The Role Of A Liquidator
‘In the discharge and performance of their statutory duties, the liquidators are required to exercise a high standard of care, skill, diligence and competence commensurate with their professional standing.’
Yeo Ann Kiat & 238 Ors v Hong Leong Bank Bhd & Anor  6 MLJ 499 (Court of Appeal)
Liquidation is defined as a process where the assets of a company that has been wound up are seized and realised by the liquidator in order to pay off the debts of the company. Any surplus is subsequently distributed among the company’s contributories and creditors.
There are several ways in which a company may be wound up. Firstly, the winding-up of a company can be initiated voluntarily by the members or creditors of the company. This is known as Voluntary Winding-Up. In such a circumstance, the liquidator is appointed during the members’ or creditors’ meeting, as the case may be.
Alternatively, in a Compulsory Winding-Up, the company may be wound-up compulsorily by way of a Court order.
This alert seeks to discuss the exact role and powers of the person behind the curtain, i.e. the liquidator.
Who Is A Liquidator?
There are two kinds of liquidators, namely Official Receivers and Private Liquidators.
Section 2 of the Companies Act 2016 (CA 2016) defines an Official Receiver as inter alia, the Director General of Insolvency, Insolvency officers and any other officer appointed under the Bankruptcy Act 1967.
A Private Liquidator who is appointed in a winding-up by the Court on the other hand is an individual other than an Official Receiver, who has obtained a license pursuant to Section 433 CA 2016 to act as interim liquidator or liquidator of a company. This requirement can be dispensed with only by obtaining leave of Court.
Notwithstanding the above, Section 433 CA 2016 allows a person who is not an approved liquidator within the meaning of this Section, as well as a partner, employer or employee of an officer of the company to also be appointed as the company’s interim liquidator or liquidator without leave of Court in a members’ voluntary winding-up, or creditors’ voluntary winding-up subject to the approval of a majority of the creditors.
Powers Of A Liquidator
The Eleventh Schedule to the CA 2016 read together with Section 456 CA 2016 sets out the powers of a liquidator in a voluntary winding-up. Under this Schedule, the liquidator may exercise any of the powers given to a liquidator under the Twelfth Schedule, with the approval of a special resolution of the company, or in a creditors’ voluntary winding-up, with the approval of the Court or the committee of inspection (COI).
Under the Twelfth Schedule to the CA 2016, a liquidator may, among others, exercise the following powers without the authority of the Court or the COI:
Bring or defend any action on behalf of the company.
Compromise debts due to the company other than calls and liabilities for calls and debts due to the company that do not exceed RM10,000.00.
Sell immovable and movable property and things in action of the company.
Do all acts and execute documents on behalf of the company.
Make any payment as necessary in carrying on the affairs of the company in its ordinary course of business.
Appoint an agent to do any business which the liquidator is unable to do.
Appoint an advocate to assist him in his duties.
Do all such other things as are necessary for winding up the affairs of the company and distributing its assets.
The liquidator may also, inter alia, undertake the following with the authority of the Court or the COI:
Carry on the business of the company so far as is necessary for the beneficial winding-up of the company.
Pay any class of creditors in full.
Make any compromise or arrangement with creditors.
Duties Of A Liquidator
Upon their appointment, liquidators are required to carry out certain duties, including taking into their custody or control, all assets of the company which the company is, or appears to be entitled to, summoning a creditors’ meeting to present a statement of the assets and liabilities of the company if the liquidator is of the view that the company will not be able to pay its debts in full, settle a list of contributories if the liquidator considers it likely that either there are persons liable as past or present members to contribute to the company’s property or there will be a surplus available for contribution. A liquidator may also apply to the Court for directions in respect of any matter arising under the winding-up pursuant to Section 487 CA 2016.
It is clear that liquidators play a pivotal role in the administration of a company under liquidation as well as its assets. As such, it is apt for liquidators to be held to a high standard of care. The Companies (Amendment) Bill 2023 that was recently tabled for first reading before Parliament also seeks to widen the powers of a liquidator and clarified that a liquidator may apply to the Court for the approval of a scheme of compromise or arrangement.
25 October 2023