1. ) Khoo Siew Kiat v Universal Cable (M) Berhad (in Liquidation) (WA-28PW-525-09/2024)

The liquidators of Universal Cable (M) Berhad have sought the following questions to be answered by this Court: -

Whether section 31 of the Employment Act 1955 (“EA 1955”) is applicable to a sale of an unencumbered place of employment by a liquidator by way of private treaty (“Question 1”);

If Question 1 is answered in the affirmative, whether the maximum amount payable to any employee who is eligible or entitled to be paid from the sale proceeds of the place of employment shall be limited to four months’ work but there shall not be any limit on the termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay and maternity allowance payable to such employee (“Question 2”); and

If Question 1 is answered in the negative, whether the termination and lay-off benefits payable in respect of an employment contract entered by liquidator after the commencement of winding up are costs and expenses of the winding up as provided under section 527(1)(a) of the CA 2016 (“Question 3”). B. Decision of this Court

After considering the submissions filed by the litigants and the affidavits filed, I answer the said questions as follows: -

Question 1 – Section 31 of the Employment Act 1955 (“EA 1955”) is not applicable to a sale of an unencumbered place of employment by a liquidator by way of private treaty.

(ii) Question 2 – Need not be answered as the said statutory proviso does not apply to the facts at hand.

(iii) Question 3 – Whether the termination and lay-off benefits payable in respect of an employment contract entered by liquidator after the commencement of winding up are costs and expenses of the winding up as provided under section 527(1)(a) of the CA 2016 is dependent on the facts before the liquidator. If the liquidator finds that the employment contract was not terminated on the date of the winding up and that the employees and the liquidator agreed, either by conduct or by any written agreement or representation, to continue with the contract of employment beyond the date of winding-up then the termination and lay-off benefits will be part of the costs and expenses of the winding-up as provided under section 527(1)(a) of the Companies Act.

(iv) I therefore answer question 3 as follows: - Whether the termination and lay-off benefits payable in respect of an employment contract entered by liquidator after the commencement of winding up are costs and expenses of the winding up as provided under section 527(1)(a) of the CA 2016 must be determined by the liquidator based on the facts of each contract of employment. There are 3 possibilities: - a) If the liquidators find that the business was not continued and the notice of termination due to the winding up of the company was not displaced by an agreement, either by conduct or by any written instrument, the said costs will not fall under section 527(1) (a) of the Companies Act. These costs will fall within the purview of section 527(1)(b) of the Companies Act. b) If the liquidator finds that the business was continued after the winding up and that the employees continued to undertake their works, as part of the business to enable the liquidator to sell the said business as a going concern, and that parties agreed that the notice of termination by operation of law is waived, then the previous contract of employment continued, then the costs referred to earlier, will fall within the purview of section 527(1)(a) of the Companies Act. c) If however, it is found that the notice of termination by operation of law remains effective and that a new contract of employment is entered, then the liquidator must then differentiate between the costs post winding up and the costs pre winding up. All costs that arise post winding up under the new employment contract will fall within the purview of section 527(1)(a) of the Companies Act. Whereas any costs that arise due to the pre winding up affair of the company relating to the said employees, will fall within section 527(1)(b) of the Companies Act.

With regard to question 3, this Court will not provide an answer as to whether all of the contracts of employment continued after the date of winding up. That is an issue that must be determined by the liquidator after considering the facts of each employee and must determine based on the evidence available to the liquidator whether they agreed to have the contract of employment continued after the date of winding-up or whether the said notice of termination remains effective or a new contract of employment is entered with each employee.

My detailed reasons for the above decision are stated in the following paragraphs. C. Reasoning of this Court Question 1 – Whether section 31 of the Employment Act 1955 is applicable to a sale of an unencumbered place of employment by a liquidator by way of private treaty.

For ease of reference I reproduce Section 31 of the Employment Act: - “(1) Where by order of a court made upon the application of any person holding a mortgage, charge, lien or decree hereinafter referred to as “the secured creditor”) or in the exercise of rights under a debenture the property of any person (hereinafter referred to as “the person liable”) liable under any of the provisions of this Act to pay the wages due to any employee or to pay money due to any contractor for labour is sold, or any money due to the person liable is attached or garnished, the court or the receiver or manager shall not authorize payment of the proceeds of the sale, or of the money so attached or garnished, to the secured creditor or the debenture holder until the court or the receiver or manager shall have ascertained and caused to be paid, out of such proceeds or money, the wages of such employee, or the money due to any contractor for labour under a contract between him and the person liable, which the person liable was liable to pay at the date of such sale, attachment or garnishment: Provided that this section shall only apply to the sale of a place of employment on which— Provided further that— the total amount of the wages of any employees to which priority over the claim of a secured creditor is given by this section shall not exceed the amount due by the principal to the contractor at the date of the sale, attachment or garnishment unless the contractor is also a contractor for labour; work. includes termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay and maternity allowance.”

