RECEIVERSHIP

Introduction

• The term 'receivership' indicates a form of insolvency

administration.
• Although there are various types of receivership, the most
common form of initiating a receivership in Malaysia is the
private appointment of a receiver by a secured creditor
under the terms of a deed of charge or debenture.
• The powers of the receiver under this form of
administration are usually specified in a contractual
agreement between the secured creditor and the
company.
• As the contractual objective is the ultimate repayment to
that secured creditor, the receivership will usually include
the power to sell as well as to administer the company'
business.
• The person appointed with such powers is termed as a
‘receiver and manager' whereas one appointed merely to
take possession and to protect the property over which he
was appointed is a ‘receiver’
 QUALIFICATION FOR APPOINTMENT
OF A RECEIVER OR RECEIVER AND
MANAGER

• A person who is qualified to be an approved

liquidator under s.433 of the 2016 Act shall be
qualified to be appointed as receiver or receiver and
manager.-sec 372
• Sec 373- The following shall not be qualified to act as a
receiver or receiver and manager of the property of a
company:
(a) a corporation;
(b) an undischarged bankrupt; and
(c) a mortgagee of any property of the company, an auditor
of the company or an officer of the company or any
corporation which is a mortgagee of the property of the
company.
 APPOINTMENT OF A RECEIVER OR
RECEIVER AND MANAGER

• Two routes under which a receiver or receiver and

manager can be appointed:
- Route 1: Appointment Under an Instrument
- Route 2: Appointment by the Court
 Route 1: Appointment Under an Instrument
• A receiver or receiver and manager may be appointed under
any instrument that confers on a debenture holder or charge
holder the power to appoint a receiver or receiver and manager.
– sec 374 (a)
• Alternatively, the appointment may be made under any
instrument that creates a charge in respect of property and
undertaking of a company that confers on the charge holder
the power to appoint a receiver or receiver and manager.-
s.374(b)
Route 2: Appointment by the Court
• The appointment will be under a court order.
 APPOINTMENT OF A RECEIVER OR
RECEIVER AND MANAGER BY THE COURT

• The court may appoint a receiver or receiver and

manager in one of these three situations:
• (a) the company has failed to pay a debt due to the
debenture holder or has otherwise failed to meet any
obligation to the debenture holder, or that any principal
money borrowed by the company or interest is in arrears;
• (b) the company proposes to sell or otherwise dispose
of the secured property in breach of the terms of any
instrument creating the security or charge; or
• (c) it is necessary to appoint a receiver or receiver and
manager to ensure the preservation of the secured
property for the benefit of the debenture holder.
• A person appointed as a receiver by the court may
act as a receiver and manager unless the court order
excludes the appointment as receiver and manager –
s 376(2)
• Sec 376(2) In the event the court appoints two or more
receivers or receivers and managers, unless the court
expressly provides otherwise, the following default
provisions shall be applicable:
• (a) the functions or the powers of the receivers or receivers
and managers may be performed or exercised by any one of
them or by both or all of them jointly; and
• (b) a reference to the receiver or receiver and manager shall
be a reference to whichever one of the receivers or receivers
and managers.
 COMMON LAW POWER TO APPOINT A
RECEIVER OR RECEIVER AND
MANAGER

• The court can appoint a receiver under s.25(2) of the

Courts of Judicature Act 1964 read together with
para. 6 of the Schedule. Order 30 r.1(1) of the Rules
of Court 2012 also confirms the power of the court
to appoint a receiver.
• Objective of appointment – to preserve company’s
assets
 Order 30 of the Rules of Court
2012- Receivership
• Any application to Court for the appointment of a Receiver (not
being a Receiver appointed under a debenture) must be made via
Notice of Application (NOA).
• The NOA should be moved pursuant to O. 30 of the Rules of Court
2012, Paragraph 6 of the Schedule to the Courts of Judicature Act
1964 and Section 43 of the Specific Relief Act 1950.
• For good measure, the NOA should also be moved pursuant to the
inherent jurisdiction of the Court.
• As is par for the course, the Affidavit in Support accompanying the
NOA must be filed.
Inter partes
• Of utmost importance would for any application to
appoint a Receiver to be moved inter partes (i.e.,
between the parties and with notice to all).
• Failing to give notice is fatal to any application to
appoint a Receiver.
 Ex Parte or Inter Partes Application?

