Malaysia: Liquidator's Duty To Tax Cost

Last Updated: 18 February 2016
Article by HY Chong


Rule 173 of the Companies (Winding-up) Rules 1972

A question which company liquidators occasionally ask is whether all the bills of the solicitors, accountants, auctioneers, brokers or other persons, who have provided services to the liquidators, have to be taxed and allowed by a court officer in charge of taxation of cost before the liquidators can pay these bills. This question arises from rule 173 of the Companies (Winding-up) Rules 1972 which appears to make it mandatory that such bills be assessed and approved by the taxing officer of the High Court before a liquidator of a company is allowed to pay them.

Although the language of rule 173 seems to make it a requirement that the charges of any person who has rendered services to a liquidator be first assessed by a taxing officer of the High Court, it appears, in practice, that this rule is not followed all the time by liquidation practitioners. This is understandable since the charges, or the rate of charges, of the service provider would usually have been considered and agreed upon by the liquidator before engagement of the service provider, and, in the absence of a dispute, the liquidator himself would be in the position to assess, and approve payment of, the charges of the person providing him with the service, without the need of a third party (who probably has no firsthand knowledge of the services provided) having to look at these charges.

Decision in Wong Sin Fan & 2 Ors v Ng Peak Yam @ Ng Pyak Yeow & Anor

The Federal Court in Wong Sin Fan & 2 Ors v Ng Peak Yam @ Ng Pyak Yeow & Anor [2013] 2 AMR 218 recently have the opportunity to consider the scope of rule 173 of the Winding-up Rules. In that case, a question was put to the Federal Court whether or not the bill of charges of the solicitors who were engaged by the liquidator to bring a legal action on behalf of the company was required to be taxed and allowed by the taxing officer of the High Court before the liquidator has the authority to pay the bill.

It was held by the Federal Court that rule 173 did not make it mandatory to have all bills for services rendered to the liquidator taxed by the court taxing officer before the liquidator could pay those bills. The Federal Court made a distinction between services rendered by a person to the liquidator to assist the liquidator in the performance of his duties, and services rendered by a person to the liquidator which services are outside the ordinary professional competence of the liquidator to do himself, such as, in the Wong Sin Fan case, bringing and conducting legal action, which only a qualified advocate and solicitor could do.

The Federal Court held that rule 173 only applies to the type of services which assists the liquidator in the "ordinary administrative and management duties of the liquidator," i.e., the type of services to assist liquidator in his duties as envisaged under section 236(1)(e) of the Companies Act 1965, which would require the approval of the court before such type of services could be engaged.

The Court cited with approval the example given in an earlier Federal Court decision in Zainun Marketing Sdn Bhd v Boustead Elred Sdn Bhd [2010] 3 CLJ 785 that duties within the "ordinary professional competence" of the liquidator would be considered "ordinary administrative and management duties of a liquidator."

The Federal Court also held that rule 165 of the Winding-up Rules does not make it compulsory for a liquidator to require all bills of the persons providing services to him delivered to the court taxing officer for taxation. The Court ruled that that rule 165 merely gives the liquidator the discretion whether or not to tax the bills.

Implication of the Federal Court decision

The implication of the decision of the Federal Court in Wong Sin Fan is that, where the liquidator intends to engage a person to assist him to carry out ordinary administrative and management duties (duties which are within his ordinary professional competence to do) he would have to get the court's approval under section 236(1)(e) of the Act 1965, and the charges of the person who assisted him in performance of such duties only would have to be taxed and allowed by the taxing officer of the High Court, in accordance with rule 173 of the Winding-up Rules, before the liquidator is empowered to pay the charges. And where the services required by the liquidator are those outside the ordinary professional competence of the liquidator, the charges of the person providing that type of services need not be taxed, but the liquidator has the discretion to have such charges taxed.

Originally published in July 2013.

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