Therefore, this Court is required to interpret the said proviso and determine whether the facts of this case fall within the circumstances specified therein.

This Court must therefore ascertain the intention of Parliament. This must usually be undertaken by considering the words that have been used by the drafters of the said statute. If the meaning of the words appearing in the said statute is clear and unambiguous and does not lead to a result that is manifestly absurd or unreasonable, then this Court applies the words as they were intended by Parliament. It is not for this Court to read and interpret the law to achieve what it believes to be morally or equitable. It is Parliament’s intention that must be applied by this Court based on the exact words that were used in the relevant legislation. See Intisari Mulia Engineering Sdn Bhd v TUV SUD (Malaysia) Sdn Bhd & Another appeal [2025] 5 CLJ 46.

I am also guided by the decision of the Federal Court in AJS v JMH & Another appeal [2022] 1 CLJ 331 where Tengku Maimun Tuan Mat CJ held: - “[44] In this context and reverting to statutory interpretation, authorities are replete with the principles or rules of statutory interpretation. Suffice it that I refer to the judgment of this court in Tebin Mostapa v. Hulba-Danyal Balia & Anor [2020] 7 CLJ 561; [2020] 4 MLJ 721 where the rule of statutory interpretation is stated thus: [30] In our opinion, the rules governing statutory interpretation may be summarised as follows. First, in construing a statute effect must be given to the object and intent of the Legislature in enacting the statute. Accordingly, the duty of the court is limited to interpreting the words used by the legislature and to give effect to the words used by it. The court will not read words into a statute unless clear reason for it is to be found in the statute itself. Therefore, in construing any statute, the court will look at the words in the statute and apply the plain and ordinary meaning of the words in the statute. Second, if, however the words employed are not clear, then the court may adopt the purposive approach in construing the meaning of the words used. Section 17A of the Interpretation Acts 1948 and 1967 provides for a purposive approach in the interpretation of statutes. Therefore, where the words of a statute are unambiguous, plain and clear, they must be given their natural ordinary meaning. It is not the province of the court to add or subtract any word; the duty of the court is limited to interpreting the words used by the legislature and it has no power to fill in the gaps disclosed. Even if the words in a statute may be ambiguous, the power and duty of the court "to travel outside them on a voyage of discovery are strictly limited". Third, the relevant provisions of an enactment must be read in accordance with the legislative purpose and applies especially where the literal meaning is clear and reflects the purposes of the enactment. This is done by reference to the words used in the provision; where it becomes necessary to consider every word in each section and give its widest significance. An interpretation which would advance the object and purpose of the enactment must be the prime consideration of the court, so as to give full meaning and effect of it in the achievement to the declared objective. As such, in taking a purposive approach, the court is prepared to look at much extraneous materials that bears on the background against which the legislation was enacted. It follows that a statute has to be read in the correct context and that as such, the court is permitted to read additional words into a statutory provision where clear reason for doing so are to be found in the statute itself. [45] Further, applying a plain and literal construction to s. 3(3) does not lead to an absurdity, rather it accords with the object and the underlying purpose of the LRA and with the demarcation of jurisdictions ordained by art. 121(1A) of the Federal Constitution. [46] Finally, and still on the literal rule of construction, I am aware as noted earlier that the Court of Appeal interpreted s. 3(3) by relying on the cases of Tang Sung Mooi (supra), Subashini (supra); Viran Nagapan (supra) and Indira Gandhi (supra). The facts of those cases, in my view, do not lend any assistance to the interpretation of s. 3(3) of the LRA within the context of this case because those cases did not deal with the inclusion of a party who was originally Muslim in a dispute between non-Muslims. Those cases are therefore not authorities for the proposition advanced by the Court of Appeal. That said, the rest of the reasoning of the Court of Appeal as regards the literal rule was, in my view, correct. The Purposive Rule Of Construction [47] I now turn to consider the purposive rule of construction of statutes. In this regard, s. 17A of the Interpretation Acts 1948 and 1967 ("the Interpretation Acts") reads: In the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act (whether that purpose or object is expressly stated in the Act or not) shall be preferred to a construction that would not promote that purpose or object. [48] The standard canon of construction has always been that the courts should, in usual cases, begin with the literal rule and that the purposive rule only ought to be relied on where there is ambiguity. This was clarified by this court most recently in PJD Regency Sdn Bhd v. Tribunal Tuntutan Pembeli Rumah & Anor And Other Appeals [2021] 2 CLJ 441; [2021] 2 MLJ 60, as follows ("PJD Regency"): [36]...statutory interpretation usually begins with the literal rule. However, and without being too prescriptive, where the provision under construction is ambiguous, the courts will determine the meaning of the provision by resorting to other methods of construction foremost of which is the purposive rule (see the judgment of this court in All Malayan Estates Staff Union v. Rajasegaran & Ors [2006] 6 MLJ 97). [49] How then does s. 17A of the Interpretation Acts feature in our rules of construction? In determining the application and scope of s. 17A of the Interpretation Acts, Augustine Paul FCJ in the case of All Malayan Estates Staff Union v. Rajasegaran & Ors [2006] 4 CLJ 195 (as affirmed in PJD Regency (supra)) said: [7] The choice prescribed in s. 17A "... a construction that would promote the purpose or object underlying the Act... shall be preferred to a construction that would not promote that purpose or object" can only arise when the meaning of a statutory provision is not plain and is ambiguous. If, therefore, the language of a provision is plain and unambiguous s 17A will have no application as the question of another meaning will not arise. Thus, it is only when a provision is capable of bearing two or more different meanings can s. 17A be resorted to in order to determine the one that will promote the purpose or object of the provision. Such an exercise must be undertaken without doing any violence to the plain meaning of the provision. This is a legislative recognition of the purposive approach and is in line with the current trend in statutory interpretation. [50] In Yong Tshu Khin & Anor v. Dahan Cipta Sdn Bhd & Anor And Other Applications [2021] 1 CLJ 631; [2021] 1 MLJ 478, this court stated the application of s. 17A of the Interpretation Acts thus: Section 17A of Act 388 requires that in the interpretation of a provision of an Act, a construction that would promote the purpose or object underlying the Act shall be preferred to a construction that would not promote that purpose or object... It is a settled principle of law that the purposive rule applies where there is ambiguity in a statute such as when a literal reading of it opens it to two or more meanings. [51] Thus, it is trite that where words in a statute are ambiguous and capable of two meanings, then resort may be had to the history of the legislation. And it is also trite that statutory construction is exclusively a matter for the Judiciary but Hansard and parliamentary speeches serve as an interpretive aid (see the judgment of this court in Maple Amalgamated Sdn Bhd & Anor v. Bank Pertanian Malaysia Bhd [2021] 8 CLJ 409, at para. [53]).”

