Chapter 10: Corporate Rescue Mechanism
366: provides for Court approved
Indicators:
1. -main point
2. =) explanation
3. sub- point
4. ~sub-sub point
5. ×extra points from lecture
6. Sections or Cases
-introduction:
=) Companies facing financial difficulties have
been given certain options under the CA 2016
to address these issues by applying to the
Court. A company in financial distress have
been give 3 options to pursue:
A scheme of arrangement: now S. 365-S.
371 CA 2016
Corporate Voluntary Arrangement: S. 394-S.
402 CA 2016
Judicial Management: S. 403-S. 430 CA
2016
=) Because the winding up process is a very long
process and they can’t carry on trading. These
are methods to help the situation to prevent
liquidation of a company, although this was
introduced very much later in Malaysia as
compared to other countries
=) Main objective: try to help a company to sort
out its debt and restructure itself to carry on
trading and expenses are much less than
winding up. They will need to finish within
given fixed time, the company can carry on
operating (income still coming in) and is
protected from any kind of legal proceedings
(pending, continuing or new)
=) A debt restructuring scheme under S. 176 (S.
366) generally involves a compromise
proposed between a company and its
creditors or any class of them. If the scheme
does not also involve any arrangement
between the company and its members, there
is no requirement for a vote by the members.
-scheme of arrangement under CA 2016:
=) S.
compromise with creditors and members.
=) During the 1997 financial crisis, this device
was used by many debtor companies under
the CA 1965, to buy time to restructure their
finances. S. 176 CA 1965 (S. 366), allowed the
existing management to continue in
management without adequate protection for
creditors against dissipation of assets and
inappropriate application of cash resources.
=) The company had to apply for a restraining
order (like a moratorium) against possible
winding-up.
=) It was available for:
debt restructuring
adjusting the rights of members and
creditors
reorganizing the share capital of the
company or
perform a reconstruction or merger in the
case of a group of companies
=) S. 366: Where a compromise or arrangement
is proposed between a company and its
creditors the Court may, on the application of
the company or any creditor or member of the
company, or in the case of a company being
wound up of the liquidator, order a meeting of
the creditors.
=) S. 366 (3): a compromise agreed to by
majority of the creditors representing 75% in
value of the creditors can be presented to
Court for its approval which the court has
discretion to amend as per S. 366 (4).
=) S. 366 (3): The compromise or arrangement
shall be binding on-
a) all the creditors or class of creditors;
b) the members or class of members;
c) the company; or
d) the liquidator and contributories,
~if the company is being wound up, if the
compromise or arrangement is agreed by a
majority of 75% of the total value of the
creditors or class of creditors or members
or class of members present and voting
either in person or by proxy at the meeting
or the adjourned meeting and has been
approved by order of the Court.
=) S. 366 (5): such order for scheme of
arrangement must be lodged with the
Registrar CCM to be valid.
=) S. 366 (8): upon such Court Order the
Directors have to instruct the auditors and
lawyers to report on the proposals which shall
be made available at the Company’s
registered office for inspection by the
shareholders and creditors of the company at
least 7 days before the date of any meeting
ordered by the Court.
=) S. 366 (9): A default is an offence
=) S. 367: The Court can appoint an approved
liquidator
=) S. 368: Where there has been no order or
resolution passed for the winding up of a
company or any compromise or arrangement
of creditors, the Court may on application by
the company/ creditor/ member order a stay or
restrain further proceedings in any action or
proceeding against the company for up to 3
months.
×Moratorium is called a restraining order
here, which is available for 3 months.
Scheme of arrangement must be done
within these 3 months, but if can’t do,
the company can apply for an
extension, with a maximum extension
of 9 months, and the company has 1
year to work hard to turn around the
company.
=) S. 368 (2): to prevent an abuse of the process
a moratorium of 90 days or such longer period
(up to maximum of 9 months) can be granted
if the Court is satisfied that:
a) there is a proposal for a scheme of
compromise or arrangement between the
company and its creditors or any class of
creditors representing at least 50% in value
of all the creditors;
b) the restraining order is necessary to
enable the company and its creditors to
formalise the scheme of compromise or
arrangement for the approval of the creditors
or members pursuant to subsection (1);
c) a statement of particulars in the prescribed
form as to the affairs (Statement of Affairs) of
the company made up to a date not more
than three days before the application is
lodged together with the application; and
d) it approves the person nominated by a
majority of the creditors in the application by
the company under subsection (1) to act as
a director even if such person is not already
a director.
