 
Second, in line with section 521 of the CA 2016, the Courts ought to refrain from making unilateral appointments of joint liquidators without first seeking and considering the views of the company’s creditors and contributories.
 
Third, Termination Benefits and Indemnity in lieu of Notice paid to employees retained during liquidation can be regarded as “costs and expenses of winding up” under section 527(1)(a) of the CA 2016 and therefor rank in priority to all other unsecured debts of the company.
 
Fourth, the Federal Court’s affirmed the well-established principle that decisions made in good faith do not justify removal of a liquidator even if the court may not agree with the action taken. This underscores the importance of minimal judicial interference. It is also recognised that removal carries serious and far-reaching consequences, as it inevitably impugns a liquidator’s professional standing and reputation – factors that must be carefully considered by the Court.
 
Case Note by Tee Wei-Herng Calvin (Senior Associate) and Natasha Neena Yau Hwee Lynn (Associate) of the Dispute Resolution Practice of Skrine.