A Quick Guide to Section 502 and 503 Of The Companies Act 2016

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What is Section 502 and 503?

Section 502 and 503 of the Companies Act 2016 is a legal mechanism that allows the court to examine an individual to determine the backstory behind a wound-up company i.e. what drove the company into winding up. Both sections are usually invoked when there is evidence of wrong-doing committed by certain individuals which inevitably caused the downfall of a company.

Legal principle in relation to Section 502 and 503 of the Companies Act 2016

Who can initiate seduction 502 and 503?

Section 502

The court itself1.

Section 503

The liquidator appointed in a winding up of a company. In this regard2:

  1. A liquidator must first make a report to the court stating that (in his opinion)
    1. There is an act of fraud;
    2. There are facts that are concealed by any person/ officer in relation to the promotion/ formation of the company; or
    3. There is evidence to show that any officer of the company has failed to act honestly/ guilty of any impropriety/ acted recklessly in relation to the affairs of the company.
  2. Once the report is submitted and examined by the court, the court will then initiate the post winding up examination3.

What happens when section 502 and 503 is initiated?

Section 502

The court may summon the company’s officer and any person known/ suspected to have in his possession any property of the company/ indebted to the company or any person the court deems capable of giving information concerning the affairs of the company to be examined by the court4.

Section 503

The court may summon the company’s officer/ ex-company officer (including any banker, advocate, or auditor) and any person knew/ suspected to have in his possession any property of the company/ indebted to the company or any person the court deems capable of giving information concerning the affairs of the company to be examined by the court5.

Who can examine the individuals who are summoned?

Section 502

The court itself6.

Section 503

The court itself7, the liquidator and any creditor/ contributory may take part in the examination (asides from the court, the rest can examine the individuals above either personally or by advocate8).

However, both sections cannot be automatically invoked. As we will see below, there are factors/ principles in determining whether the court will summon an individual for examination and the reasons why those factors are put in place.

What are the factors/ principles in determining whether the court will summon an individual for examination?

In Hicom Berhad v Bukit Cahaya Country Resorts Sdn Bhd9, the court laid down several factors that the court will take into consideration before a person is summoned to be examined:

  1. Is the procedure necessary for the business of preserving, collecting, managing, or distributing the company’s assets?;
  2. Is the applicant (liquidator, creditor, or contributory) conducting himself reasonably in the circumstances?;
  3. Is it for the benefit of the company (being wound up)?;
  4. Is there any alternative process to obtain such information either by way of sworn affidavit or otherwise?;
  5. Is there any oppressive effect on the examinee?;
  6. Does the process amount to an abuse of process?

Why?

As noted by the court in Hicom:

“This extraordinary power serves an essential and important purpose. If used correctly it generally but not invariably redresses disadvantages without creating advantages. However, if used incorrectly, it could be draconian in its application and crushing in its consequence. Unnecessary legal costs can also be incurred by all involved and scarce funds of the company may be severely depleted. Our legal proceedings are generally required to be conducted in the manner of an adversarial contest. The process of taking information or evidence on oath pursuant to these provisions, is an aberration that has been allowed into a fundamental tenet of an adversarial system. The Court, therefore, plays an important and critical role in policing the exercise of these powers.”

There is a need to balance between invoking it to punish any wrongdoing and further plunging a wound-up company into further and unnecessary debts. This power must therefore be utilized properly, to ensure the preservation of the company in the long run after being wound up.


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1. Section 502 (1), Companies Act 2016.
2. Section 503 (1), Companies Act 2016.
3. Section 503 (2), Ibid.
4. Section 502 (1) and (2), Ibid.
5. Section 503 (2), Ibid.
6. Section 502 (2), Companies Act 2016.
7. Section 503 (2), Ibid.
8. Section 503 (3), Ibid.
9. [2005] MLJU 418.