If a company borrows money, it will give its creditor a document confirming the existence and terms of the loan. This document is called a debenture. The execution of debentures & creation of charges over land by borrowers in favour of banks to secure banking facilities/loans is a common practice. Typically such debentures empower the banks to appoint receivers & managers to act on behalf of the borrowers to sell charged land by private treaty. Teo & Khaw) Question: in order to recover the sum due by the company borrowers, can the receivers and managers appointed under the debenture proceed to sell the property charged under the NLC by way of private treaty? (without having to follow procedure in NLC) Kimlin case facts: A (borrower company) executed 2 legal charges over the lands in favour of 1st R (the bank) subsequently executed a deed of debenture in favour of 1st R to secure various banking facilities granted by 1st R debenture duly registered pursuant to s. 08 of companies
Act Debenture provided for the bank to appoint receivers & managers (R&M) who have certain powers ** no express provision in the debenture appointing them attorneys of the A Subsequently the bank appointed 2nd & 4th R as R&M of the appellant wanted to sell the lands without resorting to proceedings under NLC to obtain OFS – R&M applied to HC for a leave to sell lands Later on, A went into liquidation – R&M’s application for leave to sell lands opposed by liquidator HC allowed their application liquidator dissatisfied appealed Issue: whether R&M by virtue of powers conferred upon them by the debenture entitled to sell the charged lands without taking proceedings under the NLC to obtain a judicial sale Held: NO – Sale by debenture of land charged under the Code is nowhere provided for by statute. The relevant provisions of the Code as to the rights of chargors (s. 254-265) are designed for their protection (e. g: service of 1-month notice, cause to contrary etc) – and thus cannot be waived, nor can the chargor contract himself out of the Code. It follows that no power of sale can be conferred by a chargor (in this case, the Appellant) under the Code on a chargee himself (the bank) by way of a debenture, but proceedings must be brought by the chargee to obtain a judicial sale in accordance with the rigid procedure laid down in the Code Also – the A went into liquidation
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Held: R&M of the corporation appointed under a power contained in any instrument is an officer of the corporation – and all officers of a corporation are obliged to deliver up to the liquidator appointed by the Court or as he directs: all the moveable and immovable property of the corporation in his custody or under his control which means that liquidation does not merely terminate the agency of a R&M but also his powers on winding up, since there is no estate for the R&M to administer. **in other words – once company goes into liquidation – R&M of the company lose their control over the company’s property – including company’s land The impact of liquidation of the A company on R&M on their powers of sale they no longer have such powers MELATRANS case – distinguished itself from Kimlin’s case This case is slightly diff from Kimlin where:
Debenture btw 1st R (registered proprietor of lease of a land) and 2nd R (the bank) 2nd R appointed R&M of all assets & undertakings of 1st R – clauses of debenture empowered R&M to act as agent AND attorney of 1st R R&M entered into a sale and purchase agreement with the appellant to sell the said lease The appellant however did not wish to proceed with the said purchase on the ground that the R&M did not have the power to sell the said lease by private agreement in view of Kimlin case 1st R filed an originating summons in the HC for a declaration that the R&M was duly empowered by the said debenture to sell the said lease. The HC granted the declaration. The appellant appealed against the decision Issue: Notwithstanding a valid power of attorney contained in a debenture, can the R&M appointed under the said debenture proceed to sell the property charged under the NLC by private treaty?
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Held: dismissed the appeal – R&M can sell the said lease by private treaty The court distinguished current case with kimlin KIMLIN- Debenture did not contain an express provision appointing the receivers and managers as attorneys of the appellant the A company (chargor) was wound up and consequently, the R&M ceased to be agents of the chargor but instead became agents of the chargee The appellant company went into liquidation. Hence, it was the liquidator who opposed the application for sale under the debenture in the High Court CURRENT CASE- debenture empowers the R&M to act as the lawful attorney and agent of the first respondent and to exercise the powers accorded under the debenture.
Chargor (the first respondent) in the instant case was not wound up R&M remained as agent of the charger Held: s. 256 of NLC provides a prescribed method of sale to be undertaken by a chargee, not a chargor unlike Kimlin, in this case the sale was undertaken by the R&M on behalf of the first respondent, the chargor of the said lease. Therefore, provisions of the NLC prescribing for judicial sale could not apply to the facts in the instant appeal because the R&M was acting as agent of the chargor CONCLUSION The receivers and managers appointed under the debenture can still proceed to sell the property charged under the NLC by way of private treaty provided: (a) R&M act as agent of the chargor (borrower) b).
R&M is empowered (by debenture) to act as the lawful attorney of the borrower (c) The borrower company has not been wound up ( x go into liquidation) HOWEVER, even if the borrower company had been wound up, the chargee/R&M may still be able to sell the land by private treaty IF there is an irrevocable power of attorney appointing the chargee/R&M as agent for the borrower Lim Eng Chuan Sdn Bhd v United Malayan Banking Corp & Anor Loans granted to the borrower company (chargor) were secured by a charge & a debenture which also contained an irrevocable power of attorney in favour of the bank (chargee) Upon default, the bank sought to realize its security by selling the land as agent for the chargor but before it could do so the borrower company was wound up Borrower company sought to declare the sale to the purchaser null and void – failed – appeal to COA COA held: irrevocable power of attorney
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