=) S. 368 (4): Any dispositions made after such
order without the approval of the Court shall be
void.
×Assets of company cannot be
dissipated. Any transaction after such
court order will be void.
=) S. 368 (5): on contravention the company and
every officer commit an offence liable to
imprisonment up to 5 years, a fine not
exceeding RM5m or both
=) S. 369: Where a meeting is called to discuss
the scheme of compromise and composition,
a notice shall be sent to every creditor
explaining the scheme and it shall be
advertised. Debenture holders must also be
notified if their interests are affected.
×A debenture holder is a secured
creditor, and the security can be on
fixed assets or floating assets.
=) S. 369 (5): On default the company and every
officer of the company will be liable to a
Penalty: 5 years imprisonment or to a fine not
exceeding RM 1m or to both.
schemes of arrangement
=) Pelangi Airways S/B v Mayban Trusteed Bhd.
The defendant applied before the court to set
aside the restraining order obtained by the Pf
on 3rd July 2000 as the Pf has contradict with
several requirements. One of the
requirements found to be under S. 176 (10C)
of the Companies Act whereby the Pf after
granted order by the court, it had actually
disposed its certain properties without
permission of the court.
Justice Abdul Hamid Embong: in giving his
jugdment for this case, stating that the Pf has
failed to prove that its actions regarding the
disposition of the properties was made with
the leave of the court. Therefore, the court
had set aside the restraining order obtained
on 3rd July 2000 by the Pf. o This case
shows that the court will obviously look into
serious manner for any non-compliance with
the requirements as include the S. 176 (10C)
of the Companies Act. The failure to comply
 with the S. 176 (10C) of the Companies Act
will not resulted the company to be liable
under S.176 (10D) of the Companies Act but
the restraining order obtained by them could
possibly been set aside by the court.
=) PECD Bhd & Anor v Merino-Odd Sdn Bhd &
ors
Though general rule ex parte is not allowed
but it is upon the discretionary of the judge if
he may thinks it fits which usually the court
will include several essential requirement as
mention in this case that the duty to
disclosure where there must be frank and fair
disclosure of all relevant materials including
any points that may unfavorable to the
applicants themselves.
=) Metroplex Bhd. & Others v Morgan Stanlet
Emerging Markets & Ors., RHB Sakura
The learned Justice Vincent Ng stated that
the words ‘good reason’ is when it should be
predicated upon the applicants' bona fide
conduct to achieve a feasible detailed
scheme of arrangement for presentation to
the general body of creditors. If it was not
feasible, the scheme to be presented was
bound to fail and also it must comprise with:
~A bona fide scheme of arrangement is
presented, with sufficient details provided
to the creditors to enable them to make
informed decisions as to its feasibility and
merits;
~The scheme of arrangement presented
must not be such that it is bound to fail; and
~The interest of the creditors, that is, the
beneficiaries under the proposed
arrangement is safeguarded.
=) Malaysia Building Society Bhd v Merit Aim Sdn
Bhd & Anor; Cameron Mall Sdn Bhd & Anor
(Interveners)
Chargee entered into private treaty with
Cameron for sale at RM12 million and
Cameron paid RM1 million. Active Rhythm
entered into SPA directly with DGI for RM 13
million. Amount due to chargee under Order
for Sale was almost thrice the redemption
sum that it quoted to facilitate private sale
The issues is whether charged property
could be sold by private treaty after abortive
auctions as per S. 236 CA 1965, S. 257, 266,
267A NLC, whether the chargee's
acceptance of smaller sum would adversely
affect other creditors and contributories and
whether it amounted to compromise or
arrangement requiring sanction of court
Held:
~By accepting RM12m for redemption,
MBSB was entering into a compromise or
arrangement to the detriment of other
creditors and contributories. Being a
compromise or arrangement between the
liquidator and MBSB, any failure to obtain
leave of court under s. 236(1)(c) CA 1965
would render the sale void.
~DGI as the liquidator could not proceed
with the sale by way of private treaty with
Active Rhythm. A compromise had been
effected without the court's approval under
s. 236 (1) (c) CA1965 and therefore void.
~There was nothing to prevent chargee from
applying for another date for a public
auction sale with a reduction, perhaps, of
another 10% from the last reserve price.
