Judicial Management is a new corporate rescue mechanism introduced by the Companies Act 2016. As the law in the Malaysian context of judicial management is in its infant stage, there have been conflicting decisions of the Courts when it comes to the rights of unsecured creditors to intervene and oppose the making of an order for judicial management.

In the case of Million Westlink Sdn Bhd v Maybank Investment Bank Berhad & Ors [2019] MLJU 1721, the High Court held that by virtue of Rule 13 of the Companies (Corporate Rescue Mechanism) Rules 2018, read together with Section 408(1)(b)(ii) and Section 409(b) Companies Act, the right of unsecured creditor is limited to the nomination of the proposed Judicial Manager and have no right to oppose the making of an order for judicial management. The High Court has placed its reliance on the obiter dicta of an earlier High Court decision in the case of Leadmont Development Sdn Bhd v Infra Segi Sdn Bhd & Another Case [2018] 10 CLJ 412 which has the same effect.

Subsequently, the High Court in the case of Goldpage Assets Sdn Bhd v Unique Mix Sdn Bhd [2020] MLJU 723 has taken a different approach on the same issue whereby the Court allowed the unsecured creditors to intervene in judicial management proceeding and to file an affidavit in opposition of the judicial management application. The Court held that the provisions in the Companies Act 2016 in relation to an application for judicial management do not restrict the unsecured creditor to oppose the making of such an order.

The Court further held that Section 409 Companies Act 2016 merely mandates or makes it compulsory for the Court to dismiss the judicial management application if a receive or receiver and manager has been or will be appointed, or it is opposed to by a secured creditor. Adopting the purposive approach in interpreting the relevant provisions in the Companies Act 2016 with the aid of the Hansard, the Court was of the view that it is not the intent of the Parliament to shut out the unsecured creditor from a judicial management hearing.

In regard to Rule 13 Companies (Corporate Rescue Mechanism) Rules 2018 which expressly provided that only the secured creditors may appear at the hearing of an application for judicial management order to oppose the application, the Court held the rules being a subsidiary must conform with the parent Act. By virtue of Section 23 of the Interpretation Act 1948 and 1967, any subsidiary legislation that is inconsistent with an Act shall be void to the extent of the inconsistency.

At the time of writing, it is learned that the Court of Appeal had on 21.7.2020 overturned the High Court decision in Million Westlink Sdn Bhd (supra), and leave or permission to appeal to the Federal Court has been granted. On the other hand, the position in the case of Goldpage Assets Sdn Bhd (supra) has been affirmed by the High Court in the case of Best Re(L) Ltd v Chubb Samaggi Pubic Co. Ltd [2021] MLJU 310. Hence, unless it is being overruled by the Federal Court, the law as it stands now is that unsecured creditors are able to intervene and oppose an application for judicial management application.

 

Closing Remarks

Given the conflicting decisions, it is the author’s humble opinion that the High Court decision in Million Westlink Sdn Bhd (supra) may be the correct approach. This is because the effectiveness of the scheme would be tremendously curtailed if unsecured creditors are allowed to intervene and to oppose the making of a judicial management order, even before the Statement of Proposals is being put forward for consideration in the latter stage. After all, unsecured creditors would have the opportunity under the law to oppose the Statement of Proposal when it is being put forward in the creditors’ meeting.

In addition, this is also in line with the recommendation 4.29 by the Corporate Law Reform Committee (CLRC) in its Final Report wherein CLRC has recommended that the secured creditors are being given the right to oppose the judicial management application1. In the Final Report, the committee has stated the following: –

“…As stated in CD 10, the CLRC is of the view that the Singapore approach is more suitable to Malaysia where once the judicial management order has been made and the proposal tabled has been approved by the creditors’ meetings, all creditors are bound by the proposal. A secured creditor who wishes not to be bound by the judicial management order must take the initiative to oppose the petition. However, once the judicial management order has been made all creditors shall be bound. This will ensure that the rehabilitation plan can be implemented especially if it involves disposal of any of the company’s assets. On this point, the judicial manager should also be given the power to deal with the charged property of the company as if the property were not subject to the security.”

The eyes are now on the Federal Court on how to solve this conundrum.

1 See page 190 of Review of the Companies Act 1965 – Final Report by the Corporate Law Reform Committee, retrieved from https://leeshih.files.wordpress.com/2013/12/clrc-finalreport.pdf