DALAM MAHKAMAH PERSEKUTUAN
(BIDANG KUASA RAYUAN)
RAYUAN SIVIL NO.
02-11-2003(W)
(DALAM LIKUIDASI) …. PEMOHON
1.
LER
CHENG CHYE
2.
LUM
TUCK CHEONG
PENERIMA-PENERIMA & PENGURUS-PENGURUS
KOSMOPOLITAN CREDIT & LEASING SDN. BHD.
(DALAM LIKUIDASI) …. RESPONDEN KEDUA
(DALAM PERKARA RAYUAN
SIVIL NO. W-02-17 - 1994
(DALAM LIKUIDASI) …. PEMOHON
3.
LER
CHENG CHYE
4.
LUM
TUCK CHEONG
PENERIMA-PENERIMA & PENGURUS-PENGURUS
KOSMOPOLITAN CREDIT & LEASING SDN. BHD.
(DALAM LIKUIDASI) …. RESPONDEN KEDUA)
CORAM:
HAIDAR MOHD NOOR, CJ (MALAYA)
ABDUL MALEK AHMAD, FCJ
SITI NORMA YAAKOB, FCJ
Leave was granted to the Appellant to refer six questions of law to us and these questions as framed read as follows:
1. Upon the Court ordering a company incorporated pursuant to the provisions of the Companies Act 1965 (Act 125) to be wound-up and appointing a Liquidator:
1.1. to what extent and within what parameters could a Receiver and Manager appointed under a power contained in an instrument, exercise powers over the assets of the wound-up company?
1.2. whether a Receiver and Manager appointed pursuant to a power contained in an instrument, by reason of either section 233 and/or section 277 of the Companies Act 1965, read together with sections 300 and 305 of the same Act and Rule 66 of the Companies (Winding-Up) Rules continues to exercise custody and control over the properties of the company that had been wound-up and which properties “appears” to or is “prima facie” entitled to such a company, even after the Court appointed Liquidator had demanded its return?
1.3.
whether,
after a winding-up order is made by the Court, are the rights and powers of a
Receiver and Manager appointed under a power contained in an instrument, with
regard to the documents, books and property of a company, “superior to” and/or
take precedence over the rights and powers of a Court appointed Liquidator?
2. Whether the principles enunciated by the then Supreme Court
in
Kimlin Housing
Development Sdn Bhd (Appointed receiver and
manager)(In Liquidation) v Bank Bumiputra (M) Bhd & Ors [1997] 2 MLJ
805 are
restricted in scope and limited to the powers of a Receiver and Manager
appointed under a power contained in an instrument, to dispose of a parcel of
land on which a legal charge had been created under the National Land Code or applies to all the assets, be it
movable or immovable, of the company that is under liquidation and in respect
of which a Liquidator had been appointed?
3. Whether a Receiver and Manager appointed
pursuant to an instrument by a person claiming to be a secured creditor, operates
outside the winding-up, without such debts being admitted or proved to the
Liquidator?
4. Whether
the answers to any of the above questions will be
different if the
instrument which provides for the appointment of a Receiver and Manager
incorporates thereto, a power of attorney given by the company which had since
been wound-up and whether such a power of attorney can survive or exist or be
valid and effective after the company is wound-up by reason of section 4 read
together with sections 300 and 305 and the other provisions in the Companies
Act 1965?
5.
By reason of Rule 163 of the Companies
(Winding-Up) Rules
1972,
whether the Court which has ordered the winding-up of
the company, is
required in law to transfer to itself all the other matters that are pending or
instituted or may be instituted in the other courts?
6.
Whether a secured creditor, upon being
called by a Liquidator,
to
prove its debts by filing a proof of debt, by reason of section
291 of the
Companies Act read together with Rules 78 and 82 of the Companies (Winding-Up)
Rules 1972 made thereunder, is obliged in law to do so?
The events leading to the issues raised in the six
questions are in no way disputed and they go as far back as 1982. In that year Koperasi Serbaguna Kosmopolitan
Berhad (“the Koperasi”) made advances to Kosmopolitan Credit & Leasing Sdn
Bhd (“KCL”) which were secured by fixed
and floating charges on KCL’s assets under a debenture dated 17th
March, 1982 (“the debenture”). The charges have been duly registered under
section 108 of the Companies Act, 1965 (“the Act”), and the fact of
registration is very significant as it
renders the debenture valid and effective and it binds the Appellant.
By an Order of Court dated 7th January, 1987,
the Koperasi was placed under receivership and pursuant to a rescue scheme
formulated by Bank Negara Malaysia, the Koperasi’s deposits and liabilities
were taken over by Kewangan Usahama Makmur Berhad (“KUMB”). As consideration, all the Koperasi’s assets
including the debt due from KCL were
assigned by the Receivers of the Koperasi to KUMB through a sale and purchase
agreement dated 19th April, 1998.
