Siteman Construction Sdn Bhd v Lee Chao Yong & 1 Lg (WA-28PW-300-08/2018)

This is an application filed by Mr Lee Chao Yong for the following orders: a) if necessary, leave be granted to the Applicant to commence these proceedings against the liquidator of the Respondent Subramaniam a/l A.V. Sankar and/or against the Respondent Siteman Construction Sdn Bhd as the case may be; b) The Liquidator shall pay the sum of RM 2.5 million to the Respondent together with interest at such rate and for such period as this Honourable Court shall determine; c) Further or in the alternative, Lim Chiew shall pay to the Respondent the sum of RM 2.5 million together with interest at such rate and for such period as this Honourable Court shall determine; d) The Liquidator shall take such steps and do such things as necessary to recover the sum of RM 2.5 million paid to the Petitioner Lim Chiew, on 25.1.2018, together with interest at such rate and for such period as this Honourable Court shall determine; e) Costs to be borne personally by the Liquidator.

I have partially allowed the application. These are the full reasons for my decision.

The salient background facts set out below are not in dispute.

The Applicant used to be a director and shareholder of the Respondent prior to its liquidation.

The Petitioner is an unsecured creditor of the Respondent. His Proof of Debt (“POD”) for a sum of RM6,893,838.23 dated 21.6.2010 was admitted by the Liquidator of the Respondent.

On or about 11.7.2016, the Applicant filed a motion to challenge the Petitioner’s POD in the High Court and the High Court had allowed the application in part as follows: a) In respect of the POD sum of RM6,893,838.23, only the sum of RM6,334,674.51 is to be subject for determination by Court; b) That the Liquidator is directed to apply to the Court for such determination; and c) All payments of dividends and the distribution of the assets of the Respondent be stayed pending the final determination by the Court.

Both the Petitioner and the Respondent had lodged an appeal to the Court of Appeal and their appeal was allowed on 25.1.2018.

The Applicant’s application for leave to appeal was dismissed by the Federal Court on 20.8.2018. Accordingly, the Petitioner is indisputably a creditor of the Respondent in the sum of RM6,893,838.23.

In the meantime, on or about 30.3.2016, the Applicant lodged a POD with the Liquidator for the sum of RM 2.57 million which POD was rejected by the Liquidator.

The Applicant had filed a Notice of Motion on 4.8.2017 to reverse the Liquidator’s decision in rejecting his POD.

That matter was only disposed of on 4.5.2018 when the Applicant’s POD was allowed in part by the High Court. The Court directed that a sum of RM1,145,000.00 shall be accepted by the Liquidator. The balance sum shall not be accepted.

Both the Liquidator/Respondent and the Applicant had filed appeals against the said decision (“the said Appeals”).

However, on 25.1.2018, the very day that the Court of Appeal allowed the appeal of the Petitioner’s appeal in respect of the High Court decision on its POD, the Liquidator made a partial payment of dividend in the sum of RM2.5 million to the Petitioner. This consists of about 90% of the total assets of the Respondent.

The Respondent and the Petitioner had filed applications to stay the hearing of this application pending the disposal of the said Appeals. I have dismissed the stay applications.

In a nutshell, the Applicant is saying that the Liquidator acted in breach of his duty and was guilty of misfeasance in paying to the Petitioner the sum of RM2.5 million on 25.1.2018 despite knowing that the Applicant had appealed against the rejection by the Liquidator of the Petitioner’s POD and the possibility that the Court may hold the Petitioner to be a creditor of the Respondent as had happened. The Applicant wants the said sum of RM2.5 million to be returned to the Respondent.

As the Applicant is seeking orders against the Liquidator personally and the Liquidator is an officer of the Court, I am of the view that it is necessary for the Applicant to obtain leave of the Court for the commencement of these proceedings.

The rationale for procuring leave of the Court is to protect the Court’s officer from spurious or vexatious litigation and the Court will protect the integrity of the winding up process to ensure no wrongful interference with the process (Mamone and Another v Pantzer [2001]

In the case of Ooi Woon Chee & Anor v Dato’ See Teow Chuan & Ors and other Appeals [2012] 2 CLJ 501, the Federal Court applied the test of a prima facie case in determining whether leave ought to be granted to sue a liquidator.

I am of the view that the Applicant has satisfied the threshold of proving a prima facie case that the Liquidator had breached his duty or was guilty of misfeasance or misapplied the property of the Respondent in making payment of the sum of RM2.5 million to the Petitioner without waiting for the final outcome of the Applicant’s appeal against the rejection of his POD. In the event (which had occurred) that the Applicant succeeded in his appeal against the rejection of his POD, the Applicant will be an unsecured creditor of the Respondent and will be entitled to be paid on a pari passu basis with the Petitioner out of the assets of the Respondent. It is a different scenario if, at the time of making payment to the Petitioner, the Applicant’s POD had been rejected and there was no appeal against the decision of the Liquidator. In that scenario, the Liquidator may have been justified in making payment to the Petitioner as the only creditor. However, as at 25.1.2018, the Applicant’s appeal against the rejection of his POD was still pending in the High Court and the Liquidator ought not to have been so hasty in making payment of the sum of RM2.5 million to the Petitioner, at least not without making sufficient provision to be sure that the Petitioner will be paid what is due to him in the event he should succeed in his appeal against the rejection of his POD.

