Federal Court in London Biscuits: What Insolvency Practitioners Must Know About Liquidators’ Powers and Priority Payments

Introduction

The Federal Court has recently delivered a decision in the case of Victor Saw Seng Kee v Wong Weng Foo & Co; London Biscuits Berhad (In Liquidation) (Civil Appeal No.: 02(f)-61-12/2024) (“London Biscuits“), addressing four important questions of law. This ruling provides clarity on the powers of liquidators, the role of creditors in appointing liquidators, and the treatment of employee-related payments during winding up. 

Background and Procedural History 

London Biscuits Berhad (“LBB“) was ordered to be wound up on 13 January 2020. The High Court appointed Lim San Peen (“LSP“) of PwC as liquidator. To preserve value, LSP continued operating the business for a going-concern sale, believing that selling the company as a functioning unit would yield better returns than a piecemeal disposal. Employees were retained during this period to maintain operations and fulfil outstanding orders. When the business was eventually closed, LSP paid termination benefits and indemnity in lieu of notice to these employees, treating the payments as part of the costs and expenses of winding up under section 527(1)(a) of the Companies Act 2016 (“CA 2016“). These payments were prioritised ahead of unsecured creditors.

Wong Weng Foo & Co (“WWF“), the former auditor of LBB and an admitted unsecured creditor, objected to these payments and challenged LSP’s conduct. In May 2021, LSP applied to the High Court for his discharge and for Victor Saw (“VS“), also from PwC, to be appointed as his successor. WWF opposed the application and filed its own application seeking LSP’s removal and to prevent VS’s appointment, instead nominating alternative liquidators.

The High Court directed that meetings be held to select a new liquidator. At the creditors’ meeting on 24 February 2022, an overwhelming majority (98.5% in value and seven out of eight in number) voted for VS. Based on this outcome, the High Court allowed LSP’s discharge and appointed VS as the sole liquidator, dismissing WWF’s application.

Dissatisfied, WWF appealed to the Court of Appeal. On 30 October 2023, the Court of Appeal allowed the appeal in part. It held that termination benefits and indemnity in lieu of notice were not entitled to priority under section 527(1)(a), CA 2026 and set aside LSP’s discharge. However, it affirmed VS’s appointment but ordered the appointment of Gabriel Teo (“GT“), WWF’s nominee, as joint liquidator to safeguard creditor interests. VS later sought to act alone in pursuing leave to appeal to the Federal Court, arguing that GT was conflicted. The Court of Appeal dismissed this attempt, ruling that joint liquidators must act collectively. This led to further disputes, which culminated in four questions of law being referred to the Federal Court. 

The Federal Court’s Decision and Reasoning 

First, the Federal Court considered whether one joint liquidator could act alone if the other was conflicted. Section 478(2), CA 2016 states that where two or more liquidators are appointed, the powers of the liquidators may be exercised by any one of them unless the court orders otherwise. The Federal Court held that this provision is clear: unless the appointment order expressly requires joint action, either liquidator may act individually. This interpretation avoids paralysis in the liquidation process, particularly where one liquidator is conflicted. The principle of nemo judex in causa sua (no one should be a judge in his own cause) supports allowing the non-conflicted liquidator to act independently.

Second, the Federal Court addressed whether creditors’ wishes must be considered before appointing joint liquidators. Section 521, CA 2016 requires the views of creditors or contributories to be sought before appointing a liquidator. The Federal Court reasoned that this principle applies equally when considering a joint appointment. In this case, creditors had overwhelmingly voted for VS as sole liquidator, and the Court of Appeal’s decision imposing a joint appointment without consulting them was inconsistent with the statutory scheme. The Federal Court therefore ruled that prior notice and consultation are necessary before the court appoints an additional liquidator.

Third, the Federal Court considered whether termination benefits and indemnity in lieu of notice paid to employees retained during liquidation could be treated as “costs and expenses of winding up” under section 527(1)(a), CA 2016. This section sets out the order of priority for payments in a winding up, with costs and expenses of the liquidation ranking first. The Federal Court held that these payments fall within this category because they were incurred after the winding-up order and in respect of services rendered by employees retained at the liquidator’s request to keep the business operational for a going-concern sale. Their retention was necessary to preserve asset value and fulfil existing orders. When their employment ended, the payments for termination benefits and indemnity in lieu of notice were obligations arising directly from that retention.

Fourth, the Federal Court examined whether a liquidator could be removed or sued for making payments in good faith that might technically breach section 527, CA 2016. The Federal Court held that good faith decisions do not justify removal or litigation. It reiterated the principle from Wong Sin Fan & Ors v Ng Peak Yam & Anor [2013] 3 CLJ 17 that courts should be slow to interfere with a liquidator’s discretion and should only do so if the conduct is so unreasonable that no reasonable person would have acted similarly. Removal of a liquidator is a serious step that requires cause to be shown, such as personal unfitness or conflict of interest. In this case, LSP’s decision was commercially justified and made with court sanction, and therefore did not warrant removal or proceedings. The Federal Court also referred to Ng Yok Gee & Anor v CTI Leather Sdn Bhd; Metro Brilliant Sdn Bhd & Ors (Interveners) [2006] 3 CLJ 360 and Tan Kim Chuan v Tan Kim Tian & Ors [2022] 10 CLJ 503, reaffirming that judicial interference should be minimal unless there is clear evidence of misconduct.

Implications for Insolvency Practitioners 

This decision reinforces the principle that liquidators have wide discretion in managing a winding up, provided they act in good faith and with commercial justification. It confirms that costs incurred post-winding up for services requested by the liquidator – such as retaining employees to facilitate a going-concern sale – can be treated as liquidation expenses. Practitioners should ensure that such decisions are properly documented and, where necessary, sanctioned by the court to avoid later challenges. The ruling also underscores the importance of creditor engagement: courts will expect practitioners to respect creditor votes and views when proposing appointments. Finally, the judgment provides comfort that courts will not lightly interfere with liquidators’ decisions or expose them to personal liability for commercially reasonable actions.

The Federal Court’s ruling in the London Biscuits case strengthens predictability in Malaysian insolvency law and aligns with commercial realities. Therefore, liquidators acting reasonably and in good faith can act without fear of personal liability, while creditors’ voices remain central in key decisions.