By a second assignment dated 16th November, 1990, the
Receivers of the Koperasi assigned the debenture together will all the moneys
and interest secured thereby to KUMB.
On 8th February, 1991, KUMB appointed the 2nd
Respondent Receivers and Managers to take over all the assets and liabilities
of KCL under the powers contained in
section 8.02 of the debenture.
On 16th May, 1991, following the filing of a
Creditor’s Petition under section 218 of the Act by two creditors, the High
Court ordered KCL to be wound-up and
appointed the Appellant as the Liquidator.
The next event saw MBf
Finance Bhd, the 1st Respondent purchasing KUMB through a sale and
purchase agreement dated 16th August, 1991, and all the rights and
liabilities of KUMB became vested in the 1st Respondent by an Order
of Court dated 30th October, 1991.
In the course of his investigations into the affairs of
KCL, the Appellant issued a notice in Form 33 under the Companies (Winding-Up)
Rules 1972 (“the Rules”), and section 277(5) of the Act demanding the return of
all the property of KCL in the 2nd Respondent’s possession. The Appellant also filed two reports
pursuant to section 235(1) and (2) of the Act disclosing some irregularities in
the manner in which loans were made by the Koperasi to KCL, in the management of the debenture and
questioning the appointments of the 2nd Respondent. When the 2nd Respondent rejected
the Appellant’s demand to return all the property of KCL in their possession
the Appellant filed Originating Summons
D6-24-98-92 on 14th May, 1992,
seeking declarations that the
debenture is null and void, the
appointments of the 2nd Respondent as Receivers and Managers are
also void and seeking the return of the charged assets which are all movable
assets from them. This matter is
still pending.
In the meantime pursuant to rule 38 of the Rules read with
section 235(2) of the Act, the Appellant took out an exparte summons seeking a
number of directions as to the future
conduct of the winding-up. On 30th
September, 1993, the High Court made the following five orders.
1.
The
Appellant to employ Messrs. Albar Zulkifly & Yap as his solicitors to
represent him in the winding-up proceedings (“the appointment order”).
2.
Originating
Summons No.D6-24-98-92 filed by the Appellant in another Division of the High
Court questioning inter alia the legality of the debenture, be transferred to the Winding-Up Court (“the
transfer order”), pursuant to rule 163 of the Rules.
3.
The
Appellant to file notices to all creditors including the secured creditors to
prove their debts (“the proof order”).
4.
The
Appellant to acquire from the 2nd Respondent inter alia, the accounts, documents, ledgers
and monies of the Company (“the acquiring order”).
5.
The
Appellant to commence legal proceedings against the 1st Respondent
to recover two sums of money totaling RM9.745 million, which the Appellant
alleges had been wrongly paid by KCL to the Koperasi and which should be
returned to the Appellant as the Liquidator (“commencement of proceedings
order”).
After being served with
these orders, the 2nd
Respondent filed an
application to have them set
aside and the High Court agreed with
them and set aside the five orders and condemned the Appellant to pay costs
personally to the 2nd Respondent.
That was on 8th July, 1994.
Aggrieved, the Appellant pursued the matter in the Court of
Appeal and on 5th May, 2003, his appeal against the setting aside of
the five orders was dismissed save for
costs which the Court held should not be borne by the Appellant personally but
be paid out of the assets of KCL. It
was following the dismissal of his appeal that the Appellant obtained the leave
of this Court on 27th August, 2003, to refer the six questions of
law that appear at the beginning of this judgment.
Before responding to the questions, I need to clarify one
aspect of the charges in the debenture which KCL had created in favour of the 1st
Respondent. The fixed charge covers the
movable property of KCL and they are identified under section 4.01(a) of the
debenture, whilst the floating charge is over other property which includes
immovables as well. However from the
very language of the demand dated 14th February, 1992, sent by the
Appellant in Form 33 of rule 66(2) of the Rules, it is clear that what the 2nd
Respondent have in their custody and control are the books and accounting
records of KCL. As such, we are only concerned
with the movable assets of KCL and under these circumstances and on the
authority of Mahadevan & Anor
v Manilal & Sons (M) Sdn Bhd [1984] 1 MLJ 266 the fixed charge created by the debenture is
an equitable one.
Basically all the six questions relate to the respective
rights of the 2nd Respondent as Receivers and Managers appointed
under the debenture and that of the Appellant, the Court appointed Liquidator
following the winding-up of the Company and the main issue raised is whether
the respective rights of the 2nd Respondent and the Appellant can
exist independently of the other or have the rights of the former merged with
the rights of the latter following the winding-up order.
Question 1 comes in three parts and is concerned with the
status of the 2nd Respondent following the winding-up of the
Company. In essence answers are sought
as to the extent and powers of the 2nd Respondent, whether they can
continue to function as Receivers and Managers and whether their powers are
inferior to that of the Appellant insofar as they relate to the properties of
the Company that are in the custody and control of the 2nd
Respondent.
