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Case Update | Zul Rafique & Partners’ succeeds in setting aside a series of extensions of a Judicial Management Order.

Idza Hajar Ahmad Idzam, Nan Muhammad Ridhwan Rosnan and Nur Fatin Hafiza Hasham (assisted by Muhammad Hibri Nazim, a Pupil-in-Chambers) from Zul Rafique & Partners’ Litigation Practice Group representing Seriemas Development Sdn Bhd (“Intervener”), have successfully set aside a series of extensions of a Judicial Management Order granted for Macro Resources Sdn Bhd (“Applicant”) in the High Court of Shah Alam.

The decision is the first decision in Malaysia on the interpretation of section 406 of the Companies Act 2016, specifically on the maximum duration of a Judicial Management Order under the said section.

The brief facts of the case were as follows:

The Intervener is a developer for a residential project in Negeri Sembilan (“Project”) whereas the Applicant was appointed as the contractor for the said Project. The Applicant was placed under Judicial Management on 23.01.2019. The Applicant then obtained an extension to the Judicial Management Order on 19.07.2019 (“1st Extension”). Subsequently, the Applicant obtained four more extensions to the Judicial Management Order.

The arguments raised were as follows:

The Intervener filed an application to Intervene and Set Aside the 4 additional Extensions to the Judicial Management Order (“Enclosure 121”) on inter-alia grounds that:-

the Intervener is a contingent creditor and should be entitled to intervene; and

the 4 additional Extensions to the Judicial Management Order granted by the High Court of Shah Alam were unlawful as the court is not empowered to grant further extensions to the Judicial Management Order beyond one (1) extension of six (6) months as this is clearly provided in Section 406 of the Companies Act 2016, the Guidelines issued by the Companies Commission of Malaysia for Corporate Rescue Mechanism and the Final Report of the Corporate Law Reform Committee.

The Applicant on the other hand relied on the provisions of Section 227(B) of the now repealed Singapore Companies Act 1967 and Paragraph 76(1) and 76(2) of Schedule B1 of the United Kingdom Insolvency Act 1986. The Applicant submitted that in both jurisdictions, the Courts have allowed for more than one extension to the equivalent of a judicial management order therein. The Applicant relied on few case authorities for this proposition.

The Court in allowing Enclosure 121 found that:-

the Intervener is a contingent creditor and was therefore entitled to intervene in the proceedings;

the 4 additional Extensions of the Judicial Management Order are unlawful as the Court is only empowered to grant ONE (1) extension of 6 months after the initial appointment of the Judicial Manager as stated in section 406 of the Companies Act 2016 as the word ‘another’ provides for a singular connotation of only one (1) more extension;

the Guidelines issued by the Companies Commission of Malaysia for Corporate Rescue Mechanism which states that the Judicial Management Order shall remain for six (6)months and may be extended for another period of not more than six (6) months is persuasive in guiding the Court to ascertain the intent of the legislature for the said section 406;

the Final Report of the Corporate Law Reform Committee that states the maximum period of moratorium for the judicial management scheme is for 1 year clearly reflects the intention of the legislature to have the period of a Judicial Management to only be limited to 1 year as well; and

the provision of our Companies Act 2016 is not in pari materia with the provisions of the Singapore Insolvency, Restructuring and Dissolution Act 2018 or the United Kingdom Insolvency Act and therefore the cases relied on by the Applicant are of no assistance to the Court.

Enclosure 121 was allowed with costs.

For more insight into this area of law, please contact our Partners in the Litigation Practice Group:

P Jayasingam

Wong Keat Ching

Thavaselvi Pararajasingam

Idza Hajar Ahmad Idzam

Farah Shuhadah Razali

Bailey Leong Pui Yee