By Sri Bala Murugan- The realm of corporate liquidation can be complex. In this complex arena, the roles and responsibilities of liquidators are critical in distributing assets and resolving debts. In the recent decision of Genisys Integrated Engineers Pte Ltd v UEM Genisys Sdn Bhd [2023] 3 MLJ 627 the Federal Court sought to shed light on the duties and limitations on the powers of liquidators. The decision emphasised the importance of adhering to written contractual provisions that place restrictions on their power to set off debts. This article explores the key findings of the case to provide valuable insights for both liquidators and creditors involved in the winding-up process.
In this case, UEM Genisys Sdn Bhd (UEG), a subcontractor for a construction project in Vietnam, further subcontracted its mechanical and engineering works to Genisys Integrated Engineers (GIE). The project was abruptly terminated, and in 2000, the due payment for UEG was certified. When the main contractor defaulted, UEG sued its guarantor for the amount of USD 995,879.39. But UEG was subsequently liquidated. This was followed by GIE filling proof of debt for the same amount. After the guarantor settled with UEG with a payment of USD 1,215,000, the liquidators informed GIE, that they had received only USD 179,075.81 from their proof of debt with a deduction. This led to GIE bringing suit to challenge the liquidators’ decision. At the High Court, the decision was found in favour of GIE. But the decision was reversed by the Court of Appeal. The Court of Appeal found the deductions made by the liquidators valid and that GIE’s proof of debt time barred. GIE further appealed to the Federal Court, questioning the legitimacy of the liquidators unilateral interest imposition against the proof of debt as well as the application of the Limitation Act 1953.
At the Federal Court, one crucial principle highlighted in the case was the liquidators are expected to act strictly in accordance with the written contractual provisions. The court further emphasised that liquidators cannot unilaterally rely on
subsequent contracts or agreements that are not explicitly incorporated into the original contract. The actions and authority of liquidators ought to be guided by the terms and provisions of the contract that bind them. Adherence to such a principle
ensures transparency, predictability, and consistency in executing the liquidation process, promoting fairness and protecting the rights of all parties involved.
Another significant aspect addressed in the case was the limitation on liquidators’ powers to set off debts. The Federal Court clarified that liquidators do not possess inherent or implied authority to arbitrarily deduct or adjust the amounts owed by creditors. They can do so only when the contract that binds the liquidators provides express power for a set-off mechanism or process. Otherwise, liquidators are restrained from unilaterally imposing deductions. This restriction ensures that the
liquidators are restrained from unilaterally imposing deductions underscores the importance of adhering to the contractual framework that the liquidators have agreed to pursuant to their role and responsibilities in the liquidation process.
The Genisys case also emphasises the critical need to provide proper notice and preserve the right of appeal for affected creditors. In this case, the Federal Court found that the liquidators failed to issue a formal notice of rejection of the proof of
debt to the creditor. This resulted in denying the creditor the opportunity to appeal the liquidators’ decision within the specified time frame. The Federal Court agreed with the reasoning of the High Court that the liquidators in the case should have issued rejections under Form 59 under the Companies (Winding-Up) Rules 1972. This entitled the creditors to appeal under Rule 93 of the 1972 Rules.
The Federal Court also found that liquidators would not be able to invoke the Limitation Act 1953 to argue the debt was time-barred after proof of debt had been admitted. It is the view of the Federal Court that if the debt of indeed time-barred, the liquidators should have rejected the claim when it was submitted. Relying on the Limitation Act 1953 to reject a debt after its admission may give the impression that liquidators acted in an opportunistic manner and were inconsistent with earlier admissions and representations made by the liquidator to the creditor. There is therefore a need for liquidators to demonstrate consistency in the way they manage the liquidation process.
In conclusion, the Genisys case underscores the paramount importance of strictly adhering to written contractual provisions in the corporate liquidation process. Unless specifically stated in the contract, liquidators cannot alter the original terms or unilaterally impose interests or deductions. The case serves as a practical reminder for liquidators to be transparent, predictable, and consistent in their actions, safeguarding fairness and the rights of all involved parties. Additionally, the necessity of issuing proper notices to creditors and demonstrating unwavering consistency is highlighted, mitigating potential disputes and ensuring smooth liquidation proceedings. This foundational principle, rooted in upholding contractual integrity, is pivotal for both liquidators and creditors, fostering trust and credibility in the winding- up process.
Sri Bala Murugan Gogula Nathan, Lecturer Centre for Commercial Law and Justice Sunway Business School Sunway University