To answer Question 1.1. one need only refer to the express
language of sections 233(1) and 277(5) of the Act to determine the true extent
of the powers of a Receiver and Manager to deal with the assets of a wound-up
company. These two sections form part
of the scheme of collection of assets of a company in liquidation and for ease
of reference the provisions of those two sections insofar as they are material
are set out as follows.
“233(1)
Where a winding up order has been made ….. the liquidator …. shall
take into his custody or under his control all the property and things in action to which the company is or
appears to be entitled.
277(5) The Court may require any …. receiver ….
to transfer to the liquidator …. forthwith or within such time as the
court directs any money, property, books and papers in his hands to which the
company is prima facie entitled.”
take under his control and
custody all the property and things to which KCL is or appears to be entitled.
As such the Appellant’s right to possession is no greater than KCL’s own
right and is limited to possession of property or things which KCL is or appears to be entitled. See the
case of Re High Crest Motors Pty Ltd (in liq)[1979] 3 ACLR 564.
Likewise the Appellant’s right to have property in the
custody of the 2nd Respondent transferred to him under section
277(5) is subject to whether KCL is prima
facie entitled to such property based on the same principle that the Appellant’s right cannot be greater than
KCL’s.
The relevant sub-section of section 300 of the Act referred
to in Question 1.2. insofar as it relates to the facts of this appeal is
sub-section (1)(b)(ii), the provisions of which read as follows.
“300(1)
Every person, who, being a ….. present officer ….. of a company
which
is being wound-up----
(a) ………………………………..
(b)
does not deliver to
the liquidator, or as he directs ----
(i) ………………………….; or
(ii) all books and papers in his custody or
under his control belonging to the company and which he is required by law
to deliver up,
shall
be guilty of an offence against this Act” which is punishable with imprisonment for two years
or a fine of five thousand ringgit.
Like section 300(1)(b)(ii), the provisions of 305 are also penal in nature and they
empower the Court to assess damages against delinquent officers and those
provisions read as follows.
“305(1)
If in the course of winding-up it appears that …. any …. officer
has
misapplied or retained or become
liable or accountable for any money or property of the company …. the court may on the application of the
liquidator examine into the conduct of that …. officer and compel him to
repay
or restore the money or property ….”
For completeness I also
reproduce the provisions of sub-rules (1) and (2) of rule 66 of the Rules as
Question 1.2. makes reference to that rule as well.
“66(1) The powers conferred on the courts by
section 277(5) may be exercised
by
the liquidator.
(2)
Any …. officer of a
company which is being wound up shall on notice from
the liquidator in Form 33 and within such time as he shall by notice in writing …. transfer into the hands of the liquidator any money or property or books or papers which are in his hands and to which the company is prima facie entitled, and the court may on application of the liquidator order the …. transfer”.
An “officer of
a company” identified in the sections and rule that I have referred
has been defined by section 4(1)(b) of the Act “ to include a receiver and
manager of any part of the undertaking of the corporation appointed under a
power contained in any instrument.”
Question 1.2. poses the issue as to whether the 2nd Respondent are bound by law to transfer all the movable property of KCL in their custody and control following a demand for their return by the Appellant. The 2nd Respondent can only do so if KCL is entitled to or appears to be entitled to or prima facie entitled to such property under sections 233(1) and 277(5) of the Act and under rule 66(2) of the Rules. The meaning of the phrase “to which the company is prima facie entitled” has been defined by the Australian case of Re High Crest Motors, supra, when dealing with sections 5(1) and 263(3) of the Australian Companies Act, 1961(Vic), the provisions of which are in pari materia with our sections 4(1)(b) and 277(5). The facts of the Australian case are almost on all fours as our case. On 6th December, 1976, a creditor of High Crest Motors Pty Ltd., appointed receivers and managers pursuant to a power to do so contained in a debenture given by High Crest to the creditor. On 23rd December, 1976, liquidators were appointed when High Crest went into voluntary liquidation. The receivers and managers had obtained all books of accounts as well as other assets of the company.
On an application by the liquidators in December, 1977, O’Bryan J., made an order under section 263(3) for the surrender by the receivers and managers of the relevant property. In setting aside the order, the Supreme Court of Victoria made two rulings, firstly whether the receivers were “officers of the company” within section 263(3) and secondly on the facts of the case whether High Crest can be said to be “prima facie entitled” to the charged assets in the receivers’ hands.
On the first ruling, a distinction was drawn between the receiver appointed by a company who was a secured creditor and which subsequently went into liquidation and the receiver appointed by a secured creditor of the company which was subsequently wound up.
The fact of the distinction is most significant as the Appellant relies on the definition of an officer under section 4(1)(b) of the Act to include a receiver of the company within the meaning of section 277(5). The effect of such distinction is expressed by Harris J. in the following manner.
