Legal Updates

A REVIEW ON THE FEDERAL
COURT DECISION IN
LAI KING LUNG & ANOR V.
MERAIS SDN BHD (2020) 9 CLJ
449
5 November 2021
A case review by
Farah Saira Binti Abd Razak.
1. Brief facts
Foremost, the brief facts in Lai King
Lung are as follows:
In the High Court:
(a) The Plaintiff (Respondent in the
Federal Court) a private limited
company commenced legal
proceedings against the Defendant
(Applicant in the Federal Court) in
the year 2013.
(b) The Defendant in turn filed a
Counterclaim against the Plaintiff.
(c) While the legal proceedings were on
going, the Plaintiff was wound up
on 1/9/2015 and the Official
Receiver was appointed as the
Liquidator.
(d) On 18/1/2016, the Liquidator gave
the sanction for the Plaintiff’s
contributory to proceed with the
legal proceedings in the High
Court.
(e) On 28/11/2017, the High Court
dismissed the Plaintiff’s claim and
Defendant’s Counterclaim.
(f) The Contributory’s Solicitor then
filed a Notice of Appeal to the Court
of Appeal on 22/12/2017.
(g) On the same date, 22/12/2017, the
Contributory’s Solicitor applies for
sanction from the Liquidator to the
Plaintiff to proceed with the Appeal
in the Court of Appeal.
(h) On 2/2/2018, the Liquidator gave its
sanction which was to take effect
retrospectively from 21/12/2017.
(i) The Defendant filed a Motion to
strike-out the Plaintiff’s appeal on
two (2) grounds i.e.:
i. That the retrospective
sanction granted by the
Liquidator was invalid in
law; and
ii. That the Court of Appeal did
not grant any leave nunc pro
tunc.
In the Court of Appeal:
(j) The Court of Appeal dismissed the
Defendant’s/ Applicant’s Motion to
strike out.
(k) The Court of Appeal held that since
the Liquidator has seen it fit, after
it has appropriately satisfied and
has imposed conditions, to grant
the sanction sought retrospectively
to the date of the notice of appeal,
and it is an authority which it has,
the Court of Appeal sees no reason
why the Court of Appeal should
question that decision.
(l) If an application for retrospective
leave or leave nunc pro tunc may be
sought from the Court and the
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Court may, in appropriate
circumstances, grant such leave or
sanction, there is no reason why the
liquidator, may not likewise do the
same.
(m) Had there been an application for
retrospective leave or leave nunc
pro tunc sought by the Plaintiff
(Appellant in the Court of Appeal),
the Court of Appeal would have
granted it unhesitatingly.
In the Federal Court:
(n) Leave was granted to the
Defendant/ Applicant on two (2)
questions of law:
Question 1
Whether retrospective sanction from the
Official Receiver/ Liquidator of a woundup
Appellant/ Applicant in Court by itself
can sufficiently clothe the Appellant
and/or their solicitors with locus standi to
proceed with the appeal/ proceeding in
question without leave nunc pro tunc
obtained from Court?
Question 2
If the answer to Question 1 is NO,
whether the application for leave nunc
pro tunc to the Court must be made by
way of a formal application pursuant to
Section 486(2) of the Companies Act
2016?
(o) In answering Question 1, the
Federal Court held that under
Section 236 of the Companies Act
1965 (now Section 486 and Part 1 of
the Twelfth Schedule of the
Companies Act 2016), the
Liquidator had not the power nor
the authority to grant a sanction
which had retrospective effect, thus
the sanction could only in law take
effect on the date in which it was in
fact granted and not an earlier
date. The Liquidator did not have
the statutory power to grant
retrospective sanction in the
absence of any express enabling
provision in the enactment. The
Plaintiff therefore did not have the
locus standi when it filed the Notice
of Appeal. Consequently, the Notice
of Appeal filed by the Plaintiff was
bad in law and of no legal effect.
(p) As the Court answered Question 1
in the negative, for Question 2 the
Federal Court held that since there
was no application by the Plaintiff
for leave nunc pro tunc, the Court
declined to answer Question 2 as it
was not appropriate to formulate a
principle of law broader than it was
required by the precise facts to
which it was to be applied.
(q) Therefore, the sole issue for this
Court’s consideration is whether
the Liquidator has the authority to
grant a sanction which has
retrospective effect, and the Court
answered NO.
(r) Consequently, the appeal was
allowed with costs and the Order of
the Court of Appeal was set aside.
