CX GROCERY SDN BHD v TENG YUE OVERSEAS CONSTRUCTION SDN BHD

Case Significance

Illustrates when a contributory will be authorised under section 486(2) of the Companies Act 2016 to pursue litigation for a company in liquidation over the liquidator's inaction, where a large counterclaim could benefit all creditors.

This High Court decision at Johor Bahru concerns a post-winding-up application by CX Grocery Sdn Bhd, the sole contributory of Teng Yue Overseas Construction Sdn Bhd, a company wound up on 21 November 2023. The applicant sought leave under subsection 486(2) of the Companies Act 2016 to proceed with and continue arbitration proceedings (Arbitration Reference No. AIAC/D/FTR/1053-2022) between MCC Overseas (M) Sdn Bhd and the wound-up company. The liquidator, Baltasar bin Maskor, had not brought or defended the proposed proceedings, and the applicant asked the Court to permit it to carry the litigation forward in the company's stead.

The Court set out the competing considerations. On one side, a substantial pool of proofs of debt had been filed against the company, and the wound-up company held a substantial counterclaim said to be worth in the order of RM30 million in the arbitration, with hearing dates already fixed. On the other, the liquidator's position was one of "waiting for information", and the affidavits disclosed that the liquidator had made no positive expression of intention to proceed with the arbitration, largely because of a lack of funds and documentation. The Court reasoned that the liquidator's passive stance could not reasonably defeat the statutory right of a contributory where claims of that magnitude were at stake and hearing dates had been fixed; that a successful counterclaim could potentially satisfy all creditors; and that there was no evidence of detriment to the estate, particularly as the applicant had undertaken to bear all necessary arbitration expenses. The Court emphasised that potentially valuable causes of action should not be abandoned simply because the liquidation lacks funds.

The Court allowed the application: leave was granted to the applicant to proceed with and continue the arbitration proceedings, with no order as to costs. A further prayer was not allowed because the liquidator had already acted to file an application to set aside a judgment in default. The judgment is a useful illustration of when a contributory will be authorised under section 486(2) to pursue litigation for a company in liquidation over the objection or inaction of the liquidator, especially where a large counterclaim could benefit the whole body of creditors and the contributory funds the exercise.