“The
respondents made their application against the appellants on the basis that
they were “receivers” of the company. A
receiver who had been appointed by a company which was a secured creditor and
which subsequently went into liquidation, would be a person who would get into
his hands money, property and books and papers of the company’s debtor. He would be under a duty to pay over to the
company money he received, to go in satisfaction of the company’s debt and he
might well be bound under the terms under which he had been appointed to hand
over to the company property and books and papers of the debtor which he had
obtained. In the case of such a
receiver, it would be, I would think, a simple matter for a liquidator of the
company which had appointed the receiver, to prove that he had in his hands “money
property or books and papers” to which the company was prima facie entitled.
The situation
is to be contrasted with the situation which exists where the “receiver of the
company” is, true enough, a person who falls literally within that expression,
but who is a receiver who receives the money property and books and papers of
the company which has gone into liquidation as the appointee of a secured
creditor of that company. The position
of such a receiver can be shown by the position of the appellants in this
appeal”.
Citing the definition of “officer” under section 5(1) of the Australian Act, and applying it to the expression “officer of the company” in section 263(3), the learned Judge had this to say.
“If this
definition were applied to the expression “officer of the company” in s 263(3),
the result would be to bring in any person who was a receiver and manager of
the company, so that, if a receiver and
manager appointed by a secured creditor under his security was not a
“receiver of the company” within the
subsection, nevertheless that person
would be within the scope of the section as an “officer of the company”. However, the definition of “officer” only
applies “unless the contrary intention appears”. Some of the persons within the definition of “officer” are
clearly persons who are “officers” within s 263(3) (e.g. directors, the secretary and employees of
the company) but, in my opinion, the context of s 263(3) shows a contrary
intention with respect to the application of the definition to the case of a
receiver and manager where that person has been appointed by a secured creditor of the company.
I am thus of
the opinion that the appellants are not “receivers of the company” or “officers
of the company” within s 263(3) and that therefore the court has no
jurisdiction to make an order under that section against them”.
Likewise our section 4(1)(a) and (b) defines “officer” in the following manner.
“4(1) In this Act, unless the contrary intention
appears ----
“officer”
in relation to a corporation includes ----
(a)
any director, secretary, or employee of the corporation;
(b)
a receiver and manager of any part of the undertaking
of the corporation appointed under a power contained in any instrument.” (Emphasis
is mine)
Since the 2nd Respondent were appointed by the 1st Respondent, the secured creditor and not by KCL, the company in liquidation and on the authority of High Crest, the 2nd Respondent are not receivers of KCL or officers of KCL within the definition of section of 4(1)(b) of the Act. As such the Appellant cannot rely on section 277(5) to demand the return of the charged assets in the custody of the 2nd Respondent, as the latter are not officers of KCL.
When determining the legal
status of the appellant receivers in High Crest the Supreme Court further
held at page 567 of the report that “no
question of title arises; the appellants’ claim is possessory, based on their
legal rights which flow from the debenture.
The cases earlier referred to would appear to give priority in possession
to a person who had a legal right to possession by lien or otherwise and so
entitle him to defeat a liquidator’s summary claim to possession. ……….. the phrase “to which the company is
prima facie entitled” relates to an entitlement to possession, and a
liquidator’s right cannot be greater than the company’s right”.
Re High Crest also held that the only way that an insolvent company or its liquidators could recover its property was by way of a redemption action against the debenture holder but even that too would be dependent upon the company satisfying all the obligations under the debenture.
The only marked difference between the Australian case and our case is the fact that whilst the company in Re High Crest was in voluntary liquidation, KCL was wound-up compulsorily at the instance of two creditors. Nevertheless the decision is good law as Part x, Division 4, Subdivision (1) of the Act in which section 277(5) falls under, applies to every mode of winding-up. To that extent the Court of Appeal was correct when it relied on the Australian case.
To conclude sections 233(1) and 277(5) of the Act have no application where assets form part of an equitable charge as the 2nd Respondent have a legal right to possess them pursuant to the terms of the debenture. By operation of law those assets are no longer assets to which KCL is or appears to be entitled to or prima facie entitled unless they are first redeemed from the 1st Respondent. By reason of sections 233(1) and
277(5) their retention by the 2nd Respondent does not fall within the penal provisions of section 300(1)(b)(ii). On the facts of this appeal, section 305(1) if at all, can only apply after the whole debt due to the 1st Respondent has been settled in full from the proceeds realized by the 2nd Respondent and if there should be any surplus and the 2nd Respondent chose to retain the surplus or failed to account, only then will the 2nd Respondent come within the ambit of section 305.
On appointment, a receiver and manager becomes an agent of the company and that agency ceases upon the winding-up of the company. Nevertheless, he still retains his possessory right to the charged assets and his status is best described by Edgar Joseph Jr. FCJ in the case of Kimlin Housing Development Sdn Bhd (Appointed receiver and manager) (In Liquidation v Bank Bumiputra (M) Bhd & Ors [1997] 2 MLJ 805 (“Kimlin”) to be as follows.
