A. Introduction
Pursuant to Section 2 of the Companies Act 2016 (“CA 2016”), the term of “contributory” was defined as a person liable to contribute to the assets of the company in the event of its being wound up, and includes the holder of fully paid shares in the company and, prior to the final determination of the persons who are contributories, includes any person alleged to be a contributory. Thus, every member of the company is primarily liable to contribute, subject to the proviso limiting the amount which he may be called upon to pay. [1]
B. List of Contributories
As soon as practicable after making of a winding up order, the liquidator shall settle a list of contributories[2].
There are two categories of contributories:-
- Present members of the company at the time of its winding up. They are primarily liable for contributing to the company up to the extent of the amount which remains unpaid on their shares up to that time.
- Past members of the company, i.e. those who have ceased to be the members of the company within one year before the commencement of the winding up.
C. A liquidator owes fiduciary duties to the contributories
When a company being wound up, a private liquidator could be appointed to take over the company and winds it down. A liquidator owes a fiduciary duty to the contributories to act fairly and objectively in the best interests of the company and he is bound to exercise a high standard of care and diligence attributable to a professional person. [3]The general fiduciary duties of a liquidator, among others, are as follow:-[4]
- act honestly;
- avoid conflict of interest;
- act impartially, independently at all times and should not be biased;
- act in a courteous and considerate manner; and
- act professionally for just, expeditious and efficient in winding up the company.
In the event a liquidator is found to be in breach of their fiduciary duties, complaint could be lodged by any creditor or contributory. The Court and/or official receiver shall take cognizance of the complaint and conduct investigation of the liquidation process.[5]
In the case of Tiong Cheng Peng & Anor v Ker Min Choo & Ors [2014] 9 MLJ 311, the Court allowed the application of the directors, shareholders and contributories of a company to remove the liquidator due to his failure in discharging the fiduciary duties to the company and all its contributories.
D. Rights of Contributories
The liquidators’ exercise of their powers is subject to the control of the Court[6] and the Court and/or liquidator 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 any sufficient evidence.[7] The liquidator is not supposed to rely entirely on the use of his own discretion when the creditors or contributories or the committee of inspection has a wish or gives direction. Pursuant to Section 487(2) of CA 2016, the creditors or contributories may request for general meetings for the purpose of ascertaining their wishes by way of resolution or requested in writing by not less than ten per centum in value of the creditors or contributories.
In the case of Cheah Theam Kheng v City Centre Sdn Bhd (in liquidation) and other appeals [2012] 1 MLJ 761, the court held that the liquidator shall have regard to the directions given by resolution of the creditors and/or contributories or by the committee of inspection in the administration of the assets of the company and distribution. The contributories and creditors should have been given an opportunity by the liquidator to make a decision with the liquidator to secure maximum realisation of the profitability of the sale of the lands.
Any person including the contributories are equipped with the rights to challenge and/or appeal any act or decision made by the liquidator.[8] The case of Angkutera Sdn Bhd v Jurimba Sdn Bhd & Anor [2016] 8 CLJ 597 provides the definition of “aggrieved person” whereby the Court in this case held that the Appellant who has beneficial interest in the property of the company has the right to appeal the liquidator’s decision.
The contributories may apply to the Court to remove the liquidator provided there is cause shown by the creditors and/or contributories warranting the removal of the liquidator. [9] The principles of law governing an application to remove a liquidator are well set out as in the case of Ng Yok Gee & Anor v CTI Leather Sdn Bhd (Metro Brilliant Sdn Bhd & Ors, intervener) [2006] 7 MLJ 28 which was affirmed by the Federal Court in Wong Sin Fan & Ors v Ng Peak Yam @ Ng Pyak Yeow & Anor [2013] 2 MLJ 629. It was also held by the Court in this case that a liquidator may be removed if it is in the interest of all those who are interested in the company being liquidated[10]. The Federal Court refer to the case of Chi Liung Holdings Sdn Bhd v Soon Seng Kok [1996] 3 CLJ 86.
E. Regimes and mechanisms provide under CA 2016 to protect the contributories
There are various avenues to monitor the conduct of a liquidator:-
- Section 450(4) of CA 2016 provides that the creditors or contributory may appoint a Committee of Inspection as provided in Tenth Schedule;
- Sections 480 and 510 of CA 2016 allows the Court and the Official Receiver to take cognizance of the conduct of a liquidator. The Court and/or the Official Receiver shall inquire into the matter and take action against the liquidator as the Court and/or Official Receiver may think fit if there were any complaint received from any creditor or contributory. (See: Tiong Cheng Peng & Anor v Ker Min Choo & Ors [2014] 9 MLJ 311)
- Section 486 of CA 2016 states that any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any powers of the liquidator.
- Section 487 of CA 2016 gives discretionary powers to a liquidator in the administration of the assets of the company and in the distribution. Nevertheless, the liquidator shall have regard to any directions given by resolution of the creditors or contributories at any general meeting or by the committee of inspection[11].
- Section 517 of CA 2016 provides that any person aggrieved by any act or decision of the liquidator may appeal against such act or decision to the Court.
- Section 521 of CA 2016 allows the Court to direct meetings of creditors or contributories to be conducted for the purpose of ascertaining the wishes of creditors or contributories in all matters in relation to the winding up of a company.
F. Conclusion
When the company is wound up, all the assets including any properties realized are used to discharge the company’s liabilities and any remaining balance is to be distributed amongst the contributories according to the shareholder-entitlement proportions. During the whole winding up process, the liquidator owes statutory and fiduciary duties to the creditors and/or contributories and in the event the liquidator breached their duty, actions can be taken against the liquidator by the creditors and/or the contributories.
[1] Section 435 of the Companies Act 2016
[2] Section 489 of the Companies Act 2016
[3] Yeo Ann Kiat & 238 Ors v Hong Leong Bank Bhd & Anor [2016] 6 MLJ 499
[4] TR Hamzah & Yeang Sdn Bhd v City Centre Sdn Bhd [2012] 1 MLJ 383
[5] Sections 480(1)(b) and 510(1) of the Companies Act 2016
[6] Section 486 of the Companies Act 2016
[7] Sections 487 and 521 of the Companies Act 2016
[8] Section 517 of the Companies Act 2016
[9] Section 453 of the Companies Act 2016; Bina Puri Sdn Bhd v Jambulingam Sethuraman-Raki (c/o Rimbun Corporate Advisory Sdn Bhd) [2012] 8 MLJ 141
[10] Chua Boon Chin v. J.M. McCormack & Ors. [1978] 1 LNS 33[1979] 2 MLJ; Re Edennote Ltd. – Tottenham Hotspur Plc. & Ors. v. Ryman & Another [1995] 2 BCLC; Goh Siew Koon @ Eng Sing Kuan & Ors v Lim Jit Kim @ Lim Tian Jee & Ors [2015] MLJU 2229
[11] Rule 112 of the Companies (Winding-Up) Rules 1972
Nikki Lee Wai Foon
Litigation & Conveyancing Partner
Tiong Woon & Khusyri
Advocates & Solicitors
Kuala Lumpur