scheme of arrangement

Case Update: Court Allows KNM to Convene Scheme Meeting but Rejects Restraining Order

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In the latest chapter of KNM Group’s high-stakes restructuring, the High Court has allowed the company to proceed with its fifth scheme of arrangement proposal. However, the Court declined to grant a restraining order, which would have given KNM a moratorium on legal proceedings filed against it.

This is one of the first reported decisions on the amended scheme of arrangement provisions. The decision deals with repeat restructuring attempts, related-party creditor classification concerns, and the ‘VC George Test’ for the grant of restraining orders.

I briefly analyse the decision of Judicial Commissioner Tuan Saheran Suhendran in his Grounds of Judgment dated 12 March 2025. I had earlier set out the legal framework for the amended scheme of arrangement and restraining order.
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Firing Up and Cooling Off the Restraining Order in Schemes of Arrangement

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The Companies (Amendment) Act 2024 came into force on 1 April 2024. With the amendments, we see a strengthening of the restructuring and corporate rescue laws of Malaysia.

Among the different corporate rescue tools, schemes of arrangement had already been the most-used mechanism in Malaysia. The scheme of arrangement allowed for the Court to grant moratorium protection known as the restraining order.

Here, I analyse the changes and challenges relating to the restraining order arising from the new amendments to the Companies Act 2016 (CA 2016).

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9 Key Restructuring Insolvency Changes in Malaysia’s Companies Amendment Bill 2023

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Malaysia’s Companies Amendment Bill 2023 has been tabled before Parliament’s House of Representatives (see Hansard for 10 October 2023). There will be a fuller Parliamentary debate towards the end of November 2023.

This article focuses on the 9 key restructuring and corporate rescue amendments.

All references below will be to the existing and proposed new sections in the Companies Act 2016 as referred to in the Companies Amendment Bill 2023.
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Case Update: Federal Court Rules on Related Party Creditors in Scheme of Arrangement

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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]

 

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6 Recent Developments in Restructuring and Insolvency: Malaysia Insolvency Conference 2023

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The Malaysia Insolvency Conference 2023 was held on 21 June 2023 and it made a return to a physical setting after 3 years. We saw a record turnout of attendees from the restructuring and insolvency community. I spoke at a panel session titled ‘Landmark Cases: Sharing on Insolvency and Restructuring’ and spoke with fellow insolvency specialists.

I set out a selection of 6 key recent trends we discussed and prepared for the panel discussion. I have also supplemented some of the legal points with additional research I made.

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Case Update: Restraining Order Requires Scheme With More than 50% of All Debts

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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.

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