“To put it
another way, winding up after a receiver and manager is appointed terminates
his purely personal powers but not his in rem powers.
The
distinction between a receiver’s and manager’s in rem powers and his personal
powers is this: the former flow from the security created by the debenture and
relate to the assets of the company whereas the latter relate
to everything
else. So, for example, in Sowman v
David Samuel Trusts Ltd [1978] 1 All ER 616, a receiver appointed over assets
which included a mortgage debt could validly exercise the power of sale in the
name of the company despite its liquidation.
This power, being coupled with an interest, was irrevocable both at
common law and by statute and accordingly, a power given to the receiver for
the purpose of securing a benefit to the debenture holders was irrevocable as a
power given to the debenture holders themselves. It was further held that the sale did not contravene s 227 of the
Companies Act 1948 (equivalent to the Malaysian s 223) since although made in
the name of the company, it was a sale of property which did not belong to the
company but formed part of the debenture holder’s security”.
In practice the liquidator exists side by side with the receiver with each exercising his separate powers and duties conferred on them by the Act in the case of the former and by the debenture in the case of the latter. There is no question of any ranking or of one being superior to the other or of one taking precedence of the other and as explained by Needham J in Expo International Pty Ltd & Anor v Chant & Ors [1979] 3 ACLR 888, “ a receiver, while he has a prior right to possession of the assets subject to the charge given to the person who appointed him over the right of the liquidator, nevertheless has possession for a limited purpose, namely, to comply with his duties to account to the mortgagee”.
Coming to Question 2, Kimlin was decided on its peculiar facts and are distinguishable from the facts of this appeal before us in that Kimlin was concerned with land charged under the National Land Code, 1965 (“the Code”) and as such no movable property was involved.
The issue of law raised in Kimlin was whether a Receiver and Manager appointed under a debenture can proceed to sell the charged land by just obtaining the leave of the Court without taking any proceedings under the Code. Before us the subject matter is entirely different in that it involves the enforcement of an equitable charge over movable property.
Kimlin did not consider the effect of sections 233(1) and 277(5) of the Act and there was no necessity for Kimlin to do so, as the subject matter was land charged under the Code and which the then Supreme Court held could only be sold by the Receiver and Manager under the provisions of the Code by way of a judicial sale.
Kimlin also posed the question as to whether section 223 of the Act prohibits the Receivers and Managers from making a valid disposition of the land after the commencement of the winding-up.
After citing sections 4(1)(b) and 300(1)(b)(i) and (ii) of the Act, Edgar Joseph Jr. FCJ, concluded “that the clear implication is that liquidation does not merely terminate the agency of a receiver and manager but also his powers on winding-up since there is no estate for the receiver or manager to administer”. (Emphasis is mine). The Appellant relies heavily on this statement of the law to support his claim that since there is no estate for the 2nd Respondent to administer following KCL’s liquidation, the 2nd Respondent cannot continue to retain the charged assets in their possession but must on pain of prosecution deliver such property to him.
My only comments to such a claim are these. Firstly the learned Judge’s conclusion was based on the legality of a section 223 transaction concerning land. Secondly when referring to section 300(1)(b)(i), concerning the movable property that should be surrendered, the phrase “and which he is required by law to deliver up” that forms part of that sub-section is noticeably missing leading me to imply that had the phrase been considered by the learned Judge he may well have reached a different conclusion insofar as the charged assets consists of movables. For that reason I have my reservations on that part of his conclusion for in Kimlin there was no estate other than the lands charged under the Code and that leaves the Receivers with no estate to administer if they were unable to sell the lands. In this appeal, there is an estate to administer and although winding-up deprives the 2nd Respondent of their agency, it does not deprive them of their proprietory right to administer the estate.
It is therefore my considered opinion that the principles of Kimlin should be restricted in scope and limited to the powers of the Receiver and Manager appointed under a power contained in an instrument to dispose of lands charged under the Code. Those principles have no application to assets comprised in a fixed and floating charge contained in a debenture regardless of whether such assets are movables or immovables provided that such immovables are not charged under the Code based on the same rationale found in Mastiara Sdn Bhd v. Motorcycle Industries (M) Sdn Bhd & Ors [1998] 3 CLJ 874 and expressed by Abdul Hamid Mohamad, J (as he then was) as follows.
“Furthermore
the charges in question in Kimlin’s case were registered under the National
Land Code. Therefore, in my humble opinion, the better view is that, in view of
the decision of the Federal Court in Mahadevan’s case, what is said in Kimlin’s
case should be confined to charges registered under the Code. In other words, if a charge is registered
under the Code, the remedy must be in
accordance with the
Code. If the charge in an equitable charge, outside the Code, the Code does not apply and chargee may enforce the remedy provided in the debenture. Otherwise, there would be a lacuna. The law (courts) recognizes equitable charges but no remedy is available”.
