The Court of Appeal in Bursa Malaysia Securities Berhad v Mohd Afrizan bin Husain (grounds of judgment dated 2 July 2021) ruled that once a winding up order was made against a public listed company, Bursa Malaysia must de-list that company from the stock exchange.
The case dealt with interesting issues between the interplay of a liquidator’s role under the Companies Act and where the liquidated company is also subject to Bursa Malaysia’s Listing Requirement.
The Federal Court has granted leave to appeal against this Court of Appeal decision.
Summary of the Decision and Significance
Grounds of Judgment by: Lau Bee Lan JCA
Wintoni Group Berhad (Wintoni) is a public listed company. Wintoni was wound up through a winding up order and the Respondent, Mohd Afrizan, was appointed as liquidator.
Although Wintoni was wound up, Bursa Malaysia had maintained the listing status of the company. However, Wintoni (under the control of the liquidator) did not make announcements on its financial statements and quarterly reports.
Bursa Malaysia eventually took enforcement proceedings against the liquidator for the failure to have Wintoni announce or issue those financial statements. The liquidator filed for judicial review against Bursa Malaysia’s enforcement decision.
The High Court decided in favour of the liquidator’s judicial review. The Court of Appeal upheld this decision. The decision was also reported in The Edge Malaysia.
One key finding was that based on a reading of the Listing Requirements, it was mandatory for Bursa Malaysia to de-list Wintoni after the winding up order was made. In other words, Bursa Malaysia could not maintain Wintoni’s listing status such that Bursa Malaysia could then continue to impose the Listing Requirements obligations on the liquidator.
Wintoni is a public listed company listed on the ACE Market and was under the supervision of Bursa Malaysia pursuant to the ACE Market Listing Requirements (ACE LR).
On 17 August 2017, the Court made a winding up order against Wintoni. The Court appointed the liquidator, Mohd Afrizan, as the liquidator of Wintoni.
Bursa Malaysia did not de-list Wintoni. With Wintoni continuing to be listed, the liquidator was now the Controlling Person of Wintoni for the purposes of Rule 2.22 of the ACE LR.
On 20 September 2017, the liquidator provided an undertaking to Bursa Malaysia to comply with the ACE LR.
On 31 October 2017, the liquidator made a general announcement stating that, among others, the liquidator would not prepare Wintoni’s financial statements.
In March 2018, Bursa Malaysia conducted an inquiry against Wintoni on the delay in the announcements and issuance of Wintoni’s financial statements.
The liquidator responded that it was not his role or function as liquidator to do so. As Wintoni had ceased operations, he was not in a position to prepare the financial statements.
Bursa Malaysia commenced enforcement proceedings against, among others, the liquidator for breaches of the ACE LR. Bursa Malaysia’s Listing Committee found against the liquidator that:
- Wintoni continued to be listed and had to comply with the ACE LR for the timely issuance of the financial statements.
- The liquidator was found to have breached Rule 2.22 of the ACE LR due to Wintoni’s failure to announce or issue the financial statements. The power to run and manage Wintoni was vested with the liquidator, and where the liquidator had provided his undertaking in his capacity as a Controlling Person.
- The liquidator had a duty under section 480 of the Companies Act 2016 (CA 2016) to observe all requirements imposed on him by “any written law or otherwise”. The ACE LR is part of the requirements imposed on the liquidator and has statutory force.
The liquidator appealed to the Bursa Malaysia Appeals Committee. The Appeals Committee dismissed the liquidator’s appeal and upheld the Listing Committee decision.
In particular, the Appeals Committee decided that it was not mandatory for Bursa Malaysia to de-list Wintoni upon the winding up order having been made. Notwithstanding the winding up order, Bursa Malaysia had the power and discretion not to de-list pending the final disposal of the court proceedings relating to the winding up.
On 6 May 2019, Bursa Malaysia imposed a public reprimand on the liquidator and directed him to make the necessary arrangement including working with and/or delegating the function to Wintoni’s directors to ensure announcement/issuance of the financial statements within three months.