Having considered the words as appearing in Section 31 of the Employment Act, I find that the said proviso is only applicable if:-

(ii) the “place of employment” is encumbered or charged and there are competing claims between the secured creditors claims and the claims by the employees for wages due to them or any money due to any contractor for labour; and

(iii) the place of employment is sold by way of an order of Court or by a received or manager pursuant to powers provided under the debenture. In other words this may apply where the assets sold is subject to the terms of a debenture and due to the default, the receivers take over the management of the debtor and sell the assets to pay the sums outstanding by a borrower.

The facts of this case do not fall within the circumstances provided under section 31 of the Employment Act.

In this case, the company in question was wound up by an order of Court. Once the company is wound up, the liquidator appointed by Court will take over the management of the company.

It is trite law that the company in liquidation retains its legal personality and corporate powers during liquidation until the dissolution of the company. I refer to the decision of Pickford LJ in Reigate v Union Manufacturing Company (Ramsbotton) [1918] 1 KB 592 as follows: - “It has been argued that there has been no breach because all that happened was voluntary liquidation, and that can never be a breach. In support of that contention Midland Counties District Bank v. Attwood was cited. The head-note is as follows: “A resolution for the voluntary winding-up of a limited company does not operate as a notice of discharge to the servants of the company.” If that means that a resolution for voluntary winding up is never to discharge the servants of the company, I cannot agree with it. It seems to me that it may or may not be a discharge of the servants according to the facts of the particular case. The reason given is that in the case of a voluntary winding up there is no change in the personality of the employer, whereas in a compulsory winding up there is. I am afraid I do not understand that reasoning. It appears to me that both in a compulsory and voluntary winding up the personality of the company continues until it is dissolved. A different person is managing the affairs of the company; in the case of a compulsory winding up he is appointed by the Court; in the case of a voluntary winding up he is appointed by the company. The company, however, remains in existence until it is dissolved. So far, therefore, as the argument rests on no change of personality I am afraid I cannot appreciate it.”

