Compendium of Companies Act 2016 Cases: Part 1

Lee Shih

With the Companies Act 2016 in force for more than a year, I thought it is useful to set out a compendium of cases and transactions that have applied the Companies Act 2016 provisions.

As a summary, in terms of the reported cases, many of the cases relate to winding up based on the inability of the company to pay debts. This is under section 466 of the Companies Act 2016 (the old section 218 of the Companies Act 1965). Other cases also relate to other areas of winding up or shareholder disputes. I also highlight below examples of capital reduction and schemes of arrangement.

#1. Statutory Derivative Action

The High Court case of Independent Oil Tools Ltd [2018] MLJU 133 concerned a statutory derivative action under 348 of the CA 2016 (the previous section 181A of the CA 1965). The applicant-shareholder successfully obtained leave of the court to bring an action on behalf of a joint venture company.

One of the challenges in opposing leave was a procedural objection on the notice that had been given. The respondents argued that the applicant’s notice of intending to initiate an action was defective. This is because the notice was not dated, the notice had been sent to the joint venture company’s company secretary only, and that the notice had not been served by the applicant on to the joint venture company directors.

The court did not entertain these procedural objections, taking a more robust and purpose approach as to the function of such a notice.

The court proceeded to grant leave as the two requirements of good faith and that it was prima facie in the best interest of the company were met.

#2. Directors’ Right to Inspect Records

In Tan Geok Hwa v Centamin Construction & Development Sdn Bhd [2017] MLJU 1822, a director of a company successfully obtained court orders under section 245 of the CA 2016 (the previous section 167 of the CA 1965). These were court orders allowing the director to inspect the company records and to have the assistance of an approved company auditor during this inspection.

The High Court confirmed the well-established position that a director need not show any reason when wanting to inspect the company records and documents. This is an almost unbridled right of inspection. It is generally very difficult to show that there is improper purpose when a director exercises this right of inspection.

#3. Limited Stay of Winding Up

The High Court in Taman Rimba (Mentakab) Sdn Bhd v Warrior Products Rubber (M) Sdn Bhd [2017] MLJU 2178 allowed a limited stay of a winding up under section 492 of the CA 2016. The CA 2016 now contains a provision allowing for a limited stay under section 492 while there is a termination of winding up under section 493.

In this case, the court granted the limited stay of winding up under section 492 as there was a risk of conflicting decisions. This amounted to special circumstances justifying the stay.

The court also ventured the view, which I think is correct, that a termination of winding up under section 493 should then continue to apply the principles for a permanent stay under the old section 243 of the CA 1965.

#4. Applying New or Old Winding Up Provisions

Firstly, in the case of Hap Seng Credit Sdn Bhd v Sri Muda Haulage Sdn Bhd [2017] MLJU 1823, a statutory demand for winding up had been issued under the old section 218 of the CA 1965. However, the winding up petition was then filed under the provisions of the CA 2016.
In interpreting the transitional provisions under the CA 2016, the court held that it would be more legally efficient, fair and consistent if winding up notices issued prior to the coming into force of the CA 2016 be deemed to subsist under the CA 1965.
Secondly, in Chin Kim Gan & Anor v Saluran Projek Sdn Bhd [2017] MLJU 1536, this was a company which had been wound up under the CA 1965. The liquidator had applied to the court under sections 491 and 499 of the CA 2016 for a release and discharge. This application was not allowed.
However, what is noteworthy about this case is that for winding up orders and matters made under the CA 1965, it should still be the CA 1965 provisions that apply. The CA 2016 provisions should not be applied. This is due to the wording of section 619(6) of the CA 2016: “A company which is in the course of winding up immediately before the commencement of this Act shall continue to be wound up under the relevant provisions in the Companies Act 1965.”

#5. Capital Reduction through the Solvency Statement

The CA 2016 now introduces a new mechanism where a capital reduction can be effected without a court order. Instead, section 117 of the CA 2016 allows for a capital reduction through the solvency statement procedure.

An example is Hwang Capital (Malaysia) Berhad having successfully undergone a selective capital reduction under the section 117 of the CA 2016. The speed of this procedure can be seen through the following dates:

#6. Scheme of Arrangement: Members and Creditors

There have been a number of corporate reorganisations that have involved a members’ scheme of arrangement. For example, AirAsia Bhd undertook a members’ scheme of arrangement.

In terms of a scheme of arrangement involving creditors, TH Heavy Engineering Berhad had successfully obtained a court sanction for its scheme of arrangement. It had also been obtaining restraining orders prior to that.

The change for the scheme of arrangement provision is that the requirement for approval has become a little bit easier. While under the old section 176 of the CA 1965, the requirement for approval was a majority in number and 75% in value of the members or creditors, section 366 of the CA 2016 only requires 75% in value of the members or creditors to approve the scheme of arrangement.

 

2 thoughts on “Compendium of Companies Act 2016 Cases: Part 1”

  1. Avatar FOO POH KHEAN 27 March, 2018 / 9:32 pm

    Thank you Lee Shih for this compendium.

    Reply
  2. Pingback: Bankruptcy and Directors: Vacating Seat and Potential Illegality

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