On 19 November 2021, The Edge reported that the candy manufacturer, Khee San Food Industries Sdn Bhd (KSFI), has been placed under interim judicial management. KSFI is the wholly-owned subsidiary of the public-listed Khee San Bhd.
On 17 November 2021, the Court made an ex parte Order to appoint an interim judicial manager, Datuk Adam Primus Varghese Abdullah of Messrs ADAMPRIMUS, over KSFI. The interim judicial management of KSFI in turn resulted in Khee San Bhd triggering Practice Note 17 (PN17). PN17 is essentially the financial distress criteria set by Bursa Malaysia Securities. KSFI’s assets account for over half of the total assets of Khee San on a consolidated basis.
I believe this is the first time a financial institution creditor has applied to place the debtor company under judicial management. I set out some of the guiding legal principles and the facts of this case.
The Law for the Appointment of an Interim Judicial Manager
Judicial management is a corporate rescue mechanism to save a near-insolvent company. The judicial manager takes over the management of the ailing company. The judicial manager puts forward a restructuring proposal to achieve at least a better return to the unsecured creditors compared with a winding up.
Once the judicial management application is filed, the Court has the power to appoint an interim judicial manager over the company. The interim judicial manager is meant to protect the status quo and to protect the assets of the company pending the determination of whether to place the company into judicial management or not.
In the earlier case update, I had written about the Singapore High Court decision of Re KS Energy Ltd. The case set out the principles governing the Court’s appointment of an interim judicial manager. Similar to this Khee San matter, KS Energy involved a financial institution had applied for an interim judicial management order against the debtor company.
The principles for the appointment of the interim judicial manager are essentially:
- There is a prima facie case for the making of the full judicial management order.
- There is an immediate danger to the assets or business of a company. This could be a result of fraud or mismanagement.
- The central consideration is the protection of the assets and business of a company. The Court will consider the nature and imminence of the risks facing the company’s business and assets.
In Malaysia, we have also seen at least one decision involving a creditor appointing an interim judicial manager over the debtor company. See Loh Teck Wah v Fintree Capital Sdn Bhd  MLJU 995 (grounds of judgment) and where the Court dismissed the challenge to set aside the interim judicial management order.
The Sequence of Events
The financial institution creditor here, Maybank Islamic, had obtained Judgment against KSFI on 30 March 2021 of more than RM6.5 million. KSFI had also defaulted in financing facilities granted by seven other creditor banks. There were ongoing suits between KSFI and the creditor banks.
Maybank Islamic and another creditor bank had also issued winding up statutory demands against KSFI. KSFI had failed in obtaining an injunction to restrain any presentation of the winding up petition.
On 15 November 2021, Maybank Islamic filed the application for judicial management against KSFI.
On 16 November 2021, Maybank Islamic filed its ex parte (i.e. without notice) application to appoint an interim judicial manager over KSFI.
On 17 November 2021, the Court heard the ex parte application and made the ex parte Order appointing the interim judicial manager. Maybank Islamic’s counsel essentially made the submissions that:
- KSFI’s assets and business are in real jeopardy.
- There is no visibility on KSFI’s current financial standing.
- KSFI’s current management shows a lack of transparency.
- The appointment of the interim judicial manager would preserve the status quo.
- The interim judicial manager can conduct a proper assessment of the management of KSFI, and ensure fair and equal protection of KSFI’s creditors, employees, clientele and shareholders.
The hearing of the judicial management application itself is fixed for 7 January 2022.
On 18 November 2021, Khee San Bhd made a Bursa announcement on the triggering of Paragraph 2.1(b) of PN17 where: “receivers or managers, or judicial managers have been appointed over the asset of the listed issuer, its subsidiary or associated company which asset accounts for at least 50% of the total assets employed of the listed issuer on a consolidated basis.”
As I noted in the earlier KS Energy case update, there were a series of Singapore cases where financial institution creditors applied to place the debtor company into interim judicial management and judicial management.
This was seen in Hin Leong (but where I understand the debtor company itself applied for judicial management and interim judicial management, and this was supported or consented to by the bank creditors), ZenRock and KS Energy.
Full judicial management orders were eventually made for the three companies. But of course, a rescue of the companies in judicial management is never guaranteed. The companies may still have to turn to liquidation. See here for Hin Leong, and here for ZenRock where the judicial managers placed the companies into liquidation. KS Energy continues to remain in judicial management.
We will have to see how the KSFI interim judicial management plays out and whether a full judicial management order is granted.