• Order 30 of the Rules of Court 2012 does not

provide for an ex parte appointment of a receiver or
receiver and manager
• An ex parte appointment of a receiver or receiver
and manager may be allowed in such exceptional
circumstances.
• In the case of Lim Poh Choo v Absolute Ascend
[2008] 3 MLJ 740 - The requirements for the
appointment of a receiver or receiver and manager
under common law are:
• (a) there is a good prima facie claim of title by the
applicant;
• (b) the property of the company is in jeopardy; and
• (c) the applicant would be placed in a worse situation if
the appointment of a receiver is delayed.
In the case of Yeoh Eng Kong v Dato’ Nik Ismail Bin Nik
Yusoff [2016] MLJU 529
• Apart from the requirement set out in the case of Lim Poh
Choo. The court took into consideration on several matters in
order to appoint receiver:
• An element of proportionality;
• A specific list of the property in jeopardy;
• Nexus between the pleadings (Statement of Claim) and the
application to appoint a Receiver (i.e., that the application to appoint a
Receiver is sufficiently pleaded);
• Consideration as to the adequacy of damages.
Facts of the case
• Yeoh Eng Kong saw a shareholder attempting to appoint
a Receiver and Manager to avoid the delisting of a
company’s shares.
Decision
• In dismissing the application, the learned Judicial
Commissioner reiterated that Lim Poh Choo was still the
test to be applied. However, certain refinements were
specified.
 APPOINTMENT OF A RECEIVER OR
RECEIVER AND MANAGER UNDER
INSTRUMENT
• If an instrument confers on the debenture holder the
power to appoint a receiver or receiver and manager,
the debenture holder may appoint a receiver or
receiver and manager by an instrument in writing
signed by him or on his behalf.
• For clarity and consistency, this provision should
have also included a reference to the charge holder
having the ability to appoint a receiver or receiver
and manager.
• Section 375(2) of the 2016 Act states that unless the instrument
expressly provides otherwise:
• (a) a receiver or receiver and manager is the agent of the
company;
• (b) a person appointed as a receiver may act as receiver and
manager; or
• (c) a power conferred to appoint a receiver or receiver and
manager includes the power to appoint two or more receivers
or receivers and managers, an additional receiver or receiver and
manager, and a receiver or receiver and manager to replace a
vacancy.
 NOTICE OF APPOINTMENT OF A
RECEIVER OR RECEIVER AND
MANAGER
• Once a receiver or receiver and manager has been
appointed by the court or under any instrument, the
person who applied to the court or who appointed
the receiver or receiver and manager shall lodge
with the Registrar of Companies a notice of
appointment within seven days from the date of the
court order or when the appointment was made. – s
377(1)
• Once the receiver or receiver and manager has been
appointed, a statement that the receiver or receiver and
manager has been appointed shall be stated in every
invoice, order for goods or services, business letter or
order form, whether in hard copy or electronic form,
issued by or on behalf of the corporation or the receiver
or receiver and manager or of the liquidator of the
corporation and on which the name of the corporation
appears, and every official website of the corporation.
POWERS OF RECEIVER OR RECEIVER
AND MANAGER: SIXTH SCHEDULE OF
THE 2016 ACT
• Sec 383 - A receiver or receiver and manager shall
have the powers and authorities expressly or
impliedly conferred by the debenture instrument or
by the order of the court, by or under which the
appointment was made.
• Subject to the instrument or order of the court, a
receiver or receiver and manager shall have the
powers set out in the Sixth Schedule of the 2016 Act.
– sec 383 (2)
• The Sixth Schedule of the 2016 Act may not have included
sufficiently clear wording to distinguish between the powers of
a receiver and that of a receiver and manager.
• However, powers such as the power to carry on the business of
the company or to engage or discharge employees on behalf of
the company would normally be powers that could only be
conferred on a receiver and manager.
• The powers relating to the carrying on of the business of the
company are distinctively the managerial powers conferred on a
receiver and manager, and not a mere receiver.
 DUTIES OF RECEIVER OR
RECEIVER AND MANAGER
• The main and primary duty of a receiver or receiver
and manager is to realise the company's assets, to
distribute the proceeds to the debenture holder in
satisfaction of the debt owing, and to return any
surplus assets to the company.
• Hence, the primary duty of the receiver or receiver
and manager is to realise the assets in the interests of
the debenture holder.
Duty to Act in Good Faith
• A receiver or receiver and manager owes no general
duty of care to the company and is onlybound to act
in good faith.
Duty to Exercise Reasonable Care in Obtaining Proper Price
• In situations where the receiver or receiver and manager
sells the property of the company, he is under a duty to
take reasonable precautions to obtain the true market
value of the property at the date on which he decides to
sell it. When the property is sold, the relevant question is
not whether the price obtained was reasonable but rather,
whether the receiver or receiver and manager had taken
reasonable efforts to obtain the best possible price.
Carrying on the Business
• A receiver or a receiver and manager does not have a
duty to carry on the business of the company at the
debenture holder's expense. However, if the receiver
or receiver and manager opts to continue with the
business of the company, he must then take
reasonable steps to manage the business profitably.
Unsecured Creditors
• A receiver or receiver and manager does not owe a
duty tothe unsecured creditors of the company. In
Monorail Retail Sdn Bhd v. Cho Choo Meng & Ors,
the suit filed by the unsecured creditor against the
receivers and managers was struck out.
LIABILITY OF RECEIVER OR RECEIVER
AND MANAGER

