THHE directors lack standing to fight winding-up petition, says court

Free Malaysia Today

3 hours ago

The High Court dismissed an application brought by three directors to intervene and oppose a winding-up petition, ruling that their application was flawed and had no legal basis.
KUALA LUMPUR : The High Court has ruled that the former directors of TH Heavy Engineering Bhd (THHE) had no legal standing to oppose a petition brought by three creditors to convert the company's voluntary liquidation (CVL) into a court-ordered winding-up.
Three THHE directors, led by Jauhari Hamidi, had asked the court to declare that they retained residual powers – both individually and collectively – to oppose the winding-up petition filed by Global Mariner Offshore Services Sdn Bhd and two other creditors.
Justice Atan Mustaffa Yussof Ahmad, however, dismissed the application and awarded costs against them personally.
In written grounds delivered last week, the court said a company's directors lose their powers once a liquidator is appointed.
In 2017, THHE was classified as a PN17 company, indicating that the company was in financial distress.
In September 2023, its board of directors commenced the CVL process, which saw joint interim liquidators appointed.
The official receiver took over in May last year after the joint interim liquidators vacated their post.
'Having voluntarily ceded their powers to manage the company to the joint interim liquidators, (the directors) cannot now claim residual powers to oppose a petition that would merely place the liquidation under court supervision,' Atan said.
He held that under Sections 440(2) and 476(2) of the Companies Act 2016, an interim liquidator is vested with 'every function and power' accorded to a liquidator under the Act.
'These provisions, read together, indicate that an interim liquidator possesses substantially the same powers as a permanent liquidator, which necessarily includes the power to determine whether to oppose, or not oppose, the petition,' he said.
The judge accepted that directors may, in certain limited circumstances, retain some residual powers after a liquidator is appointed.
'However, the authorities establish that such residual powers are of a narrow scope and apply in specific situations,' he said, ruling that those powers do not extend to opposing a petition to convert a voluntary liquidation to one ordered by the court.
Relying on the Federal Court's 2010 decision in Zaitun Marketing Sdn Bhd v Boustead Eldred Sdn Bhd, Atan said the directors of a company are not parties to a liquidation unless they qualify as creditors or contributories.
He also ruled that any purported 'residual powers' had to be exercised collectively by the board, not unilaterally, as Jauhari had sought to do by engaging solicitors without a board resolution conferring authority on him.
Atan also found that the directors' application was procedurally defective and lacked a 'proper legal basis'.
'The present case involves fundamental procedural defects where the application fails to comply with the mandatory requirement under Rule 7 of the Companies (Winding Up) Rules 1972 of being made by motion.
'More importantly, (it) lacks any proper legal basis under the Companies Act 2016 as neither Section 517 nor Section 486(2) applies to the circumstances presented,' he said.
Global Mariner, Boomslang Technology Sdn Bhd and Dynac Sdn Bhd filed their winding up petition in February, citing THHE's inability to pay its debts.
On May 27, the High Court allowed the petition.
The three creditors collectively hold 76.8% of THHE's total debt, with Global Mariner owed US$63.42 million in damages following an earlier court ruling over a shareholders dispute.
The petitioners were represented by David Mathews, Olivia Loh, Koh Jo Vin and Lai Ann Xing, and the directors by Wajdi Mohamad & Hajar Mardhiah.
Joyce Pang appeared for NSF Engineering, a supporting creditor, while Tay Li Sheng appeared for Star Kris Services, which is opposing the petition.
Wardah Nasuha Safian from the insolvency department appeared for the official receiver.