Case Update: Not Mandatory for Proposed Judicial Manager’s Affidavit

The High Court in Re Federal Power Sdn Bhd (grounds of judgment dated 11 October 2021) granted a judicial management order over a high voltage cable manufacturing company. The Court dealt with the issue of whether the proposed judicial manager candidate must affirm an affidavit in support of the application or not.

Summary of the Decision and Significance
Decision by: Nadzarin Wok Nordin JC

This case update will merely set out a summary of the decision.

The Applicant company applied for a judicial management order. The Applicant claimed to be one of only 12 companies in Malaysia capable of manufacturing medium and high voltage cables. Hence, the Applicant claimed to be a public interest company.

An opposing creditor, Dara Consultant, intervened in the judicial management application proceedings. Dara Consultant was an unsecured creditor with a debt of approximately RM2 million out of the Applicant’s total liabilities of RM76 million.

In the end, the Court allowed the judicial management order. Some of the reasons included that there was no objection by the secured bank, two of the largest unsecured creditors supported the recovery plans and with potential white knights and potential cash injection.

The Court made two other interesting findings.

First, the Court considered Dara Consultant’s objection that the Applicant had failed to produce an expert opinion and approval by the proposed judicial manager candidate.

The Court considered the earlier High Court decision in Re Biaxis (M) Sdn Bhd [2020] MLJU 1188 (case update here) where it held that the judicial management application should be supported by an affidavit in support or an expert report by the proposed judicial manager candidate.

The Court in this case stressed that the above is not a requirement under the Companies Act 2016 (CA 2016) or the Corporate Rescue Mechanism Rules 2018. While not disagreeing with Re Biaxis, the Court here held that the nominated judicial manager’s affidavit is not absolutely necessary. Nonetheless, such an affidavit would be of immense assistance to the Court to assess the viability of any proposals put forth to the Court.

Second, the Court also took into account the Applicant’s contention that it was a public interest company justifying judicial management. The Applicant contended that the Court can take into account section 405(5)(a) of the CA 2016 where the Court can make a judicial management order “if the Court considers the public interest so requires“.

The Court held that by the Applicant’s own admission, there are at least 12 companies in Malaysia that have the capacity to conduct a similar business of manufacturing medium and high voltage cables. That there may be less competitive bidding processes and which would affect the prices of cables was mere conjecture.

The Court found no element of public interest.

Comments

This case does not outright disagree with the approach in Re Biaxis. Re Biaxis set out the stringent requirement of having a proposed judicial manager’s affidavit and with an expert report or restructuring proposal at hand.

But this case is helpful in clarifying that there is no such mandatory requirement since such a requirement is not found in the law. In this case, the lack of an affidavit from the proposed judicial manager was not fatal to the application. The Court could still rely on other evidence to assess whether the making of the judicial management order is likely to achieve the purposes of judicial management.

Nonetheless, the practice in Malaysia has taken root with the filing of some form of affidavit by the proposed judicial manager.

It will be helpful for there to eventually be clarity from the appellate courts.

This case also follows a line of authorities in Malaysia where the exceptional circumstance of “the Court considers the public interest so requires” (under section 405(5)(a) of the CA 2016) was not made out. Thus far, no company has been able to satisfy this high burden.

Leave a Reply

Your email address will not be published. Required fields are marked *