Scomi Group Bhd, listed on the Main Market of Bursa Malaysia, has applied for judicial management. This provides Scomi Group with a moratorium from legal proceedings and is part of its financial restructuring plan. This case also raises interesting legal issues.
Scomi Group – Judicial Management
Based on its Bursa announcement dated 14 April 2021, Scomi Group had on that same date filed with the Kuala Lumpur High Court an application for a judicial management order.
This isn’t the first time a listed company has applied for judicial management.
Scomi Group’s subsidiary, Scomi Energy Services Bhd, that also applied for judicial management in April 2020. In the end, Scomi Energy itself did not continue to pursue the judicial management application. Scomi Energy’s subsidiaries continue to be under judicial management.
Further, back in 2018, Scomi Group’s three subsidiaries had also applied for judicial management. While two of the subsidiaries were placed under judicial management, the judicial manager could not successfully restructure the debts.
What is Judicial Management?
Judicial management is one of Malaysia’s corporate rescue mechanisms. Where a company is insolvent or near-insolvent, a judicial management order will place the distressed company under the control of the court-appointed judicial manager. The judicial manager will have to table a statement of proposal to the company’s creditors in an attempt to restructure the company’s debts.
In providing the distressed company breathing room, the filing of the judicial management application will trigger an automatic moratorium. Legal proceedings cannot be commenced or continued with against Scomi Group unless the Court grants permission. In this case, a creditor had issued a statutory demand for winding up against Scomi Group. The filing of the judicial management application will stall the winding up.
Legal Issues in the Scomi Group Judicial Management Application
First, the Scomi Group application raises this question: can a listed company apply for judicial management?
Section 403(b) of the Companies Act 2016 essentially provides that all the provisions on judicial management cannot apply to the following:
(b) a company which is subject to the Capital Markets and Services Act 2007.
This section is not clear and has not been interpreted by the Courts. The Companies Commission of Malaysia have interpreted this phrase to mean that all listed companies cannot utilise the judicial management provisions. The reasoning is that listed companies are subject to the Capital Markets and Services Act 2007.
The Companies Commission of Malaysia’s Consultation Document on the amendment to the Companies Act 2016 recognised this:
77. Currently, the benefit of judicial management is not available to companies which are regulated under CMSA 2007 including listed companies. The proposed amendment would assist all companies facing financial difficulties including listed companies an avenue to rehabilitate their situations through judicial management.
If this issue comes before the Court, I look forward to seeing the Court’s interpretation of the current section 403(b).
Second, Scomi Group does have secured creditors.
Under section 409(b) of the Companies Act 2016, any secured creditor can exercise a veto against the judicial management application. Hence, we will have to see if such a veto is exercised in this case.
Section 409(b) reads:
” … the Court shall dismiss an application for a judicial management order if it is satisfied that-
(b) the making of the order is opposed by a secured creditor.”