We previously wrote about 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. There, the High Court held that employees are required to obtain leave from the winding-up court before commencing action against the company, as mandated by section 451(2) of the Companies Act 2016 (“CA 2016”).
Following the High Court’s decision, there was an appeal to the Court of Appeal. The Court Appeal affirmed the High Court’s decision and provided its grounds in Hanifah Hamzah & Ors v Syarikat Utusan Melayu (Malaysia) Berhad (Dalam Penggulungan Sukarela Pemiutang) & Other Appeal [2024] CLJU 1555.
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 discharge 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.
- At the High Court, the High Court quashed the Decision on the basis that it was unreasonable and in contravention of established laws, as the Minister was fully aware that the Company was wound up at the time of the Decision (“HC Decision”).
- Dissatisfied with the HC Decision, several of the Ex-Employees appealed to the Court of Appeal.
Court of Appeal’s Findings
The Court of Appeal held that the main issues to be considered were: –
- Whether the Minister exercised his discretion in accordance with the law when he referred the appellants’ claims for unfair dismissal to the Industrial Court, given that the Ex-Employees did not obtain leave of the winding-up court under section 451 (2) of the CA 2016? (“Leave Issue”)
- Whether the Ex-Employees, having lodged proofs of debt with the liquidator, are barred from instituting proceedings in the Industrial Court against the company? (“Election Issue”)
On the Leave Issue, the Court of Appeal examined section 451(2) of the Companies Act 2016 in detail, which is reproduced as below:
“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.”
The Court of Appeal confirmed that section 451(2) of the CA 2016 prevails over section 20(3) of the Industrial Relations Act 1967 (ie: the provision that allows employees to file representations for reinstatement). The former is a more specific provision which deals with when proceedings can be instituted against a company when a winding up order has been made.
The Court of Appeal held that the words “action or proceedings” in section 451(2) of the CA 2016 have a wide reach to encompass and cover all types of proceedings before a court, tribunal or similar adjudicatory bodies vested with judicial or quasi-judicial powers. This undoubtedly covered the Industrial Court, which is an adjudicatory body statutorily entrusted to deal with industrial relations complaints.
Therefore, the Minister being aware that the Company was wound up, had erred in law and exceeded his powers when he referred the matter to the Industrial Court without first ensuring that the Ex-Employees had first obtained leave from the winding-up court.
On the Election Issue, the Court of Appeal held that by lodging the proof of debts, the Ex-Employees lost their right to the Industrial Court. Given that the remedy of reinstatement is no longer available to the Ex-Employees and the only remedy that they can seek in the Industrial Court is monetary compensation, this can be adequately dealt with in the liquidation process.
Ultimately, the appeal was dismissed, and the HC Decision was maintained.
Key Takeaways
Whilst the Court of Appeal did confirm that 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, the Court of Appeal’s decision means that prospective claimants would need to file their leave applications quickly (given that there is also a 60 day period for employees to file representations for reinstatement, under the Industrial Relations Act 1967).
The Court of Appeal’s observations regarding the impossibility of reinstatement for wound-up companies were made in the context of voluntary winding-up (where no appeals or disputes pertaining to the winding up itself is expected). The Court of Appeal did not explicitly state whether its observations are equally applicable to a contested winding up, where there is a possibility that a winding-up order may be stayed or set aside.
This decision also signifies the need to be strategically careful between choosing remedies (ie: filing proof of debt vs. filing a representation). Once a litigant decides to take either route, they could be bound by it, and sometimes to their detriment. A detailed risk analysis with proper legal advice is necessary to make an informed decision.
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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.
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