KUALA LUMPUR (Oct 31): The Court of Appeal on Tuesday granted leave to auditors Wong Weng Foo & Co to commence proceedings against the liquidator of London Biscuits Bhd — currently in liquidation — for prioritising payment benefits of employees over the claims of other unsecured creditors.

The bench also overturned a High Court decision which allowed liquidator Lim San Peen to be discharged and released as the liquidator of the company, and instead granted leave to Wong Weng Foo & Co as the appellant to commence action to remove Lim as the liquidator, so that he can be made liable for alleged breaches that were said to have occurred during his tenure as the liquidator.

In an unanimous decision by a three-judge bench led by Datuk Azizul Azmi Adnan together with Datuk Azizah Nawawi and Datuk M Gunalan, the bench found that Lim, who was an insolvency practitioner with PricewaterhouseCoopers Advisory Services Sdn Bhd (PwC), had been wrong in giving termination benefits and indemnity in lieu of notice to the employees of the company to the tune of RM1.74 million.

However, the bench also found there was no suggestion that Lim had personally benefited from the contended breaches.

Therefore, the judges said that appointing another liquidator from PwC was not objectionable, and would aid in the continuity of the liquidation process.

“Hence, the appointment of a liquidator from the same firm, PwC, should not be objectionable, and would greatly aid continuity of the liquidation process,” the judges said.

The judges also discontinued a declaration (declaratory reliefs) sought by the appellants that Lim was in breach of his duties in respect of certain specific contentions.

“In the leave application, the appellant had not only sought for leave to commence proceedings against Lim, but also sought for an order declaring that he was in breach of his duties in respect of certain specific contentions. Before us, the claim for declaratory reliefs was discontinued,” the judges said.

“We are of the view that the termination benefits and indemnity in lieu of notice paid by Lim San Peen as the liquidator of the company to its then employees ought not have been accorded priority over the claims of the other unsecured creditors of the company. This reason alone, in our judgement, warranted the grant of leave to the appellant in order to commence proceedings against Lim,” said the judgement read out on Monday by Azizul.

Lim had sought to be discharged and released as the liquidator of the company, and for one Victor Saw to be appointed in his stead. Among the reasons advanced for this application was the fact that Lim was due to complete his tenure with PwC. It was suggested that the appointment of Saw, who had been assisting Lim in the liquidation of the company, would provide continuity to the liquidation process.

However, the appellants had opposed Lim’s discharge in the High Court as once the court ordered the release and discharge of Lim, he could not be made liable for alleged breaches that were said to have occurred during his tenure as the liquidator.

In the High Court, the judge had not granted leave to commence proceedings against Lim, and had allowed his application to be discharged.  

In overturning the High Court decision, the Court of Appeal said: “In our considered view, the payment by the liquidator of termination benefits and indemnity in lieu of notice to the then employees of the company in priority to the claims of the unsecured creditors amounted to a preference that was not permitted by the terms of the Companies Act 2016. For this reason, the appeal against the dismissal of the leave application should be allowed. We also allow in part the appeal against the discharge application, setting aside the release and discharge of Lim.”

The Court of Appeal then ordered the following: Lim not be discharged and released as the liquidator of the company; that Saw be affirmed as the new liquidator of the company; leave be granted to the appellant to commence proceedings against Lim; the direct removal of Lim as the liquidator of the company; and a Gabriel Teo to assist Saw as a joint liquidator of the company.

Wong Weng Foo & Co was represented by Steven Tan Chee Qian & Max Chuah Chern Tee (Messrs Chuah Qian & Partners), while counsels for Lim were Kwan Will Sen and Pang Huey Lynn (Messrs Lim Chee Wee Partnership).