What About Me?


A commentary on Monorail Retail Sdn Bhd v Cho Choo Meng, Mohd Anwar bin Yahya & PriceWaterhouseCoopers Malaysia by Leong Wai Hong and Patricia Ng

The Court of Appeal recently upheld the High Court's decision in Monorail Retail Sdn Bhd v Cho Choo Meng, Mohd Anwar bin Yahya and PriceWaterhouseCoopers Malaysia (2010) 1 LNS 345 to strike out, without the need for a full trial, a claim against the receivers and managers for conspiracy to injure, cheating and defrauding an unsecured creditor. This decision has a significant implication for the receivership industry.



KL Monorail System Sdn Bhd ("Company") was granted the right by the Government of Malaysia to inter alia design, construct and operate a monorail-based public transport system within Kuala Lumpur under an agreement dated 15 December 2000 ("Concession Agreement").

To part finance the project, the Company obtained a loan from a financial institution ("Bank"). The loan was secured by fixed and/or floating charges over all of the Company's assets, properties and undertaking under a Debenture and a Supplemental Debenture.

When the Company defaulted in its obligations under the loan, the Bank appointed the 1st Defendant and the 2nd Defendant, partners of PriceWaterhouseCoopers Malaysia ("PWC"), as receivers and managers ("R&M"). The R&M took control of the charged assets under the debentures and eventually sold them for RM1.3 billion to Syarikat Prasarana Negara Berhad ("SPNB") with the express consent of the Government of Malaysia.

The Concession Agreement was also novated to SPNB pursuant to a novation agreement entered into between the Government of Malaysia, SPNB and the R&M ("Novation Agreement").

As the amount recovered from the sale of the charged assets was insufficient to repay the full amount owing by the Company, the Bank filed a winding up petition against the Company ("Winding Up Petition"). The R&M did not defend the Winding Up Petition and a winding up order was made against the Company.

Meanwhile, Monorail Retail Sdn Bhd ("Plaintiff"), the anchor tenant of the retail space at the Company's monorail stations, commenced legal proceedings against the Company ("Civil Suit") in respect of various claims under its tenancy agreement with the Company and obtained summary judgment.



The Plaintiff then filed suit in the present case against the R&M and PWC as the 3rd Defendant for approximately RM79.5 million being all sums claimed by the Plaintiff from the Company under the Civil Suit. The Plaintiff alleged that the R&M had conspired to injure, cheat and defraud the Plaintiff by not opposing the Winding Up Petition.

The Plaintiff also contended that the R&M had exceeded their powers by entering into the Novation Agreement as the Concession Agreement was not part of the charged assets under the debentures, thereby depriving the Plaintiff of assets of the Company. The Plaintiff further contended that the R&M had breached their fiduciary duties owed to the Plaintiff.

The R&M and PWC applied to strike out the Plaintiff’s suit under O.18 r 19 of the Rules of the High Court on the ground that the Plaintiff had no locus standi to sue.



The learned Judicial Commissioner, Dr Prasad Abraham, held that as the Company had been wound up, the Plaintiff's position as an unsecured creditor is clearly set out in McPherson’s Law of Company Liquidation, namely that:

"It is equally clear that neither creditors nor members acquire any proprietary interest in the company’s property by reason or in consequence of winding up. No doubt this follows logically from the foregoing principles and from the well-known doctrine that the company exists as a separate legal entity, but since on winding up the assets cease to be available for the profit-making purposes of the company and acquire instead the character of a fund destined for the payment of debts and for distribution among the members in accordance with the scheme in the Act, it might be thought that this would give the creditors and members some new form of right in the assets in question. Nevertheless, it is not now the law … that the liquidator holds the company’s assets as trustee, or that creditors or members have any kind of beneficial trust held in them apart from their statutory rights to receive a distribution or dividend …"

The learned Judicial Commissioner, relying on O’ Donovan on Receivers and Managers, also held that the right to pursue a claim that the R&M had exceeded their powers by novating the Concession Agreement rested with the liquidators on behalf of the general creditors and not with the Plaintiff.

With regard to the question as to whether the R&M had the power to novate the Concession Agreement, the Judicial Commissioner was of the view that the R&M could rely on the incidental powers under the debentures to clothe them with the necessary authority. The learned Judicial Commissioner also held that the R&M owed no fiduciary duties to unsecured creditors like the Plaintiff.

His Lordship further held that a close examination of the statement of claim showed that a cause of action for conspiracy could not be sustained against the R&M as the settlement scheme did not have the sole or predominant purpose to injure the Plaintiff. The Judicial Commissioner also found the allegations of fraud and cheating to be unsustainable.

In closing, the learned Judicial Commissioner observed that the Plaintiff's rights as an unsecured creditor lay in either filing a proof of debt or moving the liquidator to take action on behalf of the Company or in the alternative, seek sanction from the liquidator to bring the action on behalf of the Company.

The learned Judicial Commissioner thus allowed the R&M's application and ordered that the suit against the R&M be struck out. His Lordship also struck out the suit against PWC on the ground that the R&M were appointed in their personal capacity and not as partners of PWC.



The Plaintiff appealed against the dismissal of their suit against the R&M. The Court of Appeal unanimously upheld the decision of the High Court to strike out the Plaintiff’s claim against the R&M. The Panel agreed that the Plaintiff had no locus standi to commence an action against the R&M at all despite the best efforts of the Plaintiff to allege fraud to sustain its claim.



Although the legal principles applied by the Malaysian courts in this case are trite law in England, the decision is significant as it appears to be the first reported decision in Malaysia on this issue.

The decision of the Court of Appeal is important as it means that the Plaintiff cannot argue that it had  locus standi to commence an action or challenge the actions of the R&M by alleging that the R&M acted fraudulently in carrying out its duties and functions in realizing the assets of the Company.

This decision is most welcomed. If it had decided otherwise, it would have opened the floodgates for litigation by unsecured creditors against receivers and managers.


LEONG WAI HONG ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it ) & PATRICIA NG ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )



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