There has been some confusion of late as to whether the Official Receiver requires the court’s or the committee of inspection’s (CI) authority before appointing an advocate and solicitor to “bring or defend any action or other legal proceeding in the name and on behalf of the company [that has been wound up]”.

The Official Receiver for the most part (until recently) has been allowing applications by a party to appoint a firm of solicitors to initiate, continue or defend legal proceedings in the name and on behalf of the wound up company and claim they do so pursuant to section 236(2)(a) of the Companies Act 1965. In doing so, they (or rather) the Appellant’s solicitors, Messrs. Sidek Teoh Wong & Dennis, argued that position.

In the above case where I was counsel for the Respondent, I raised an objection that the Official Receiver could not appoint those solicitors because the appointment had to first comply with section 236(1)(e) of the Act. Leave was eventually granted to appeal on the following question of law:

Whether the Official Receiver/Liquidator can appoint an advocate and solicitor to bring an action or to defend an action solely by relying on section 236(2)(a) of the Companies Act 1965 independent of section 236(1)(e)?

The question posed basically sought the Federal Court to decide which line of cases to be followed.

On the one hand there was the line of authorities led by Selvam Holdings (M) Sdn Bhd v Toby Lam (as Receiver and Manager as well as the Liquidator of Selvam Holdings (M) Sdn Bhd) [1994] 4 CLJ 899, followed by Kang Wah Construction Sdn Bhd v Chin Ai Min Property Sdn Bhd [1999] 7 CLJ 172 and Subterranean Natural Mineral Water Sdn Bhd v Kho Boon Kwang [2002] 6 CLJ 340 which decided that you do not need the court’s or the CI’s authority to appoint an advocate and solicitor to bring an action or to defend an action as they could be appointed pursuant to section 236(2)(a) of the Act. The relevant portion of the Selvam Holdings decision by Abdul Aziz J (as he then was) is as follows:

The second point is that s. 236(1)(e) does not apply to the appointment of an advocate and solicitor to defend a liquidator against a suit arising out of the performance of his duties as liquidator. Paragraph (e) of s. 236(1) speaks of the appointment of an advocate by a liquidator “to assist him in his duties”. In my opinion the duties envisaged are the ordinary administrative and management duties of a liquidator such as those that are within his ordinary professional competence. It is only that kind of duties that the words “to assist” can comfortably go along with.

When a liquidator is sued, as in this case, the liquidator has a problem which falls outside his professional competence as liquidator and for which he must engage an advocate and solicitor to represent him to resist the suit. The first respondent’s duty to resist this application is not, in my opinion, one of a kind intended by the word “duties” in paragraph (e), and Counsel acting for him in this case cannot be said to have been appointed by him “to assist him in his duties”.

As to whether a liquidator’s power to appoint an advocate to defend him in an action brought against him falls under s. 236(2)(a) or (i) is a secondary question. Paragraph (i) of s. 236(2) – which gives power to “appoint an agent to do any business which the liquidator is unable to do himself” – appears to be wide enough to enable a liquidator to appoint an advocate and solicitor to defend him. If in defending this application the first respondent can be said to be doing so “in the name and on behalf” of the applicant, I would decidedly say he had power, under paragraph (a) of s. 236(2), to appoint an advocate and solicitor because to defend any action he must necessarily engage an advocate and solicitor.

Whatever the position may be under s. 236(2), as long as the first respondent is not caught by paragraph (e) of s. 236(1) – and I do not think he is – he does not need to get the authority either of the Court or of the committee of inspection to appoint an advocate and solicitor.

On the other hand there was the line of authorities led by Bensa Sdn Bhd (in liquidation) by its liquidator v Malayan Banking Berhad Damansara Utama Branch & Anor [1993] 2 CLJ 68 where James Foong J (as he then was) opined as follows:

There is no evidence of such authority granted by the Court or by the committee of inspection. Mr. Ong Ban Chai of course argued that though the Court’s permission was not obtained, the committee of inspection could grant such authority. This to him should be an internal affair of the company. I cannot accept this contention in the absence of any evidence to show that the committee of inspection has granted such authority. Section 236(1)(e) of the Companies Act clearly lays down such a requirement and when challenged, proof must be tendered that such authority does exist and one cannot just by a mere wave of the hand dismiss it as an internal arrangement.

As for s. 236(2) of the Companies Act which involves various activities of the liquidator in carrying out his duties to wind-up the affairs of the company and distribute its assets, the Court shall as provided by s. 236(3) of the Companies Act have only a control over such matters. “Control” unlike “authority” as stated in s. 236(1) of the Companies Act is that it (the liquidator) can commence actions but subject to the approval of the Court. As for “authority”, one cannot even begin to commence unless authority or permission is granted. As for this contention, I find that the acts of the liquidator in bringing this motion to Court is not void under s. 236(2) & (3) of the Companies Act but, the appointment of Ong Ban Chai as an Advocate to assist the liquidator is.