~Chargee could apply for another date for a
public auction sale with a reduction, from
the last reserve price
~All monies paid by Active Rhythm to DGI
be refunded all caveats lodged on land by
Cameron Mall and Active Rhythm be
removed
restraining order S. 368 CA 2016
=) PECD Bhd Anor (Applicants) (No.2)
examined the requirements for the grant of a
restraining order under section 176 (10A) CA
1965. This is an ex parte application similar
to a ‘stay’ order when a company is
undergoing a scheme of arrangement. The
company or any member or creditor of the
company may apply to the Court to restrain
further proceedings in any action or
proceeding against the company, except by
leave of the Court. Such an order will restrain
all legal actions including winding up
petitions and any possible de listing
procedures taken by Bursa Malaysia
Under s 176 (10A) CA 1965 the Court may
grant a restraining order for a maximum
period of 90 days or such longer period as
the Court may for good reason allow if and
only if:
 ~(a) it is satisfied that there is a proposal for
a scheme of compromise or arrangement
between the company and its creditors or
any class of creditors representing at least
one half in value of all the creditors
~(b) the restraining order is necessary to
enable the company and its creditors to
formalise the scheme of compromise or
arrangement for the approval of the
creditors or members pursuant to
subsection 1
~(c) a statement of affairs of the company
made up to a date not more than 3 days
before the application is lodged together
with the application and
~(d) A person whether currently a director or
not can be nominated to act as a Director
by a majority of the creditors
HC: the four paragraphs apply to any
application for a restraining order pursuant to
s 176 (10) and (10A) CA 1965 regardless of
the length of the period of the restraining
order applied for See s 368 (2) (a-d) CA 2016
=) A scheme of arrangement would allow a
technically insolvent company to restructure
its debts and to return that company to a
position where it could trade.
=) Sri Hartamas Development Sdn Bhd v MBf
Finance Bhd
HC adopted the public policy argument that
a scheme undertaken by an insolvent
company would be against commercial
morality as the court could not condone or
encourage individuals to carry on business
activities in a company which was
handicapped by a heavy burden of
indebtedness
=) Intrakota Komposit Sdn Bhd Anor v Sogelease
Advance (M) Sdn Bhd
However here in a later case, High Court
stated even if the applicant companies were
in fact insolvent, that would not preclude the
applicants from embarking on a scheme of
arrangement
×Why is there a difference here: The law
has in-built protection given for
creditors. Any scheme cannot be
undertaken unless 75% in value of
creditors agree on this, which court
must see this. This is to avoid any
abusing from happening and to buy
time or dissipate assets of the
company. If the creditors themselves
agreed for such scheme, why should
court reject it then?
=) Francis Augustine Pereira v Dataran Mantin
Sdn Bhd
Land for a housing project, owned by D’s
subsidiary was charged to OCBC Bank Bhd.
The housing project was later abandoned. A
group of purchasers sought the approval of
the HC for a scheme of arrangement
pursuant to s.176 CA1965, whereby another
company would acquire and complete the
project after redeeming the land from OCBC
and settling the debts of DM’s creditors under
the housing project. All other secured and
unsecured creditors were excluded.
The issue is whether scheme of
arrangement could depart from undue
preference or pari passu principle even if
company subsequently wound up
FC: The creditors under the housing project
could be recognised as a distinct class of
creditors of DM.
~The object of s. 176 (S.366) was to enable
compromises to be made for the common
benefit of the creditors as creditors, or for
the common benefit of some class of
creditors.
~There was no element of undue preference
in the scheme contrary to s. 293 CA1965
(S. 528). The housing project land was not
DM's property. Furthermore, that land was
charged to OCBC. Therefore rights of other
unsecured creditors was not compromised.
~The parties who were truly aggrieved in the
instant case were the purchasers in the
housing project and OCBC Bank as the
only secured creditor. The main objective of
the scheme was to revive the housing
project so that the 660 purchasers could
obtain their respective units, obtain
liquidated damages for late delivery and
settle the outstanding loan due to OCBC
Bank.
~A scheme of arrangement under s. 176 (S.
366) could confer preference on one group
of creditors whilst excluding another group
altogether where the company was in the
process of being wound up. Such a scheme
 could depart from the undue preference or
pari passu principle even if the company
went into liquidation.
×The housing project only involved a
particular group of unsecured creditors.
This didn’t prejudice any other creditor,
and so the court approved the scheme for
unsecured creditors. The only ones who
were prejudiced were unsecured housing
purchasers.
