The High Court in Asiabio Capital Sdn Bhd v Seacera Group Bhd [2021] MLJU 2598 (grounds of judgment dated 3 November 2021) has emphasised the mandatory pre-conditions for the grant of a restraining order in a scheme of arrangement.
This short decision touches on the importance of showing that the proposed scheme of arrangement must involve more than half of the total debts of the debtor company.
Summary of the Decision and Significance
Grounds by: SM Komathy Suppiah J
A substantial shareholder of the listed company, Seacera Group Berhad, had obtained an ex parte restraining order in favour of Seacera. A scheme creditor successfully set aside the restraining order.
The Court agreed that the applicant had failed to meet the mandatory conditions in the grant of the restraining order. This is where one of the conditions for a restraining order required a proposed scheme of arrangement with more than 50% in value of the company’s debts. Here, the proposed scheme only involved between 25% to 48% of the company’s debts.
Facts
Asiabio Capital Sdn Bhd (Asiabio) is a substantial shareholder of the listed company, Seacera Group Berhad (Seacera). Seacera is a financially distressed company and with multiple legal suits pending against it.
Seacera and Asiabio came up with a debt restructuring scheme via a proposed scheme of arrangement. The proposed scheme of arrangement would place Seacera’s 148 trade creditors into a class of creditors.
Asiabio filed an application to the High Court for a restraining order in favour of Seacera and to convene a scheme meeting of Seacera. On 29 September 2021, the High Court granted the ex parte restraining order.
One of the scheme creditors, Synergy Platform, applied to set aside the ex parte restraining order.
One of Synergy’s key arguments was that Asiabio had failed to meet one of the pre-conditions for the grant of a restraining order. This is where section 368(2)(a) of the Companies Act 2016 (CA 2016) requires the scheme proposal to be “between the company and its creditors … representing at least one-half in value of all the creditors“.
Decision
Asiabio and Synergy were in agreement that the section 368 of the CA 2016 requirements for the grant of a restraining order were mandatory provisions. Non compliance could result in the Court setting aside the restraining order. The Court referred to the Federal Court decision in Mansion Properties.
The Court noted that Seacera’s proposed scheme contained these figures:
- The draft Explanatory Statement listed out that Seacera had total current liabilities of RM76 million.
- In addition, the proposed scheme appeared to exclude another RM65.7 million worth of debts.
- The debts of the trade creditors, being the proposed scheme debts, only amounting to approximately RM36.8 million.
- This RM36.8 million only amounted to either 48% of the total current liabilities listed at RM76 million, or amounted to only approximately 25% of the total of RM76 million and the RM65.7 million.
The Court held that the requirement in section 368(2)(a) of the CA 2016 is clear and unambiguous. The provision requires a proposed scheme that involves more than 50% in value of the company’s creditors. That was not the case here.
Therefore, Asiabio failed to meet the mandatory requirement for the grant of the restraining order. The Court set aside the ex parte restraining order.