Tee Siew Kai v Machang Indah Development Sdn Bhd  MLRAU 53
February 17, 2020
Outcome: Question of law answered in the negative. The appeal was allowed with cost of RM40,000-00 to the appellant (the liquidator) subject to allocatur.
- There are 17 pieces of land in Mukim 17, Daerah Seberang Perai Tengah Pulau Pinang. Merger was the registered owner. On 29th September 1995, Merger entered into a joint venture agreement (“JVA”) with Machang (in liquidation) to jointly develop a complete light industrial estate project (“the project”) and under clause 6.1 of the JVA, any profit or loss arising out of the project must be shared by Merger and Machang by 60: 40 ratios respectively.
- Merger appointed Machang as the attorney under the irrevocable Power of Attorney (“PA”) and Project Manager under the Project Manager Agreement (“PMA”). The JVA, PA and PMA were entered on the same date of 29th September 1995.
- In July 1999, Machang utilising the PA caused the lands to be charged to Bank Kerjasama Rakyat Malaysia (“Bank Rakyat”) for project financing in the sum of RM 10 million to develop the lands.
- However, both companies were wound up. On 17th June 2002, Merger was wound up in the Penang High Court pursuant to a winding-up petition by two petitioners, and Machang was wound up on 19th November 2009, and a liquidator named Wong Weng Foo was appointed as Machang’s liquidator. Pursuant to the order on 28th August 2013, Tee Siew Kai, the appellant, was appointed as Merger’s liquidator in substitution of the Official Receiver.
- As the date of the liquidator’s appointment was in August 2013, the project undertaken by Machang had come to a halt as it was left abandoned. The project had lain abandoned for some four years. The lands were subdivided into individual lots.
- As the project failed, there was a default in the repayment of the 1999 facilities, and Bank Rakyat attempted on three occasions to sell the subject matter of the charge, namely 124 unbuilt lots by way of auction. However, all three attempts were unsuccessful. (Bank Rakyat’s final attempt was on 16th January 2014.)
- When the liquidator was appointed in August 2013, the status then prevailing was there were 124 sub-divided unbuilt individual parcels (“the 124 unbuilt lots”) which had yet to be sold and redeemed from Bank Rakyat. Functioning as the liquidator and, empowered by the Court’s order and Companies At 1965 provisions, the appellant took possession of the 124 unbuilt lots and advertised the sale in various newspapers on 29th April 2014.
- On 12th May 2014, Merger received an offer from Kelana Jaya Estet Sdn Bhd (“Kelana Estet”) to purchase the unbuilt lots for RM 9 million. On 16th May 2014, it received an expression of interest to purchase the unbuilt lots together with a 10% earnest deposit from Kelana Estet.
- On or around 13 June 2014, the liquidator procured a valuation report for the 124 unbuilt lots from Henry Butcher Malaysia (Seberang Perai) Sdn Bhd ("Henry Butcher") dated 5th July 2017 which was prepared using the residual method of valuation. The report stated that the market value for the unbuilt lots was RM9.5 million while their forced sale value was RM6.65 million. Machang subsequently procured a valuation report for the 124 unbuilt lots from Laurelcap Sdn Bhd ("Laurelcap") dated 1 December 2015 which was prepared using the comparison method of valuation. The report stated that the market value of the unbuilt lots was RM16.5 million, i.e. RM7 million higher than the market value derived by Henry Butcher.
- On 24 June 2014, Merger was advised by Bank Rakyat that the redemption sum was RM8,247,996.05. The amount owed by Merger was RM1,493,256.50. Machang owed the balance of the redemption sum under the third-party charge granted by Bank Rakyat to Machang.
- On 17 July 2014 Merger accepted the offer of RM9 million from Kelana Estet. Notwithstanding such an offer, the liquidator, on behalf of Merger, could not execute the sale and purchase agreement by reason of Machang's insistence through its liquidator, Wong, that Machang still enjoyed a valid contractual obligation under the JVA and the PA. This is the core dispute. Wong asserted that any sale of the unbuilt lots to Kelana Estet, the intended purchaser, without Machang's consent, would amount to a breach of the JVA and PA. Machang threatened to sue the liquidator i.e. the appellant personally for "causing Merger to act in breach of the JVA and PA if he proceeded with the intended sale".
- The sale of the unbuilt lots to the intended purchaser, Kelana Estet was delayed. This resulted in Kelana Estet issuing a notice of demand to Merger on 5th January 2015. On 8 January 2015, Bank Rakyat confirmed the redemption sum was RM8.6 million, and at Merger's request this sum was reduced by RM100,000-00 to RM8,500,000-00. On 23 February 2015, the liquidator, on behalf of Merger executed the sale and purchase agreement with Kelana Estet and its nominee Oasis Highland Sdn Bhd. The purchase price was RM9 million.
- On 26 March 2015 the redemption sum was settled in full. On 17 May 2016 Bank Rakyat refunded the sum of RM361,052-35 to Merger being the remaining sum available after deduction of the amount outstanding under Machang's account of RM1,707,957-00 and the redemption sum of RM6,792,043-00 for the facility afforded to Machang.
- Accordingly, on 3 August 2016, Merger demanded the sum of RM6,792,043-00 from Machang being the payment due from it under the financing facility for the redemption of the 124 unbuilt units. Machang's primary grievance against the liquidator of Merger is the sale of the unbuilt lots as it contends that notwithstanding the winding up of Merger, and seven years later Machang, the JVA and the PA survived the same. Machang maintained that its consent was necessary to effect the sale.
- The liquidator, it was contended, had caused Merger to act in breach of the JVA and the irrevocable PA. Finally, it was alleged that the sale of the unbuilt lots had caused Machang to suffer loss and damage in the sum of RM3,300,801-58, such figure is derived from a theoretical computation of Machang's 40% share in the project. This computed figure is premised on a selling price of RM16,500,000-00 based on a valuation undertaken by the Laurelcap above for Machang, and a redemption sum of RM8,247,996.05.
- It was further contended that the sale at an undervalue had caused loss to the creditors of Merger in the sum of RM4,951,202-37, another theoretically computed figure stated to represent Merger's 60% share in the net proceeds, utilising the same redemption sum above These figures were calculated. However, over a period of several years up to January 2014, Bank Rakyat as the secured creditor had been unable to effect any form of the auction sale of the unbuilt lots, despite three attempts.
- On the facts of the instant appeal, the primary issues that arise for consideration are this:
As set out in the first question of law, does Machang, that is neither a creditor nor a contributory of Merger, have the locus standi to seek leave to initiate an action against the liquidator of Merger personally, for losses alleged to be suffered by Machang as a consequence of an alleged breach of the agreements entered into between Machang and Merger?
- The liquidator’s office is a statutory one who has custody and control of all of the assets of the company in liquidation and is an agent of the company. As an agent of the company, the act of the liquidator is binding on the company. However, the liquidator is not personally liable for those acts that he carries out of his capacity as liquidator, even though his principal, the company, may be liable. The principal objective of the liquidator in liquidation is to expeditiously secure the sale of the assets of the company to generate funds to enable payment to be made to the creditors. Section 236 of the Companies Act 1965 sets out the powers of the liquidator. Section 236(2)(c) of the same provides that the liquidator is empowered to sell the immovable property of the company in liquidation via private contract. -
- In this instant case, the liquidator was carrying out his duties per the statute. The liquidator cannot be alleged to have abused his office, nor committed misfeasance by selling the lands. Any allegation of selling at an undervalue, even though if true, is available only to a creditor or contributory. The liquidator owed no duty of care to Machang in this context. Machang has no basis to so alleged because it is not a creditor of Merger. Machang’s primary complaint of an alleged breach is against Merger, as the other contracting party. Any remedy that Machang seeks must be procured from the company, i.e. Merger. Machang’s seeking to proceed to initiate an action against the liquidator personally is unfounded as the liquidator is not the party. -
- The errors of law in the High Court’s judgment failed to ascertain the requisite locus standi of the liquidator. The failure of the learned judge is that he failed to comprehend that Machang cannot bring an action against the liquidator personally. The claim that Machang seeks was from an allegation of breach of contract by Merger, not the liquidator. Claims against Merger must be filed in the winding up, the proof of debt claim. After all, Machang has no basis in law to initiate an action against the liquidator personally under the inherent jurisdiction of the court. There was also no basis for any allegation of misfeasance or personal misconduct to be levelled against the liquidator as he was only carrying out his primary statutory duty. Any allegations of negligence against the liquidator can only be brought by persons affected by the sale, namely the creditors and contributories, which Machang is not one of them. There was no merit in the claim brought because it was brought against the wrong party. -
- At the appellate stage, the Court of Appeal erred on affirming the decision of the High Court as the Court of Appeal failed to recognized the fundamental errors on locus standi issues. The Court of Appeal did not substantiate the legal reasoning of the extension of personal liability of a liquidator within the premise of any ‘interested parties in the winding-up process’ can be brought claims for such alleged negligence. Further, the Court of Appeal failed to see that the claim brought was premised on breach of contract which should be brought against Merger, not the liquidator. Most pertinent, the Court of Appeal was misguided and had no basis in law or fact to state that the liquidator had prima facie or on the face of the record compromised with the jurisprudence of accountability, transparency and good governance in accordance with the practice of international community, had the professional duty to live with the expectations of their calling.