In my earlier post, I had set out a summary of the winding up law in Malaysia. Now, I touch on the three possible pitfalls and liabilities which directors may face if their company is wound up. The list is by no means exhaustive but I will only deal with three topics:
The impact on the director’s credit rating.
The need to cooperate with the liquidator.
The possibility of being personally liable for the debts of the wound up company.
As an introduction, the term ‘director’ means any person who holds the position of director by whatever name called. A question I am sometimes asked, especially by the director in trouble, is whether the law will differentiate between an “ordinary” director, and a managing director or executive director. For the purposes of the potential risks and liabilities, the law will not differentiate between any of such directors. All directors can potentially face the same level of liability. Continue reading →
Friday 19 February 2016 saw more than 200 lawyers and pupils attend the inaugural Inter-Firm Drinks at The Rabbit Hole at Changkat Bukit Bintang. The attendees met up with old friends and made new ones at this event organised by a group of small law firms. This was an event open to all lawyers and pupils. I hope that this will be an annual tradition moving ahead. Helps bring people closer together and meet other fellow members of the Bar.
In an interesting recent Court of Appeal decision (Grounds of Judgment dated 3 February 2016), the Court of Appeal allowed a defamation action against CTOS.
Taken from the CTOS website
I can imagine this decision having quite serious repercussions for credit reporting agencies in Malaysia in general. It imposes an obligation on a credit reporting agency to ensure any information that it inserts into its database or report to be factually correct. Further, that information must continue to be factually correct at all times. A credit reporting agency cannot rely on any disclaimer in their report that the information may not be up to date and that the person relying on the report should conduct their own checks.
So for example, if an individual had originally been adjudged a bankrupt but he had since been discharged from his bankruptcy, a credit reporting agency must ensure that information is updated quickly. So quite a victory for individuals and companies worried about their creditworthiness.
Background to CTOS and Credit Reporting
CTOS is a credit reporting agency. It provides easily-accessible credit reports relied on by financial institutions in Malaysia. It not only picks up on financial worthiness but also legal proceedings like legal suits, bankruptcy and winding up proceedings.
Parties involved in litigation would normally face a difficulty. Information in the CTOS report on pending legal suits, financial institutions may be reluctant to extend loans to such parties.
On the other hand, CTOS itself will face difficulty in knowing the most recent updates to such litigation. I would imagine CTOS largely relies on the advertisements taken out (for instance, for service of court papers or substituted service) or the public court records on the Court website. A credit reporting agency would not know the immediate updates, or withdrawal of such legal proceedings.
Mr Tan’s High Court Suit against CTOS
In this decision, Mr Tan was aggrieved by the CTOS report listing out various pending legal proceedings, including pending bankruptcy proceedings. The information contained records as far back as the 1990s.
Mr Tan had been rejected by banks for loans for motor vehicles and property.
Mr Tan contacted CTOS, demanding that their records be updated as he had cleared all his debts and had been discharged from his bankruptcy. It appeared that Mr Tan provided CTOS with the information and documents to show this and CTOS subsequently updated their records in their database.
However, Mr Tan was still not satisfied and filed a suit for defamation against CTOS. HE claimed that CTOS had failed, refused or neglected to initially update their database and clear all outdated records.
At the end of the High Court trial, Mr Tan had lost his case for defamation. Briefly, the High Court found that Mr Tan could not show there was publication. Further, the High Court also found that there was a disclaimer wording in the CTOS report that the information was not intended to be a confirmation of the current status.
Mr Tan Succeeded in the Court of Appeal
At the Court of Appeal however, Mr Tan succeeded.
On the issue of publication, the Court of Appeal held that the CTOS database is available to anyone who subscribed to the services. It did not matter that access to the database is by way of subscription or by paying a fee. Further, CTOS could not be afforded protection by the law if CTOS also allowed the information to go outdated and stale such that it did not reflect the true state of affairs.
The Court of Appeal found that any reasonable reader of the information in the CTOS database would be led to be suspicious of the creditworthiness of Mr Tan.
Nonetheless, Mr Tan could not actually prove the actual damage that he suffered or the quantum of the damages. In such a situation, he was awarded nominal damages of RM5,000.00. Costs of RM40,000.00 was awarded in his favour as well.
[This post has since been updated as at 14 January 2020 to take into account the current law under the Companies Act 2016.]
The winding up of a company is the process of bringing an end to a company. The company’s assets are sold off and then used to pay off the company’s debts. Any excess proceeds are then returned to the shareholders of the company.
Here, I will give a brief overview of winding up law in Malaysia. We will start with getting our terminology right.
Mind Your Language: Winding Up, Not Bankruptcy
In getting our terminology right, we should refer to the term ‘winding up’ or even ‘liquidation’ when referring to this process of winding up a company. In Malaysia (and a few other jurisdictions like Singapore, the UK and Australia), these are the correct terms to be used. In contrast, in Malaysia at least, the term ‘bankruptcy’ is for individuals and where an individual may be adjudged bankrupt. Continue reading →
The annual Thomas Philip New Year Party is a great event to kickstart the year. I think it is a nice initiative to bring together members of the Bar and the friends of the firm.
Towards the end of each year, one of the law firms in Kuala Lumpur will host the ‘Litigation Drinks.’ It is an occasion to bring together members of the litigation Bar closer together, to enjoy in the camaraderie of being fellow members of the Bar despite a year of crossing swords in the courts. I write briefly about the history of the litigation drinks and also feature pictures from this year’s drinks hosted by Skrine.
Brief History
This year’s Litigation Drinks was held on Thursday 3 December 2015 at Vineria, Bangsar Shopping Centre. It saw more than 220 lawyers turning up at the event. I spoke with Christopher Leong of Chooi & Co to ask him more about the history of the Litigation Drinks and of the Litigation Drinks Tankard.