Once a company is wound up by a creditors petition, then the corporate powers no longer lie with the directors. The entity remains but the powers to manage its affairs now lie with the liquidator. Note however that the powers of the liquidator are, however, not absolute and must be exercised in accordance with the Twelve Schedule. For ease of reference the said schedule is reproduced herewith: - Twelve Schedule POWERS OF LIQUIDATOR IN WINDING UP BY

The liquidator must exercise such powers to effect and complete the winding-up process. He or she is essentially an agent of the company in liquidation and has fiduciary duties to the entity. See Mosbert Berhad (In Liquidation) v. Stella D'Cruz [1985] 2 MLJ 446 at 447 (FC); Ganda Setia Cemerlang Sdn Bhd & Anor v. Maika Holdings Bhd (in liquidation) [2017] 6 MLJ 661 at 671 (CA); Dubon Bhd (In liquidation) v. Wisma Cosway Management Corp [2020] 4 MLJ 288 at 299 (FC) and N Chanthiran A/L Nagappan v Kao Che Jen [2023] 5 MLJ 284 at 307

I find such proposition has been eruditely explained by Azizul Azmi Adnan JCA in Classic Maritime Inc v Lion Diversified Holdings Bhd & Anor [2025] 6 CLJ 210: - “[29] A court ought to be slow to interfere with the act or decision of liquidators in discharging their roles in the company's liquidation particularly in matters involving sales of the company's assets, which involve commercial considerations. However, such decisions of the liquidators are not beyond reproach. On the authority of Koh Huat Kwan v. Pegawai Penerima; (Selaku Pelikuidasi Bagi Poh Mah Housing Development Sdn Bhd) & Ors [2015] 7 CLJ 16, a court will interfere with the exercise of the powers, acts or decisions of the liquidator if:

(ii) the liquidator was not bona fide in his conduct; or

(iii) the conduct of the liquidator was so utterly unreasonable and absurd that no reasonable person would so act. [30] A liquidator must take reasonable care to obtain the best price for the assets of the company in liquidation, as the circumstances of the case may permit. In the UK Supreme Court case of Joint Liquidators Of Grampian Maclennan's Distribution Services Ltd v. Carnbroe Estates Ltd 2020 SC (UKSC) 23, the court stated: [38] A liquidator is under a fiduciary duty to the company, and possibly its creditors as a class, to exercise the professional care and skill of an insolvency practitioner in realising the assets of an insolvent company (Hague v. Nam Tai Electronics Inc; Oldham v. Kyrris; see by analogy Lightman And Moss, The Law of Administrators and Receivers of Companies, para 12.042). The liquidator must take reasonable care in choosing the time at which to sell the property and must also take reasonable care to obtain the best price that the circumstances of the case, as he reasonably perceives them, permit (Re Charnley Davies Ltd (No 2), per Millett J, pp 775, 776; Silven Properties Ltd v. Royal Bank Of Scotland PLC, per Lightman J, para 25).” [31] It may be observed that the test is a subjective one: the circumstances of the case are those as perceived by the liquidator at the material time.”

In view of the above, I am of the opinion that the sale of a property by a liquidator does not fall within the purview of section 31 of the Employment Act. The liquidator, when undertaking a sale of such assets, either through a private treaty or by way of an auction of the property, will not attract the application of the said proviso. It is the exercise of the powers of the liquidator over the assets of the company under part I (c) of the Twelve Schedule under the Companies Act. I reproduce the said proviso for ease of reference: - “(c) sell the immovable and movable property and things in action of the company by public auction, public tender or private contract with power to transfer the whole immovable and movable property and things to any person or company or to sell the same in parcels;”

This can also be seen in the decision of Ramli Ali J in Abric Project Management Sdn Bhd v Palmshine Plaza Sdn Bhd & Anor [2007] 7 CLJ 516 where his Lordship explained the consequence of a sale of a land registered in a company by a liquidator compared to that of an official assignee in bankruptcy: - “[74] In the present case, the said land was registered, at all material times, in the name of the 1st respondent. The sale and purchase agreement was therefore entered between the 1st respondent and the 2nd respondent. The liquidator signed the said agreement (SPA) in his capacity as liquidator appointed over the 1st respondent ie, as agent of the company and not in his personal capacity. The sale was conducted under s. 236(1)(c) of the Companies Act 1965. [75] The interplay between s. 233 and s. 236(2) is well illustrated in Official Receiver and Provisional Liquidator of Maril-Rionebel (M) Sdn. Bhd. (formerly known as Kredin Sdn. Bhd) v. Anafartal Caddesi Sdn. Bhd. [2006] 2 CLJ