=) Kamuja Corporation Sdn Bhd v Aras Dimensi
Sdn Bhd
Aras Dimensi Sdn Bhd Aras was a property
development company MBSB was the
chargee of the Project land. Kamuja
Corporation Sdn Bhd was the main
contractor for the Project. Owing to payment
disputes Kamuja commenced winding up
proceedings against Aras
After the Company was wound up, Kamuja
initiated a series of negotiations with MBSB
and the liquidator for to redeem the land and
complete the Project. (This scheme of
arrangement was done after winding up
order is given) A SOA was formulated
whereby Kamuja Bullion Resources Sdn
Bhd, would assume the role of the proverbial
"White Knight" to acquire and complete the
Project after redeeming the land from MBSB.
MBSB for its part, executed a Settlement
Agreement with Aras and Kamuja Bullion
capping the debt due to it at RM 14 million,
and agreeing to the redemption of the land
by Kamuja Bullion
The salient features of the SOA were as
follows:
~The completion costs of the Project shall be
funded by: (a) the outstanding progress
billings from the existing purchasers and (b)
funds from Kamuja Bullion, including the
facilities obtained from MBSB and/or
Kamuja Bullion's internal resources
~No topping up sum is required from the
participating purchasers
~The outstanding progress billings shall be
maintained by the liquidator in an escrow
account to be utilized towards the
settlement of the total scheme costs
~The participating purchasers shall execute
a supplementary agreement with Kamuja
Bullion and agree to waive all liquidated
and ascertained damages under the sale
and purchase agreement
~Non-participating purchasers shall agree to
the nullification of their sale and purchase
agreement and obtain a full refund of their
purchase money from the proceeds to be
derived from the disposal of their units (if
want money back, unit has to be sold to
another 3rd party, and use that amount to
give to original purchasers) which shall not
form part of the general assets of the
Company for distribution to other creditors
HC:
~In a situation where the company is not in
winding up, the company, or any creditor or
member of the company may apply to
convene a SOA meeting. However, in a
situation where the company is in winding
up, the application is to be put forward only
by the liquidator as set out in s 176 (1) CA
1965
~the SOA represents a fair and reasonable
compromise between the secured and
unsecured creditors of the Project in the
spirit of s 176 CA 1965
restraining order: requirements to be met for
initial application or extension application
=) Barakah Offshore Petroleum Berhad & Anor v
Mersing Construction & Engineering Sdn Bhd
& Ors (KLHC) [2019] 1 LNS 551
4 requirements for the granting and/or
extension of a restraining order are to be
strictly fulfilled, namely:
~the proposal for scheme of arrangement
must represent at least 50% in value of all
creditors
~that the extension is necessary to enable
the scheme of arrangement to be
formalised for approval of creditors or
members
~that a statement of affairs of the company
be prepared up to 3 days before lodging of
such application in court and
~nomination of a person by creditors to be a
director of the company
upon its proper construction, the conditions
set out in S. 368 (2) (a)-(d) CA 2016 need all
to be complied with when an application is
made for a restraining order. Such a result is
 consonant with the plain language used and
the legislative intent and purpose of the
conditions in S. 368 (2) (a)-(d)
The challenge to implement scheme of
arrangements is to obtain the 75% approval
from creditors and/or members. Therefore,
companies are to ensure that its proposed
scheme is viable
=) Sham Chin Yen & 15 others v Mansion
Properties Sdn Bhd [2017] 1 LNS 781
The company in this case was a housing
developer and had initiated a scheme of
arrangement and obtained a restraining
order to restrain ongoing legal proceedings
against the company. The condominium
purchasers had earlier filed legal actions to
claim for liquidated damages against the
company. These creditors had opposed the
scheme of arrangement
Appeal to FC: whether an order made
pursuant to an ex parte application under S.
366 and 368 CA 2016 subsequently served
on the creditors is an abuse of court process
which renders the entire court sanctioned
scheme liable to be set aside
FC on 24/11/2020: reversed the COA
decision and held that the application for a
restraining order in a scheme of arrangement
can be made ex parte without notice.
~purpose of a restraining order is to ensure
that a company’s restructuring efforts are
not obstructed pending the approval of a
scheme of arrangement, preserve the
status and to prevent the dissipation of the
company’s assets. Therefore, the need for
immediate action and speedy procedures.
An ex parte application would be
appropriate.
~after the grant of the ex parte restraining
order, the affected creditors have the right
to intervene in the proceedings and to set
aside the order. Therefore, there is no
prejudice or breach of natural justice by
reason of an ex parte restraining order or
the omission to serve the application on the
respondents before the hearing
~S. 368 (2)-(7) CA 2016 provides specific
statutory safeguards in the grant of a
restraining order: the pre-conditions to be
met under S. 368 (2) and the person
appointed as the director has the right of
access to all the company’s records under
S. 368 (3)
~the legislature had addressed its mind to
the specific questions of what measures
are necessary to ensure that creditors are
aware of restraining order applications.
