Court rules that the directors lack the necessary authority to contest the winding-up petition
In a significant ruling, the High Court of Malaysia has dismissed an application by the directors of THHE to retain residual powers to oppose a winding-up petition, following the appointment of an interim liquidator last year.
The case, which began in September 2023, saw THHE's board of directors commence the creditor's voluntary liquidation (CVL) process, resulting in joint interim liquidators being appointed. The directors, led by Jauhari Hamidi, subsequently asked the court to declare that they retained residual powers to oppose the winding-up petition.
However, the court found that the directors' application was procedurally defective and lacked a proper legal basis. Justice Atan Mustaffa Yussof Ahmad dismissed the application and awarded costs against the directors personally. The judge also emphasised that a company's directors lose their powers once a liquidator is appointed, with the interim liquidator being vested with "every function and power" accorded to a liquidator, as outlined under Sections 440(2) and 476(2) of the Companies Act 2016.
The present case lacked any proper legal basis under the Companies Act 2016, as neither Section 517 nor Section 486(2) applies to the circumstances presented. The petitioners, represented by David Mathews, Olivia Loh, Koh Jo Vin, and Lai Ann Xing, argued that the directors' residual powers do not extend to opposing a petition to convert a voluntary liquidation to one ordered by the court.
The directors were represented by Wajdi Mohamad & Hajar Mardhiah. Wardah Nasuha Safian from the insolvency department appeared for the Official Receiver. Joyce Pang appeared for NSF Engineering, a supporting creditor, while Tay Li Sheng represented Star Kris Services, which is opposing the petition.
Three creditors - Global Mariner, Boomslang Technology Sdn Bhd, and Dynac Sdn Bhd - filed a winding up petition against THHE in February this year. THHE was classified as a PN17 company in 2017, indicating financial distress. The three creditors collectively hold 76.8% of THHE's total debt, with Global Mariner owed US$63.42 million in damages.
The general principles on directors' powers, as outlined in similar legal contexts, suggest that directors may retain only residual powers in very specific circumstances after a liquidator is appointed. However, these powers are typically not sufficient for opposing a winding-up petition without a court order or specific legal basis.
This ruling underscores the importance of understanding the specific rules regarding directors' residual powers in the context of winding-up petitions. For precise legal interpretation, consulting the Companies Act 2016 or legal experts familiar with Malaysian corporate law would be necessary.
- In light of the ruling, directors in Malaysia must understand the limitations of their residual powers when a liquidator is appointed, as they cannot oppose a winding-up petition without a court order or a proper legal basis, as demonstrated in the THHE case.
- The present case highlights the relevance of Sections 440(2) and 476(2) of the Companies Act 2016, which vest the interim liquidator with all functions and powers of a liquidator, thereby stripping the directors of their powers once a liquidator is appointed.
- As finances and business operations are intricately tied to technology and law in modern Malaysia, it is crucial for companies, directors, and creditors to be well-versed in the specific rules regarding directors' residual powers in the context of winding-up petitions, to ensure justice and transparency in the administration of a company's affairs.