The applicant in Maril-Rionebel 's case was the official receiver and liquidator of the company in liquidation. The respondent was the shareholder of the company. The company was the registered proprietor of 5 pieces of land. The liquidator entered into a sale and purchase transaction with a third part to dispose of the lands. The respondent entered private caveat on the lands preventing the liquidator from fulfilling its obligations under the sale and purchase transaction. The liquidator made an application to the court to have the caveats removed. The respondent opposed the liquidator's application on the ground, inter alia, that the sale of the lands were invalid as the liquidator has failed to obtain an order from the court to vest the lands in the name of the liquidator pursuant to s. 233 prior to the sale. The sale of the lands by the liquidator in Maril-Rionebel 's case was not construed as a compromise but merely a realisation of assets by the liquidator in carrying out its duty. Abdul Malik Ishak J in his judgment held that: ... it is clear as crystal that the very purpose of section 233 of the Companies Act 1965 is to essentially gather all the assets, landed or otherwise, for the purpose of putting them in the hand of the Liquidator. Here, the said lands are already registered in the name of the company in liquidation and therefore there is no need to vest the said lands or to put the said lands in the custody and control of the Liquidator because it is already in the custody and control of the Liquidator... it is wrong to say that before the Liquidator can sell the said lands, the said lands must first vest in the Liquidator under section 233 of the Companies Act 1965. It is pointless to have section 236(2) of the Companies Act 1965 as enacted by Parliament if this Court give effect to it. The qualified powers of a Liquidator are deliberately provided for under section 236(1) of the Companies Act 1965. And I venture to say, and it is my judgment, that the powers provided for under section 236(2)(a) or section 236(2)(c) of the Companies Act 1965 are not in any way curtailed by section 233 of the same Act. [76] It is a settled principle that the position of a liquidator in a winding-up is different from the official assignee in a bankruptcy situation. The House of Lords in Ayerst v. C & K (Construction) Ltd. [1976] AC 167 held that: On the making of a winding-up order: (section 277).

I have carefully considered the decision of Tee Ah Sing J in Ban Hin Lee Bank Bhd v Applied Magnetics (M) Sdn Bhd (In liquidation) [2003] 5 CLJ 1. I am not persuaded by the reasoning of the High Court in the said case and therefore chose not to follow the reasoning therein. I find that the reasoning of the learned Judge in that case did not reflect the express intention of Parliament and that a sale by of a private treaty or by way of an auction by the liquidator of assets of a company in liquidation do not attract the application of section 31 of the Employment Act.

My reasoning is also consistent with the decision of Darryl Goon Siew Chye J in Perwaja Steel Sdn Bhd v RHB Bank Bhd & Ors [2020] 4 CLJ 535.

The headnote on the said case is as follows: - “The first to fourth defendants were financial institutions that had provided the plaintiff, a wound-up company, with credit facilities. The plaintiff had also issued RM400,000,000 Murabahah medium term notes ('notes') to various holders. Equity Trust (M) Bhd ('the fifth defendant'), the trustee for the holders of these notes, held all securities provided to secure payment under these notes. The credit facilities and notes were secured by, inter alia, debentures executed by the plaintiff over its assets, each in favour of the first to fifth defendants ('debenture holders'), respectively, and charges over four parcels of industrial land ('charged lands') held by the plaintiff. By a security sharing agreement, the debenture holders agreed that the debentures and the land charges granted to each of them by the plaintiff shall rank pari passu and any proceeds from the sale of any of the securities taken shall be payable to the debenture holders rateably and pari passu. Prior to the plaintiff being wound-up, the plaintiff had ceased operations on the charged lands and had terminated the employment of its employees. According to the receiver, as at the date of it being wound up, the plaintiff was indebted to the debenture holders for a sum of RM1,193,638,176.45. After the plaintiff was wound-up, the receiver and manager of the plaintiff ('receiver') was appointed under the terms of the debentures. The receiver then took steps with the view of disposing, inter alia, the charged lands. Based on a valuation report obtained by the receiver, the market value of the charged lands was RM118,885,000 while the force sale value was RM83,198,500. Therefore, the total proceeds from any sale of the charged lands were not expected to satisfy the plaintiff's total debt owed to the debenture holders. The sixth to 790th defendants, the employees of the plaintiff ('employees'), submitted that (i) they were owed their wages by the plaintiff; (ii) their wages should be paid out from the proceeds of any sale of the charged lands, in priority over the debenture holders, by virtue of s. 31 of the Employment Act 1955 ('EA'). The receiver commenced the present application for directions, pursuant to s. 384 of the Companies Act 2016 ('CA'). The questions posed by the receiver were: (i) whether the receiver was obliged, under s. 31 of the EA, to cause any part of the sale proceeds of the charged lands to be paid to any of the former employees of the plaintiff if none of them was working on the charged lands at the time of their sale by the receiver ('first question'); and (ii) whether the maximum amount payable to any of the former employees of the plaintiff who were eligible or entitled to be paid from the sale proceeds of the charged lands, if any, shall be limited to wages for four consecutive months' work only and such payment shall exclude termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay and maternity allowance ('second question').