Parliament did deem it necessary to include
any requirement for an inter partes
application or the need to serve the
application prior to the hearing. This is in
contrast with other requirement under CA
2016.
-corporate voluntary arrangement:
=) A binding compromise or arrangement with
the creditors of the company without the need
for such compromise or arrangement to be
approved by the court
=) Similar to a scheme of arrangement under the
previous S. 176 CA 1965, the CVA allows the
directors of the company to propose a scheme
to creditors
=) The scheme will originate from management:
CVA is suitable in situations where the
shareholders and creditors still have
confidence in existing management
=) Under a CVA the directors continue to manage
and operate the company
=) The key advantages are that the company can
continue to trade under the management of
the directors without the distress of a winding
up.
=) The creditors also stand to recover more than
they would under a winding up.
=) S. 395: not applicable to
a public company,
a company licensed financial institution,
payment system regulated under laws of
Central Bank of Malaysia – BNM, or subject
to the Capital Markets and Services Act 2007
or
a company which creates a charge over its
property or any of its undertaking.
×Very limited applicability! Most companies
have charges to get loan from banks.
=) S. 396: allows the directors of a company to
propose a CVA scheme to creditors. The CVA
 requires the appointment of a Nominee who
must be a qualified insolvency practitioner who
will supervise and implement the scheme. The
scheme will originate from management,
making a CVA suitable in situations where the
shareholders and creditors still have
confidence in existing management.
=) S. 396: Persons who may apply for a CVA are:
Directors of the company
a Judicial Manager of a company under JM
a Liquidator of a company under winding up
in which event the Liquidator can be the
Nominee for the CVA.
=) S. 397: Documents to be submitted to the
Nominee:
Proposal for the CVA
Statement of Affairs containing particulars of
creditors, debts, liabilities and assets, and
any other relevant information.
=) S. 397 (2): The Nominee shall then shall report
to the Directors on the viability of the CVA. For
powers, duties etc. of Nominee, see Sch. 7 (S.
394 – 401)
=) S. 398: Moratorium in a CVA shall commence
automatically from the filing of the documents
in Court – S. 398 (1) (a – f). See 8th. Schedule.
Schedule 8 (3): The company may apply for
a moratorium of between 28 and 60 days
during which:
~the company cannot be wound-up
~no Judicial Manager can be appointed
~no security can be enforced
~no shares can be transferred etc.
Extension of moratorium to 60 days subject
to:
~Approval by nominee and members of
company
~75% in value of creditors present and
voting
Any restructuring scheme must be approved
by a simple majority of shareholders and at
least a majority of 75% in value of creditors
present and voting at a creditor's meeting.
=) S. 399: the nominee shall call for creditors
meetings and shall be conducted in
accordance with the rules of meeting under
Division 5 of Part III.
=) S. 400: the meeting is to decide to approve /
or reject the proposed voluntary arrangement.
Approval requires 75% of the total value of
creditors present and voting at the meeting
either in person or by proxy. Proposal shall not
affect the rights of secured creditors.
Once scheme is approved it shall be binding
on the creditors.
Decision and arrangement to be reported to
Court and Registrar CCM
=) S. 401 (2): A director/ Official Receiver
dissatisfied with the actions of the nominee
may apply to Court for a replacement
=) Sisu Capital Fund Ltd & ors v Tucker & ors
The Defendants were accountants who had
been sued through their partnership in
KPMG. They had been granted a order for
their costs. They sought payment for the time
they had spent personally in preparing their
defences.
Held: as professionals, there was no reason
to distinguish the cost to the defendants of
resisting the claims in the time they had
spent. However, the sums recovered would
be restricted in accordance with the
principles in Nossen.
=) Prudential Assurance Company Ltd & Others
v PRG Powerhouse Ltd
The basis of the landlords' claim was twofold.
Could a CVA proposed by their tenant
-judicial management (S. 403-430):
operate to release guarantees provided by a
third party, namely PRG? If so, the landlords
claimed that they were unfairly prejudiced by
the terms of the CVA.