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/ IMPORTANT TO NOTE /
To avoid confusion, a simple summary of
what was answered by the Federal Court
in this case are as follows:
Question 1
Whether retrospective sanction from the
Official Receiver/ Liquidator of a woundup
Appellant/ Applicant in Court by itself
can sufficiently clothe the Appellant
and/or their solicitors with locus standi to
proceed with the appeal/ proceeding in
question without leave nunc pro tunc
obtained from Court?
Answer: NO, as the Liquidator had
not the power nor the authority to
grant a sanction which had
retrospective effect.
And not to be read as: NO, retrospective
sanction from the Official Receiver/
Liquidator of a wound-up Appellant/
Applicant in Court by itself is insufficient
to clothe the Appellant and/or their
solicitors with locus standi to proceed
with the appeal/ proceeding in question
without leave nunc pro tunc obtained
from Court.
Question 2
If the answer to Question 1 is NO,
whether the application for leave nunc
pro tunc to the Court must be made by
way of a formal application pursuant to
Section 486(2) of the Companies Act
2016?
Answer: NO, as there was no
application by the Plaintiff for leave
nunc pro tunc, this Court declined to
answer Question 2.
And not to be read as: NO, the
application for leave nunc pro tunc to the
Court need not be made by way of a
formal application pursuant to Section
486(2) of the Companies Act 2016.
_____________________________________
2. Key Takeways
• The Liquidator did not have the
statutory power under Section
236 of the Companies Act 1965
(now Section 486 and Part 1 of
the Twelfth Schedule of the
Companies Act 2016) to grant
retrospective sanction in the
absence of any express enabling
provision in the enactment.
• A sanction by the Liquidator
could only in law take effect on
the date in which it was in fact
granted.
• An action commenced or an
appeal filed by a wound-up
company BEFORE obtaining
sanction would render the action
invalid and void ab initio on the
ground of no locus standi to
initiate the said action.
3. The principle behind the
requirement for sanction before
commencing an action or filing an
appeal
The rationale behind this had been
expounded in Lai King Lung on
the principles underlying the
requirement for sanction, as
follows:
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“…if a company is wound-up by the
order or court, the board of directors
becomes functus officio. The
management of the company is
vested in the liquidator. Only the
liquidator has the power under the
2016 Act to bring or defend any
action or other legal proceedings in
the name and on behalf of the
company. A creditor or contributory
cannot commence or continue with
any action in the name of the
wound-up company. Accordingly, if
a creditor or contributory of the
wound-up company wishes to bring
or proceed with an action, the
creditor or contributory must apply
to the liquidator for his sanction to
do so. In order to ensure that the
defendant is not prejudiced in the
event that the wound-up company’s
action is dismissed, the liquidators
usually impose conditions (such as
indemnities and guarantees) which
must be satisfied by the creditor or
contributory, as the case may be,
before the sanction is given.”
Also referred to is the Court of
Appeal case of Hup lee
Coachbuilders Holdings Sdn
Bhd v. Cycle & Carriage
Bintang Bhd (2012) 10 CLJ 88,
citing the case of Cheng Heng
Ping & Ors v. Perwira Affin
Bank Bhd (1999) 1 CLJ 611 at p.
94 where his Lordship (as he then
was) stated as follows:
“After Campall had been wound up,
all the properties of Campall came
under the control of the Official
Assignee as the liquidator. Now
when the present suit was filed on
18 September 1997, the present
plaintiffs were no longer in control
of Campall and therefore the
present plaintiffs have no legitimate
right to proceed with the present
suit. To allow the present plaintiffs
to proceed with the present suit
would tantamount to giving them
the right to claim on behalf of
Campall at the expense of the
Official Assginee and the other
creditors of Campall. This would
open the floodgate. Imagine the
situation where former directors or
shareholders of a company that has
been wound up, take control and
oust the liquidator by filing a civil
suit against the debtors of the
company in their individual names
and benefit themselves only without
regard to the liquidator and the
creditors of the company. Chaos
would prevail. The rights of the
liquidator and creditors would be at
stake. In my judgment, it was an
abuse of the process of the court
when the present plaintiff filed the
present civil suit.”
4. The Federal Court’s view on the
issue of the application for nunc pro
tunc (translation: “now for then”) in
ratifying a retrospective sanction
In Lai King Lung, albeit declining
to answer on the issue of
application for nunc pro tunc in
ratifying a retrospective sanction,
the Federal Court did address the
misapprehension by the Courts in
relying on the English case of Re
Saunders (A Bankrupt) on the
issue of application for nunc pro
tunc in ratifying a retrospective
sanction, which can be seen as
follows:
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“[33] In our view, the Federal
Court’s reference to Re Saunders
(supra) in Winstech (supra) must be
read in its context. In Re Saunders
(supra) Lindsay
J said that retrospective leave in
appropriate circumstances may be
given under s. 285(3) of the
Insolvency Act 1986 which relates
to leave to be given by the court to
a creditor of a bankrupt to
commence any action or legal
proceedings against the bankrupt.