The position of the secured creditor is spelled out in section 291 of the Act. Sub-section 1 of that section provides that in every winding-up, all debts payable and all claims against the company shall be admissible to proof against the company. Sub-section (2) further provides for the automatic application of the bankruptcy law and rules in matters relating to:
(1) the respective rights of secured and unsecured creditors.
(2) debts provable; and
(3) valuation of annuities and future and contingent liabilities
The corresponding relevant provisions in the Bankruptcy Act, 1967 is
section 42 read together with Schedule C, which sets out the mode of proof of debts for the secured and unsecured creditors.
The effect of Schedule C has been explained succinctly by Abdul
Kadir Sulaiman, J (as he then was) in the case of Malayan
Banking Berhad v The Official
Assignee [Receivers of
the estate of
Velu Marimuthu
(Bankrupt) [1993] 2 AMR 48 page 3400 to be as follows.
“Paragraphs 9
to 17 of Schedule C to the Act concern the proof of debts by secured creditors
like the plaintiff. Paragraph 9 allows
a secured creditor to realize the security given by the debtor before his
bankrupt. This is consonant with s 8(2)
of the Act. Paragraph 10 allows a
secured creditor to surrender his security to the Official Assignee for the
general benefit of the creditors.
Paragraph 11 allows a secured creditor to value his security and prove
for the difference between the value and the amount of his debt. What can be implied from these paragraphs is
that there would be another alternative to be chosen by a secured creditor in
respect of the security i.e. he may rely on his security and stand aside from
the bankrupty proceedings altogether.
So, with these four choices given to a secured creditor by the law, it
is for him to choose any one of them in regard to the security. In Chinese Tin Mines Rehabilitation Loans
Board’s case, supra, Thomson J has this to say at p 66:
‘As was
pointed out by Jessel, MR in the case of Moor v Anglo-Italian Bank 10 Ch D 681
whether the creditor stands aside or comes in and proves is a case of election
and does not involve any forfeiture of his rights. The creditors has two funds to resort to, the bankrupt’s general
estate, so as to get a dividend on the whole amount of his debt, or his
security’.
At
p 67, his Lordship went further to state:
‘It all comes
back to a question of election. The
creditor can come in or he can stay out.
If he comes in he must submit to his debt being dealt with in accordance
with the bankruptcy law which says in effect that only so much of it can count
as against the other creditors. If he
stays out he can do anything that the law allows him to do with his security as
if there had been no question of bankrupty.
He can realize it or he can retain it’.
In the
present proceedings it is clear from the application made pursuant to s 148 of
the Code for the sale of the secured property that the plaintiff wants to
realize its security, in which case it would not be precluded from proving for
any balance due should the amount realized be not sufficient to meet the debt
due from the bankrupt pursuant to paragraph 9 of Schedule C to the Act. Its choice is, therefore, to realize its
security”.
Added to this is the decision of this court in the case of Director of Customs, Federal Territory v Ler Cheng Chye (Liquidator of Castwell Sdn Bhd, in liquidation)[1995] 2 MLJ 600 confirming the secured creditor’s status that he stands outside the liquidation and that he must be paid first in preference over other unsecured creditors.
The combined effect of sections 291(1) and (2) of the Act and section 42 of the Bankruptcy Act 1967, and Schedule C thereto is that there is no mandatory requirement for a secured creditor to come under the liquidation. He has the option of either relying entirely on his security for which he is not obliged to submit a proof of debt. If he however decides to come under the liquidation, he submits proof of his debt and will be entitled to a dividend in respect of the unsecured portion. If he does not submit proof of his debt, then pursuant to paragraph 16 of Schedule C, he shall be excluded from participating in a dividend.
Question 4 poses the issue as to the status of a power of attorney granted by a company which is subsequently wound-up. That same issue was raised in the New Zealand case of Wellington Steam Ferry Company (Limited)(In Liquidation) and Anothr v The Wellington Deposit, Mortgage, And Building Association (Limited)[1915] 34 NZLR 913 when interpreting section 101 of the New Zealand Property Law Act 1908, the provisions of which are in pari materia with our section 6 of the Powers of Attorney Act, 1949. In the course of his judgment, Stout, C.J. posed the following question.
“The rule of
law is that a power of attorney is cancelled by the death of the donor if the
latter is a natural person, or by dissolution if the donor is a
corporation. An exception is made to
this rule by the section which is the subject matter of this summons, and the
question to be determined is, Does the exception apply to a power of attorney
given by a corporation for valuable consideration and expressed to be
irrevocable? Is such a power cancelled
by the dissolution of the company, or does the section enable the power to
remain operative?”
After considering a number of authorities His Lordship concluded as follows.
“I think also
that these cases show that a company must on dissolution be considered as
having ceased to exist for any purpose, and in the absence
of special
statutory provision an attorney cannot be agent of something that does not
exist.”
