Judicial Management Trends After Three Years: Part 2

Lee Shih and Peyton Teo continue with key trends in judicial management in Malaysia. 

We continue with Part 2 of a three-part series on the key trends in judicial management (JM) cases in Malaysia.

In Part 1, we had covered the reported cases on JM, the debtor and creditor applicants for JM, a Labuan company applying for JM, public listed companies, and the need for full and frank disclosure.

We continue with other issues arising from Malaysia’s JM cases.

(1) Interim Judicial Manager and Powers

Once the application for JM is filed, the Court may also appoint an interim judicial manager pending the making of the JM Order. This is a power under section 405(5)(a) of the CA 2016.

The facts of Loh Teck Wah v Fintree Capital Sdn Bhd [2021] MLJU 995 (grounds of judgment) involved the appointment of an interim judicial manager. On 18 January 2021, the creditor applied for JM and for the appointment of an interim judicial manager (IJM). On 20 January 2021, the Court granted the ex parte order for the appointment of the IJM.

Other parties intervened in the JM application and applied to set aside the IJM Order. The court dismissed the setting aside. The Court held there was no mala fides in obtaining the order for the IJM.

In applying for the IJM Order, it is important the order itself sets out the “functions, powers and duties” of the IJM (quoting from the words of section 405(5)(a) of the CA 2016).

Unlike the appointment of the judicial manager, there are no default powers or Schedule setting out the powers of the IJM.

As an example, in the unreported case of Neptune Asia Services Sdn Bhd v Trans Fame Offshore Sdn Bhd, the original Order appointing the IJMs did not contain terms to set out their “functions, powers and duties”.

The IJMs subsequently applied to the Court for clarity on their powers and duties. The Court exercised its inherent jurisdiction and under the liberty to apply to grant a subsequent Order expressly setting out the powers and duties of the IJMs.

For a Singapore case on the principles for the appointment of an IJM, see this case update on the KS Energy case.

(2) Need for Proposed Judicial Manager Affidavit

In the JM application, a growing practice is for the proposed judicial manager candidate to affirm an affidavit.

This requirement started with the decisions of Wong Soon Hock JC in Re Biaxis (M) Sdn Bhd [2020] MLJU 1188 and Sin Soon Hock Sdn Bhd [2020] MLJU 1242.

Both decisions held that the nominated judicial manager should also affirm an affidavit in support of the JM application. The Court found that the nominated judicial manager is seen as the mastermind for the eventual statement of proposal. The nominated judicial manager, if appointed, would play a key role throughout the JM process. Through the affidavit, the judicial manager candidate is able to provide an objective view, being a professional without any vested interest.

In the earlier case update on Re Biaxis, I set out that this decision set out a requirement of an almost full-fledged restructuring proposal at the time of filing the JM application. Arguably, this decision went beyond the judicial management principles in Singapore as well as the administration case law from the UK (from which judicial management is inspired from).

(3) Unsecured Creditor’s Right to Appear and Oppose

It is likely that unsecured creditors are allowed to intervene in the JM application and to oppose the making of the JM Order. There are conflicting High Court authorities on this issue.

First, in Million Westlink Sdn Bhd [2019] MLJU 1721, the Court held that unsecured creditors could not intervene. The creditors had relied on Order 15 rule 6 of the Rules of Court 2012 being the general intervention provisions.

The Court ruled that the unsecured creditors had no standing to intervene to oppose the making of the JM Order or to strike out the JM application. Their right to oppose is only limited to opposing the nomination of the proposed judicial manager.

The Court held that the explicit right of opposing the JM application is contained only in Rule 13 of the Companies (Corporate Rescue Mechanism) Rules 2018 (CRM Rules) read with section 408(1)(b)(ii) and section 409(b) of the CA 2016.

The above provisions essentially provide that the only persons who can appear and oppose the JM application are the debenture holder (who can appoint a receiver or R&M) or any secured creditor.

Nonetheless, on 21 July 2020, in an unreported decision, the Court of Appeal overturned the High Court decision in Million Westlink. This question is now pending before the Federal Court.

Second, the High Court in Goldpage Assets Sdn Bhd [2020] MLJU 723 (grounds of judgment) took a different view from that of Million Westlink. The Court can consider the objections or at least the view of the unsecured creditors. The Court decided that the CRM Rules must be read together with the CA 2016. The CA 2016 does not prohibit any creditor from being heard at the hearing of the JM application. The unsecured creditor in that case was allowed to intervene.

The principle in Goldpage Assets allowing unsecured creditors to intervene has been applied in:

  • Vision Development Concept Sdn Bhd v Low Sheh Ling [2020] MLJU 2387;
  • Twin Unitrade Sdn Bhd v TSK Hardware Sdn Bhd [2020] MLJU 2326;
  • Best Re (L) Ltd v Chubb Samaggi Insurance Public Co Ltd [2021] MLJU 310; and
  • Monday-Off Development Sdn Bhd [2021] MLJU 915.

(4) Secured Creditor’s Veto and the Public Interest Consideration

In Malaysia, the JM framework contains an easily-exercised veto by any secured creditor. The veto is contained in section 409 of the CA 2016 and where the CA 2016 was crucially amended (through the Companies (Amendment) Act 2019) to the word “or” instead of the original “and”.

This veto states that:

“ … the Court shall dismiss an application for a judicial management order if it is satisfied that –

(a) a receiver or receiver and manager … has been or will be appointed; or

(b) the making of the order is opposed by a secured creditor.”

 

There is only one way to override the veto. This is to convince the Court under section 405(5) “if the Court considers the public interest so requires”.

We have seen two cases considering the veto and the public interest issue.

First, the High Court decision of Wellcom Communications (NS) Sdn Bhd [2019] 9 MLJ 510. In this case, the debenture holder, CIMB Islamic, exercised its veto.

In reply, the applicant company said it would be in the public interest to allow the JM application. The applicant was a concession holder for the telecommunications infrastructure in Negeri Sembilan. The applicant pointed to its partner being the Negeri Sembilan State and that the telecommunications services in the State may be affected. This would affect the government services and the public at large.

The Court dismissed the public interest argument. The Court decided that there was no affidavit by any of the telecommunication service providers to the government departments, or any affidavit from the Menteri Besar Diperbadankan.

Second, the High Court decision in Re Biaxis (referred to above). The secured creditor, Maybank, exercised its veto to the JM application.

In reply, the applicant company raised the public interest argument that there would be loss of employment and uncompleted contracts.

The Court emphasised that the public interest argument would override all the checks and balance for the making of the JM Order. Therefore, public interest is to be interpreted restrictively and would only apply in the most exceptional circumstances.

Generic reasons associated with wound-up companies such as loss of employment or uncompleted contracts do not fall within the public interest.

The Court set out one hypothetical example of an exceptional case for public interest. As the world struggles to contain Covid-19, there may be a particular company alone that possessed the vaccine for the Covid-19 virus. If that company were to apply for JM, the Court may consider that the public interest so requires that the JM Order be made.

 

In the final Part 3, we will cover other issues including the opposition to the proposed judicial manager candidate, the initial six-month timeframe for the JM Order and extending the JM Order.

Peyton Teo is currently a paralegal with Lim Chee Wee Partnership. She is a law graduate and is currently waiting for her CLP results.

The full series of judicial management trends after three years:

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