Geraldine Goon examines the first reported decision in Malaysia on judicial management.
The Malaysian High Court recently delivered the very first grounds of judgement in relation to judicial management in Leadmont Development Sdn Bhd v Infra Segi Sdn Bhd & Another Case
 10 CLJ 412. The provisions on judicial management which were introduced in Malaysia under the Companies Act 2016 (“Act”) came into force on 1 March 2018.
Of import in this pioneering decision are the following points. First, the High Court retains its inherent jurisdiction to set aside a judicial management order (“JMO”) on the application of a creditor, ex debito justitiae
(on account of justice
) despite the lack of an express power to do so in the Act. Secondly, the basis for setting aside the JMO was not one prescribed in the Act. The JMO was set aside on the basis that there was sufficient evidence that the scheme would not receive 75% in value of creditors’ approval.
Leadmont Development Sdn Bhd (“Leadmont”) was a developer and the applicant for a JMO. Infra Segi Sdn Bhd (“Infra Segi”) had been Leadmont’s main contractor on a stalled project (the Selayang StarCity Project) and was also a secured creditor of Leadmont.
The project was carried out on land owned by Leadmont’s subsidiary Sierra Delima Sdn Bhd (“Sierra Delima”). Sierra Delima had also obtained a JMO in separate proceedings. As Infra Segi had intervened to set aside that JMO as well, both proceedings were considered together.
Leadmont had obtained the JMO on an ex parte
basis. Infra Segi sought to set aside the JMO on two bases. First, that there had been a material non-disclosure of facts and second, that Leadmont had acted on a mala fides
basis. However, the JMO was not set aside on either of these two grounds.
In coming to its decision to set aside the JMO, the High Court considered the background and purpose of judicial management, as introduced by the Act. The High Court then shed some light on the requirements of section 405(1) of the Act which sets out the conditions under which the High Court may issue a JMO.
THRESHOLD FOR “SATISFIED” UNDER SECTION 405(1)(a)
Section 405(1)(a) of the Act requires a Court to be “satisfied” that a company is or will be unable to pay its debts. The High Court was of the view that the meaning of the word “satisfied” in section 405(1)(a) indicated that a higher level of persuasion was necessary as compared to the lower threshold for the term “consider” in section 405(1)(b) of the Act. In coming to this determination, Judicial Commissioner Wong Chee Lin was persuaded by the judgment of Hoffman J (as His Lordship then was) in Re Harris Simons Construction Ltd
 BCLC 202.
INTERPRETATION OF “GOING CONCERN”
The High Court then considered Section 405(1)(b)(i) of the Act and the meaning of the phrase “going concern”. The definition of “going concern” was consistent in both “Words & Phrases” (Vol.2) (2nd
Ed) and International Standard on Auditing (ISA) 570 and was accepted to mean “will continue its operations for the foreseeable future”.
To determine whether the making of a JMO will enable the company to continue as a “going concern
”, the High Court considered whether the making of the order would be a more advantageous realisation of the company’s assets as opposed to a winding up, as prescribed by Section 405(1)(b)(iii) of the Act.
Finally, the High Court pointed to Section 405(5)(a) of the Act which gives the courts wide powers to issue a JMO if the “Court considers the public interest so requires
”. What constitutes “public interest
” is to be determined on a case by case basis.
OPPOSING NOMINATION OF JUDICIAL MANAGER VS OPPOSING APPLICATION FOR JMO
The High Court then briefly dealt with the different rights of different types of creditors. A secured creditor who has appointed, or is entitled to appoint, a receiver or receiver and manager of the company’s property is entitled to be given notice of the application for a JMO and to oppose an application for a JMO.
All creditors other than a secured creditor are not entitled to be given notice. They are also limited to opposition to the nomination of the judicial manager and not to the making of the JMO.
DISCHARGE VS SETTING ASIDE OF A JMO
The High Court then considered the only four scenarios (at this point in the development of the law) where a JMO can be discharged, namely: