Lee Min Choon & Co v Shencourt Properties Sdn Bhd (WA-28PW-765-12/2024)

1.

MAY DE SELVA A/P JOHN DE SILVA …PETITIONERS AND SHENCOURT PROPERTIES SDN BHD (IN LIQUIDATION) [Company No.: 245996-T] …RESPONDENT AND LEE MIN CHOON & CO. …APPLICANT S/N PsKhXAitkqs67qScUQgtw

This judgment concerns the application of the ‘liquidation expenses principle’, particularly in the context of legal fees incurred in relation to proceedings after the winding up of a company, aimed at recovering assets rightfully belonging to the company. The central issue is whether such legal costs, being necessary and reasonable expenses incurred based on the instructions of the liquidator in the performance of the liquidator’s statutory duty to maximise recoveries for the benefit of the creditors, ought to be treated as expenses of the liquidation and accorded priority in the distribution of the company’s assets.

In the present case, the Official Receiver, who replaced the joint liquidators, whilst not disputing the quantum of the legal fees submitted, nevertheless decided that the Applicant’s legal fees ought to be treated parri passu with other unsecured creditors of the Respondent Company.

An aggrieved party may appeal to the Court against a decision or act of a liquidator. Section 279 of the Companies Act 1965 provides: S/N PsKhXAitkqs67qScUQgtw Appeal against decision of liquidator 279. Any person aggrieved by any act or decision of the liquidator may apply to the Court which may confirm, reverse or modify the act or decision complained of and make such order as it thinks just.

Enclosure 1 is an application by the Applicant, Lee Min Choon & Co., a firm of Advocates & Solicitors, under Section 279 of the Companies Act, 1965 [or Section 517 of the Companies Act 2016] for the following orders: a) that the decision of the Official Receiver/Liquidator of the Respondent Company in his letters dated 21-6-2024 and 8-11-2024 that the Applicant’s Bills in respect of professional services rendered by the Applicant in representing the Respondent Company in litigation during the winding up of the Respondent Company does not fall under the priority payments pursuant to Section 292(1)(a) of the Companies Act 1965 [or Section 527(1)(a) of the Companies Act 2016] be set aside; and b) that the sum of RM1,057,820,00 be paid to the Applicant, Messers Lee Min Choon & Co., out of the assets of the Respondent Company under Section 292(1)(a) of the Companies Act 1965 [or Section 527(1)(a) of the Companies Act 2016].

Shencourt Properties Sdn Bhd (“the Company”) was ordered to be wound up by the High Court in Kuala Lumpur in Petition No. D4-28-44-2002 on 19.4.2002.

Two Joint Liquidators for the Company were appointed by the Court as follows: a) Ricky Thong Yew Fook on 4.2.2004; and b) Dato’ Narendra Kumar Jasani a/l Chunilal Rugnath on 26.4.2011.

After the winding up of the Company had commenced and before a liquidator was appointed, a group of shareholders of the Company (“the Chai Family”) had caused the only property of the Company which comprised of 18 pieces of lands in Kuala Lumpur (“the Lands”) to be transferred to their nominee company, Liberty Pillar Sdn Bhd (“Liberty Pillar”).

The Company appointed the firm of Messrs Putra Gill to commence proceedings against the Chai Family and Liberty Pillar to recover the Lands for the liquidation.

On 2.9.2009, the High Court held that the transfer of the Lands to Liberty Pillar after the winding up of the Company had commenced was in breach of the winding up provisions in the S/N PsKhXAitkqs67qScUQgtw Companies Act 1965 and ordered Liberty Pillar to re-transfer the Lands back to the Company.

The Chai Family and Liberty Pillar then filed separate appeals (vide Court of Appeal Civil Appeal No. W-01-308-09 and Court of Appeal Civil Appeal No. W01-311-09) to the Court of Appeal against the decision of the High Court dated 2.9.2009.

Sometime in early 2011, Messrs Putra Gill discharged themselves as solicitors for the Company.

Sometime in April 2011, one of the Joint Liquidators, Dato’ Narendra Kumar Jasani, with the concurrence of the other Liquidator, Mr Ricky Thong, appointed the Applicant to represent the Company at the hearing of the abovesaid appeals to the Court of Appeal together with other counsels.

On 18.5.2011, the Court of Appeal dismissed Liberty Pillar’s appeal and confirmed the High Court Order that Liberty Pillar should re-transfer the Lands back to the Company. In particular, the Court of Appeal awarded separate costs of RM12,500/- to each liquidator.

The Applicant was also appointed by the Joint Liquidator, Dato’ Jasani, with the concurrence of the other Liquidator, Mr Ricky Thong, to represent the Company in the following related proceedings: S/N PsKhXAitkqs67qScUQgtw a) Application by Liberty Pillar for stay of execution of the Order of the Court of Appeal dated 18.5.2011; b) Application by Liberty Pillar for leave to appeal to the Federal Court against the Order of the Court of Appeal dated 18.5.2011; c) Hearing of the appeal by Liberty Pillar to the Federal Court against the Order of the Court of Appeal dated 18.5.2011.

On 24.9.2013, the Applicant represented the Company at the hearing of Federal Court Civil Appeal No. 01(f)-1-03/2013(W) to resist the appeals by the Chai Family and Liberty Pillar to the Federal Court against the Order of the Court of Appeal dated 18.5.2011.

On 18.11.2014, the Federal Court dismissed the appeal of the Chai Family and Liberty Pillar and confirmed the High Court Order that the said Lands be retransferred back to the Company. Following the precedent set by the Court of Appeal, the Federal Court awarded separate costs of RM35,000/- to each liquidator.

The Applicant was also appointed by the Joint Liquidators to represent the Company in various post-winding applications brought by various parties to the winding up and related proceedings in the Winding-Up Court from 2011 to 2016 which included the following: S/N PsKhXAitkqs67qScUQgtw a) Application for approval by the Court to sell the said lands to Aurora Dynamic Sdn Bhd; b) Applications by creditors for the removal of the Original Liquidator, Mr Ricky Thong; c) Application for sanction of the Court to enter into a settlement with JVC Connection Sdn Bhd for the sale of the said lands for the purchase price of RM33,000,000.00.

In particular, the Applicant was also appointed by the Joint Liquidators to defend the Company in Kuala Lumpur High Court Suit No. 22NCVC-93-3/2015 which was commenced by JVC Connection Sdn Bhd for specific performance of an agreement by the Original Liquidator, Ricky Thong, to sell the said ands to JVC Connection Sdn Bhd for the purchase price of RM27,000,000.00. The Applicant’s professional services included: a) Interlocutory proceedings which resulted in the entering of judgment by the High Court against the Company on 29.6.2015; b) Appealing to the Court of Appeal in Court of Appeal Civil Appeal No. W02(IM)(NCVC)-1233-08/2015 against the said judgment of the High Court; S/N PsKhXAitkqs67qScUQgtw c) Applying to the Federal Court in Federal Court Civil Application No. 08-36- 01/2016 for leave to appeal against the decision of the Court of Appeal dated 14.1.2016.

Sometime in 2016, with the consent of the Joint Liquidators, the Applicant discharged themselves as solicitors for the Company in its various winding up litigation.

The Applicant was requested by one of the Joint Liquidators not to invoice the Company for their professional services until after the Company had received the proceeds of the sale of the Lands.

On 18.1.2019, the two Liquidators, Ricky Thong and Dato’ Narendra Kumar Jasani, were removed by the Court of Appeal and the Official Receiver was appointed in their place as Liquidator of the Company.

At that time, the suit by JVC Connection Sdn Bhd against the Company had already been resolved when the Court of Appeal upheld an order for specific performance of a contract for the sale of the Lands to JVC Connection Sdn Bhd and ordered the sum of RM30 million to be paid by JVC Connection Sdn Bhd to the Company.

