The Federal Court in MDSA Resources Sdn Bhd v Adrian Sia Koon Leng has ruled on the issue of the votes of related-party creditors in a scheme of arrangement. This has an impact on the classification of related-party creditors for schemes of arrangement in Malaysia.
With the Federal Court’s 2-1 split decision, I share the majority judgment and the dissenting minority judgment.
Summary of the Decision and Significance
Majority Grounds by: Nordin Hassan FCJ
The scheme company, MDSA Resources Sdn Bhd (MDSA), had undertaken a scheme of arrangement to restructure its debts of more than RM370 million.
Both the High Court and the Court of Appeal refused the sanction of MDSA’s scheme of arrangement.
The scheme of arrangement only had a single class of unsecured creditors. The High Court and Court of Appeal upheld the objection that related party creditors should not have been in the same class as the other unsecured creditors.
Leave to appeal to the Federal Court was allowed for 10 questions of law.
The Federal Court’s majority decision upheld the objection based on the related party creditors voting in the same class.
The Federal Court’s majority decision answered two questions of law as follows:
1. Whether the votes of related-party creditors are to be treated differently from the votes of other creditors in the same class in a scheme of arrangement.
[Answer: Yes]
2. If the answer to 1 is yes, whether the votes of related-party creditors in a scheme of arrangement should be discounted or not be counted altogether.
[Answer: Yes]