Mr Justice Etherton held that the reference
to an ‘arrangement of its affairs’ in s.1 of the
Insolvency Act 1986 was not broad enough
to enable the CVA to release PRG's liability
under the guarantees directly. This is
because it is the company and not any third
party, which has the benefit of, and is able to
enforce, the rights and obligations conferred
by a CVA. However, the judge confirmed it is
possible for a CVA to dictate that a creditor
cannot enforce an obligation of a third party
to that creditor, which would allow the third
party to make a subrogated claim against the
debtor company. In other words, in principle,
it would be permissible for the CVA to state
that Powerhouse could oblige the landlords
to desist from claiming against PRG under
the guarantees provided.
Mr Justice Etherton then examined particular
clauses of the CVA in order to determine
whether there was any evidence of prejudice.
Any such prejudice must be unfair. Section
6(1)(a) of the Act provides a right to
challenge the CVA, or the manner in which it
was approved, if it unfairly prejudices the
rights of a creditor of the company.
The judge reiterated that, although the terms
of a CVA might be prejudicial to a creditor,
demonstrating prejudice alone is not enough;
such prejudice must also be unfair.
=) Mourant & Co Trustees Ltd. & Anor. v Sixty UK
Ltd (in administration)
A CVA in which creditors are required to give
up their guarantees can only be justified on
payment of compensation which reflects a
genuine estimate of the creditors’ loss and
does not set the creditor in question at a
disadvantage when compared with other
classes of creditors.
=) S. 402: end of CVA:
When the moratorium ends
Moratorium may end prematurely if the
voluntary arrangement has not been fully
implemented in respect of all persons bound
by the CVA.
=) If there is a reasonable probability of
rehabilitating an insolvent company as a going
concern, the shareholders, directors or
creditors of the company may apply to Court
to place the management of the company in
the hands of an independent and qualified
Judicial Manager.
=) Once a judicial management order is granted,
a moratorium of 180 days takes effect during
which the company cannot be wound-up, no
receiver can be appointed, no security can be
enforced, no shares can be transferred etc.
=) During this period, the Judicial Manager will
prepare a workable restructuring plan which
must be approved by a majority of 75% in
value of creditors present and voting at a
creditor's meeting. Once approved by the
creditors and sanctioned by Court, the
restructuring plan will be implemented.
=) JM provides temporary breathing space for a
financially distressed company from creditor
enforcement actions where there is
reasonable probability of:
Rehabilitation of the company;
Full or partial preservation of its business as
a going concern; or
JM better serving the interests of creditors
than a winding-up
=) This is a method of debt restructuring where
an independent judicial manager is appointed
to rehabilitate and manage the affairs,
business and property of a company under
financial distress. The company is also
temporarily shielded from legal proceedings
by third parties, giving it the opportunity to
rehabilitate.
Who can apply?
=) S. 403: shall not apply to licensed institutions
or a designated payment system operator
regulated under the Central Bank of Malaysia;
and Capital Markets and Services Act 2007
=) S. 404: Application for a company to be place
under Judicial Management and the
appointment of a Judicial manager can be
 made by the company (under resolution by 2) can be extended for another 6 months
Board of Directors) or its creditor if - (total 1 year then) Judicial Manager must
give notice of application to
the company is or will be unable to pay its
debts; and ~a) all directors
there is a reasonable probability of ~b) all members
rehabilitating the company or of preserving
~c) all creditors
all or part of its business as a going concern
or that otherwise the interests of creditors ~d) any person entitled to appoint a receiver
would be better served than by resorting to a or receiver manager
winding up.
3) Notify the Registrar

Nomination of Judicial Manager

=) S. 407:
1) insolvency practitioner: who is not the
auditor of the company
2) Court may refuse and appoint another
insolvency practitioner
=) S. 405: the Court will grant an order for JM
where 3) Where nomination by company must be
agreed by majority in value of creditors
a) the Court is satisfied that the company is
(secured or unsecured), and where there is
or will be unable to pay its debts; and
opposition the Court may
b) the Court considers that the making of the
~invite the creditors to nominate another
order would be likely to achieve one or more
insolvency practitioner
of the following purposes:
~adopt the nomination if the Court thinks fit
~(i) the survival of the company, or the whole
or part of its undertaking as a going 4): A judicial manager shall be entitled to
concern; salary or remuneration by way of percentage
as determined-
~(ii) the approval under s. 366 of a
compromise or arrangement between the ~a) by agreement between the JM and the
company and any such persons as are company or creditors,
mentioned in that section;
~b) failing, which by a resolution of creditors:
~(iii) a more advantageous realisation of the
company's assets would be effected than ~>of not less than 75% in value present in
on a winding up. person or by proxy and voting at the
meeting
Grant of Judicial Management Order
~>and whose debts have been admitted to
=) S. 406: shall be a for a period of 6 months with vote,
an extension for 6 months on the application
~>which meeting shall be convened by the
of the JM with notice to Directors, creditors,
JM by notice to all creditors
members, Registrar CCM and any other
relevant persons. ~>attaching a statement of all receipts and
expenditure by the judicial manager and
1) a moratorium (like force shield from Star
the amount of remuneration sought by
Wars) of 6 months takes effect during which:
him; or
~the company cannot be wound up,
~c) or failing which by the Court.
