Case Update: When there are competing nominees to be appointed liquidator

The High Court in its Grounds of Judgment dated 20 June 2018 in Abdul Rahman bin Ismail v Pembangunan Qualicare Sdn Bhd (Penang High Court Winding Up Petition No. 28-6-01/2013) made an interesting observation when there are competing nominees to be appointed as liquidator in a court winding up.

The High Court raised the possibility of a need for a mini trial in order to test the suitability of the two competing liquidator nominees.

Brief Facts

The company, Pembangunan Qualicare, was wound up in April 2013. The Official Receiver was appointed as the liquidator. Various creditors had filed in its proofs of debt.

In 2017, one of the creditors applied to appoint two private liquidators from Ferrier Hodgson as joint and several liquidators to replace the Official Receiver. Thereafter, the Petitioner applied to appoint a private liquidator from Parker Randall to replace the Official Receiver.

The Official Receiver had no objection to the application for it to cease to act as the liquidator and to be replaced by a private liquidator.

The High Court now had to decide on these two competing applications.

Decision

The High Court heard competing arguments against the suitability of both of the nominees. Allegations were raised that both sides’ nominees were at a risk of being at a conflict of interest. Here as well, the creditors in the winding up had already expressed their majority view as to which liquidator nominee they preferred.

The High Court considered the guiding principle that the majority vote of the creditors can act as a guide. But the majority vote will not have the absolute right as to the choice of the liquidator. The Court retains the eventual discretion in deciding on the appropriate nominee to be liquidator.

On the nominees proposed, the High Court then held that it would not be fair in the interest of justice to appoint any one of them without ascertaining the validity of the assertions made by the parties. The High Court observed that this may then necessitate a mini trial if that is to be done.

This was in the end unnecessary. The parties agreed to the Court’s proposal for an independent nominee as liquidator and for the parties to jointly consent to that nominee. Hence, a private liquidator from a different firm altogether was appointed.

Observation

This is an interesting suggestion that the winding up Court can embark on a mini trial to test or to assess the suitability of two competing nominees for liquidator. The Grounds of Judgment do not expand on what this process would be like. The Companies (Winding-up) Rules 1972 and the Companies Act also do not cater for such a situation.

This would appear to be an exercise of the Court’s inherent jurisdiction, especially to see justice done in the case. I would imagine that the process would require the liquidator nominees to¬† take the witness stand and be subject to cross-examination by the parties’ counsel. On top of that, the Judge may also pose questions to the liquidator nominees.

It is always a difficult exercise when the Court faces competing nominees to be liquidator. For example, a very difficult case was seen in Hew Kiang Hoe & May De Selva v Shencourt Properties Sdn Bhd (in liquidation) [2011] MLJU 443. The winding up Court considered a removal application against an existing private liquidator. There were then three different liquidator nominees put forward by different creditors. The High Court in that case then made the decision to appoint one of the nominees to act as joint liquidator along with the then-existing liquidator as well. That was with the aim of providing some check-and-balance. But operationally, that would make it very difficult for two different liquidators from different firms, with different policies and practices, to have to act jointly.

In breaking this difficult deadlock that the Court may face in appointing the best nominee for liquidator, it will be interesting to see if the Court in future does adopt a mini trial procedure to assess the competing arguments raised for each of the liquidator nominees.

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