In the case of Ler Cheng Chye & Anor v Wong Ching
Yong & Ors [2020] 7 AMR 900, [2020] MLJU 1565, Darryl
Goon J decided on the issues concerning a challenge to the role
played by a receiver and manager, and the need to consider what a
receiver and manager appointed over the assets and undertaking of a
company may or may not do, upon the commencement of winding up
proceedings of that company.
Brief background facts
In October 2013, a company known as Instant Bonus Development Sdn
Bhd ('IBDS') applied for and obtained
financial facilities from Malaysian Building Society Berhad
('MBSB'). The facilities obtained were a
combination of a term loan and a bridging loan, both totalling RM92
million.
The term loan was to finance the purchase of a piece of landed
property identified as Lot 167 held under Geran 28374, Seksyen 94A,
Bandar Kuala Lumpur Negeri Wilayah Persekutuan Kuala Lumpur
('Land') by IBDS.
The land became registered in IBDS' name and by way of
security, was charged to MBSB under the provisions of
the National Land Code 1965. There
was also a debenture dated 28 October 2013 entered into between
IBDS and MBSB which created fixed and floating charges over
IBDS's assets, properties and undertakings
('Debenture').
Following this, IBDS embarked on a housing project on the Land
known as Robson Hill Residency. This became the primary business of
IBDS.
Thereafter, it was contended that IBDS had breached the terms of
the financial facilities. MBSB invoked its rights to the remedies
provided under the Debenture.
On 6 November 2018, MBSB appointed the 1st Defendant, Wong Ching
Yong ('Wong') as receiver and manager over
IBDS, pursuant to the terms of the Debenture. Wong then proceeded
to write to the Board of Directors of IBDS, and provided a copy of
the notice of his appointment pursuant to Section
377(1) of the Companies Act 2016
('CA 2016').
Wong subsequently, in his capacity as receiver and manager secured
the sale of IBDS's principal asset i.e. the Land, and all that
had been built on it to a third party to Grene Residencia Sdn Bhd
('Grene Residencia').
On 24 May 2019, IBDS entered into a sale and purchase agreement
with Grene Residencia in relation to the Land, via Wong as the
receiver and manager, and agent of IBDS. This was done via a public
tender.
On 27 May 2019 however, IBDS was ordered to be wound up pursuant to
a winding-up petition. The Plaintiffs were appointed as the joint
and several liquidators.
The Plaintiffs complained that by continuing to play the role of
receiver and manager after IBDS had been wound up, without either
Plaintiffs' or the Court's consent, he had acted beyond the
legal limit of what he was entitled to do as a receiver and
manager.
Decision
The High Court dismissed the action against the
1st Defendant on grounds that no consent was
required of the liquidator or of the Court
under Section 386(1)(b) of the CA
2016, prior to the amendment of this Section.
Prior to 20 January 2020, Section 386 of the CA
2016 provided, as follows:
'Powers of receiver or receiver and manager on
liquidation
386. (1) After the commencement of winding up of a
company—
a. a receiver may continue to act as a receiver and exercise all the powers of a receiver in respect of property or assets secured under the debenture appointing the receiver; and
b. a receiver and manager may continue to act as a receiver as referred to in paragraph (a) and a receiver and manager may exercise all the powers of a receiver and manager for the purpose of carrying on the business of the company provided that the receiver and manager obtains consent from the liquidator or if the liquidator withholds his consent, the consent of the Court.
(3) A debt or liability incurred by a company through the acts of a receiver or receiver and manager who is acting as the agent of the company in accordance with subsection (2) is not a cost, charge or expense of liquidation.'
By virtue of Section 11 of the Companies
(Amendment) Act 2019, Section 386 of
the CA 2016 was amended to read as
follows:-
''Powers of receiver or receiver and manager on
liquidation
386. (1) After the commencement of winding up of a
company—
a. a receiver may continue to act as a receiver and exercise all the powers of a receiver in respect of property or assets secured under the debenture appointing the receiver; and
b. a receiver and manager may continue to act as a receiver as referred to in paragraph (a); and
c. a receiver and manager may continue to exercise all the powers of a receiver and manager for the purpose of carrying on the business of the company provided that the receiver and manager obtains consent from the liquidator or if the liquidator withholds his consent, the consent of the Court.
(3) A debt or liability incurred by a company through the acts of a receiver or receiver and manager who is acting as the agent of the company in accordance with subsection (2) is not a cost, charge or expense of liquidation.'
Darryl Goon J stated that Section 386 of the CA
2016 catered for three separate situations,
after commencement of winding up, namely:
i. Under paragraph (a) – a 'receiver' may continue to act as 'receiver';
ii. Under the first limb of paragraph (b) – a 'receiver and manager' may continue to act as a 'receiver'; and
iii. Under the second limb of paragraph (b) – a 'receiver and manager' may exercise all the powers of a 'receiver and manager' 'for the purposes of carrying on the business of the company' if consent to do so is given by the liquidator, or if the liquidator refuses, the consent of the Court.
The High Court Judge further opined that the acts and omissions
complained of were not tantamount to carrying on the business of
IBDS and thus no consent was required of the liquidator or the
Court under Section 386(1)(b) of the CA
2016.
The Plaintiffs' alternative contention was that the 1st
Defendant, being appointed specifically as 'receiver and
manager', required the consent of the liquidator or a Court to
continue to act even merely as 'receiver'. The Plaintiffs
contended that the difference lay in the nature of the
appointment. Section 386(1)(a) of CA
2016 was in respect an appointment merely as a
'receiver' whereas Section 386(1)(b) of CA
2016 was in respect of an appointment as
'receiver and manager'.
The High Court opined that, although the distinction cannot be
denied, it did not precipitate any difference in consequence in
respect of powers qua 'receiver'. The Court went on
to say that it would make no sense that the receivership power of a
person appointed as a 'receiver' may continue
under Section 386(1)(a) of CA
2016 but the receivership power of a person
appointed as a 'receiver and manager' may not, without the
consent of the liquidator or that of a
Court, Section 386(1)(b) of CA
2016.
Further, the High Court Judge was of the view
that Section 386(1) of CA 2016
even as unamended, made it plain that receivership powers of a
person, whether appointed merely as a 'receiver' or as a
'receiver and manager', may continue after commencement of
winding up.
It is only when a 'receiver and manager' wishes to exercise
his powers as 'manager' for the purpose of carrying on the
business of the company, that the liquidator's consent or, if
refused, that of the Court has to be obtained.
Conclusion
In the circumstances, the High Court decided that the 1st Defendant
was correct in continuing to carry on the business of IBDS without
the consent of the liquidator or the Court even after it had been
wound up. The 1st Defendant did not require the consent of the
liquidator or that of the Court, even if only to continue to act
merely as a 'receiver'.
The decision is welcomed as it affirms the position that the
Receiver and Manager may continue to act as a Receiver of the
charged assets of a wound up company, without the need to first
secure the consent of the liquidator, or the court as the case may
be.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
