Article

Introduction

Limited Liability Partnership (‘LLP’) is a business entity introduced under the Limited Liability Partnership Act 2012 (‘LLPA’) to offer business owners and traders an additional option for their incorporation of business.  Although the LLP has come into effect for almost a decade, issues surrounding the conduct or misconduct of a LLP’s Partner are rarely tested in Malaysian Courts.

Key Features Of A LLP

A LLP has identical features with a company. Similar to a company, LLP which is recognized as a body corporate, has a separate legal personality from that of its partners[1]. It can sue and be sued in its own name. A LLP can also acquire, own hold and develop its own property. The LLPA also expressly exclude the application of provisions of the Partnership Act 1961 and the rules of equity and common law applicable to partnerships to a LLP. It is therefore observed that a LLP is more of a “company” than that of a “Partnership”.

Statutory Duties Of A LLP Partner  

Unlike a company under the companies act, there are no board and group of shareholders per se. The “business owners” in a LLP are known as the partners. Subject to the express provisions in 2^nd Schedule in the LLPA, the decision-making power of a LLP is dependable on the private agreements between a LLP’s partners[2]. For instance, the partners of a LLP may agree that the decision of one partner shall bind upon the LLP. This is unlike a company where the decision-making of a company vests in the Board as a whole.

Nevertheless, there are again similarities between the common law duties of a director in a company and a LLP’s Partners duties under the LLPA. A LLP partner must not carry on business of the same nature and compete with the LLP without the consent of the LLP. The statutory consequence of doing so is that such partner must account for all profits made by him or her in the competing business[3]. Section 11 of the 2^nd Schedule of the LLPA also prohibits any LLP partner from making personal gains and benefits from any transactions concerning the LLP and he / she must account for those benefits to the LLP.

It would appear that the usual common law duties of a director to act in good faith and in the best interest of a company and not to be in conflict of interest with a company have been codified under the LLPA to govern the conduct of a LLP’s partner.  A partner must always be minded that a LLP is by its own an entity and like any director to a company, he or she must not treat the LLP as its own vehicle.

Conclusion

In the event of any breach of duties by a partner, it is straightforward for a LLP to commence a derivative action against a wrongdoer partner or a third partner. It is however unclear the mode of commencement of a derivative action in the event of a deadlocked. Unlike the laws in the U.K where it’s civil procedure provides for the reversion to the companies act for commencement of derivative proceeding in a LLP, the LLPA in Malaysia is silent on this area.

Introduction

The risks of a company’s properties / ongoing business being jeopardised by alleged wrongdoers (in control of management) are inherently imminent whenever a derivative action / oppression suit is filed against such wrongdoers.

A Plaintiff / Applicant in Court would ideally wish to ensure that the company’s properties or the status quo of the company are kept intact pending the disposal of the suit. This is so that in the interim, no further harms and damages can be rendered upon the company by the alleged wrongdoers to an irremediable extend.

The appointment of an interim receiver is an effective legal measure to curb and usurp such risks.

Duty Of An Interim Receiver

An interim receiver is appointed by the Court (on the application of a applicant) into a subject company to oversee the business and affairs of a company pending the disposal of an ongoing suit. The powers of the interim receiver may be as extensive as having the sole rights to sign off cheques on behalf of the company during the period of receivership.

Although an interim receiver is nominated by the applicant, he or she is deemed as an officer of the Court under the law. This is lucidly explained in the local case of Tai Kwong Goldsmiths where it was held that a receiver is an independent party to the parties in the proceedings.

A further explanation of the neutrality of a receiver’s role is set out in the U.K. case of Re a company (No 00596 of 1986) where it was noted that a receiver is appointed to “hold the ring” and he shall be free of any judgment on the rights and wrongs.

Legal Considerations

In deciding whether to appoint an interim receiver into a company, Court will take note of the following considerations:

• whether there is a good prima facie claim by the applicant;
• whether the property is in jeopardy; or
• whether irreparable mischief will be done if or
• applicants would be in a worse position if appointment of receiver is delayed.

There are myriad of cases where Courts have allowed the appointment of an interim receiver into a company pending an oppression suit. Generally, Courts recognize that the apt solution to a hostile fight between shareholders (before decision), is to pave way for a cooling period between both parties by placing a receiver into the subject company for a limited period of time. This will also prevent the ongoing dispute from disrupting the business of the company.

In the case of U.K. case of Re a company (No 00596 of 1986), the Court found fit to appoint a receiver into a company for a limited period of 3 months pending the disposal of the suit on the premise “to get matters sorted out to some degree”.

Conclusion

As stated above, the application for interim receiver into a company and the filing of derivative proceedings / oppression suit often come hand in hand. The key to such nature of application is – speed; in order to prevent the wrongdoers from further perpetrating their wrongs upon the company.

Kindly reach out to Ryan Chu & Lau Zhong Yan who have experience in interim receiver application in corporate disputes should you have any further enquiries to this topic.