In the recent decision in N.Chanthiran a/l Nagappan v Kao Che Jen [2023] 5 MLRA 247, the Federal Court had the occasion to put to rest, the question of whether leave of court is required for the commencement of proceedings against a court appointed liquidator. In this regard, the Federal Court clarified that leave of court is indeed required.
 
Brief Facts
 
The Respondent is a contributory and director of STM Transformers Sdn Bhd (“Company”). On 9 May 2013, another contributory of the Company, filed a winding up petition against the Company on just and equitable grounds pursuant to section 218(1)(i) of the Companies Act 1965 (“CA 1965”), which is in pari materia with section 465(1)(h) of the Companies Act 2016 (“CA 2016”). The Company was subsequently wound up and the Appellant was appointed as the Company’s liquidator (“Liquidator”).
 
The appeal before the Federal Court arose from an application (“Application”) filed by the Respondent at the High Court against the Liquidator on 6 April 2018 on the grounds that the Liquidator had failed to perform his duties and where the Respondent sought orders to compel the Liquidator to do the following:
 

 
The Liquidator raised a preliminary objection that the Respondent had failed to obtain leave of the winding up Court before making the Application. In response, the Respondent argued that leave was no required as the Application was premised on the Liquidator’s failure to discharge his duties and was not against the Liquidator personally.
 
The High Court found in favour of the Liquidator and held that leave of court is required before an action can be commenced against a court appointed liquidator. Dissatisfied with the High Court’s decision, the Respondent appealed to the Court of Appeal where the issue before the court was whether leave of the winding up court was required under section 486(2) of the CA 2016 for the Respondent to commence proceedings against the Liquidator. The appeal was unanimously allowed by the Court of Appeal. In this regard, the Court of Appeal was of the view that section 486(2) of the CA 2016 does not provide that leave is required before any creditor or contributory may apply to court with respect to any exercise or proposed exercise of any of the powers conferred on a liquidator by the said section.
 
On 9 September 2021, the Liquidator was granted leave to appeal to the Federal Court on among others, the question of whether prior leave of the winding up court is required in order for legal proceedings to be commenced against a court appointed liquidator in respect of matters transacted by the liquidator in the course of the liquidation under Divisions 1 and 2 of Part IV of the CA 2016.
 
Arguments by the parties
 
A summary of the Liquidator’s arguments are set out below.
 
Firstly, there are currently two conflicting lines of authorities by the Court of Appeal on the issue of whether leave from the winding up court is required before proceedings can be commenced against a court appointed liquidator. In Chi Liung Holdings Sdn Bhd v Ng Pyak Yeow [1995] 3 MLJ 204 (“Chi Liung Holdings”), Woodsville Sdn Bhd v Tien Ik Enterprises Sdn Bhd & Ors [2009] 3 MLJ 191 (“Woodsville”) and KTM Transformers Sdn Bhd v Chantiran Nagappan [2015] 1 LNS 530, the Court of Appeal held that leave of court is required before proceedings can be commenced against a court appointed liquidator. The Court of Appeal has subsequently departed from this position in the instant appeal as well as in the case of Kao Che Jen v N Chantiran Nagappan [2015] 9 CLJ 295 (“Kao Che Jen”), a case related to the instant appeal, and where the Respondent had filed an application to remove the Liquidator pursuant to section 232(1) of the CA 1965.
 
Secondly, the Court of Appeal’s decision in Kao Che Jen is not applicable to the instant appeal as that case involved an application to remove the Liquidator pursuant to section 232(1) of the CA 1965 (in pari materia with section 482 of the CA 2016) whereas the instant appeal is premised on section 486(2) of the CA 2016.
 
Thirdly, as a court appointed liquidator is an officer of the court, leave should be obtained from the winding up court before proceedings are commenced against him.
 
Fourthly, the Court of Appeal erred in deciding that the absence of the word “leave” in section 486(2) of the CA 2016 meant that leave is not required.
 
Finally, the requirement for leave will prevent vexatious litigants from filing repeated legal actions against a liquidator and in turn allow him to focus on completing the liquidation process.
 
As for the Respondent, it was argued that the court cannot read the words “leave of the Court” into section 486(2) of the CA 2016 when such words are not expressly provided for in the said provision. To augment its contention, the Respondent highlighted that there are 24 other provisions in the CA 2016 which expressly spell out a requirement for leave of court to be obtained and the fact that this has been omitted from section 486(2) of the CA 2016 meant that Parliament’s intention is that no such leave is required.
 
The Federal Court’s Decision
 
The Federal Court found in favour of the Liquidator and held that prior leave of the winding up court is required in order for legal proceedings to be commenced against a court appointed liquidator in respect of matters transacted by the liquidator in the course of the liquidation under Divisions 1 and 2 of Part IV of the CA 2016.
 
Some of the salient findings made by the Federal Court are set out below.
 
First, a liquidator represents the entire class of unsecured creditors. His primary function is to realise the assets of the wound up company and pay the resulting proceeds to the general body of unsecured creditors. It is therefore crucial for the court to ensure that a liquidator is not faced with unwarranted interference in the process of discharging his duties.
 
