What happens if an employer is wound-up before an unfair dismissal claim against it can be completed?

The High Court’s decision in Utusan Melayu (Malaysia) Bhd (Dalam Penggulungan Sukarela Pemiutang) v Menteri Sumber Manusia & Ors and other applications [2023] 1 CLJ 804 explores what happens when an employee’s unfair dismissal claim coincides with the employer’s financial collapse.

Brief Facts

  • On 7.10.2019, the board of directors of the Company declared that the Company was financially unable to continue its business. An interim liquidator was appointed. 
  • Pursuant to the liquidation of the Company, it ceased operations and this led to the termination of all employees. 
  • The respondents and 347 ex-employees (“Ex-Employees”) of the Company lodged a representation to the Director General of Industrial Relations (“DGIR”), claiming unfair dismissal.
  • The representation was referred by the Minister of Human Resources (“Minister”) to the Industrial Court. Dissatisfied with the Minister’s decision to refer the matter to the Industrial Court (“Decision”), the Company filed an application for judicial review against the Decision. 

Court’s Findings

The High Court observed that since the Company was placed under liquidation, the Ex-Employees should have obtained leave from the winding up court pursuant to section 451(2) of the Companies Act 2016, which states:

“After the commencement of the winding up, no action or proceeding shall be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court may impose.”

Although the Industrial Relations Act 1967 does not expressly prevent referrals to the Industrial Court where the employer company is wound up, the High Court held that it must be read together with section 451 of the Companies Act 2016.  

As the Minister was fully aware that the Company was wound up at the time of the Decision, the Decision was found to be unreasonable and in contravention with established laws. 

The High Court was also of the view that:

  • Referring representations against wound-up companies without leave would result in the opening of floodgates, and defeat the specific intention of Parliament in respect of wound-up companies.
  • Since reinstatement is impossible where the company is wound-up, the only remedy left for the Ex-Employees would have been monetary relief (eg: compensation in lieu of reinstatement) which can be dealt with adequately by lodging proof of debts.  In this case, the Ex-Employees did lodge proof of debt forms, and therefore it should be taken to mean that they have subjected themselves to the winding-up proceedings. They are therefore estopped from continuing with the Industrial Court proceedings.   

Key Takeaways

Employees who are terminated by employers that are wound-up would need to ensure that they obtain leave from the winding up court before their case is referred to the Industrial Court, in order to minimize any hiccups during the Industrial Court proceedings.  

Whilst the High Court suggested that reinstatement is generally impossible for wound-up companies, these remarks were made in the context of voluntary winding-up (where no appeals or disputes pertaining to the winding up itself is expected). Hence, if the employer is actively resisting the winding-up process, the High Court’s observations regarding the impossibility of reinstatement may not be applicable and this could lead to an entirely different outcome. 

There have been differing interpretations as to the operation of section 451(2) of the Companies Act 2016 when it comes to unfair dismissal claims. For example, in DNT (Malaysia) Sdn Bhd v Zamri Said [2002] 2 ILR 240, the Industrial Court held that section 263(2) of the Companies Act 1965 (which is similar to section 451(2) of the Companies Act 2016) is inapplicable to matters before the Industrial Court. This is because the Industrial Court is a tribunal and not a civil court. 

As such, there may still be some ambiguity around this issue until a superior court such as the Court of Appeal / Federal Court is able to provide a conclusive determination on this.

In short, parties caught in industrial relations disputes with a wound-up company should seek legal advice as soon as possible, as this is a field full of potential procedural landmines.

***

This article was written by Leow Ho Eng, Associate from Donovan & Ho’s employment law practice. 

Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations.  Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.

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