• The receiver or receiver and manager would be liable for

debts incurred by him in the course of the receivership
for services rendered, goods purchased or property hired,
leased, used or occupied unless otherwise provided in the
instrument appointing the receiver or receiver and
manager.
• Section 382 of the 2016 that a receiver or receiver and
manager is personally liable for a contract entered into by
him in the exercise of any of his powers unless
specifically provided otherwise in the instrument
appointing the receiver or receiver and manager.
 STATEMENT AS TO THE
AFFAIRS OF THE COMPANY
• Once a receiver or receiver and manager has been
appointed, the receiver or receiver and manager shall
send a notice of his appointment to the company.
• The company shall submit to the receiver or receiver
and manager a statement as to the affairs of the
company within 14 days of the receipt of the notice
or such longer period as may be allowed by the court.
• The statement as to the affairs of the company shall state as at
the date of the appointment of the receiver or receiver and
manager the following details:
• (a) the particulars of the company's assets, debts and liabilities;
• (b) the names and addresses of its creditors;
• (c) securities held by the creditors respectively;
• (d) the dates when the securities were respectively created; and
• (e) such other information as may be required by the Registrar of
Companies.
• Upon the receiver or receiver and manager receiving the
statement, he shall carry out the following steps within 30 days
from the receipt of the statement or such longer period as the
court may allow:
• (a) lodge with the Registrar of Companies a copy of the
statement and any comments he thinks fit to make on the statement;
• (b) send to the company a copy of any such comments or, if he
does not think fit to make any comment, a notice to that effect; and
• (c) If he is appointed by or on behalf of debenture holders, send
to the debenture holders' representative a copy of the statement and
his comments in the statement or, if he does not think fit to make any
comment, a notice to that effect.
OBLIGATIONS OF THE COMPANY AND
THE DIRECTORS TO PROVIDE
INFORMATION TO THE RECEIVER OR
RECEIVER AND MANAGER
• Section 389 of the 2016 Act now provides that upon the
appointment of the receiver or receiver and manager, the
company and every director shall do the following:
• (a) make available to the receiver or receiver and manager all books,
documents and information relating to the property or undertaking in
receivership in the company's possession or under the company's control
within seven days after the receipt of the notice issued under s. 388(1) of
the 2016Act;
• (b) if required to do so by the receiver or receiver and
manager, verify by way of an affidavit that the books,
documents and information are complete and correct;
• (c) give the receiver or receiver and manager such
assistance as he may reasonably require; and
• (d) if the company has a seal, to make the seal available
for use by the receiver or receiver and manager.
• A breach of s. 389 of the 2016 Act can result in
criminal sanctions. Any person who contravenes the
above obligations commits an offence and on
conviction, shall be liable to a maximum fine of
RM50,000 and in the case of a continuing offence, to
a further maximum fine of RM5OO for each day the
offence continues.
 RECEIVERSHIP AND
WINDING UP
• Section 386 of the 2016 Act provides that after the
commencement of winding up of a company, the
powers of the receiver or receiver and manager are as
follows:
• (a) a receiver may continue to act as a receiver and
exercise all the powers of a receiver in respect of
property or assets secured under the debenture
appointing the receiver; and
• (b) a receiver and manager may continue to act as a
receiver as referred to ins. 386(l)(a) of the 2016 Act,
and may exercise all the powers of a receiver and
manager for the purpose of carrying on the business
of the company provided that the receiver and
manager obtains consent from the liquidator. If the
liquidator withholds his consent, then the receiver
and manager can obtain the consent of the court.
• Even after the commencement of a winding up, the
receiver or receiver and manager shall continue to act as
the agent of the company.
• Firstly, s. 386(l)(a) of the 2016 Act makes it clear that even
after the company has been wound up, the receiver can
exercise all of its powers under the debenture and this
would include the ability to sell lands charged under the
NLC. There should no longer be the need to resort to the
judicial sale process.
• Secondly, s. 386(1)(b) of the 2016 Act attempts to
cater for the situation where the receiver and
manager exercises his powers for the purpose of
carrying on the business of the company.
• However, in relation to the exercise of powers to
carry on the business of the company, the receiver
and manager will have to first attempt to obtain the
consent from the liquidator and if that consent is
withheld, the receiver and manager can obtain the
consent from the court.
• The intent of s. 386(1) of the 2016 Act is to preserve
the powers of the receiver or receiver and manager
to sell the charged land despite the winding up of the
company.
• This is further supported by s. 386(2) of the 2016
