The High Court in the judicial management application of Re Scomi Group Bhd decided that public listed companies cannot apply for judicial management. Hence, Scomi Group Bhd’s judicial management application was dismissed.
I have updated this article with the full grounds of judgment dated 4 October 2021.
Summary of the Decision
On 14 April 2021, the listed company, Scomi Group Bhd, filed a judicial management application.
As I set out in my earlier post, one key issue was on the meaning of section 403(b) of the Companies Act 2016 (CA 2016). It 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.
Before this, the Courts had yet to interpret the exact meaning of the restriction in section 403(b) of the CA 2016 and its reference to the Capital Markets and Services Act 2007 (CMSA).
In Scomi Group Bhd, the Court ultimately held that the words in section 403(b) of the CA 2016 apply to all companies whose shares are quoted on a stock market of a stock exchange, as is the situation here with Scomi Group Bhd.
Scomi Group Bhd, as a listed company under the CMSA, cannot avail itself of the Judicial Management corporate rescue mechanism under Sub Division 2 of Division 8 Part III of the CA 2016.
First, the Court examined the CMSA. In the preamble to the CMSA, the CMSA is an Act “to regulate and to provide for matters relating to the activities, markets, and intermediaries in the capital markets and for matters consequential and incidental thereto”.
Section 2 of the CMSA sets out the interpretation section and defines terms such as ‘capital market’, ‘corporation’, ‘listed corporation’, ‘securities’, ‘stock market’ and ‘listed’.
Second, under Part VII of the CMSA under “Provisions Applicable to Listed Corporations”, sections 317 to 321 govern listed corporations and the duties imposed on them under the CMSA.
Therefore, when reading the CMSA as a whole and for those particular sections, the Court concluded that essentially, any body corporate whose shares are quoted on a stock market will be governed by the CMSA.
The Court rejected Scomi Group Bhd’s argument to read section 403(b)’s reference to “companies which is subject to the Capital Markets and Services Act 2007” to only “companies licensed and regulated under the CMSA” or to only “companies that are involved in activities or markets in the capital market or which are intermediaries in the capital market”.
On this issue, the Court ultimately concluded:
Accordingly, this Court cannot read words into section 403(b) of the Companies Act 2016 which are in my view plain, clear and unambiguous. I thus hold that section 403(b) of the Companies Act 2016 applies to all companies whose shares are quoted on a stock market of a stock exchange as is the situation here with the Applicant, and that the Applicant as a listed company under the CMSA cannot avail himself of the Judicial Management corporate rescue mechanism under Sub Division 2 of Division 8 Part III of the Companies Act 2016.
Comments
Subject to any further appellate court decision to the contrary, this High Court decision does provide guidance on the current restriction for listed companies to apply for judicial management in Malaysia.
In the news as well is that of another listed company, Dolomite Corporation Bhd, having also applied for judicial management. It remains to be seen if the High Court in that matter will also make the same finding that a listed company cannot apply for judicial management.
In the near future, the Companies Act 2016 will be amended (see the Companies Commission of Malaysia Consultation Document) to remove this wide restriction in section 403(b) of the CA 2016 and to be replaced with:
“(b) Any company—
(i) which is registered or approved under Part II, licensed under Part III, or recognised under Part VIII of the Capital Markets and Services Act 2007;
(ii) which is approved under Part II of the Securities Industry (Central Depositories) Act 1991; and
(iii) as may be prescribed by the Minister on the written request from the Minister charged with responsibility for finance.”
Therefore, in the future, listed companies will be able to apply for judicial management. Only specific registered licensed entities under the CMSA or the Securities Industry (Depositories) Act 1991 will be excluded.