The liquidator filed judicial review proceedings at the High Court to challenge these decisions.
Separately, in September 2019, a contributory of Wintoni obtained an Order to terminate the winding up of Wintoni.
The High Court allowed the liquidator’s judicial review proceedings (see Mohd Afrizan v Bursa Malaysia  MLJU 757). Broadly, the grounds were:
- The obligation to prepare the financial statements was not within the duties of the liquidator as prescribed under the CA 2016. Instead, the obligation is on the Wintoni directors.
- The undertaking was in breach of the CA 2016 was in breach of the CA 2016 and therefore void for illegality.
- It was mandatory for Bursa Malaysia to have de-listed Wintoni upon it being wound up.
The High Court subsequently granted a stay of execution of its decision pending disposal of the appeal to the Court of Appeal (see Mohd Afrizan v Bursa Malaysia  MLJU 1588).
The Court of Appeal then heard and dismissed the appeal.
The Court of Appeal identified that the key issue was whether it was mandatory for Bursa Malaysia to have de-listed Wintoni upon the making of the winding up order. This is based on the wording of Rule 16.11 of the ACE LR with the different usage of the words “may” and “shall“.
16.11 De-listing by the Exchange
(1) The Exchange may at any time de-list any listed corporation or listed securities from the Official List in any of the following circumstances:
(2) The Exchange shall de-list a listed corporation in any one of the following circumstances:
(d) upon a winding-up order being made against a listed corporation.”
Bursa Malaysia’s counsel argued that:
- A strict interpretation of Rule 16.11(2) of the ACE LR would mean that Bursa Malaysia had no option to de-list Wintoni. This is despite there being ongoing challenges against the winding up order and where the order may be set aside. There would be serious inconvenience or injustice and prejudice to Wintoni and to the investing public as Wintoni would have then lost its listing status without reason.
- Rule 16.11(2) must be read with Rule 2.07(2) of the ACE LR where Bursa Malaysia “may at any time, waive or modify compliance with a Requirement or any part of a Requirement.”
- Bursa Malaysia’s exercise of discretion not to de-list was consistent with its statutory duties under the Capital Markets and Services Act 2007 (CMSA) to “act in the public interest having particular regard to the need for the protection of investors.”
The Court of Appeal did not agree with the above arguments.
First, the Court of Appeal took note of the differences of the prescribed circumstances where Bursa Malaysia “may de-list” and “shall de-list” under Rule 16.11(1) and Rule 16.11(2) of the ACE LR.
The drafters of the ACE LR clearly distinguished the circumstances where discretion may be exercised and where the mandatory requirement becomes non-negotiable. The Court of Appeal applied a literal and strict interpretation due to the plain reading of the words.
Second, with that interpretation of Rule 16.11, the Court of Appeal found that for the judicial review challenge, it would be irrational, unreasonable and an act of illegality on the part of Bursa Malaysia to argue that it can exercise its powers under Rule 2.07(2) of the ACE LR to waive this mandatory requirement.
Third, the Court of Appeal did not agree with the argument on the public interest for the protection of investors under the CMSA. There continued to be the mandatory requirement to de-list Wintoni in conformity with Rule 16.11(2) of the ACE LR. The assets of the the company in liquidation are vested to the liquidator for settlement of the creditors.
The Court of Appeal was of the view that this would be consistent with the legal regime under the CA 2016. Upon the company’s winding up, the directors’ powers cease to operate because the court appoints a liquidator pursuant to section 477 of the CA 2016 and other winding up provisions of the CA 2016 apply:
- The liquidator takes custody of the assets of the company in liquidation pursuant to section 483.
- Directors are required to provide the liquidator with particulars of the company’s assets, debts and liabilities under section 484.
- As soon as practicable after the winding up order, the liquidator shall take charge of the assets and sell them off to pay the creditors and any surplus after payments to be distributed to the contributories.