From this it follows that a winding-up order does not cancel a power of attorney nor does section 4 read together with sections 300 and 305 of the Act. My answers to Questions 1 to 3 would not be different if the instrument which provides for the appointment of a Receiver and Manager incorporates a power of attorney as well.
Rule 163 of the Rules, the subject matter of Question 5 contains the following provisions.
“Where an
order has been made for the winding-up of a company the Judge shall have power
without further consent to order the transfer of him of any action cause or
matter pending brought or continued by or against the company.”
That rule gives power to a Judge to transfer to himself any action, cause or matter pending, brought or continued by or against the company. On my reading of the rule, the Judge has the discretion to order such a transfer as the rule provides that the court “shall have the power” and not “shall transfer to itself.” As such there is no mandatory requirement that a winding-up court order transfer of all related matters instituted in the courts to itself.
Under rule 78 of the Rules, every creditor shall prove his debt unless exempted by the Judge. The mode of such proof is provided by rule 79 namely by sending to the liquidator an affidavit verifying the debt together with the prescribed filing fee. Then comes rule 82 which requires the affidavit to state whether the creditor is or is not a secured creditor.
It is the Appellant’s contention that references to “every creditor” in rule 78 and “secured creditor” in rule 82 impose a duty on the secured creditor to prove his debt as well.
I have already stated earlier on that a secured creditor can rely exclusively on his security for payment and is not obliged to submit a proof of debt. However if he gives up his security and prove for the whole debt or wishes to prove his unsecured portion, he must submit his proof of debt. This is clear from paragraphs 9-16 of Schedule C of the Bankruptcy Act, 1967. It is under these circumstances that the secured creditor has to comply with rules 78 and 82.
Following my interpretation of the relevant laws and their application to the cases cited, I answer the six questions posed to us in the following manner:
1.1. Upon the winding-up of a company and the appointment of a liquidator, the Receiver and Manager ceases to be the agent of the company but he continues to retain his possessory rights conferred upon him by the debenture to take custody and control of all the assets charged under the debenture.
1.2. Section 233 and/or section 277 of the Act, read together with sections 300 and 305 of the same Act and rule 66 of the Rules do not apply to a Receiver and Manager appointed pursuant to a power contained in a debenture and the Receiver and Manager is entitled to possession and control of the charged assets despite a demand made by the Liquidator for their return, unless those assets are redeemed by the Liquidator or there is a surplus of proceeds which has to be returned to the Liquidator.
1.3. Following a winding-up, the Receiver and Manager loses his status as agent of the company. He continues to retain his possessory powers as a Receiver and Manager whilst the Liquidator exercises his statutory powers and duties under the Act. There is no question of any superior ranking. They exist side by side with each exercising his separate powers and duties conferred on them by the Act in the case of the Liquidator and by the debenture in the case of the Receiver and Manager.
2. The principles in Kimlin should be restricted in scope and limited to the powers of a Receiver and Manager to sell land charged under the Code. Kimlin should not apply to assets comprised in a fixed and floating charge contained in a debenture. The assets may include immovable as well provided they are not charged under the Code.
3. On the authority of Director of Customs, Federal Territory, supra, a Receiver and Manager appointed pursuant to an instrument operates outside the winding-up, unless of course he intends to claim in the liquidation in which case he has to prove his debt.
4. A winding-up order does not cancel a power of attorney nor
does section 4 read together with sections 300 and 305 and the other provisions of the Act. Thus my answers to Questions 1 to 3 would not be different if the debenture which provides for the appointment of a Receiver and Manager incorporates a power of attorney as well.
5. Rule 163 of the Rules gives a discretion to the Winding-Up
Judge to transfer any action, cause or matters that are pending or instituted or may be instituted in the other courts. There is no mandatory requirement in rule 163 to order such transfers.
6. A secured creditor is not obliged to submit a proof of debt when
called upon to do so by the Liquidator if he relies upon his security for payment. He need only submit his proof of debt if he gives up his security and proves for the whole debt or if he decides to prove for the unsecured portion.
Finally I come to the five orders, upon which the six questions of law are based.
The appointment order was made under section 236(1)(e) of the Act and was not opposed by the Respondents. Nevertheless the High Court set it aside and the Court of Appeal considered it to be inapplicable in its judgment. Before us, Counsel for the 1st Respondent made no reference in his written submission and both the Appellant and 2nd Respondent merely alluded to it. As this is a non-starter, there is nothing more to be said on this appointment order.
It is clear from the language of rule 163 of the Rules that the jurisdiction to transfer relates only to matters brought by or against the company. Originating Summons D6-24-98-92, which was filed by the Appellant in the Commercial Division of the High Court and for which he seeks a transfer to the Winding-Up Court, was filed by the Appellant in his personal name as Liquidator of KCL. As such, it is not an action brought by the company. Since the Commercial Division of the High Court has jurisdiction to hear the Originating Summons, transfer of it to the Winding-Up Court becomes unnecessary particularly when the insolvency of KCL has nothing to do with the challenge to the validity of the debenture and the appointment of the 2nd Respondent as Receivers and Managers. For that reason the Court of Appeal was correct when it affirmed the decision of the High Court to set aside the transfer order.
