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Case Update: Federal Court recapitulate principles of law in proceedings against a liquidator in his personal capacity

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INSOLVENCY
Principles of law in proceedings against a liquidator in his personal capacity – Claim for a breach of a joint venture agreement and/or power of attorney – Damages against the liquidator personally, by reason of an alleged breach of contract between the two companies in liquidation

Tee Siew Kai v Machang Indah Development Sdn Bhd
Civil Appeal No 02(i)-50-072018(P), Federal Court
- see the grounds of judgment here

Facts Merger Acceptance Sdn Bhd (‘Merger’), as the registered owner of the land in dispute entered into a joint venture agreement (‘JVA’) with Machang Indah Development Sdn Bhd (‘Machang’) to jointly develop and complete a light industrial estate project. Merger then appointed Machang as its attorney in respect of the Lands vide an irrevocable power of attorney (‘PA’) and its project manager under a Project Management Agreement (‘PMA’). In 2002, Merger was wound up by the Court and subsequently, Machang abandoned this project. Then, in 2009, Machang was also wound up by the Court. The appellant, Tee Siew Kai was appointed as the liquidator of Merger, in substitution of the Official Receiver. As the project failed and there was default in the repayment of the facilities, the appellant took steps to sell the charged lands to realise these assets to repay the bank and creditors. The appellant eventually succeeded to sell the land to an interested purchaser and the redemption sum was paid in full. Dissatisfied, Machang filed an application in the High Court seeking leave to proceed against the appellant in his personal capacity on the basis that it had allegedly suffered losses by reason of a claimed breach of a joint venture agreement and/or power of attorney entered into between itself and Merger. The High Court granted leave for Machang to proceed against the liquidator in his personal capacity and then the Court of Appeal upheld the decision of the High Court. Hence, this appeal.

Issues The main issue is whether a party who is neither a creditor nor a contributory of a wound up company is entitled to obtain leave to sue the liquidator of a wound up company, in his personal capacity, for losses allegedly suffered by the said party arising from an alleged breach of the joint venture agreement and/or power of attorney entered into between the said party and the wound-up company.

Held In allowing the appeal, the Federal Court held that when the liquidator carried out his statutorily stipulated function of selling the lands, he did so on behalf of the company, in his capacity as agent of the company. As such, while the sale so effected is binding on the company, it is not and does not amount to an act by the liquidator personally. The consequence is that a third party, such as Merger cannot sue the liquidator for negligence, save for misfeasance or personal misconduct on his part.

ZUL RAFIQUE & partners
{13 March 2020}