The Federal Court recently determined several interesting points of law in Ooi Woon Chee v Dato See Teow Chuan ([2012] 2 MLJ 713).

Some years after Kian Joo Holdings Sdn Bhd had been wound up, the liquidators put forward two proposals for distribution of the company's assets:

  • the sale of the company's shareholding in a canning factory; and
  • the pro rata distribution of the shares among the 27 contributories of the company.

The majority of the contributories voted for the sale of the shares, while the minority voted for pro rata distribution. The liquidators proceeded with the sale and, after one aborted attempt, invited open tenders for the sale. They received three offers but, being dissatisfied with the prices offerred, they extended the deadline and requested improved offers in order to obtain the best possible price. They then received two offers from Company A and Company B, where Company B was the private vehicle of the leader of the majority group of contributories.

It was alleged that the liquidators then had a private meeting with the owners of Company B, and that they requested a secret meeting in order to seek compensation in exchange for approving the sale to Company B. Thereafter, the liquidators accepted Company A's offer.

The majority of the contributories objected to the sale to Company A on the grounds that there had been fraud and corrupt practices on the part of the liquidators. The minority of the contributories also objected on the grounds that the shares should be distributed in specie.

The majority filed an application for leave to sue the liquidators, while the liquidators filed an application for directions to proceed with the sale. The High Court refused leave to sue and granted directions to proceed. The Court of Appeal reversed both of the High Court's findings and the case went before the Federal Court.

The Federal Court first ruled that the sale to Company A had no connection with the financial compensation allegedly sought from Company B, since the Company A sale was at a higher price. The court adopted the reasoning that the principle of 'clean hands' applies only if the suspect action has an immediate connection to the sued-for equity. In any event, the court found that no bribe had been paid.

Second, the Federal Court ruled that there was no conflict of interest in the liquidators (who were partners in KPMG) accepting an offer from Company A (which was KPMG's audit client). The court held that commercial reality dictated that the existence of such a relationship should not by itself disqualify liquidators or their audit clients.

Third, the Federal Court held that although the liquidators were officers of the court, they were not bound by the same standards as a judge and, as such, it was not objectionable that meetings in connection with the sale had been held outside their offices.

The Federal Court also ruled that an application by a liquidator for directions under Section 237(3) of the Companies Act cannot be appealed as a judgment within the scope of Section 67(1) of the Court of Judicature Act.

For further information on this topic please contact Nahendran Navaratnam at Kadir Andri & Partners by telephone (+603 2078 2888), fax (+603 2078 8431) or email ([email protected]).