Case Update: Extensions to Judicial Management Order Set Aside

In the matter involving Macro Resources Sdn Bhd, the Shah Alam High Court has set aside the extensions of the judicial management order made beyond the period of the initial 12 months. This decision appears to confirm that a judicial management order in Malaysia can only be made for the initial 6 months and with a single extension of 6 months only (i.e. a maximum period of 12 months).

The Law

Malaysia adopted the judicial management provisions from Singapore. One difference in Malaysia is the phrasing of section 406 of the Companies Act 2016 (CA 2016) in setting out the “Duration of judicial management order and its extension“.

Section 406(1) of the CA 2016 states:

“A judicial management order shall remain in force for a period of six months from the date of the making of the order … but the Court may, on the application of a judicial manager, extend this period for another six months …”

 

Therefore, it was largely thought that the maximum duration of a judicial management order could only be for the initial period of 6 months and with only one extension of a further 6 months.

The Background Facts of Macro Resources’ Judicial Management

Judicial Management Order and First Extension

Macro Resources Sdn Bhd (Macro Resources) is a subsidiary of the listed corporation, Lien Hoe Corporation Berhad. We are able to track the timeline of the judicial management through Lie Hoe Corporation’s stock exchange announcements.

In the case of Macro Resources, we saw multiple extensions of the judicial management order.

On 5 November 2018 (see the Bursa Malaysia announcement), Macro Resources Sdn Bhd (Macro Resources) filed an application for judicial management.

On 23 January 2019 (see the Bursa Malaysia announcement), the Shah Alam High Court granted the judicial management order and placed Macro Resources under judicial management for a period of six months (i.e. up to 23 July 2019).

On 19 July 2019 (see the Bursa Malaysia announcement), the Court granted the first 6-month extension of the judicial management order up to 22 January 2020.

Uncharted Area

Beyond this period of 22 January 2020, we headed into uncharted waters on the validity of further extensions of the judicial management order and the restrictions in section 406(1) of the CA 2016.

On 21 January 2020 (see the Bursa Malaysia announcement), the Court granted a second 6-month extension of the judicial management order until 21 July 2020.

On 14 July 2020 (see the Bursa Malaysia announcement), the Court granted a third 6-month extension of the judicial management order until 20 January 2021.

On 18 January 2021, (see the Bursa Malaysia announcement), the Court granted a fourth 6-month extension of the judicial management order until 19 July 2021.

On 14 July 2021 (see the Bursa Malaysia announcement), the Court granted a fifth 6-month extension of the judicial management order until 18 January 2022.

Setting Aside

By this stage, Macro Resources had been under judicial management for more than 2.5 years. From a search of the court papers, there is now opposition by the creditors. An application is filed to set aside the earlier extensions of the judicial management order.

On 10 September 2021, (see the Bursa Malaysia announcement), the Shah Alam High Court allowed a creditor’s application to set aside the extended judicial management orders obtained on 21 January 2020, 14 July 2020, and 18 January 2021. Presumably, the extension Order dated 14 July 2021 was also set aside.

The legal team from Zul Rafique & Partners acted for the successful creditor and you can read their update.

Comments

The High Court has not issued any grounds of judgment yet. I look forward to reading the reasoning for the setting aside. I would imagine that the Court read section 406(1) of the CA 2016 and interpreted it to mean that only a single 6-month extension is allowed.

There may be good reasons to allow a judicial manager to continue to manage the affairs of the company and to protect the interests of the creditors. For example, a judicial manager may have obtained approval of the statement of proposal for the restructuring of the debts, and the judicial manager needs to stay on to implement the statement of proposal.

Nonetheless, within that original judicial management order, my view is that the language of section 406(1) of the CA 2016 does not allow for that judicial management order to be further extended past the 6 months + 6 months validity. There may have to be other ways to ensure the implementation of the statement of proposal.

In contrast to section 406(1) of the CA 2016, the Singapore judicial management provision is phrased differently. Section 227B(8) of the previous Singapore Companies Act was more open-ended:

“(8)  A judicial management order shall, unless it is otherwise discharged, remain in force for a period of 180 days from the date of the making of the order but the Court may, on application of a judicial manager, increase this period subject to such terms as the Court may impose.”

 

Finally, in this case of Macro Resources, there will be some difficult issues to untangle:

  • Where the court set aside the extended judicial management orders since 22 January 2020, what would happen to all the acts carried out by the judicial manager since that date?
  • Whether from 22 January 2020, the judicial manager’s actions were ultra vires the CA 2016.
  • Whether any invalidity or irregularity could be cured or validated to uphold the acts and fees of the judicial manager.
  • Whether the third parties dealing with and contracting with the judicial manager would have certainty on the validity of their dealings.

The judicial management provisions do not have the equivalent provision like in section 455 of the CA 2016 in a voluntary winding up. Under that section, the acts of the liquidator and any transactions by the liquidator would still be valid notwithstanding any defect or irregularity affecting the validity of the winding up or the appointment of the liquidator.

 

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