~no receiver can be appointed,
=) S. 409 (amended in 2019): the Court shall
~no security can be enforced, dismiss an application for judicial
management if essentially
~no shares can be transferred etc
 a receiver or receiver and manager over
substantially all the assets of the company
has been appointed OR
the making of the order is opposed by a
secured creditor
×far reaching effects: prior to this
amendment was AND, fulfil both
conditions, but now just prove either one
only, the scope for JM has been severely
curtained
=) Hinckley Singapore Trading Pte Ltd v Sogo
Department Stores (S) Pte Ltd
Opposed by secured creditor Court has to
balance the interests of the applicant against
those of other creditors and give effect to the
objectives of the JM
=) Re Leadmont Development S/B and CIMB
Islamic Bank Bhd v Wellcom Communications
(NS) Sdn Bhd and Rangkaian Minang (NS)
Bhd
not all creditors entitled to vote can oppose.
Only a secured creditor who is a debenture
holder with a right to appoint a Receiver
Manager over substantially the whole of the
company’s property
=) Million Westlink Sdn Bhd v Maybank
Investment Bank Berhad & Ors [2019] MLJU
1721
HC: did not allow the intervention by the
unsecured creditor as per the CRM Rules
2018 set out specific procedures which
supercede the general intervention
procedure under ROC 2012.
held: unsecured creditors merely had a right
to oppose the nomination of the judicial
manager candidate. In a judicial
management application, unsecured
creditors would normally have opted to file
notice of intention to appear under CRM
(Form 10) that they are opposing creditor
=) Goldpage Assets Sdn Bhd v Unique Mix Sdn
Bhd [2020]
held: unsecured creditors can intervene in a
judicial management application. The
unsecured creditors’ views can then be
heard in opposing the making of the judicial
management order. The intervention was
applied under O. 15 r. 6 (2) (b) (ii) ROC 2012.
This civil procedure provision essentially
allows the court to add any person as a party
to the proceedings where there is some
question or issue to be determined between
the parties.
This case opposed the intervention
applications as per the CRM Rules which do
not allow any unsecured creditors to appear
and to oppose the judicial management
application. The procedure allowed only
secured creditors to appear and to be the
opposing parties.
=) Now, there are 2 conflicting views on the rights
of the unsecured creditors. Unsecured
creditors have very little rights, they only can
object to the nomination of judicial manager,
whereas secured creditors can oppose to both
the scheme or nomination of judicial manager,
which means they have more rights. But the
Goldpage case allows the unsecured creditors
to do both now.
Duties of JM
=) Prepare a workable restructuring plan
=) must be approved by a majority of 75% in
value of creditors present and voting at a
creditor's meeting
=) Once approved by the creditors and
sanctioned by Court, the restructuring plan will
be implemented
=) S. 408: the JM Order when granted must be
advertised with notice to the Registar CCM
=) S. 410: from the time of the filing of an
application for JM no company resolutions
should be passed and the company will be
protected from all litigation / proceedings.
(moratorium kicks in when JM is applied for)
=) S. 411: Upon the JM order any Receiver/
Manager appointed shall vacate his office. No
further duties and be entitled to be indemnified
for remuneration.
×Where there is a receiver manager for
winding up, such person can act alone in
matters of winding up, in which can also
deal with assets of the company.
×For JM on the other hand, receiver
manager must vacate his office in favour
of judicial manager.
×Under S. 409 the receiver manager or
secured creditor is given so much power
to oppose the JM application because
they will be affected by it
 ×During the period of moratorium, no
assets can be transacted for 6-12 months
by the company, this shows that judicial
managers are given so much power!
=) S. 412: Notification of status that company is
under JM on all media and communication.
×even electronic communication like social
media is included here
=) Deutsche Bank AG v Asia Pulp and Paper
Company Ltd.