It does not involve a situation
where a bankrupt wishes to
commence or continue with an
action against another party. Recall
that in Winstech (supra), the
wound-up company was the
applicant which applied for leave to
appeal to the Federal Court without
obtaining the sanction from the
liquidator; as such, the primary
decider is the liquidator. In
contrast, in Re Saunders (supra),, it
was the plaintiffs who applied for
leave of the court to proceed against
a bankrupt defendant; here, the
primary decider is the court.
Accordingly, the factual matrix and
the law in issue are dissimilar. For
the foregoing reasons, we do not
think that the analogy to Re
Saunders (supra) is appropriate or
relevant. Re Saunders (supra) does
not support the proposition that
retrospective sanction may be
granted by a liquidator. As such, the
Court of Appeal was under a
misapprehension when it said that
the Federal Court in Winstech
(supra) acknowledged that
following the English decision in Re
Saunders (supra) that leave nunc
pro tunc may be granted. In the
same vein, the Court of Appeal in
Reebok (supra) fell into error when
it misapprehended the ratio
decidendi in Winstech (supra).”
5. Our view on the issue of the
application for nunc pro tunc in
ratifying a retrospective sanction
The power of the Court on
application for sanction can be seen
from Section 236(3) of the
Companies Act 1965 and now
Section 486(2) of the Companies
Act 2016 respectively as follows:
“Section 236 of the 1965 Act
236. Powers of the liquidator
(3) The exercise by the liquidator of
the powers conferred by this section
shall be subject to the control of the
Court, and any creditor or
contributory may apply to the Court
with respect to any exercise or
proposed exercise of any of those
powers.
Section 486 of the 2016 Act
486. Powers of liquidator in
winding up by Court
(2) The exercise by the liquidator in
the winding up by the Court of the
powers conferred by this section is
subject to the control of the Court
and any creditor or contributory
may apply to the Court with respect
to any exercise of any of those
powers.”
As such, it is our view that the
Court has the power and the
authority to hear an application by
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the creditor or contributory with
respect to and/or confined to any
exercise of the powers conferred to
the liquidator in that section, i.e. to
order that the liquidator be
compelled to initiate the action in
the name of the wound-up company
or that leave be given to the creditor
or contributory to bring the action
in the name of the company AFTER
the liquidator has rejected the
application for sanction, and such
order or leave obtained by the Court
must be made and obtained
BEFORE commencing legal
proceedings or filing any appeal.
Thus, it is our view that the Court
has no power and authority grant a
retrospective sanction and has no
power and authority to ratify a
retrospective sanction.
The authority on this can be seen in
Hup Lee as referred to in Lai
King Lung at p. 460, wherein the
Court of Appeal held as follows:
“[27]…On appeal, the Court of
Appeal held that the issue of
obtaining leave from the court
under s.226(3) does not arise
because it is not a case where an
action was brought against the
wound up company. Instead, the
relevant provision applicable is subss.
233(1) and (2) of the 1965 Act –
that once a limited company is
wound up, its assets and liabilities
vests in the liquidator. As such, only
the liquidator has the necessary
locus standi to commence the action
on behalf of the appellant company
against the respondent. An action
filed without the consent of the
liquidator or the leave of the court is
illegal and invalid. Section 236(2)
of the 1965 Act strengthens the
position that only the liquidator has
the power to bring or defend any
action or legal proceedings in the
name and on behalf of the woundup
company. If for whatever reason
the liquidator is unwilling to
initiate the action in the name of the
wound-up company, a creditor or a
contributory can apply to court
under ss. 236(3) or 279 of the 1965
Act seeking an order that the
liquidator be compelled to initiate
the action in the name of the woundup
company or that leave be given to
the creditor or contributory to bring
the action in the name of the
company; and that to do so, the
creditor or contributory must have
obtained leave of the court before
commencing the action in the name
and on behalf of the wound-up
company….”
Wherefore in our view, the Court
has no power and authority to grant
retrospective sanction and has no
power or authority to grant leave
nunc pro tunc to ratify a
retrospective sanction pursuant to
Section 236(3) of the Companies
Act 1965 and now Section 486(2) of
the Companies Act 2016
respectively.
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information of the clients of our
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