Introduction
The Federal Court’s recent decision in Victor Saw Seng Kee (as joint liquidator of London Biscuits Bhd (in liquidation)) v Wong Weng Foo & Co & Anor and other appeals [2026] 2 MLJ 23 is a definitive judgment and an important authority for insolvency practice in Malaysia.
By resolving four distinct appeals, the Court clarified the boundaries of a liquidator’s commercial discretion, reinforced the primacy of creditor democracy, and reaffirmed the high threshold for judicial intervention in the conduct of a winding-up.
At its core, the decision addresses a familiar tension in insolvency practice: how far a liquidator may go in exercising commercial judgment for a beneficial winding-up, and when the court should intervene in the name of creditor protection.
Factual Background
On 13 January 2020, the High Court ordered the winding-up of London Biscuits Bhd (“LBB”), and Mr Lim San Peen (“LSP”) was appointed as the liquidator. Rather than immediately ceasing operations, LSP made a commercially driven decision to retain the company’s employees for several months retained the company’s employees for several months and and to continue carrying on LBB’s business, with the objective of preserving value and facilitating a going concern sale.
By keeping the business operational, fulfilling existing orders and preserving goodwill, LSP aimed to sell the business as a functional unit rather than through a forced and fragmented disposal of assets. Upon the eventual termination of these employees, LSP paid them termination benefits and indemnity in lieu of notice, prioritizing these payments as “costs and expenses of the winding up“.
This triggered a challenge from Wong Weng Foo & Co (WWF), an unsecured creditor and former auditor, who argued that these payments should not rank in priority over unsecured debts. This dispute eventually led to a series of applications involving the removal of the liquidator, the appointment of successors, and the rights of joint liquidators when faced with conflicts of interest.
Principle 1: Joint Liquidators and the Rule Against Bias
One of the most significant legal questions addressed was whether a non-conflicted joint liquidator can act unilaterally when their counterpart is in a position of conflict.
The conflict arose when the Court of Appeal appointed Gabriel Teo as a joint liquidator alongside Victor Saw (LSP’s successor). Victor Saw sought to appeal the very order that appointed Gabriel Teo, creating a situation where Gabriel was personally conflicted i.e. he could not be expected to concur with an application to stay or set aside his own appointment.
The Federal Court invoked the fundamental principle of nemo judex in re sua (no one should be a judge in their own cause). The Court held that a decision-maker must be disinterested and unbiased to maintain public trust. Under Section 478(2) of the Companies Act 2016 (CA 2016), unless a court expressly provides otherwise, the functions of liquidators can be performed by any one of them individually. Consequently, the Court ruled that the non-conflicted liquidator was entitled to act without the concurrence of the conflicted joint liquidator to ensure the integrity of the legal process.
Principle 2: Upholding the Wishes of (majority) Creditors
The decision also serves as a robust defence of creditor democracy. Following LSP’s retirement, a creditors’ meeting was held to select a successor. An overwhelming 98.5% of creditors (by value) voted for Victor Saw to be the sole liquidator. Despite this, the Court of Appeal had intervened to appoint Gabriel Teo (as nominated by WWF) as a joint liquidator to “safeguard creditor interests“.
The Federal Court found this intervention to be an error. It affirmed that under Section 521 of the CA 2016, the Court must consider the wishes of the majority of creditors. It held that it is inappropriate to impose a joint appointment when the majority has voted for a single candidate and a joint arrangement was never contemplated.
Furthermore, the Court held that creditors must be given prior notice and an opportunity to be heard before the Court considers adding a joint liquidator to an existing sole appointee.
Principle 3: Redefining Priority for Employee Payments
A pivotal issue for insolvency practitioners is the interpretation of Section 527(1)(a) regarding the “costs and expenses of the winding up“.
The Federal Court distinguished earlier authorities such as Indo Malaysia Engineering, emphasising that LBB was not a case of passive realisation. Here, the liquidator had actively carried on the business to achieve a beneficial winding-up. The continued employment of staff was not incidental but essential to preserving value for all creditors.
Where a liquidator is statutorily empowered to carry on business for that purpose, the Court held that the costs of doing so including employee remuneration and termination benefits, must logically rank as winding-up expenses with the highest priority. To hold otherwise would undermine the commercial tools the statute deliberately places in a liquidator’s hands.
Principle 4: The Protective “Cause Shown” Standard
Finally, the judgment reaffirmed the high threshold for the removal of a liquidator. WWF had sought LSP’s removal, alleging a breach of duty regarding the employee payments.
The Court reiterated the “cause shown” standard established, stating that a liquidator should only be removed if their conduct is “so unreasonable and absurd that no reasonable person would have acted in that way“. The Federal Court noted that an order for removal is a serious matter that “inevitably impugns a liquidator’s professional standing and reputation“.
Since LSP’s actions were commercially justified and made in good faith for the benefit of the creditors, there was no ground for his removal or for granting leave to commence legal proceedings against him.
Concluding Observations For Practitioners
The London Biscuits Berhad decision is a testament to the Court’s willingness to support the commercial judgment of liquidators while strictly enforcing the democratic rights of creditors. For practitioners, the key takeaways are clear: –
1. Conflicts must not paralyse administration: Joint liquidators can act independently when a conflict of interest arises.
2. Wishes of creditors: The majority wishes of creditors regarding appointments are paramount.
3. Priority of debt: Post-liquidation employee costs can attain Priority 1 status if they are incurred for a beneficial winding-up.
4. The Court will not second guess: Courts will not interfere with good-faith commercial decisions unless they are patently absurd.
This ruling provides the necessary legal certainty for liquidators to take bold, commercially-sound steps to preserve value, knowing that the law will protect their discretion and respect the will of the creditors they serve.
Disclaimer: This article is for general information only and does not constitute legal advice or legal opinion. It should not be relied upon as a substitute for specific legal advice. No person should act (or refrain from acting) based on this article without obtaining advice on the specific facts and circumstances. Halim Hong & Quek does not accept responsibility or liability for any loss or damage arising from reliance on this article. Halim Hong & Quek reserves the right to update, amend or withdraw this article at any time. All rights reserved.
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About the authors
Lum Man Chan
Partner
Dispute Resolution
Halim Hong & Quek
manchan@hhq.com.my