On 31.1.2019, the Applicant presented to Dato’ Jasani (the former liquidator) 7 separate bills for the total sum of RM1,057,820/- being fees for representing the Company from S/N PsKhXAitkqs67qScUQgtw 2011 to 2016 in various litigation to recover and to preserve the assets of the Company (“the Applicant’s Bills”).

In a letter dated 19.2.2019, the former liquidator delivered to the Official Receiver all documents and accounts relating to the winding up of the Company together with the Applicant’s Bills which he described as “Approved Bills”

In his statutory report to the Court dated 8.4.2019 at paragraph 35, the Official Receiver also acknowledged the Applicant’s Bills together with the bills of other solicitors who replaced the

On 6.5.2024, the Applicant wrote to the Official Receiver to inquire about the settlement of the Applicant’s Bills.

On 21.6.2024, the Official Receiver informed the Applicant by letter that he had approved the Applicant’s claim for fees but that the Applicant’s Bills are not priority payments under Section 292(1)(a) of the Companies Act 1965 and should be treated as claims of the same rank as pre-winding up debts of the Company.

The Applicant did not receive this letter and on 4.11.2024 sent a reminder to the Official Receiver to provide an update of the Applicant’s claim for fees.

On 18.11.2024, the Official Receiver in an email to the Applicant informed the Applicant of their decision contained in their earlier letter dated 21.6.2024 and also requested the Applicant to file a Proof of Debt for their fees in order to receive payment.

On 19.11.2024, the Applicant in compliance with the Official Receiver’s direction filed a Proof of Debt dated 18.11.2024.

The Applicant being dissatisfied with the Official Receiver’s decision that the Applicant’s Bills are not priority payments under Section 292(1)(a) of the Companies Act 1965 have filed an appeal in Enclosure 1 against the decision of the Official Receiver. Issue for determination

In the present case, there is no dispute of the following crucial matters: a) The Applicant rendered professional service at the request of the Liquidators to represent the Company in various legal proceedings from 2011 to 2016; b) The legal proceedings related to the winding up of the Company including the recovery and preservation of property belonging to the Company for purposes of the winding up; S/N PsKhXAitkqs67qScUQgtw c) Both the former liquidator and the Official Receiver had accepted the validity and quantum of the Applicant’s Bills.

The issue is whether the Applicant’s Bills ought to be treated as priority payments under Section 292(1)(a) of the Companies Act 1965 or whether the same should be treated as pari passu together with the claims of pre-winding up creditors of the Company.

The various categories of priority payments are set out in Section 292 of the Companies Act 1965. More specifically, the first category in Section 292(1)(a) which provides:

Priorities

Subject to this Act, in a winding up there shall be paid in priority to all other unsecured debts –

firstly, the costs and expenses of the winding up including the taxed costs of a petitioner payable under section 220, the remuneration of the liquidator and the costs of any audit carried out pursuant to section 281;” [emphasis added]

The Official Receiver took the view that the Applicant’s Bills do not come within section 292(1) because a claim can only be accorded priority if it is a cost that has been audited under Section 281. The reasoning of the Official Receiver was that the S/N PsKhXAitkqs67qScUQgtw Applicant’s Bills were not audited under Section 281 of the Companies Act 1965 and therefore could not be considered as part of the costs and expenses of the winding up.

This is a misreading of Section 292(1)(a).

Section 292(1)(a) provides for the debts that have priority over unsecured creditors, that is, to be paid out before paying unsecured creditors, are “the costs and expenses of the winding up” This is the general category of debts mentioned in Section 292(1)(a). Section 292(1)(a) goes on to explain that the “costs and expenses of the winding up” includes:

taxed costs of the petitioner;

remuneration of the liquidator; and

the costs of any audit carried out pursuant to section 281.

