COMPANIES AND CORPORATION – JUDICIAL MANAGEMENT – COURT APPROVAL

In brief 

  •  COVID-19 infections in Malaysia are on the rise as we begin a new year. Due to a lack of options, the Malaysian government has reinstated the Movement Control Order (MCO), which prohibits a number of industries from operating. The MCO will almost surely push the economy into reverse shortly after it emerges from recession, putting even greater strain on struggling businesses. We should expect to see more corporations use corporate restructuring tools like Judicial Management, Corporate Voluntary Arrangements, and Schemes of Arrangement to salvage their failing businesses as a matter of necessity in these difficult circumstances.

Q. So what is an overview of judicial management? 

A. When a corporation becomes insolvent, Malaysia has historically resorted to liquidation or winding-up processes. The Companies Act 2016 (the Act) has incorporated several restructuring tools, including judicial management as an alternative to liquidations, into Malaysia’s insolvency environment. 

Who can apply?

  •  A company, its directors, a creditor, including any “contingent or potential creditor,” or all or any of those parties, jointly or separately, may file a judicial management application under Section 405 of the Act.

Example: The court decided that the party claiming to be a creditor has standing to petition for judicial management in the matter of Spacious Glory Sdn Bhd v Coconut Three sdn Bhd [2020] MLJU 1188. The term ‘contingent or prospective creditor,’ according to the Court, refers to a situation in which the corporation may be exposed to a current responsibility based on the occurrence of a future event or at a future event. The term ‘creditor’ must refer to anyone who has a financial claim against the company. On the balance of probability, the applicant had established that he was a creditor. 

What tests are required to be completed? 

  •  The Court may make a judicial management order under S.405(1) of the Act if the court is satisfied that the company is or will be unable to pay its obligations when the court is satisfied that the company is or will be unable to pay its debts. 
  •  Furthermore, the Court may consider that making the order would be likely to achieve at least one of the following goals: a) the company’s survival as a going concern, b) the approval of a scheme of arrangement between the company and any of the persons listed in S.366 of the Act, and c) a more advantageous realisation of the company’s assets than a winding up. 
  •  However, there is an exception to the above test. S.405(5) of the Act gives the Court the authority to issue a judicial management order and appoint a judicial manager if it believes the “public interest” necessitates it, even if the applicant fails to meet the preceding criteria.

Example: In the matter of Spacious Glory Sdn Bhd v Coconut Three Sdn Bhd [2022] 7 MLJ 76, the court will now evaluate whether issuing the order is likely to achieve one or more of the objects listed in Section 405(1)(b) of the Companies Act 2016. The court next addressed the applicants’ argument that the respondent had allegedly failed to present a reasonable solution to the issues at hand, and that as a result, the respondent’s failure to hire an attorney to oppose the petition could not be dismissed. In this matter, the judgement of the Court of Appeal in the case of CIMB Islamic Bank Bhd v Wellcom Communication (NS) Sdn Bhd & Anor [2019] was used.

Recent Post

INDUSTRIAL LAW – NAVIGATING THE LEGALITIES OF RETRENCHMENT

The dismissal of X by Company ABC, citing economic downturns, presents a compelling case on the complexities of employment termination and retrenchment legality. X contested his redundancy, claiming his role in property management and services was unaffected by the property development market’s challenges. This case probes into the legitimacy of retrenchment under economic duress and the employer’s duty to act in good faith, as guided by Section 20(3) of the Industrial Relations Act 1967. The burden rests on Company ABC to prove the necessity and genuineness of X’s redundancy, with failure to do so possibly leading to a verdict of unjustified termination. This scenario underscores the critical importance of evidence and intention in retrenchment cases, as reflected in precedents like Akilan a/l Subramanian v. Prima Awam (M) Sdn Bhd.

Read More »

PROPERTY LAW – LEGAL IMPLICATIONS OF SALE AND PURCHASE AGREEMENT BREACHES AND THE RIGHT TO OFFSET IN MALAYSIAN PROPERTY TRANSACTIONS

In the realm of Malaysian property transactions, the intricacies of Sale and Purchase Agreements (SPAs) and the enforcement of Liquidated Ascertained Damages (LAD) play pivotal roles in safeguarding the interests of both developers and purchasers. This article delves into the legal framework governing the rights and obligations of parties involved in property transactions, particularly focusing on the consequences of contractual breaches and the conditions under which a purchaser can exercise the right to offset against LAD. Through the examination of relevant case law and statutory provisions, we illuminate the legal pathways available for resolving disputes arising from the failure to adhere to the terms of SPAs, thereby offering insights into the equitable administration of justice in the context of Malaysian property law.

Read More »

WINDING-UP – OFFICIAL RECEIVER AND LIQUIDATOR (“ORL”)

In cases of compulsory winding up, the court would appoint a liquidator under s.478 of the Companies Act 2016 (“CA 2016”) to expeditiously recover and realise the assets of the wound-up company for the distribution of dividends to creditors and administer any outstanding matters involving………..

Read More »

JUDICIAL REVIEW – PROCEDURAL FAIRNESS AND LOCUS STANDI

This excerpt illuminates the foundational principles of judicial review as outlined in Order 53 of the Rules of Court 2012. It highlights the criteria for challenging public decisions on grounds of illegality, irrationality, or procedural impropriety. Central to the discussion is the question of timing in judicial review applications, particularly in cases of procedural unfairness. The practical scenario underscores the significance of a “decision” by the relevant authority as a prerequisite for locus standi, drawing insights from the case of Hisham bin Halim v Maya bt Ahmad Fuad & Ors [2023] 12 MLJ 714.

Read More »

CONTRACT LAW – CONTRACTUAL INTERPRETATION REMEDIES UNVEILED: DECIPHERING CONTRACTUAL CLAUSES AND LEGAL BALANCE

This legal updates explore the principles governing the interpretation of agreements, emphasizing the importance of clarity and unambiguity in contractual terms. It delves into a key issue involving restrictions on remedies for breach of contract, shedding light on the court’s commitment to upholding plain meanings. The illustrative scenario involving shareholders X and Y dissects a pertinent clause, showcasing the delicate balance between restricting remedies and ensuring fairness in legal proceedings.

Read More »
en_USEnglish
× How can I help you?