Liquidator Need Not Obtain Leave to Appoint Solicitors

In a useful clarification of the law, the Federal Court has recently decided on whether a liquidator requires authority of the Court or the committee of inspection to appoint lawyers to act on behalf of the company already in liquidation. The Federal Court answered the liquidator need not apply for such authority since the statute already allows a liquidator to bring or defend any action on behalf of the company and to appoint an agent to do so.Prior to this Federal Court decision of Zaitun Marketing Sdn Bhd v Boustead Eldred Sdn Bhd, there were conflicting High Court authorities on this point which dealt with the interpretation of section 236 of the Companies Act 1965. The relevant sections read:

“236. Powers of liquidator.

(1) The liquidator may with the authority either of the Court or of the committee of inspection –

(e) appoint an advocate to assist him in his duties.

(2) The liquidator may –

(a) bring or defend any action or other legal proceeding in the name and on behalf of the company;

(i) appoint an agent to do any business which the liquidator is unable to do himself;”

The conflict arose as to whether section 236(1)(e) of the Act, which required the authority of the Court or the committee of inspection, included the liquidator appointing lawyers to act in legal proceedings on behalf of the company. Section 236(2)(a) and (i) seemed to already allow for a liquidator to appoint lawyers to bring or defend any action on behalf of the company. Gopal Sri Ram FCJ approved of the High Court decision in Selvam Holdings (Malaysia) Sdn Bhd v Toby Lam as the Receiver and Manager and Liquidator of Selvam Holdings (M) Sdn Bhd & Anor [1994] 4 CLJ 899 and overruled the initial High Court decision of this matter. Some of the relevant portions in Selvam Holdings read:

“The second point is that s. 236(1)(e) does not apply to the appointment of an advocate and solicitor to defend a liquidator against a suit arising out of the performance of his duties as liquidator. Paragraph (e) of s. 236(1) speaks of the appointment of an advocate by a liquidator ‘to assist him in his duties’. In my opinion the duties envisaged are the ordinary administrative and management duties of a liquidator such as those that are within his ordinary professional competence. It is only that kind of duties that the words ‘to assist’ can comfortably go along with.”

This is a good clarification of the law and it is the sensible interpretation of that section. Liquidators now can minimise costs in not having to file a separate court application to seek leave of the Court to appoint solicitors, and it will also cut out preliminary objections raised against solicitors acting on behalf of the liquidator.

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