The word “including” in Section 292(1)(a) means that the three expenses specifically mentioned are not exhaustive. Priority is prescribed generally for ‘costs and expenses of the winding up’ of which the three specific expenses are merely examples. In other words, as long as the debts incurred are considered as ‘the costs and expenses of the winding up’, such debts shall have priority over the unsecured creditors. Court. Section 292(1)(a) does not say that such costs and expenses of the winding up must be audited under Section 281 in order to be given priority at all. The words ‘the costs of any audit carried out pursuant to section 281’ in Section 292(1)(a) refers to the S/N PsKhXAitkqs67qScUQgtw remuneration of an auditor who is instructed by the Official Receiver to carry out an audit under Section 281. Section 292(1)(a) says that the auditor’s fees are to be paid out of the assets of the company and has priority over unsecured creditors.

The proper question to be asked by the Official Receiver ought to be whether the Applicant’s Bills are ‘costs and expenses in the winding up’.

In this regard, under the common law, there is a principle known as the ‘liquidation expenses principle’ that once a company goes into liquidation, the proper expenses and liabilities incurred by its liquidators may be accorded priority over the company’s other unsecured creditors (“the Principle”). The theoretical rationale of the Principle is that the existing creditors in general benefit from the actions of the liquidators because of the beneficial effect on the estate and therefore priority should be accorded to the ‘new creditor’ [See: Re Atlantic Computer Systems plc (No.1) [1990] BCC 859; Re Ocean Tankers (Pte) Ltd [2022] SGHC 55; An Guang Shipping Pte Ltd (under judicial management) and others v. Ocean Tankers (Pte) Ltd (in liquidation) [2022] SGCA 69]

Section 236 provides that a liquidator is empowered to engage professionals to assist him in the winding up.

(1) The liquidator may with the authority either of the Court or of the committee of inspection –

appoint an advocate to assist him in his duties.

The liquidator may –

bring or defend any action or other legal proceeding in the name and on behalf of the company;

There are certain things that a liquidator cannot do by himself and he requires the assistance of professionals like accountants, auctioneers, brokers and lawyers. Such professionals are specifically mentioned in the taxing provisions in Rules 165 and 173 of the Winding Up Rules (“WUR”).

In this case, this was what exactly happened. Messrs Putra Gill was appointed by the Liquidators in 2009 to apply to the winding up Court to set aside the illegal transfer of the Lands to the nominee of the Chai Family so that the Lands may be recovered for the liquidation.

Where a liquidator employs a lawyer to sue or to defend a company under liquidation in court proceedings to recover property for the liquidation process, then the bill of the lawyer is clearly a bill incurred during the winding up and for the purpose of the winding up. The litigation is necessary for the winding up and if successful would be beneficial for the creditors.

The litigation in question spread out over a period of 15 years and eventually resulted in the Company being able to realize the sum of RM30 million for the liquidation. The lawyers who contributed to the successful recovery of this amount were: 2004-2011: Messrs Putra Gill at High Court stage; 2011-2016: Messrs Lee Min Choon & Co (the Applicant) at Court of Appeal and Federal Court stage 2016-2019: Messrs Kassim Tadin Wai & Co. at post-Federal Court stage

There is no dispute that the Applicant’s services were for the benefit of the Company and the creditors in general. Indeed, the Applicant was successful in defending the Company’s rights to the Lands.

As regards the quantum of the Applicant’s Bills, in this case, the Official Receiver in his letter dated 21.6.2024 had informed the Applicant that neither the former liquidator nor the Official Receiver himself required the taxation of the Applicant’s Bills. This means that the Official Receiver is satisfied with the reasonableness of the amount of fees charged by the Applicant for his work in representing the Company in various legal proceedings over a 6-year period and had exercised his discretion not to tax the Applicant’s Bills.

In fact, the Official Receiver was satisfied with the Applicant’s claim. In paragraph 2 of his letter dated 21.6.2024, the Official Receiver stated: “2. … PPP berpuashati bahawa keputusan pelikuidasi terdahulu yang telah meluluskan bil yuran guaman pihak tuan tanpa ditaksirkan di Mahkamah mengikut Kaedah 165 dan 173, Kaedah-Kaedah Penggulungan Syarikat 1972, adalah mengikat kepada keputusan PPP yang terkini.”

