Lee Shih and Peyton Teo complete this three-part series on key trends in judicial management in Malaysia.
We complete the final part on the trilogy on trends in judicial management (JM) cases in Malaysia. This article covers the making of the JM Order, the opposition to the judicial manager candidate, and issues post the JM Order.
(1) “Likely to Achieve” and Strict Proof
In the JM application, the Court has to consider that the making of the JM Order “would be likely to achieve” one or more of the three statutory purposes listed out in sections 405(1)(b)(i) to (iii) of the CA 2016.
The three purposes are essentially:
- Survival of the company. As a whole or in part.
- The approval of a scheme of arrangement.
- A better realisation of the company’s assets compared with a winding up situation.
The cases have interpreted the term “likely to achieve” being the requirement to “demonstrate on a balance of probabilities that it is ‘more probable’ than not’ that this criterion will be fulfilled.”
We see this at  of Loh Teck Wah v Fintree Capital Sdn Bhd  MLJU 995 (grounds of judgment) and at  of Spacious Glory Sdn Bhd v Coconut Three Sdn Bhd  MLJU 1827 (grounds of judgment).
In satisfying the Court of the above, the cases also refer to the requirement that there needs to be “strict proof and evidence and not merely surmise and conjecture”. The Court of Appeal in CIMB Islamic Bank Bhd v Wellcom Communications (NS) Sdn Bhd & Anor  4 CLJ 1 (the case update on this decision) explained that:
“Thus, the court’s consideration at all stages, that is to say from the date the application is filed and from the date of the order, if any is given, must be based on strict proof and evidence and not merely surmise and conjecture to ensure creditors are not defrauded by sympathy evoking stories of insolvent companies.”
The above passage was applied in  of Vision Development Concept Sdn Bhd v Low Sheh Ling  MLJU 2387. The applicant did not meet this requirement and the JM application was dismissed.
(2) Opposition to Proposed Judicial Manager Candidate
When the Court decides on the proposed judicial manager candidate, there are three situations that may occur.
First, the Court adopts the applicant’s nomination of the judicial manager.
Second, the Court can, on its own volition, refuse the applicant’s nomination and the Court may appoint another insolvency practitioner as the judicial manager (see section 407(2) of the CA 2016).
Third, the majority in value of the creditors may oppose the applicant’s nomination. The court may then invite the creditors to nominate a person to act as the judicial manager (see section 407(3) of the CA 2016).
The High Court decision of Jepak Holdings Sdn Bhd v TNB Repair and Maintenance Sdn Bhd  MLJU 800 (grounds of judgment) involved some of the creditors opposing the appointment of the applicant’s nominated judicial manager. Instead, these creditors wanted to nominate their own candidate.
The Court agreed that both section 407(2) and section 407(3) are mutually exclusive. Hence, the Court could assess the suitability of the nominated candidate on the Court’s own volition or take into account the majority in value opposition. In this case, the opposing creditors did not meet the majority in value requirement under section 407(3) of the CA 2016.
The Court then proceeded to assess the suitability of the applicant’s nominee under section 407(2) of the CA 2016.
The opposing creditors raised objections regarding an alleged conflict of interest on the part of the applicant’s nominee. The Court ultimately found no conflict of interest was made out and also took into account that 87% of the applicant’s creditors supported the appointment of the applicant’s nominee. The Court appointed the applicant’s nominee as judicial manager.
(3) JM Order for 6 months
The grant of the initial JM Order should only be for a period of 6 months. The JM Order can then be extended after that.
In the High Court case of Monday-Off Development Sdn Bhd  MLJU 915 (grounds of judgment), the applicant had attempted to apply for a JM Order for a full 12 months.
The Court only allowed the grant of the JM Order for 6 months as the Court was bound by section 406(1) of the CA 2016 where the JM Order “shall remain in force for a period of six months”.
(4) Extension of JM Order
After the initial 6 months of the JM Order, the judicial manager can apply for an extension of the JM Order. In assessing the extension, the Court will consider again the requirements for the statutory purposes of the grant of the JM Order in the first place. The Court will take into account the objectives of JM as a method of debt restructuring, where an independent judicial manager is appointed to manage the affairs of the company under financial distress, and the purpose to revitalise ailing companies.
Therefore, in the High Court decision of Capital City Property Sdn Bhd  MLJU 2518, the Court considered all the above factors and allowed the judicial manager’s application for an extension of 6 months to the original JM Order.
The Court held that the extension of the JM Order would allow the JM Order to be carried out efficiently and expeditiously and that the extended moratorium under the JM Order would allow the judicial manager sufficient time to prepare and submit the statement of proposal to the creditors and members.
(5) Judicial Manager’s Decision on Proof of Debt
It is likely that the Court can interfere with the decision of the judicial manager on a creditor’s proof of debt. The proof of debt is important for a creditor to have its debt admitted for the purposes of voting on the judicial manager’s statement of proposal. The proof of debt will also crystallise the creditor’s entitlement for any pay-out under the statement of proposal.
In Capital City Property Sdn Bhd v Achwell Property Sdn Bhd  MLJU 749 (grounds of judgment), a creditor applied to the Court to challenge the judicial manager’s decision to reject that creditor’s proof of debt.
The Court took the view that it had the power to interfere with the decision of the judicial manager in certain situations. The Court could look into the judicial manager’s decision of admitting or rejecting the proof of debt. The Court would take into account the duty of the judicial manager to act fairly in discharging his duties, his independence and that he has to take an even hand in dealing with the competing interests of creditors, members and his appointers.
In this case, the Court dismissed the challenge against the judicial manager’s decision.
One argument was not raised in this case. Malaysia’s Companies (Corporate Rescue Mechanism) Rules 2018 (CRM Rules) closely follow the Singapore equivalent regulations for judicial management procedure.
However, when the CRM Rules were enacted, the CRM Rules did not adopt the various provisions for the creditor’s right to appeal to the Court on any decision on the proof of debt.
We will have to look to a future case to fully argue the impact, if any, on the non-adoption of the Singapore-equivalent provisions. For clarity, it would be helpful for Malaysia’s CRM Rules to consider adopting the various provisions detailing the Court procedure of an appeal against the proof of debt decision.
(6) Failed Attempt at JM
The applicant company who fails in a JM may face the repercussion that the company has itself admitted that it is insolvent and unable to pay its debts. Therefore, the company may find it difficult to resist a winding up petition.
In Jacdex Interlogistics Sdn Bhd v Action Apparel Sdn Bhd  MLJU 763, the company was resisting a winding up petition filed by a creditor. The Court allowed the winding up petition.
The Court considered that the company had earlier filed two different JM applications. Those JM applications were dismissed. With the company filing the JM applications, the Court found that the company has admitted that it is unable to pay its debts by virtue of the requirement under section 404(a) of the CA 2016. This requirement is where “the company is or will be unable to pay its debts.”
The full series of articles on judicial management trends after three years: