REPRESENTING the MINORITY

IN WINDING UP PROCEEDINGS -
MALAYSIAN PRACTICE NOTES (PART ONE)

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There’s nothing much which can be done if the Petitioner is the majority shareholder who has applied for the company to be wound up, save for challenging it in Court. And take the instance where the minority wants the same thing i.e. that the company be wound up and both parties may go home at the end of the day with their share.

Meanwhile, what if the minority shareholder wants your assurance that his rights would not be infringed in the process? Of course we can always file our Notice of Intention to Appear as a Supporting Petitioner, in support of the Petition; so that we become parties to the proceedings, giving us the first avenues to K.I.V. (keep in view) the situation.

Again, what if the majority wants to appoint a private Liquidator? According to the law, an application to appoint a private liquidator would be given precedence over the appointment of the Official Receiver. Section 227(1) of the Companies Act 1965 says that if an approved liquidator other than the Official Receiver is not appointed to be the liquidator of the company the Official Receiver shall by virtue of his office become the provisional liquidator and shall continue to act as such until he or another person becomes liquidator and is capable of acting as such. This effectually means that the private liquidator would be given preference over the Official Receiver any day.

It has to be taken into consideration that if the private liquidator is appointed by the majority, it may pose some problems to you especially if the winding up was first initiated on part of the majority, as a result of some irreconcilable disputes between the majority and the minority. Practically there would be accusations from both sides of mismanagement or lack of the ‘best interests of the company’ at heart and subsequently, the appointed private liquidator would really make your client’s life miserable, questioning every move he made, investigating every penny he spent, in vain of course.

Moreover, the appointed liquidator may favor the Petitioner’s representations over the assets of the company over yours, especially over the part which remains the product of verbal negotiations and mutual trust dealings. It may even be something as simple as buying a photocopy machine for your office. While you have earlier agreed in terms that your client buys it and will later be reimbursed by your company. This, save for the specifics, happens all the time. Of course as there are no supporting documents, so it’s always open to abuse.

Therefore, how do we protect our client’s interests? At the very least, ensure that his voice is heard and hand in place on the proper forums. The shortest answer to this would be to challenge the Majority’s application for a private liquidator and to apply to the Court, for one of your own. But can your application be approved over the majority’s, because, they are still the majority. There is nothing in the Companies Act 1965 which talks of the specific subject matter. Only section even remotely touching on the matter is section 227 which we all know only talks of the principle that a private liquidator is to be given priority in appointment over the Official Receiver.

On the same note, rule 31(1) of the Winding up Rules 1972, it says that; when filing the petition the petitioner shall nominate in writing an approved liquidator who is entitled to be appointed as liquidator if an order for the winding-up of the company is made by the Court. In other words, your side will certainly not be in priority.

Nonetheless, in application of rule 46 of the Winding up Rules, it shows that once a petition is set and before the appointment of a private liquidator, the Court will have to take into consideration the Creditors' recommendations. These recommendations are to be the product of the meeting of the creditors, and in some cases, the majority may even be one person. However, after all of this is considered and all of this heard, the Court has to hear the Official Receiver on the matter AND any contributory or creditor. This is where your client, and in effect your competence to formulate an argument comes in because this rule establishes that even if he Petitioner does nominate his own private Liquidator, the final decision of the Court in appointing one will be after considering the appeals from other 'contributories' as well.

Sadly, there is no case law which even remotely talks of this dilemma.

The only other remedy would be to wait until we can allege any form of unfairness or any unwarranted steps taken on part of their liquidator. This was the case in the recent case of Abric Project Management Sdn Bhd v. Palmshine Plaza Sdn Bhd (Veteran Winding up expert Ong Ban Chai was representing the Petitioner) where a contributory applied for an order removing the appointed liquidator owing to certain discrepancies in his action such as selling off a piece of land undervalued or below the market rate. In short, the test is whether removal pursuant to section 232 of the Companies Act 1965 is in the 'best interests of the liquidation'.