When answering Questions 3 and 6, I have already dealt at length the relevant provisions of the Act and Rules as to the status of the secured creditor and that he has the option to choose any of the methods given to him under the law to realize his security. He can:
(1) realize his security and stand outside the liquidation.
(2) surrender his security under paragraph 10 of Schedule C and prove for the whole debt.
(3) value his security and prove for the unsecured balance under paragraph 11 of Schedule C.
The secured creditor initiates the process of enforcing his security and
to that end there is no obligation on the part of the liquidator to issue any notice to the secured creditor to prove his debt. As such, the proof order cannot be maintained.
I have already dealt with sections 233 and 277(5) of the Act and have concluded that the Appellant has no right to demand the return of the charged assets in the 2nd Respondent’s possession. Since there is a dispute over claims to the charged assets, this will be finally determined when the Originating Summons which the Appellant had initiated against the 2nd Respondent is heard and disposed off. Until that issue is determined in the Appellant’s favour, the debenture is valid and so is the appointment of the 2nd Respondent as Receivers and Managers and to that end the setting aside of the acquiring order has been correctly made.
Whilst section 236(2)(a) empowers the Appellant to institute an action in Court, it does not require him to obtain the leave of the Court to do so. To that extent, the commencement of proceedings order is superfluous and unnecessary.
The Appellant’s reliance on section 237(3) is also misplaced as the scope of that section is confined to guidance on matters of law or principle and not on commercial decisions. The purpose of his getting the order is to enable him to file a suit against the 1st Respondent to recover two sums of
money totalling RM9.745 million which he maintains had been wrongly paid by KCL to the 1st Respondent and which should be returned to him as the Liquidator. From the very nature of the suit to be filed, the decision to commence such a proceeding is very much a commercial decision. In Sanderson v Classic Car Insurance Pty Ltd [1985] 10 ACLR 115, the Supreme Court of New South Wales had to consider the scope of section 379(3) of the Companies Code which is in pari materia with our section 237(3). At page 116 of the report, Young J. had this to say. “Although s 379(3) of the Companies Code is expressed in wide terms, it seems clear that it does not permit the liquidator or a provisional liquidator to come to the court whenever he feels some unease about a situation and wishes to obtain some sort of insurance against the possibility of error as well as an assurance that he is on the right track.” That Australian case also listed the following four classes of cases where section 379(3) is applicable.
“(a) guidance to the liquidator on matters of
law; see eg Re Australian Home Finance Pty Ltd [1956] VR 1 and; Re Standard
Insurance Co Ltd [1963] 80 WN (NSW) 1355;
(b) questions involving legal procedure (eg
whether a liquidator
should settle curial proceedings, and if
so, on what terms);
(c) whether
a liquidator should act on his commercial judgment to
postpone a sale because he recognizes
his legal duty ordinarily
requires him
to reduce the company’s assets into cash as soon as
possible and
to distribute (an example is Re Statewide Investments
Ltd, supra,);
or
(d) where there are two or more competing
purchasers for the company’s property and the liquidator can see that it may be
alleged that the liquidator has acted mala fide or in an absurd or unreasonable
or illegal way, see Re Bayswood Ptd Ltd [1981] 6 ACLR 107 at 113.”
Sanderson was followed in Re Kian Joo Holdings Sdn Bhd (in Liquidation) v Mohd Jabbar bin Abdul Majid [1999] 6 MLJ 352.
On the
facts of this case, no leave is necessary for the Appellant to commence the
proceedings since section 236(2)(a) of the Act is broad enough to allow him to
do so.
For all the reasons that appear in this judgment, I find no merit in this appeal and on that conclusion, it is dismissed with costs and the deposit is to be paid out to the Respondents to account of their taxed costs.
Both my brothers, Haidar Mohd Noor, CJM and Abdul Malek
Ahmad, FCJ concur with my findings and conclusion and that this appeal be dismissed with costs and the deposit be paid out to the Respondents to account of their taxed costs.
Sgd.
DATED: 5TH NOVEMBER, 2004 ( SITI NORMA YAAKOB )
JUDGE
FEDERAL COURT MALAYSIA
PUTRAJAYA
Counsel:
Encik Shahul Hameed Amirudin (Ms. Woo Lai Mei and Mr. Vijay Raj with him) for the Appellant.
Solicitors: Messrs Zul Rafique & Partners
Datuk N. Chandran (Encik Reza Dzul Karnain with him) for the 1st Respondent .
Solicitors: Messrs Albar & Partners
Mrs. Izabella de Silva for the 2nd Respondent.
Solicitors: Messrs Iza Ng Yeoh & Kit