Act providing that a receiver or receiver and manager
holding office under s. 386(1) of the 2016 Act shall
continue to act as the agent of the company.
• Therefore, the receiver or receiver and manager can
sell the charged land as agent of the company in
liquidation and there should not be a need to obtain
the consent of the liquidator or the court.
 LODGING OF ACCOUNTS OF
RECEIVER OR RECEIVER AND
MANAGER
• Sec 391 (1) - Every receiver or receiver and manager shall
do the following in relation to the lodging of accounts:
• (a) within 30 days from the expiration of the six-month
period from the date of his appointment and for every
subsequent six-month period and within 30 days from him
ceasing to act as a receiver or receiver and manager, lodge with
the Registrar of Companies a detailed account showing the
various details asstated ins. 39l(l)(a)(i) to (iii) of the 2016 Act;
and
• (b) before lodging the account, verify by affidavit all
accounts and statements referred to in the account.
• Sec 391(1)(a) - The detailed account will show:
(a) the receipts and payments of the receiver or receiver and
manager during each period of six months or, where he
ceases to act as receiver or receiver and manager, during the
period from the end of the period to which thelast preceding
account related or from the date of his appointment up to
the date he ceased to act;
(b) the aggregate amount of those receipts and payments
during allpreceding periods since his appointment; and
• (c) where he has been appointed under the powers
contained in any instrument, the amount owing
under that instrument at the time ofhis appointment
(in the case ofhisfirst account), at the expiration of
every six months after his appointment, and at the
date he ceased to act as receiver or receiver and
manager. Further, the estimate of the total value of
all assets of the company or other corporation which
are subject to that instrument has to be shown.
• In the case of a court-appointed receiver or receiver and
manager,0. 30 r. 4 of the Rules of Court 2012 provides
that a receiver shall submit the accounts to the court at
such intervals or on such dates as the court may direct in
the court order.
• Unless the court otherwise directs, each account
submitted by a receiver shall be accompanied by an
affidavit verifying it in Form 55.
• Further, the receiver's account and affidavit shall be left at
the court registry and certified by the court registrar
 PREFERENTIAL DEBTS OUT
OF FLOATING CHARGE
ASSETS
• Section 392 of the 2016 Act provides for a stand-
alone provision governing the payments of certain
preferential debts subject to a floating charge in
priority of payments to the debenture holder.
• Section 392 of the 2016 Act provides that the receiver or
receiver and manager must pay out certain preferential
debts in priority to the debenture holder where:
• (a) a receiver or receiver and manager is appointed on
behalf of the holders of any debentures of a company
secured by a floating charge, or possession is taken by or
on behalf of debenture holders of any property
comprised in or subject to a floating charge; and
• (b) the company is not wound up at the time of the
appointment or when possession was taken.
• Section 392 of the 2016 Act only applies to the
distribution of assets subject to a floating charge and
not a fixed charge. Therefore, it is possible for a
debenture holder to crystallise a floating charge in
order to convert it into a fixed charge.
• Thereafter, with the appointment of the receiver or
receiver and manager, the realisation would be on
assets under a fixed charge and would fall outside the
ambit of s. 392 of the 2016 Act.
• Under s. 392 of the 2016 Act, th e list of debts to be
paid in priority to the debenture holders are:
• (a) firstly, the costs, expenses and remuneration of
the receiver or receiver and manager,and any
indemnity to which the receiver or receiver and
manager is entitled to from or out of the property of
the company;
• (b) secondly, all wages or salaries of any employee not
exceeding RMI5,000 in respect of services rendered within four
months before the date of the appointment of the receiver or
receiver and manager;
• (c) thirdly, all remuneration payable to any employee in
respect of vacation leave accrued before the date of the
appointment of the receiver or receiver and manager; and
• (d) fourthly, all contributions due from the company as
employer in respect of employees, superannuation or provident
fund contributions payable during the next 12 months before
the date of the appointment of the receiver or receiver and
manager.
 PROVISION OF SUPPLIES
(INCLUDING UTILITIES)
• If a request is made by the receiver or receiver or
manager, or with his concurrence, for the giving of
any supplies including water, electricity, gas and
telecommunications, the supplier may make it a
condition that the receiver or receiver and manager
personally guarantees the payment of the charges for
the supply given after his appointment.
 Continue..

• This provides some assurance to the supplier that

payment will be made by the company under
receivership. The supplier, however, is not allowed to
make it a condition that any outstanding charges in
respect of a supply given to the company before the
appointment of the receiver or receiver and manager
are to be paid.