After full hearing, Lai J, who thought that the
filing of the petition for a judicial management
order prompted APP to hasten the pace of
restructuring to stave off judicial
management, accepted that many of the
appellants’ complaints against APP did not
lack substance. However, she noted that
there was no overwhelming support for or
against the making of a judicial management
order and thought that ‘it would be a pity to
scuttle IBRA’s efforts (albeit at the last
minute) to restructure the group’s debts by
consensus’.
She saw no harm in allowing the Widjaja
family one last chance to show its sincerity in
restructuring the group’s debts. She added
that ‘whatever misdeeds the Widjaja family
had committed in the past were not going to
be unrevealed retrospectively by an order for
judicial management’ and appointing judicial
managers at this stage would only add
another layer to the costs to be borne by APP
and its subsidiaries. Such expenditure could
be saved for payment to creditors. She thus
dismissed the petition with costs.
On appeal: Although some of APP’s
arguments against the making of a judicial
management order lacked substance, the
=) Re Genesis Technologies International Pte
fact that the trial judge had carefully
considered the pros and cons of making such
an order cannot be overlooked. We are
mindful of the fact that we ought not interfere
with the exercise of the trial judge’s exercise
of her discretion with respect to the
appointment of a judicial manager unless
there are compelling reasons for us to do so
=) Re Bintan Lagoon Resort Ltd.
The petitioners asserted that by granting
indulgence to the Company in the belief that
the Company was serious in putting forward
a workable proposal, they had foregone a
chance of a higher percentage of recovery of
the sums owing to them had they enforced
their claims earlier.
Implicit in this assertion is the allegation that
the Company was not serious in the
proposals for restructuring and was merely
leading the petitioners on. I did not think this
was made out.
As the Company pointed out, if it did not have
any intention to restructure the debts, it
would not have made the attempts to
negotiate with the petitioners; all those
attempts have put the Company in no better
position than it was in when it became unable
to pay the outstandings owing to the
petitioners in August 2000. The parties
negotiated in the hope that the outcome
would be more advantageous than if the
petitioners were to enforce recovery of the
outstandings. It was only with the benefit of
hindsight that the petitioners asserted that an
earlier sale of the property would have been
better.
In any event, even if the petitioners’
contention was made out, I did not consider
that this was a case in which the public
interest required the appointment of a judicial
manager. In so saying, I did not foreclose the
possibility that the court may in certain
egregious circumstances consider that the
public interest requires the making of a
judicial management order so as to redress
a grievous wrong.
Held: In the result, I held that the petitioners
failed to make out a case for the court’s
intervention on the basis that the public
interest so required. I therefore dismissed the
petition with costs.
Ltd
Judicial management is an alternative to
winding up because, as long as a judicial
management order is in force, no resolution
may be passed or order made for the winding
up of a company.
Its primary objective is to give the company
a new lease of life as a going concern. It is,
therefore, a device to save the company from
creditors who may wish to destroy the
company when it can be rehabilitated for the
benefit not only of the shareholders but the
unsecured creditors as well.
 Hence the Act provides that an order for It would be prudent for a Judicial Manager or
judicial management can be made only in the Interim Judicial Manager to issue the notice
following specific circumstances. They are: of disclaimer on all past contracts prior to the
expiry of the statutory period
~the court is satisfied that the company is or
will be unable to pay its debts; and
~the court considers that the making of the
order would be likely to achieve one or
more of the following purposes, namely:
~the survival of the company, or the whole
or part of its undertaking as a going
concern;
~the approval under s 210 of a compromise
or arrangement between the company and
any such persons as are mentioned in that
section;
~a more advantageous realization of the
company’s assets would be effected than
on a winding up.

Moratorium
=) S. 410: automatic moratorium upon the filing
of the JM application
Initial 6 months can be extended up to
another 6 months after JM order is given but
before JM initially 6 months is not over.
Effect is to provide protection from all types
of legal action
=) CIMB Islamic Bank Bhd v Wellcom
Communications (NS) Sdn Bhd and
Rangkaian Minang (NS) Sdn Bhd
judicial management which was opposed by
CIMB Bank, a secured creditor and
debenture holder. Court refused to grant a
‘stay’ where JM was refused Court will not
allow an abuse of the process of the Court to
deprive creditors from taking action

Agency & Contractual Liability

=) S. 416 (a): The Judicial Manager is deemed to
be the agent of the company and personally
liable on contracts entered adopted or
disclaimed
=) Johannes Budisutrinso Kotjo v Ng Wei Teck
Michael Others
Singapore HC: the Judicial Manager would
be deemed to have adopted a contract of
employment upon the expiry of the
Singapore statutory period of 28 days
(*Malaysia 30 days)