Termination of Liquidators’ Appointment

The appointment of a liquidator may be terminated in a number of ways. In compulsory liquidation, it may be terminated by death, insolvency, resignation, removal or release. The resignation, removal and release of liquidators are governed under Sections 482 and 490 of the Companies Act 2016 and Rule 150 of the Companies (Winding Up) Rules 1972. 

Resignation

Although Section 482 of the CA 2016 allows a liquidator appointed by the Court to resign without imposing any qualification on his ability to resign, Rule 150 of the CWUR 1972 stipulates that a liquidator in a compulsory winding up who wishes to resign, must summon separate meetings of creditors and of contributories to decide whether his resignation is to be accepted. If the creditors and contributories by ordinary resolutions agree to accept the resignation of the liquidator he shall file with the Registrar, the Official Receiver and the Registrar of Companies a memorandum of his resignation and the resignation shall thereupon take effect. If on the other hand the creditors and contributories do not agree, the liquidator shall report to the Court the result of the meeting and thereupon the Court may, upon an application of the liquidator, determine whether or not his resignation shall be accepted and may give such directions and make such orders as shall be necessary.

Removal

Section 482 of the CA 2016 provides that liquidator or interim liquidator appointed by the Court may on cause shown, be removed from the office by the Court. In practice, the determination of applications for a removal of a liquidator turn on the meaning and effect of the words ‘cause shown’. In Abric Project Management & Anor v Palmshine Plaza Sdn Bhd & Anor [2007] 5 MLJ 685, the court held that some unfitness in the liquidator must be shown in order to justify his removal and that the removal of the liquidator is not a matter of pure judicial discretion. In the seminal case of TR Hamzah & Yeang Sdn Bhd v City Centre Sdn Bhd [2012] 1 MLJ 383, the Court observed that ordinarily, a liquidator will be removed if he has failed to act within the spirit and intent of the provisions of the Companies Act and more importantly when he acts outside the scope of his appointment or order of court. It will also be a ground for removal if the liquidator has failed to protect the interest of the creditors and/or contributories or it is shown that the liquidator has not conducted the liquidation process in an expeditious and economical manner.  

The position set out above was emphasized by the Court of Appeal recently in the case of Shencourt Sdn Bhd (in liquidation) (in receivership) v Shencourt Properties Sdn Bhd (in liquidation) [2019] 12 MLJ 184. The appellate court clarified that the threshold to satisfy ‘cause shown’ is not high but there must be clear evidence justifying the removal. Further, the court held that the phrase ‘cause shown’ is fairly generic in nature which covers the following instances:

1. some unfitness of the person is shown;
2. there must be some justifiable reason for the removal;
3. the liquidator(s) has not properly exercised his discretion; or
4. the liquidator has placed himself in the position of conflict of interest such as to rob him of the real and apparent independence necessary for the conduct of a proper winding up.

Whilst the Companies Act is silent as to who may apply to remove a liquidator, case law is settled in that the applicant must demonstrate or show that the applicant is indeed an interested party qualified to make such an application. This includes creditors, contributories and shareholders who in proving such qualification, must show that they have a legitimate interest in the relief sought.

Another relevant factor in determining whether a liquidator should be removed is the costs that would be incurred if a new liquidator has to step in to complete the liquidation. Therefore, it is generally accepted that if the liquidation is already in its final stages, it is unlikely that the court will order the removal of the liquidator – Chua Boon Chin v JM McCormack & Ors [1979] 2 MLJ 156. The courts have also held that where a liquidator disregards the wishes of the creditors of an insolvent company and the wishes of the contributories in a solvent company, it may be sufficient cause on which the court may act in removing a liquidator.

Release

Release is a further means of terminating the appointment of a liquidator in compulsory winding up. In essence, the liquidator will be discharged from all liability in respect of any act done or default made by him in the administration of the affairs of the company or otherwise in relation to his conduct as a liquidator. The release of a liquidator ordinarily occurs simultaneously when an application is made to the Court to dissolve the company once the liquidation process is complete. An order of release has important consequences. It operates as a discharge of the liquidator from his office and terminates his power to deal with the company’s property and assets.

Conclusion

In summary, it would appear that the most contentious aspect of terminating a liquidator’s appointment is applying for his or her removal from office. Case law suggests that whilst there are certain defined criteria to establish ‘cause shown’, it would not be appropriate to define a list of causes for the removal of a liquidator. The Courts will ordinarily conduct a multifactorial analysis to determine such applications on a case by case basis. At the end of the day, a high standard of care is required from a liquidator. It will be prudent for a liquidator in every case of serious doubt or difficulty in relation to the performance of his duties, to submit to the court for its guidance as he must not forget he also has a status of an officer of the court. Where a liquidator errs on the side of caution and seeks the court’s assistance, it will be unlikely that the creditors or contributories of the company will apply to remove the said liquidator on grounds of misconduct or failure to discharge his duties satisfactorily.