Court of Appeal lays down principles as to whether a liquidator’s decision to admit a proof of debt may be challenged: Rahmat Lim & Partners

15 October 2021

Sunrise Megaway Sdn Bhd (in liquidation) v Kathryn Ma Wai Fong
[2021] 6 CLJ 39

In Sunrise Megaway Sdn Bhd (in liquidation) v Kathryn Ma Wai Fong, the appellant, a company within the WTK group of companies (“WTK Group”) (“Appellant”), was wound up (“Winding-Up Order”) pursuant to a winding-up petition filed by the petitioner. A liquidator was subsequently appointed. In 2018, one of the creditors that was also part of the WTK Group, Lismore Trading Co Ltd (“Lismore”), lodged a proof of debt (“POD”) for about RM4 million. The liquidator admitted the POD after conducting a series of investigations to verify the POD. The respondent (“Respondent”) opposed the admission of the POD pursuant to section 517 of the Companies Act 2016.

The High Court held in favour of the Respondent and reversed the liquidator’s decision to admit the POD. The High Court further held that the liquidator failed to perform more investigations into the POD by obtaining evidence of a company written resolution to support the claim, there was no proof that the monies were received from Lismore and the POD was unsubstantiated due to insufficient evidence.

In allowing the appeal, the Court of Appeal held as follows:

It was not for the court to determine how the investigation was to be done or carried out by the liquidator and the relevancy and adequacy of the documents to be considered in his investigation before he makes his finding and decision as, otherwise, the court would be seen as usurping the function of the liquidator or interfering with the conduct or decision of the liquidator in discharging his role and function in company liquidation.
The liquidator had conducted a thorough and independent investigation of the POD and had applied the correct accounting principles towards the transaction documents and contemporaneous evidence of the appellant before allowing the POD.
The relationship between the subsidiaries in the WTK Group was a relevant factor in proving the said sum was an advancement. The lack of a directors’ resolution did not mean that such an advancement could not be made. The liquidator was justified in admitting the POD in the sum of about RM4 million.