In this case and on the basis that the sum of RM 333,542.06 which still remains with the Respondent are all costs and expenses of the liquidation which are not available for distribution to the creditors of the Respondent so that what is available for distribution to the creditors would be the sum of RM 2.5 million, the Applicant would have been entitled to a sum of RM 356,083.79 based on the decision of the High Court that a sum of RM1.145,000.00 of his POD ought to have been accepted. The breakdown of this sum is as follows: Lim Chiew’s POD accepted by Liquidator : RM6,893,838.23 The Applicant’s POD which shall be accepted : RM1,145,000.00 Total PODs accepted : RM8,038,838.23 Total Assets of the Company : RM2,833.542.56 Minus costs and expenses of liquidation : RM 333,542.06 RM2,500,000.00 x 1,145,000.00 = RM 356,083.79 8,038,838.23

Accordingly, the Respondent will be short of a sum of RM 356,083.79 to pay the Applicant. It is not in dispute that the Applicant and the Petitioner, both being unsecured creditors of the Respondent will be entitled to be paid on a pari passu basis.

Accordingly, I am of the view that the Applicant has shown more than a prima facie case for him to be allowed to proceed with the Motion herein against the Liquidator.

I am of the view that the Liquidator has acted in a manner in which no reasonable liquidator would have acted, in making payment of the RM2.5 million to the Petitioner without taking into account the possible consequence of the pending appeal by the Applicant against the rejection of his POD in Court. It would have been different if the Applicant had not appealed within the stipulated period against the rejection of his POD and the Petitioner was the only creditor of the Respondent at the time of payment. Although the Petitioner was the only creditor at the time of payment in this case, the Applicant had already appealed against the rejection of his POD and his appeal was pending in Court. A prudent and reasonable liquidator would have awaited the outcome of that matter before making any payment to the creditor. Due to the action of the Liquidator in making payment of the RM2.5 million on 25.1.2018, there is a shortfall of RM 356,083.79 in the funds of the Respondent which had prejudiced the Applicant.

The Liquidator has also not complied with Rule 101 of the Companies (Winding Up) Rules 1972 which provides inter alia that: “In any winding-up the liquidator shall, subject to paragraph (2)-

Within three months from the date of the notice under rule 91; or

Immediately after the expiration of the time fixed by this rule for appeal against his decision. Send a notice of dividend in Form 60 to each creditor whose proof has been admitted and pay a dividend in form 94(5).”

There is no evidence that the Liquidator had sent a notice under rule 91 or sent a notice of dividend in Form 60 to the Petitioner before making payment to him.

I am of the view that it is not necessary to order the Liquidator to recover the whole of the RM2.5 million paid to the Petitioner. The Petitioner is indisputably a creditor of the Respondent for the sum of RM6,893,838.23 and entitled to be paid dividends on a pari passu basis with the Applicant. The shortfall arising from the decision of the High Court in the Applicant’s appeal against the rejection of his POD by the Liquidator was only RM356,083.79 and that should be the only sum that the Liquidator should be required to recover from the Petitioner. There is no need to recover more money from the Petitioner only for it to be paid back to the Petitioner later.

In the premises, I am of the view that the Applicant should be entitled to an order that the Respondent forthwith take all necessary steps and actions to recover the sum of RM356,083.79 for the estate of the Respondent, either by taking action against the Petitioner or by paying the said sum back into the estate of the Respondent himself, within 9 months of date hereof. That sum will however not be paid to the Applicant, if at all, pending the final disposal of the 2 appeals against the decision of the High Court in respect of the rejection of the Applicant’s POD by the Liquidator.

This Court has the jurisdiction to make the order in question, as it is provided in section 486(2) of the Companies Act 2016 (formerly section 236(3) of the Companies Act 1965) that “The exercise by the liquidator in a winding up by the Court of the powers conferred by this section is subject to the control of the Court and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers.”

Further, although in a different context, the Court in Shencourt Sdn Bhd v Perumahan Nck Sdn Bhd [2005] 8 CLJ 652, held that: “Conclusion A judge in winding up proceedings is the custodian of the interests of every class affected by the liquidation. It is his duty to see that all assets of the company are brought into the winding up and distributed pari passu amongst unsecured creditors. A judge plays an important role in winding up of a company. After the winding up order was made by him, liquidators are a appointed and supervised by him until the winding up process is over. It is an administration conducted by the court. In granting leave of this nature a judge must be satisfied it would not result in rendering an unnecessary heavy financial strain on the company which would gradually deplete or draw the assets and resources of the defendant company or ultimately will operate to confer sort of unfair priority or advantage and undue preference on the plaintiff over the other creditors of the defendant company, including the secured creditors”.

I am of the view that the Applicant has no cause of action directly against the Petitioner for the refund of the RM2.5 million or the recovery of the shortfall of RM356,083.79. The payment was made by the Liquidator under a mistake either of law or of fact and the attempt to recover it from the Petitioner should be made by the Liquidator and not the Applicant. Accordingly, I would dismiss the orders sought against the Petitioner. Wong Chee Lin Judicial Commissioner Kuala Lumpur High Court Dated: 14th December 2018 Solicitors for the Petitioner CL Tan, Eunice Ong Huey Shen & Shawn Siaw Messrs Eunice Derek & co Advocates & Solicitors Suite B-06-02, 6th Floor Gateway Corporate Suites No 1, Jalan Desa Kiara 50480 Mont Kiara Kuala Lumpur Tel : 03-6201 4087 Fax: 03-6201 4085 Solicitors for the Respondent Kelvin Seet Wan Nam & Lim Lay Yee Messrs Chooi & Co & Cheang & Ariff Advocates & Solicitors 39 Court @ Lake Mansion No. 273A, Jalan Medan Tuanku 50300 Kuala Lumpur Tel : 03-2055 3888 Fax: 03-2055 3880 Solicitors for the Applicant Mark Ho Hing Kheong Messrs Chellam Wong Advocates & Solicitors Unit L-06-08, No. 2, Jalan Solaris