Therefore, under those circumstances, it is correct for Darryl Goon J to find that that the said section 31 of the Employment Act is applicable. In that case, the property encumbered by a debenture was being sold by a secured creditor. There is therefore a competing interest between those of the former employees of the company and those of the secured creditors for the proceeds of the sale of the said property. The said asset was not being sold by the liquidator but was the receiver and manager in accordance with the terms of the debenture. Under those circumstances, the said proviso is applicable.

Darryl Goon J explained:- “[59] Having regard to the explanatory statement, the objective intended by the legislature in amending s. 31 of the EA was manifest. The rights of employees, and in this case in respect of wages as defined, was to have priority over the rights of the secured creditor and debenture holder, once the property of the employer that falls within s. 31 has been sold. [60] Consistently, s. 31(1) of the EA caters expressly for that priority, affording no qualification as to whether the prevailing circumstance had to be one in a winding up of a company or otherwise. [61] The interpretation of s. 31 of the EA advanced by the debenture holders would lead to denying the rights of employees if the employer is wound-up. [62] In this case however, both a literal and purposive interpretation of s. 31(1) of the EA would lead harmoniously to achieving the intention of the legislature to give priority to the rights of employees over secured creditors and that right ought not to be defeated by the general provisions to be found in s. 527 of the CA.”

For the above reasons, I find that section 31 of the Employment Act is not applicable to the sale of an unencumbered property of asset undertaken by a liquidator by way of a private treaty or by way of a public auction. If an encumbered property is sold by way of an order of Court by a secured creditor or by a receiver and manager undertaken through a debenture, then even if the company has been wound up, the said section 31 of the Employment Act is applicable. I therefore, answer the question posed by the liquidator in the negative. Question 2 - whether the maximum amount payable to any employee who is eligible or entitled to be paid from the sale proceeds of the place of employment shall be limited to four months’ work but there shall not be any limit on the termination and lay-off benefits, annual leave pay, sick leave pay, public holiday pay and maternity allowance payable to such employee

As I have answered the question 1 in the negative, I do not have to answer question 2 as it is now academic. Question 3 - whether the termination and lay-off benefits payable in respect of an employment contract entered by liquidator after the commencement of winding up are costs and expenses of the winding up as provided under section 527(1)(a) of the CA 2016

On this issue, I find that as a general rule, a compulsory winding up order has the effect of a notice of discharge of termination to all employees of the company. Romilly MR in Re General Rolling Stock Co Ltd (Chapman’s case) L.R 1 Eq 316 held: - “The Winding Up order … is a notice to all of the world of the winding up. The applicant will be entitled to prove for his salary on the footing of having had notice of discharge on the date the order was made.” This position can also be found in the decision of the same Judge in Re Imperial Wine Company (Shierreff’s case) L.R 14 Eq 417 where he stated: - “I am of the opinion that the resolution to wind up the company ipso factor put an end to Mr Shirreff’s employment and was equal to his dismissal.”

This general rule may be displaced if it is shown that the contract of employment was continued by the employee and the liquidator appointed after the date of the winding up order. I refer to Re English Joint Stock Bank, Ltd (Ex parte Harding) L.R 3 Eq 341. In that case, a winding up order was made on May 27. Liquidator gave notice to the servant on 1 August. The servant claimed 3 months’ salary in lieu of notice as from 1 August. The question was put to the English Court whether the order made on May 27 had amounted to notice to the servant.

Page Wood V.C stated that if the business did not continue and there was nothing the employee had undertaken as employees after May 27 that “….if the clerks received notice at or shortly after the making of the winding up order…the discharge may be held to date from the making of the order.” However, if the company continued it’s business and that the employees continued with their duties and obligations as directed by the liquidators, then the clerks would have continued to be employed by the company under liquidation under the old contract.

