Resolution of the Dire Conflict on the Part of Liquidators

Originally published in Skrine’s Legal Insights.

The Federal Court in Ooi Woon Chee & Anor v Dato’ See Teow Chuan & Ors [2012] 2 MLJ 713 has reversed the decision made by the Court of Appeal in Dato’ See Teow Chuan & Ors v Ooi Woon Chee & Ors (including Can-One International Sdn Bhd as 15th respondent) and other appeals [2010] 6 MLJ 459 (click here for my case commentary on the Court of Appeal decision). The Federal Court has clarified several important points of law touching on when a liquidator can be held to be in conflict of interest where the liquidator’s accounting firm has provided auditing or other services.


In 1996, Kian Joo Holdings Sdn Bhd (“Company”) had been wound up by the Court by consent of the shareholders. The liquidators of the Company (“Liquidators”) were partners of KPMG Peat Marwick (“KPMG”) and KPMG Corporate Services Sdn Bhd (“KCSSB”) was an entity used by the Liquidators to carry out some of their duties.

The facts leading to the appeal in the Federal Court centred on two main applications filed in the High Court. The first application was filed by the majority contributories (“Majority Contributories”) of the Company seeking leave to proceed with legal proceedings (“Leave Application”) against the Liquidators, KCSSB, KPMG and Can-One International Sdn Bhd (“Can-One”) for alleged misconduct in a tender of the assets of the Company, namely its 34.46% shareholding in Kian Joo Can Factory Berhad (“KJCFB”), and eventual award to Can-One.

The second application was filed by the Liquidators for directions from the High Court as to whether to complete the sale to Can-One (“Directions Application”).

At the High Court, the Leave Application was dismissed and pursuant to the Directions Application, the Court directed the completion of the sale to Can-One. The decision of the High Court was reversed by the Court of Appeal. The Liquidators were granted leave to appeal to the Federal Court in respect of both the Leave Application and the Directions Application.


The Federal Court first dealt with the issues arising from the Leave Application. The Federal Court noted that the Court of Appeal, when reversing the decision of the High Court, had granted leave to the Majority Contributories to proceed with the suit against the Liquidators where the suit was commenced in the names of the Majority Contributories and not in the name of the Company. The Federal Court held that the High Court was correct in holding that no leave ought to be granted as no cause of action vested in the Majority Contributories. The complaint was that the sale of the Company’s shares in KJCFB was improperly conducted and any loss would be suffered by the Company. The proper plaintiff would therefore be the Company and not the Majority Contributories.

Further, the Federal Court agreed that no pecuniary loss was suffered by the Company by accepting Can-One’s offer as it was the highest.

The Federal Court then further assessed whether the Majority Contributories had made out a prima facie case against the Liquidators in order to allow the Leave Application. The Majority Contributories had raised three main areas in the claim against the Liquidators and the Federal Court looked at each in turn.

Can-One’s Offer

The first was the Majority Contributories’ claim that Can-One had no valid offer for the Liquidators to accept. The Federal Court analysed the facts surrounding Can-One’s offer and held that the Liquidators had correctly exercised their discretion in accepting Can-One’s offer.

Conflict of Interest

The Federal Court next considered the issue as to whether the Liquidators, KCSSB and KPMG had placed themselves in a position of conflict when the Liquidators accepted the tender from Can-One where Can-One and its holding company were audit clients of KPMG. The Federal Court was guided by the legal principle that there cannot be an actual or apparent conflict on the part of the Liquidators.

In order to constitute actual conflict, the Federal Court held that there must be another partner from KPMG advising Can-One on the very sale itself in the opposite interest. The Federal Court found that there was no one from KPMG or connected with the Liquidators advising Can-One and that KPMG only acted in the audit of Can-One. There was no connection between the sale and the audit and hence, no actual conflict.

On the issue of apparent conflict, the Federal Court assessed the connection between the Liquidators who are partners in KPMG operating out of Kuala Lumpur/Selangor and KPMG’s Penang branch who were auditors of Can-One. The Federal Court was of the view that commercial reality was such that large accounting practices will give rise to associations with persons whom insolvency practitioners will sell assets to. To disqualify a liquidator merely because of an audit relationship would mean that almost every large accounting firm would be disqualified from holding a tender exercise.

The Federal Court held that commercial reality dictated that the existence of such a relationship by itself should not disqualify liquidators or their audit clients. Firstly, there is no express prohibition under the Companies (Winding Up) Rules 1972 for such a disqualification. Secondly, the Federal Court held that the High Court had correctly applied the Canadian case of Cobrico Development Inc v Tucker Industries Inc 2000 ABQB 766 (“Cobrico”) in finding there was no conflict. In Cobrico, the appointment of an auction house was criticized because the receiver’s firm was the auditor of the auction house in the same way as the Liquidators’ firm was the auditor of Can-One. It was held in Cobrico that that fact alone did not constitute a conflict of interest.

