High Court Sheds Light On Section 31 Of The Employment Act 1955

A commentary on Perwaja Steel Sdn Bhd (In Liquidation) v RHB Bank Berhad and 789 Others by Foo Siew Li.

INTRODUCTION

The decision of the High Court in Perwaja Steel Sdn Bhd (In Liquidation) v RHB Bank Berhad and 789 Others [2019] 5 AMR 342 provides guidance as to how a secured creditor is to deal with wages and statutory payments due to employees under section 31 of the Employment Act 1955 ("EA") when it disposes of a security held over property which is a place of employment.

BACKGROUND FACTS

The Plaintiff was ordered to be wound up on 8 November 2017 by the High Court in Kuala Lumpur, and liquidators were appointed.

The 1st to 4th Defendants are financial institutions that had provided the Plaintiff with credit facilities.

The Plaintiff had also issued Murabahah Medium Term Notes ("Notes"). The 5th Defendant is the trustee for the holders of these Notes and holds all securities provided to secure payment under these Notes.

The credit facilities and the Notes are secured by, inter alia, debentures executed by the Plaintiff over its assets in favour of the 1st to the 5th Defendants ("Debenture Holders") respectively and charges over four parcels of industrial land held by the Plaintiff ("Charged Lands"). It was common ground that on the Charged Lands was the Plaintiff's factory and would have been a "place of employment" for the employees of the Plaintiff.

By a Security Sharing Agreement dated 1 June 2012, the Debenture Holders agreed that the debentures and the Charged Lands shall rank pari passu and any proceeds from the sale of any of the securities taken shall be payable to the Debenture Holders rateably, and pari passu.

On 17 November 2014, prior to the Plaintiff being wound up, the Plaintiff had ceased operations on the Charged Lands and had terminated the employment of its employees.

After the Plaintiff was wound up, a Receiver ("Receiver") was appointed under the terms of the debentures on 24 January 2018. Pursuant to his appointment, the Receiver took steps with the view to disposing, inter alia, the Charged Lands. Based on a valuation report, the total proceeds from any sale of the Charged Lands was not expected to satisfy the Plaintiff's total debt owed to the Debenture Holders.

The 6th to the 790th Defendants claim to be former employees of the Plaintiff ("Employee Defendants"). The Employee Defendants allege that they are owed their wages by the Plaintiff and that such wages should be paid out from the proceeds of any sale of the Charged Lands in priority over the Debenture Holders by virtue of section 31 of the EA.

THE TWO QUESTIONS

It was against this backdrop that the Receiver sought...