Second, the Federal Court referred to the decision in Chi Liung Holdings where the Court of Appeal held that based on section 236(3) of the CA 1965 (in pari materia with section 486(2) of the CA 2016), “it is clear that a liquidator having been appointed by the court, is an officer of the court. It goes without saying leave of the court is needed before an action is commenced against him and officers like him”. The fact that a liquidator is an officer of the court was also expressly recognised in the case of Abric Project Management Sdn Bhd v Palmshine Plaza Sdn Bhd & Anor [2007] 3 MLJ 571 (“Abric Project Management”) where the High Court referred to rule 63 of the Companies (Winding-Up) Rules 1972 which states that “All liquidators appointed by the Court shall be officers of the Court”.
 
Third, the basis for the requirement for leave when commencing proceedings against a liquidator stems primarily from section 236(3) of the CA 1965 and now in section 486(2) of the CA 2016. In this regard, section 236(3) of the CA 1965 and section 486(2) of the CA 2016 read as follows:
 

1. The court will protect its officer from spurious or vexatious litigation;


2. The court will protect the integrity of the winding up process to ensure no wrongful interference with that process.

On this, the Federal Court drew support from the Court of Appeal’s decision in Chi Liung Holdings, the High Court’s decisions in See Teow Guan & Ors v Kian Joo Holdings Sdn Bhd [2010] 1 MLJ 547, Abric Project Management and Sarawak Timber Industry Development Corporation v Borneo Pulp Plantation Sdn Bhd [2005] 2 MLJ 74, and the Federal Court’s earlier decision in Tee Siew Kai (liquidators for Merger Acceptance Sdn Bhd (in liquidation) v Machang Indah Development Sdn Bhd (in liquidation) (previously known as Rakyat Corp Sdn Bhd) [2020] 6 MLJ 168.
 
Fifth, the Federal Court referred to, without any qualification, the case of Woodsville where the Court of Appeal rejected the contention that leave of the winding up court is only required when the proposed action against the liquidation is filed in a different court.
 
Finally, with reference to the Court of Appeal’s decision in Kao Che Jen (which the Federal Court disagreed with), the Federal Court held as follows:
 

1. based on sections 232(1) and 277(2) of the CA 1965 (in pari materia with sections 482(b) and 510(1) of the CA 2016 respectively), it is clear that any application to remove a liquidator can only be undertaken by the winding up court that appointed the liquidator in the first place. The only issue is whether the requirement of leave as a first step or as an initial requirement is envisaged under those statutory provisions;


2. leave of court refers to the sanction and permission of the court. In seeking leave of court, a prospective litigant informs the court regarding a proposed step to be taken in a proceeding. Since a liquidator is subject to the control of the court as provided for under sections 236(3) and 277(2) of the CA 1965 (in pari materia with sections 486(2) and 510(1) of the CA 2016 respectively), the court should be advised in the event any action, including an application to remove the liquidator;


3. when section 232(1) of the CA 1965 is read together with sections 236(2) and 277(2) of the CA 1965, the inevitable conclusion should be that leave of the winding up court is required before proceedings for the removal of a liquidator can be commenced. The Court of Appeal ought to have taken a holistic construction of the provisions of the CA 1965 as well as the Companies (Winding-Up) Rules 1972. In this regard, section 17A of the Interpretation Acts 1948 and 1967 makes it clear that a statutory provision ought to be read in a contextual, as opposed to a purely textual, manner;


4. the phrase “subject to the control of the Court” in section 236(3) of the CA 1965 essentially means that a liquidator is answerable to the court in the performance of his duties. Once the liquidator is sanctioned to perform his duties by virtue of his appointment by the winding up court, no party can interfere with him save with the permission of the winding up court. In other words, the phrase “subject to the control of the Court” is equivalent to a requirement for leave of court to commence proceedings against liquidator;


5. that leave of court is required before legal action can be commenced against a liquidator whether or not the proposed action relates to the removal of the liquidator or in respect of the performance of his duties as liquidator. There is, in substance, nothing that differentiates an application to remove a liquidator from an action commenced in respect of the performance of his duties. Both are proceedings which will interfere with the functions of an officer of the court.

Conclusion
 
This Federal Court decision is certainly welcomed as it authoritatively resolves the conflicting lines of decisions by the Court of Appeal on the issue of whether prior leave of the winding up court is required before proceedings can be commenced against a court appointed liquidator.
 
This decision has also clarified that leave of the winding up court is similarly required before proceedings for the removal of a liquidator can be commenced. This is interesting as it has been a common practice for applications for the removal of court appointed liquidators under section 482(b) of the CA 2016 to be filed without the applicant first obtaining leave from the winding up court. With this recent decision, parties who wish to make an application to remove a court appointed liquidator must now seek leave beforehand from the winding up court.
 
Case Note by Janice Ooi (Partner) of the Restructuring and Insolvency Practice of Skrine.