Finally, it is my judgment that the filing of the Proof of Debt (“POD”) by the Applicant does not mean that the Applicant has accepted or submitted to the Official Receiver’s decision. The POD was filed in response to the Official Receiver’s requirement that a POD must be filed by the Applicant otherwise the Applicant will be precluded from payment. This was stated in paragraph 4 of the Official Receiver’s letter dated 21.6.2024 to the Applicant:

Justeru itu, pihak tuan dinasihatkan agar membuat pemfailan Borang Bukti Hutang SEGERA dalam tempoh 7 hari daripada surat ini, supaya jumlah yang dituntut dapat diperakukan oleh PP sebagaimana diluluskan oleh pelikuidasi terdahulu. Kegagalan pihak tuan berbuat demikian boleh mengakibatkan tuntutan tuan tidak diambilkira dalam pembayaran dividen yang akan dilaksanakan kelak.

In any event, the Applicant had filed the POD under protest. In his letter to the Official Receiver dated 18.11.2024 enclosing the POD, the Applicant stated:

Borang Bukti Hutang ini adalah difailkan kepada pihak Tuan/Puan tanpa prejudis kepada hak kami untuk menganggap jumlah-jumlah yang dituntut di dalam Borang Bukti Hutang tersebut sebagai pembayaran yang patut diberi keutamaan selaras dengan Seksyen 292(1)(a) Akta Syarikat 1965.

For completeness, the Official Receiver had raised by way of a preliminary objection that the Applicant ought to have sought leave of the Winding Up Court before filing the present application pursuant to section 471 of the Companies Act 2016.

With respect, this is a misconceived objection. An application under section 279 is not an action or proceeding against the company but rather a statutory supervisory mechanism for the Court to review the conduct or decision of the liquidator. It is not an adversarial claim for damages or recovery against the company’s estate but instead it concerns the liquidator’s exercise of powers which the Court retains oversight over.

The requirement for leave under section 471 aims to prevent disruption to the liquidation process and to protect the company’s estate from multiplicity of claims. In contrast, section 279 applications assist the Court’s control over the liquidation S/N PsKhXAitkqs67qScUQgtw and serve the interests of fairness and accountability in insolvency administration.

In the premises, it is abundantly clear that the Official Receiver had committed an error of law when he decided that Section 292(1)(a) required the Applicant’s Bill to be audited under Section 281 otherwise it cannot be regarded as a priority payment. On that basis, the Official Receiver had decided, wrongly, that the Applicant’s Bills be treated as an ordinary claim to be satisfied in pari passu with ordinary creditors of the Company.

Accordingly, this Court has no hesitation in granting an order in terms of the Applicant’s application under Enclosure 1. Dated the 23rd day of July 2025 ONG CHEE KWAN JUDGE OF THE HIGH COURT HIGH COURT (COMMERCIAL DIVISION NCC2 & ADMIRALTY) HIGH COURT OF KUALA LUMPUR IN THE FEDERAL TERRITORY, MALAYSIA S/N PsKhXAitkqs67qScUQgtw Counsel for Applicant: Mr. Lee Min Choon (Messrs. Lee Min Choon & Co.) Counsel for Respondent: Puan Nur Hazrin (Jabatan Insolvensi Malaysia Wilayah Persekutuan Kuala Lumpur) Counsel for Opposing Mr. Devan Unsecured Creditor: (Messrs. Devan & Assoc.)

Re Atlantic Computer Systems plc (No.1) [1990] BCC 859; Re Ocean Tankers (Pte) Ltd [2022] SGHC 55 2. An Guang Shipping Pte Ltd (under judicial management) and others v. Ocean Tankers (Pte) Ltd (in liquidation) [2022] SGCA 69

Sections 279; 281 and 292(1)(a) of the Companies Act 1965 2. Sections 471; 517 and 527(1)(a) of the Companies Act 2016 3.