Fourth, the issue of the undertaking given by the liquidator to Bursa Malaysia.
The Court of Appeal agreed that through signing the undertaking and in consideration of Bursa Malaysia allowing the continued listing of Wintoni, the liquidator had agreed to comply with the ACE LR. However, it was not a blanket, unqualified and unconditional undertaking. The undertaking was qualified by the words “in so far as the same apply to me.”
The Court of Appeal reiterated that that it had already found that it was mandatory for Bursa Malaysia to immediately de-list Wintoni upon the winding up order being granted. It followed that there was no duty imposed on the liquidator to ensure Wintoni’s compliance of the timely issuance of the financial statements.
Therefore, the Court of Appeal upheld the High Court’s decision in allowing the judicial review against Bursa Malaysia’s decision
Bursa Malaysia has now successfully obtained leave to appeal to the Federal Court against the Court of Appeal decision. I extracted the leave decision from the Federal Court cause list.
The questions of law to be decided by the Federal Court are:
- Whether compliance with the Listing Requirements is consistent with and/or within the scope of the liquidator’s powers and/or duties under the Companies Act 2016 or otherwise in law.
- Whether on a proper construction/interpretation of Rule/Paragraph 16.11(2) of the Listing Requirements, the Applicant is not obliged to immediately and summarily de-list a listed corporation upon the listed corporation being served with a winding-up order without regard to any appeals/legal challenges to the winding-up order but should only do so upon a final determination on the said appeals/legal challenges.
- Alternatively, whether the Applicant is entitled to exercise its discretion to modify and/or waive compliance of its own rules, including Rule/Paragraph 16.11(2) of the Listing Requirements by virtue of, amongst others, Rule 2.07(2) of the AMLR and Paragraph 2.06(2) of the Main LR.
- If: – (i) the answer to Question 1 is in the affirmative; and (ii) the answer to Questions 2 and/or 3 is in the affirmative whether the liquidator, as the person in control of the management of a listed corporation in liquidation, must undertake to continue to comply with the Listing Requirements as consideration for the continued listing of a listed corporation in liquidation.
- Whether a director in a listed corporation in liquidation can continue to ensure compliance of the Listing Requirements by the listed corporation without the authorisation by the liquidator and/or Court.
From the above questions of law, it will be interesting to see how the Federal Court addresses the powers and duties of the liquidators and directors of a wound up listed company.
On the one hand, the CA 2016 deals with powers of the directors upon the appointment of a liquidator. The CA 2016 makes a distinction between the three types of winding up.
In a members’ voluntary winding up, all the powers of the directors cease except where the general meeting of members with the consent of the liquidator or the liquidator sanctions the continuance of those powers. See section 445(2) of the CA 2016.
In a creditors’ voluntary winding up, all the powers of the directors cease except if the continuance of the powers is approved by the committee of inspection or the creditors. So, the liquidator cannot consent to the continuation of the powers. See section 450(6) of the CA 2016.
In a court winding up, the CA 2016 does not contain express provisions on the powers of the directors or the ability for the liquidator to consent to any continuation of powers. However, case law has long held that with the making of the winding up order, all the management powers of the directors cease. Instead, the management powers vest with the liquidator. See for instance, the Federal Court case in Lai King Lung v Merais Sdn Bhd  5 MLJ 614 (grounds of judgment dated 20 July 2020).
On the other hand, there is the argument that the directors’ duties under the Listing Requirements would not be abolished or extinguished even with the appointment of a liquidator.
The Court of Appeal in Tan Sri Dato’ Hj Lamin v Bursa Malaysia  6 MLJ 182 held that upon the appointment of a provisional liquidator in that case, the directors’ duties under the Listing Requirements nonetheless continued by way of residuary obligations. The directors’ duties under the Listing Requirements were statutory in nature. Essentially in that case, the Court of Appeal found that there was nothing in the Companies Act 1965 that would have abolished or extinguished the directors’ duties to comply with the LR.