Malaysia – When The Curtain Falls: Do Directors Still Hold Power After Winding Up?
Introduction
Winding up is often seen as the end of a company, hence marking the end of a director’s powers. Under the Companies Act 2016, the powers of company directors generally cease upon the appointment of a liquidator. However, can directors act in limited situations? Are all their powers completely extinguished? This article explores whether they have residual powers over the company once the liquidator is appointed.
Case Summary
In the recent High Court decision of Global Mariner Offshore Services Sdn. Bhd. & Ors v TH Heavy Engineering Berhad [2025] MLRHU 1297, the Court ruled that the residual powers of the company directors are generally extinguished upon the appointment of an interim liquidator under the Companies Act 2016 (“CA 2016“) unless expressly preserved by the court or applicable law.
The main issue was whether the company’s directors retain their residual powers to oppose a winding-up petition after the appointment of an interim liquidator under the CA 2016. The directors contend they retained powers to oppose the conversion petition pursuant to the common law authorities, while petitioning creditors argue such powers ceased upon liquidation commencement. In this case, the Court examines the legal principles governing directors’ authority during liquidation, emphasising that their powers generally cease upon the appointment of a liquidator, unless specifically preserved. The Court also considered the procedural requirements for the opposition and dismissed the directors’ application due to procedural flaws and a lack of lawful authority to oppose the winding-up petition.
Legal Framework and Principles
In essence, winding up is a process of dissolving a business by collecting its assets, selling them to pay debts, and distributing any remaining funds to shareholders. Voluntary winding up occurs when the company decides to cease its operation and dissolve itself without intervention from the court, which can be initiated by the company’s members or creditors.
According to Section 441 CA 2016, a voluntary winding up shall commence:
- Where an interim liquidator has been appointed before the resolution for winding up is passed, at the time when the declaration referred to in Section 440 of CA 2016 is lodged with the Registrar; or
- In any other case, at the time of the passing of the resolution for voluntary winding up.
Section 445 of the CA 2016 stated that the company shall appoint one or more liquidators to wind up, and upon the appointment of the liquidator, all the powers of the directors cease, except what has been sanctioned by the liquidator. Therefore, the company shall cease to carry on its business from the commencement of the winding up, except so far as is required in the opinion of the liquidator for the beneficial winding up. The corporate state and corporate power of the company shall continue until it is dissolved, and any transfer of shares or alteration in the status of the members made after the commencement of the winding up shall be void.
In this case, the Court referred to several key statutory provisions from the CA 2016 and related rules, which govern the power of directors during the liquidation process, as follows:
- Section 450(6) of the CA 2016
“On the appointment of the liquidator, all the powers of the directors shall cease, except if the continuance of the powers is approved by:
- the committee of inspection; or
- if there is no such committee, the creditors.”
This provision establishes the general rule that the appointment of a liquidator would result in an automatic cessation of the directors’ powers. It could be concluded that any residual powers are highly restricted and need to be approved by the committee of inspection or the creditors. This provision also marks the shift of control from the management to the liquidators.
- Section 440(2) of the CA 2016
“An interim liquidator shall have all the functions and powers of a liquidator in a creditors’ voluntary winding up, subject to limitations and restrictions prescribed in the rules relating to the winding up.”
This section clarifies that an interim liquidator possesses almost all the powers of a fully appointed liquidator, including the authority to act in relation to the company’s affairs in the interim. This power, however, is subject to the rules or limitations as prescribed by law or the court’s specific order.
- Section 476(2) of the CA 2016
“The interim liquidator shall have and may exercise all the functions and powers of liquidator, subject to limitations as may be prescribed in the rules or in the court order”
The section further affirms the authority of an interim liquidator.
- Section 486(2) of the CA 2016
“The court may, on the application of a creditor or contributory, on proof that the company has, by reason of its liabilities, ceased to carry on business… order the winding up of the company.”
This section provides the basis for creditors or contributories to initiate and oppose the winding up proceedings.
- Section 517 of the CA 2016
“An appeal may be made to the court against any act or decision of the liquidator.”
- Rule 7 of the Companies (Winding Up) Rules 1972
“Every application in Court, other than a petition, shall be made by motion and shall be served on the affected parties not less than two days before the hearing”
The Court emphasise that the procedure must be strictly adhered to, with failure to do so would render the application defective or improper.
Comments
Directors’ powers generally cease upon the appointment of a liquidator, as provided under Section 450(6) of the Companies Act 2016, unless expressly preserved by statute or with the court’s approval. This also extends to interim liquidators, who hold powers similar to those of full liquidators pursuant to Sections 440(2) and 476(2) of CA 2016. The case provides clear judicial guidance on two matters, i.e., the importance of strict procedural compliance and the limited scope of any residual power directors may retain during winding up. The court also affirmed that procedural rules such as those under the Companies (Winding-Up) Rules 1972 must be strictly followed, and non-compliance may warrant striking out an application regardless of its substantive merit.
More importantly, the judgment clarifies that any residual powers directors may hold are extremely narrow in scope and limited to challenging the appointment of a liquidator, not to opposing a change in the mode of liquidation, especially where the winding up was initiated by the directors themselves.
Directors generally owe a fiduciary duty towards the company and must act in the best interest of the company. Therefore, they are expected to deliberate, resolve, and act through formal board decisions, ensuring accountability, transparency, and alignment with the company’s best interests. This principle does not disappear simply because a company has entered into winding up. On the contrary, adherence to proper governance becomes even more important during such critical transitions.
Allowing a single director to act independently after the commencement of winding up can lead to serious implications. It risks contradicting the authority of the appointed liquidator who, under the Companies Act 2016, is entrusted with full control over the company’s affairs during the winding-up process. It may also mislead creditors and stakeholders into thinking that the director continues to have valid decision-making power, when in fact they do not. This can result in procedural irregularities, delays, or disputes that complicate the winding up. It may even expose the director or the company to potential legal consequences, especially if the actions taken were unauthorised or prejudicial to the interests of creditors.
For company secretaries, this case serves as a timely reminder to ensure that any action taken after the commencement of winding up is properly authorised, either by the board as a whole or with the liquidator’s express approval. When in doubt, it is always safer to verify than to proceed on uncertain legal ground.
Conclusion
In conclusion, directors’ powers are limited and generally cease upon the appointment of a liquidator, with only limited and narrowly defined exceptions. It also highlights the importance of procedural compliance and collective decision-making within the board. Any attempt by an individual director to act unilaterally after the commencement of winding up not only contravenes established legal principles but also risks disrupting the proper administration of the liquidation process. For company secretaries, it is a timely reminder to always check if the person giving instructions still has the authority to do so. In winding up, things move fast, but acting without proper authority can do more harm than good. When in doubt, pause, ask, and verify.
For further information, please contact:
Nadia Liyana Hassan, Azmi & Associates
nadialiyana@azmilaw.com
