Hew Kiang Hoe [Identity Card No.: 280610085291] & 1 lagi v SHENCOURT PROPERTIES SDN BHD

Case Significance

Illustrates the liquidation expenses principle: legal fees reasonably incurred on a liquidator's instructions to recover assets for the benefit of creditors are costs and expenses of the winding up entitled to priority under the Companies Act, the statutory list of priority expenses not being exhaustive.

This High Court decision in the Commercial Division at Kuala Lumpur concerns the priority to be accorded to legal fees incurred after a company has been wound up, in proceedings to recover assets belonging to the company. The company, Shencourt Properties Sdn Bhd, had been ordered to be wound up in 2002, and legal work carried out on the instructions of its liquidators, by the applicant firm Lee Min Choon & Co, had led to the recovery of land that had been transferred away after the commencement of the winding up. The applicant appealed against the decision of the Official Receiver, who had replaced the joint liquidators, in respect of the treatment of its bills. The central question, arising under section 279 of the Companies Act 1965 (now section 517 of the Companies Act 2016) and section 292(1)(a) of the Companies Act 1965 (now section 527(1)(a) of the Companies Act 2016), was whether the professional fees were "costs and expenses in the winding up" entitled to priority in the distribution of the company's assets, or whether they ranked only pari passu with the claims of pre-winding-up creditors. Applying the "liquidation expenses principle", the court held that section 292(1)(a) is not exhaustively confined to the three categories of expense it specifically mentions, and that necessary and reasonable expenses incurred on the liquidator's instructions in performance of the statutory duty to maximise recoveries for creditors qualify as expenses of the liquidation. The court found that the professionals had contributed to the successful recovery of property for the benefit of the company and its creditors generally, and that the Official Receiver had erred in law in his treatment of the bills, including in requiring the applicant's bill to be audited. It allowed the appeal, according the fees the priority claimed. The judgment is a useful illustration of the liquidation expenses principle and of the priority accorded to costs incurred in successful asset-recovery for a company in liquidation.