Section 487(3) of the Companies Act 2016 in Malaysia deals with liquidators seeking court directions during company liquidation. Specifically:
Section 487 covers a liquidator's general powers and duties in winding up a company.
Subsection (3) states that:
"The liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up."
This allows the appointed liquidator to apply to the High Court for directions on any specific issue that crops up during the liquidation process.
The court can then provide guidance to the liquidator on the appropriate course of action regarding that issue.
Some examples of matters on which a liquidator may seek the court's directions include:
Method of valuation and sale of company assets
Validity of claims submitted by creditors
Distribution of assets among creditors
Approval of liquidator's fees
Any disputes between the liquidator and creditors/contributories
Section 487(3) provides a structured mechanism for liquidators to get legal clarity on contentious or unclear issues that require direction during the winding-up process.
The court's directions under Section 487(3) are intended to assist the liquidator in adequately administering the liquidation as per legal requirements and objectively in the interests of relevant stakeholders.
In summary, Section 487(3) enables the appointed liquidator to seek directions from the High Court on specific issues arising during company liquidation to ensure a proper legal process.
In Tan Kim Chuan v. Tan Kim Tian & Ors and another appeal [2022] 6 MLJ 888, it involved appeals arising from applications filed by parties under Section 487(3) of the Companies Act 2016 in relation to the liquidation of Properland Realty Sdn Bhd.
The main issue was whether a High Court's decision pertaining to a contributory's application under Section 487(3) of the Companies Act 2016 is appealable.
Background Facts
Properland Realty Sdn Bhd was a real estate company owned by two brothers, Tan Kim Tian (TKT) and Tan Kim Chuan (TKC).
The company was wound up in 2000 based on a default judgment obtained by Tan Beng Seng (M) Sdn Bhd.
Two liquidators were appointed - Yew Fooi and Onn Kien Hoe. They initially agreed to sell the company's properties by way of first right of refusal to the brothers/their companies.
However, Onn Kien Hoe changed his mind, while TKC also objected to the proposed sale. This led to conflicting applications filed by the liquidators and contributors under Section 487 seeking the High Court's directions on the method of sale.
The phrase "to dispose of the properties by way of first right of refusal" refers to a method of selling assets where the existing owner(s) are given the first right to purchase the assets before they are offered for sale to third parties.
Specifically, in this case:
Yew Fooi and Onn Kien Hoe, as the joint liquidators of Properland had initially agreed to sell Properland's properties by giving the first right of refusal to the existing co-owners/shareholders of Properland, who were the two brothers TKT and TKC.
This means TKT and TKC would have the first option to buy the properties at a price determined by the liquidators before the properties are exposed to the open market or third-party bidders.
Instead of directly putting the properties up for public tender or auction, the intention was to give preference and the first right to purchase the properties to the existing contributors/shareholders (TKT and TKC).
So, in summary, the "first right of refusal" refers to the right given to existing owners to purchase assets at a predetermined price before offering them for sale publicly to other potential buyers. This was the initial agreed method for disposing of Properland's properties during liquidation.
High Court Decision
The High Court heard applications filed by the joint liquidators Yew Fooi and Onn Kien Hoe and contributors TKT and TKC, seeking directions on selling Properland's properties.
Initially, Yew Fooi and Onn Kien Hoe had agreed to sell the properties through the first right of refusal to TKT and TKC.
However, Onn Kien Hoe changed his mind, and TKC objected to this proposed sale method.
The High Court held that due to the objections, sale by way of first right of refusal would not be appropriate. Instead, the public tender would be more beneficial to realise the best value, despite the initial agreement.
Court of Appeal Decision
TKT and TBS appealed against the High Court decision.
The Court of Appeal allowed the appeals and held that the High Court erred by interfering with the liquidators' powers and substituting its own decision.
The liquidators had already decided and agreed with TKT on sale by way of first right of refusal, which was an act done in good faith.
The High Court should not have interfered with the liquidators' commercial decision simply because of TKC's subsequent objection.
Federal Court Decision
TKC filed appeals against the Court of Appeal decision.
The Federal Court dismissed TKC's appeals and affirmed the Court of Appeal's decision.
It held that the High Court's decision under Section 487(3) of the Companies Act 2016 amounted to a judgment affecting parties' substantive rights and was therefore appealable.
The High Court was wrong to override the liquidators' proposal for sale by way of the first right of refusal without a proper basis.
In summary, the appellate courts reversed the High Court decision as the liquidators' original proposal was bona fide. The High Court should not have interfered without unreasonableness or bad faith.
Impact on Businesses
This case clarifies that a High Court's decision pertaining to a contributory's application under Section 487(3) of the Companies Act 2016 is appealable as it may affect parties' substantive rights.
Liquidators' commercial decisions should not be lightly displaced by the Court without proper basis. The case also emphasises that liquidators must act independently and impartially, prioritising the company's interests.
Where liquidators disagree on an appropriate course of action, seeking the High Court's directions under Section 487(3) is prudent to resolve the impasse.
However, the Court must be cautious about supplanting the liquidators' commercial decisions without justification as it may unduly obstruct the liquidation process.
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