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Suing A Liquidator – Is Leave Of Court Required?

Given the onerous and significant role played by a liquidator, it is rather common for a liquidator to be dragged to court answer various legal claims. Against this backdrop, the Federal Court in N. Chanthiran A/L Nagappan v Kao Che Jen (Civil Appeal No. 02(i)-54-09/2021(Q)) recently clarified whether the leave of court is required before an action can be commenced against a liquidator.


STM Transformers Sdn Bhd (Company) was wound up by an order of the Kuching High Court. The Appellant (N. Chanthiran A/L Nagappan) was appointed as the Company’s liquidator (Liquidator). The Respondent (Kao Che Jen), who was a contributory and director of the Company, had since initiated a series of proceedings against the Liquidator seeking, among others, to remove the Liquidator with the present action in the Kuching High Court being the latest attempt.

In the present action, leave of court was not obtained, which prompted a dismissal by the Kuching High Court.

The Court of Appeal allowed the appeal of the Respondent and held that Section 486(2) of the Companies Act 2016 (CA 2016) requires no such leave and ordered the matter to be remitted to the High Court. For the ease of reference, Section 486(2) CA 2016 reads as follows:

“Section 486 Powers of liquidator in winding up by Court

(2)The exercise by the liquidator in a winding up by the Court of the powers conferred by this section is subject to the control of the Court and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers.”

The Court of Appeal opined that Section 486(2) of the CA 2016 does not impose any requirement of leave by the court before an action can be brought against the Liquidator. This is in contrast with 24 other provisions in the CA 2016 that expressly require such leave. The Court of Appeal held that its function was to give effect to the plain words of a statute instead of reading words into it and followed its earlier decision in Kao Che Jen v N Chanthiran Nagappan [2015] 9 CLJ 295 (Kao Che Jen’s 2015 case) in departing from the trite law that leave is required.

Leave to appeal to the Federal Court was granted on the issue of law on whether leave is required for the commencement of proceedings against a court-appointed liquidator.

Federal Court’s Decision

The Federal Court acknowledged that there are two competing lines of authorities in this regard.

The Federal Court agreed that a court-appointed liquidator is an officer of the court. This status flows from the express recognition given by Rule 63 of the Companies (Winding-Up) Rules 1972 (Abric Project Management Sdn Bhd v Palmshine Plaza Sdn Bhd & Anor [2007] 3 MLJ 571) and the phrase “subject to the control of the Court” in Section 486 of the CA 2016 (Chi Liung Holdings Sdn Bhd v Ng Pyak Yeow [1995] 3 MLJ 204).

Following therefrom, the requirement of leave before an action can be taken against the court-appointed liquidator falls within the concept of the protection by the court in its own process (Sarawak Timber Industry Development Corporation v Borneo Pulp Plantation Sdn Bhd [2005] 2 MLJ 74). As the court maintains a supervisory role over the winding up process, any misfeasance on the liquidator’s part should be brought to the court’s attention through the leave application.

The Federal Court also acknowledged that a liquidator represents the entire class of unsecured creditors in realising the company’s assets for the benefit of all creditors. As the liquidator and the court were custodians of creditors, the court will make sure that the liquidator’s exercise of his power and discharge of his duties were not impeded by vexatious, oppressive and unwarranted interference. Thus, the requirement of leave was necessary to preserve the integrity of the liquidation process so that it will not turn into a long protected one.

The Federal Court further clarified the test in deciding whether leave should be granted i.e., a prima facie case is required. It was held that:

37. Based on the above authorities, the position adopted by the Malaysian courts thus far can be summarised as follows:


(d)The test for granting leave to commence proceedings against a court-appointed liquidator was initially formulated in Chi Liung Holdings (at p 210), where the Court of Appeal held that the court should be satisfied as to the probable success of the proposed claim and that the proposed claim should not be vexatious or merely oppressive. This test was further refined by the Federal Court in Ooi Woon Chee (at paras [10] – [15]), where it was held as follows:

(i)The party seeking leave to proceed against a liquidator should make out a prima facie case (see: Abric at p 581; TN Metal Industries and Sarawak Timber Industry). In applying the test of whether a prima facie case was made out, the court is compelled to evaluate the evidence led to determine whether such test is in fact met; and

(ii) Pecuniary loss suffered by the wound-up company should be shown.”

Thus, where misfeasance proceedings are brought against a liquidator, pecuniary loss to the company has to be shown. Any deserving claim must meet the test as it is unrealistic to expect perfection from the day-to-day decision-making of the liquidator. The court is compelled to look into the evidence at the leave application stage to evaluate the sufficiency of the evidence adduced and the likelihood of success of the proposed claim.

The Federal Court disagreed with the literal interpretation adopted by the Court of Appeal and commented that:

“Put simply, the Court of Appeal in the instant appeal held that the absence of the phrase “leave of the court” from s. 486(2) of the 2016 Act means that leave is not necessary to proceed against a liquidator. This is, for the reasons that have been enunciated at length above, a purely grammatical reading of the words in s. 486(2) of the 2016 Act. As explained earlier, the requirement for leave of the winding up court to be obtained before proceedings can be commenced against a liquidator is in fact contained within s. 486(2) of the 2016 Act in the form of the phrase “subject to the control of the Court”. The Court of Appeal in the instant appeal, however, accorded an overly simplistic interpretation to s. 486(2) of the 2016 Act and failed to consider the provision in the context of Part IV of the 2016 Act and the Winding-Up Rules. In the circumstances, it is our view that the decision of the Court of Appeal in the instant appeal is flawed as it adopted the reasoning in toto of Kao Che Jen.”

The Federal Court disagreed with the Court of Appeal that to require leave was to read words into Section 486(2). The Federal Court held the view that the leave requirement was contained in the phrase “subject to the control of the Court” in Section 486(2) of the CA 2016. The literal interpretation adopted by the Court of Appeal, was an overly simplistic and strictly grammatical reading in vacuo that fails to consider the wider context of the winding up mechanism and rationale. The Federal Court reminded that a statutory interpretation should be contextual rather than textual, with the purpose and object underlying the statutory provision in mind as mandated by Section 17A of the Interpretation Acts 1948 and 1967.


The issue eventually boils down to the proper canon of construction to be applied to Section 486(2) of the CA 2016. While the literal approach adopted by the Court of Appeal is well accepted for the fear of unwarranted judicial activism, such an approach may, however, result in an impractical outcome. This is especially so when leave requirement before the commencement of an action against a liquidator has been well settled in Malaysia and other Commonwealth jurisdictions. The Federal Court has now fortified the principle with greater certainty.

With the requirement of leave from the court remains in place, the liquidator/insolvency practitioner can now focus better on discharging his main role of collecting and distributing the assets of the company pari passu amongst unsecured creditors after payment of preferential debts. The court will not embark on a full investigation into each and every complaint levelled against the liquidator but will instead make a prima facie assessment and then only proceed to hear the matter in full in those deserving circumstances.

It is also noteworthy that the outcome of the present case is in tandem with numerous leave requirements involved in liquidation-related disputes and the court’s willingness to lean in favour of requiring leave when the CA 2016 is ambiguous.

11 September 2023


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