This can also be seen in Re Oriental Bank Corporation (Macdowell’s Case) 232 Ch 366. In that case, the employee was entitled by his contract to a 3 months’ notice before he could be dismissed from his job. The company was compulsory wound up by a creditor and May 19. The employee, however, continued to assist the liquidator until August 19 when he was given notice that his services will no longer be required after 31 August of that year.

He sued the company under liquidation and claimed 3 months’ salary from August 19 i.e. the date when the notice of termination was issued to him. Chitty J dismissed the application and found that the winding up order is notice to all employees of the termination. Chitty J distinguished between the position of an employee who had remained with the company to assist as part of the liquidation process and those who continued to be employed by the company in liquidation as part of the continuing business of the company. If the liquidator chose to continue with the business of the company and retained the services of the employees with the intention of realizing a sale of the assets to ensure that a higher amount could be materialized then the contact of these employees would have continued. If the employee is retained for a short period of time and only for purposes of assisting in the winding up process then the contract would have terminated at the date of the winding up order.

Factors that must be considered by this Court include, inter alia, (i) whether the business at issued was continued by the liquidator, (ii) the time frame under which the employment continued, (iii) whether any notice to the employees were issued or made to show that the contract of employment will continue or is terminated or replaced by a new contract and (iv) whether there was any new contract or notice issued between the employee and the liquidator.

This can be seen from the judgment of Chitty J as follows: - “Now it is said in this case that the business of the company was continued, but that proposition cannot be sustained in point of fact. The bank closed its doors, and ceased to carry on business even before the date of the winding-up order. There were no doubt some hopes of reconstruction, but not by means of the old corporation being resuscitated, and itself carrying on its old business; there were certain hopes, which have to a certain extent been realized; but the banking business ceased, if not before, at any rate at the date of the winding-up order. What has been done is this-many of the persons in the employment of the bank have gone on rendering services of a nature somewhat analogous to those that were rendered to the old corporation and the court of directors, whose orders they agreed to obey. But it has been a different business. It has been the business of winding-up the affairs of the bank, and there has been no carrying on of the banking business in any proper sense of the term.” …. “…There are cases in which the business of the company ordered to be wound up is continued: it does happen occasionally that the business is carried on with a view to the sale of the business as a going concern, so that goodwill may be preserved. In those cases it is competent for the official liquidator,…..it would be competent for him to continue the business, and in that case to waive the effect of notice of the winding up order – it appears to me that there me something done in a clear and unmistakable way. …In order to sustain a case of waiver of the notice it appears to me that the facts ought to be clear.

Chitty J then considered the letter issued by the liquidator in that case and came to the following conclusion: “It seems to me that the letter does not amount to a waiver of the notice of discharge. There is no evidence to show there was any agreement whatever between the liquidator, now representing the corporation, and the perons in the corporation’s employment that they should go on under a new contract similar in terms to the old contract. I think, therefore, that the result is this: the notice of the winding-up order operated as a discharge to Mr MacDowall and others in a similar position, and that notice of discharge has never been waived, and there has been no new employment. But the liquidator has allowed Mr MacDowall to continue rendering to the corporation services analogous to those which he was rendering to the corporation before it was order be wound up, and Mr MacDowall was content to remain upon those terms. …. The case is therefore analogous to this – a domestic servant is entitled to a month’s notice, or wages in lieu of it. Notice is given and his contract of service terminates with the notice. It is said by Mr Ince that Mr MacDowall remained a few days after the termination of 3 months, and I am asked to infer from that circumstance alone, and nothing more, that there was a new contract of hiring upon the old terms, that is to say, he was to continue now under the orders of the liquidator, the officer carrying on the business, on the same terms in other respects as are to be found in the contract between Mr MacDowall and the bank. I should be straining the facts to a most unjustifiable extent if I drew any such inference from what occurred. …. No doubt, if that were the case, the liquidator having continued the business, there might be grounds for saying, …that either the notice had been waived or there was a new contract on the same terms.”

I also refer to the decision of the Gowans J sitting in the Supreme Court of Victoria in Re Matthew Bros (in liquidation) [1962] V.R 262. In that case, the company passed a resolution dated 16-1-1959 for a creditors’ voluntary winding up and appointed a liquidator to manage the process. At the date of the resolution, the company had in its employ 4 persons. They have been employed with the company for many years.