Alleged Bribe and Solicitation

The Federal Court agreed with the High Court that the allegation of solicitation for a bribe was devoid of merit. The Federal Court examined the chronology of events, in particular how the complaint of improper conduct and fraud were only made by a member of the Majority Contributories after the announcement that Can-One was awarded the sale. The Federal Court also held that the allegation, even if it were true, had no effect on the validity of the agreement with Can-One and whether or not it should be completed. In any event, the Federal Court found that no bribe was ever paid.

There were also other important issues touched on by the Federal Court in relation to other findings made by the Court of Appeal.

Standards Applicable to Liquidators and Judges

The Federal Court examined the Court of Appeal’s finding that the Liquidators, as officers of the Court, were expected to abide by the same standards as judges and hence could not hold meetings in connection with a bid outside their offices.

The Federal Court disagreed and held that the standards applicable to a Judge have no application to Liquidators on the sale of assets. The Liquidators do not act in a judicial capacity in selling assets and were instead making business decisions to obtain the best possible price. A liquidator is obliged to enter into the market and to use all powers to get that price. The Federal Court held that it would be unrealistic and against commercial reality to expect a liquidator to sit in his office in the expectation that competitive bids would come streaming in.

Duty Owed by KPMG and KCSSB to the Contributories

The Federal Court held that the Court of Appeal had erred in finding that KPMG and KCSSB owed a fiduciary duty to the contributories of the Company. KPMG and KCSSB were not vehicles used by the Liquidators and thus could not be liable for the alleged acts of the Liquidators. The appointment of the Liquidators was personal and KPMG as a firm of accountants and KCSSB as a company were never appointed as liquidators of the Company. It was held that the Liquidators were perfectly entitled to appoint KCSSB as an agent to assist in the liquidation.

Decision in the Directions Application Not Appealable

At the Court of Appeal, the Liquidators had raised a preliminary objection as to whether the directions given by the High Court were appealable. The question was whether such a direction would fall within the meaning of “judgment or order of any High Court” under section 67(1) of the Courts of Judicature Act 1964. While the Court of Appeal held that such directions were appealable, the Federal Court disagreed. It held that the directions given by the High Court were in the nature of advice and were accordingly not a “judgment or order” and thereby non-appealable.


This Federal Court decision clarifying the issue of conflict of interest on the part of liquidators is welcomed. This decision would similarly apply to the situation where receivers and/or managers (“R&M”) are appointed over a company. The mere fact that the accounting firm of a liquidator/R&M has provided any auditing or other services to a company is not sufficient to give rise to a conflict of interest on the part of the liquidator/R&M when dealing with that company. The Federal Court gave great weight to commercial realities and the far-reaching effects of making any finding of conflict of interest.

This decision however may not be the end of this dispute. The Majority Contributories have filed an application to review this decision of the Federal Court on the grounds that the Federal Court grounds of judgment had substantially reproduced the written submissions filed by solicitors for the Liquidators and Can-One in the Federal Court. It has been reported that the Majority Contributories allege that there was insufficient consideration by the Federal Court of the Majority Contributories’ case.

It has been further reported that the Liquidators have filed an application to obtain leave to cite the 14 of the respondents and their counsel for contempt of court on the basis that the grounds for their review application showed disrespect to the Court and that the counsel for the 14 respondents may file counter-contempt proceedings against the Liquidators.


4 thoughts on “Resolution of the Dire Conflict on the Part of Liquidators

  1. Hi Lee Shih, I have a situation where a monitoring accountant was appointed during the commencement of the winding up proceeding by way of ex parte application (before the winding up order was granted by the court). Does he considered to be an officer of the court?Whether leave should be obtained by the winding up court to sue to MA?

    • Hi Choong. Quite unusual to see the appointment of a monitoring accountant in the winding up proceedings. I have not seen that before. Was it a provisional liquidator which was appointed on an ex parte basis at the commencement of the winding up proceedings? I don’t think a monitoring accountant (depending on how the Order was crafted) would be considered an officer of the Court.

      • Yes the MA was appointed by court by virtue of ex parte order applied by the petitioner. Not sure whether MA consider as provisional Liquidator. The terms some sort of like MA take control over the comp assets,accounts,hold shares cert, sign comp cheques,report to court afterwards, etc.
        If provisional liquidator we have to apply leave of court to sue them for breach etc rite?but MA do we need leave since the ex parte order state “court appoint MA to monitor the company”?
        Thanks ^^

  2. Pingback: Federal Court Rules on Plagiarism Claim | Of Counsel

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