Kosmopolitian Credit & Leasing Sdn Bhd v Yeo Heng Heang [1999] 6 MLJ 725 followed Bensa’s direction.

So the argument in short was they, for Selvam Holdings and I, for Bensa.

The Federal Court though deciding that the question was academic in light of the facts and circumstances of the suit helpfully went on to answer the question posed positively. The court decided unanimously in favour of the the Selvam Holdings line of authorities and expressly disapproved the Bensa decision. The judgment of Tun Zaki bin Tun Azmi CJ and Gopal Sri Ram FCJ can be downloaded if you click on their names.

[Aside: LB apologises for any difficulty you are facing in using the Badongo website to download the files we offer. LB is working on keeping the files on the LB server and making them directly available to you soon.]

Though the judgments are available, I have just quoted what I feel are some key passages that would be of interest to those that are involved in his area.

From Tun Zaki Tun Azmi CJ:

An important aspect of the duties of a liquidator is to recover debts and properties due to the company as well as to assert its rights. This would more often than not involve proceedings in courts. He is also obliged to defend proceedings brought against the company. Again, these proceedings could be claims for monies and other assets of the company. The liquidator must appoint an advocate and solicitor to act for them in these cases. The appointment of an advocate is necessary to represent him in court. The Rules of the High Court require a company to be represented in court by an advocate. The question is whether an appointment for this purpose also requires the sanction or consent of the court. I do not think so. It is quite obvious that an advocate needs to be appointed when it involves proceedings in court. A consent or sanction of the court becomes superfluous.

These views expressed by the author, support the views expressed by Abdul Aziz Mohamad J (as he then was) in Selvam Holdings and I agree with the learned judge’s view. An appointment of an advocate by a liquidator pursuant to section 236(2)(a) of the Companies Act does not require leave of the court because he clearly needs the services of the advocate to bring or defend a legal action. Only the appointment under section 236(1)(e) requires the leave of the Court and that is when he needs and advocate to assist him in his “ordinary administrative and management duties of a liquidator such as those that are within his ordinary professional competence.” (to borrow the words of Abdul Aziz J.) …

What is interesting is also this when His Lordship discusses the second reason why he would dismiss the appeal because it became academic. His Lordship said:

The second reason why I thought that the appeal is academic is because our decision will be based on the findings of fact by the learned trial judge [Hishamuddin Yunus J (now JCA)]. The learned trial judge held that even if section 236 is to be decided in favour of the appellant, the appointment of Messrs. Sidek Teoh as advocates was not made by the Official Receiver but by one Khaidzir who is neither a contributor nor a director at the time he appointed Messrs. Sidek Teoh. He was merely an ex-director of the appellant company. Section 236 cannot apply because under that section the appointment must be made by the liquidator who in this case is the Official Receiver. …

What His Lordship essentially said in passing is that because the appointment was made on an application by a person who was not a contributory and not a director when he appointed the firm (how could he, the company was wound up) the “appointment” was wrong in law and though he does not say so, it amounts to being void. This is actually more directly addressd by Gopal Sri Ram FCJ:

… The only issue is whether it is competent for the liquidator to authorise a former director of the company in liquidation to use the company’s name to commence, continue or defend proceedings. The answer to that question was provided by Cotton LJ in Cape Breton Company v Fenn (1881) 17 Ch D 198

7. Since a director – or more appropriately a former director – of a company in liquidator is not a party to the liquidation a court will not authorise him or her to launch or to continue proceedings or indeed to defend them. A fortiori, the liquidator has no power to confer such authority, since he cannot do what the court will not do on his default. It follows that Khaidzir bin Hj. Ishak ought not to have been authorised to continue with the proceedings. I would on that ground support the ultimate order made by the learned judge in the High Court. It may well have been different if Khaidzir had also been a creditor or a contributory. (emphasis here mine)

So here it is made known the basis of to whom the Official Receiver or liquidator can authorise to continue, initiate or defend proceedings – that person or entity must have an actual financial interest in the company i.e. debt or participant. Though I did not succeed on my arguments, I think it to be a good and correct decision. I think most of us are grateful to now have clear guidance on the appointment of solicitors by the Official Receiver/liquidator and also whom the appropriate parties are who would have an interest in continuing, initiating or defending a legal proceeding – those with an interest in the liquidation procedings.

Fahri Azzat practices the dark arts of the law. Although he enjoys writing and reading, he doesn't enjoy writing his own little biographies of himself. Like this one. He wished somebody else would do it...

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