One of the questions posed to the Supreme Court of Victoria in that case is whether the claim by the employees for wages in lieu of long service leave could be part of the of costs of charges and expenses incidental to the winding up of the company under section 213 of the Australian Companies Act or not as preferential claim under section 216 of the Australian Companies Act.

Gowans J explained: - “This mean that his right to long service accrued to him, and he is deemed to have commenced to take his leave, on the date of the termination of his employment, and he then became entitled to be paid by his employer ordinary pay in respect of such leave. There became due to him then, and not till then, an amount in respect of the long service leave he is deemed to have then entered upon, and not the less so because that amount might have been payable at some later time in accordance with s 156(4). But this would not bring his claim within s216 of the Companies Act 1958, because it was not an amount due or owing at the relevant date. It as merely an amount which became due to him at the time of his dismissal in addition to any wages to which he was then entitled. Any such amount, like any amount then due to him for wages earned since the date of resolution, would constitute part of the costs charges and expenses of incidental to the winding up within the meaning of s 213 of the Companies act and pursuant to that section would be payable out of the assets of the company in priority to all other claims. … This produces the somewhat anomalous result that if the employee had been dismissed at the time of the resolution for winding-up, the amount which thereupon became due to him in respect of long service leave, would, pursuant to the provisions of section 216 of the Companies Act 1958 would have deemed to be a preferential debt to the extent of $250 only, but by reason of his employment having been continued thereafter the amount which later became due to him in respect of long service by reason of his dismissal became payable out of the assets of the company in priority to all other claims and to the extent of the full amount. This, however, appears to me to be inevitable effect of the relevant provision. “ … “But it was an entitlement to leave and not per se an entitlement to pay. Once they had acquired that absolute entitlement to leave then, in the absence of death, the provisions of s 156 of the Labour and Industry Act operated to require the employer to grant them such leave as soon as practicable and if that had been done prior to the date of the winding up resolution there would have been an amount due to them in respect of the leave granted. But that was not in fact done and what actually took place was that their employment was continued after the date of the winding up. Resolution and was terminated thereafter. It was a case not of entitlement to leave accruing on dismissal but of leave to which there an entitlement being deemed to have commenced on dismissal, but the dismissal in the same way as it arose in the case of McCormick. …Thus the amount which became due in respect of long service leave to these employee was not due at the relevant date so as to fall within 216 of the Companies Act but was an amount which became due at of dismissal so as to constitute part of the costs, charges and expenses incidental to the winding up within the meaning of s 213 of the Act.”

For completion I reproduce section 213 and section 216 of the Australian Companies Act 1958. They are almost pari materia with the relevant provisos under our Companies Act. relevant date which are required by the said rules to be treated preferentially in relation to the estates of bankrupt persons.

I further refer to McPherson on the Law of Company Liquidation (4th Edition) where the learned author stated: - “The term expenses is clearly not, however, a term of art, but one that has been said to cover any expenses that the liquidator (or other relevant authority) might be compelled to pay in respect of preserving, realizing or getting in of property of the company. … It also embraces all manner of debts and liabilities incurred in the winding up in carrying on the business of the company, such as salaries and wages of employees.”

Therefore, after considering the decisions of the above Courts in the United Kingdom and Australia, I opine that for question 3 it is for the liquidator to decide whether the contract of employment for each employee was continued and that the termination by operation of law was waived. If that is the case, then the costs incurred for the termination of each employee will fall within the purview of section 527 (1)(a) of the Companies Act. The factors that must be considered by the liquidator in making such a determination have been delineated earlier. These factors or considerations are not exhaustive and all relevant facts must be considered carefully by the liquidator.

For the above reasons I answer question 3 as follows: -

If the liquidators find that the business was not continued and the notice of termination due to the winding up of the company was not displaced by an agreement to extend the contract, either by conduct or by any written instrument, the said costs will not fall under section 527(1) (a) of the Companies Act. These costs will fall within the purview of section 527(1)(b) of the Companies Act.

(ii) If the liquidator finds that the business was continued after the winding up and that the employees continued to undertake their works as part of the business, to enable the liquidator to sell the said business as a going concern, and that parties agreed that the notice of termination by operation of law is waived, then the previous contract of employment continued, then the costs referred to earlier, will fall within the purview of section 527(1)(a) of the Companies Act.

(iii) If, however, it is found that the notice of termination by operation of law remains effective and that a new contract of employment is entered, then the liquidator must then differentiate between the costs post winding up and the costs pre winding up. All costs that arise post winding up under the new employment contract will fall within the purview of section 527(1)(a) of the Companies Act.