Appointment of Interim Liquidator - A 101

Introduction

An application to appoint an interim liquidator is usually made by a company’s creditor or contributory, after the presentation of the winding-up petition, to preserve the assets in the company in fear that they might be dissipated, should the company remain in control of the present board of directors.

The Court’s jurisdiction in appointing an interim liquidator is as provided in:

1. Section 476(1) of the Companies Act 2016 (“CA 2016”):
   
   The Court may appoint the Official Receiver or an approved liquidator as an interim liquidator at any time after the presentation of a winding up petition and before the making of a winding up order

2. Rule 35(1) of the Companies (Winding-Up) Rules 1972:
   
   At any time after the presentation of a petition, the Court may, upon the application of any creditor or contributory of the company and upon proof by affidavit of sufficient ground for the appointment of a provisional liquidator make the appointment upon such terms as the Court shall think just or necessary

The application is made through the filing of a Summons in Chambers and an Affidavit in Support to the Winding-Up Court.

When will the appointment of an interim liquidator be ordered? - The Test

As per the case of Re Highfield Commodities Ltd [1984] 3 All ER 884 referred to in the Court of Appeal case of Kok Fook Sang v Juta Vila (M) Sdn Bhd & Ors [1997] 2 CLJ 116, the Court may exercise its discretion to appoint an interim liquidator if there is good prima facie evidence that:

1. The company will be wound up because the company is insolvent;
2. The company’s assets are in jeopardy; or
3. There are other circumstances that make it imperative for the court to intervene.

Based on Emporium Jaya (Bentong) Sdn Bhd (In Liquidation) v Emporium Jaya (Jerantut) Sdn Bhd [2002] 1 MLJ 182, the applicant may also move the court ex parte to appoint an interim liquidator provided that the Court is satisfied with the following:

1. There is prima facie evidence to show the urgency of the matter, in that there is cogent evidence to show that the delay in affecting service or giving notice of the application to all related parties, is likely to defeat the purpose of the application; and
2. The applicant has provided an undertaking in damages, to compensate the company for any damages that may flow from the appointment.

What happens when an interim liquidator is appointed?

The liquidator will take over control of the company’s affairs pending the hearing of the winding-up petition. The power vested in an interim liquidator is as provided under Part I of Twelfth Schedule CA 2016 or the rules of which he was appointed or the Court’s order.

Upon the appointment of the interim liquidator, the interim liquidator shall take custody or control of all the property to which the company is or appears to be entitled (section 483 CA 2016). The relevant parties may be required to pay, deliver, convey, surrender, or transfer any money, property, books, and papers to which the company is prima facie entitled to the interim liquidator (section 511 CA 2016).

Any disposition of the company’s property after the presentation of the winding-up petition, save for exempt disposition made by an interim liquidator, shall be void (section 472 CA 2016).

Further, all action or proceeding against the company shall be automatically stayed, unless leave from the Winding-Up Court is obtained (section 471 CA 2016) to commence or continue with legal proceedings against the company.

Does the interim liquidator have unfettered discretion in terms of exercising his/her power?

Generally yes, provided that the interim liquidator acts within the spirit and intent of CA2016, the scope of his/her appointment or order of court. As a court officer, the interim liquidator’s duty is to protect the interest of the creditors and/ or contributories, failing which the interim liquidator may be liable for removal as seen in TR Hamzah & Yeang Sdn Bhd v City Centre Sdn Bhd [2012] 1 MLJ 383 as follows:

“The court is obliged to remove the liquidator in limine if he has failed to act within the spirit and intent of the several provisions of the CA 1965 and more importantly when he acts outside the scope of his appointment or order of court or failed to protect the interest of the creditors and/or contributories or is not justly, expeditiously and economically pursuing to conclude the liquidation process as it must not be forgotten that he is an officer of court and his acts or omission must not place the administration of justice to disrepute.”

An interim liquidator is also under the purview of the Official Receiver. Section 480 CA 2016 provides:

1. Where a person other than the Official Receiver is the liquidator in a winding up of a company by Court, the Official Receiver shall take cognizance of his conduct and-

1. 1. If the liquidator does not faithfully perform his duties and duly observe all the requirements imposed on him by any written law or otherwise with respect to the performance of his duties; or
   2. If any complaint is made to the Official Receiver by any creditor or contributory in regard to performance of his duties,

the Official Receiver shall inquire into the matter, and take such action thereon as he may think expedient.

Besides, the interim liquidator must be insolvency practitioners who are regulated by the Malaysian Institute of Accountants (“MIA”). An affected party may lodge a complaint against the interim liquidator.

Therefore, notwithstanding the vast power conferred on an interim liquidator, there are still some means to hold the interim liquidator accountable for his/her conduct.

Conclusion

The appointment of an interim liquidator seeks to preserve the status quo of a company and to protect the interests of all stakeholders, especially the unsecured creditors, during the interim period between the date of the presentation of a winding-up petition and the date in which a winding-up order is made. During that period, the law sees to it that the assets or effects of the company will not be dissipated to enrich one party at the expense of the other so that the assets may be liquidated and distributed fairly amongst all stakeholders if the company is eventually wound up.