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THE POSITION OF AN UNSECURED CREDITOR IN A JUDICIAL MANAGEMENT APPLICATION

Lui & Bhullar's Judicial Management Miniseries Episode 1

By:

Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh@luibhullar.com]


INTRODUCTION


On 09.02.2021, the High Court vide a Judgment delivered by Nadzarin Wok Nordin JC in Best Re (L) Ltd v Chubb Samaggi Insurance Public Co Ltd [2021] MLJU 310 (“Chubb”) revisited the High Court decision in Goldpage Assets Sdn Bhd v Unique Mix Sdn Bhd [2020] MLJU 723 (“Goldpage”) wherein the High Court had decided that an unsecured creditor may intervene and be heard in a judicial management application.


DECISION OF CHUBB


In Chubb, Chubb Samangi Insurance Public Company Limited (“the proposed Intervener”) applied for inter alia leave to intervene in the judicial management application of Best Re(L) Limited (“BL”).


The proposed Intervener submitted as follows:


(a) That it was a creditor of BL and that its legal interest is directly affected by the filing of the judicial management order application;


(b) That its inclusion would mean that the Court would have all the relevant facts, including the long-standing history of dispute between the proposed Intervener and BL, before the Court, considering that a judicial management application must be made bona fide; and


(c) That the judicial management application was made on the eve of the winding up petition against BL.


As stated above, the High Court in Goldpage held that an unsecured creditor may intervene and be heard in a judicial management application. Accordingly, the Court in Chubb was satisfied that the proposed Intervener was indeed an unsecured creditor on the balance of probabilities, as it had obtained a judgment against BL in the Kuala Lumpur High Court and registered a foreign arbitral award against BL respectively.


As the proposed Intervener was a creditor and in accordance with the decision of Goldpage, the High Court held as follows:


(a) That an unsecured creditor cannot be shut out from a judicial management application hearing and that Parliament did not intend to restrict the opposition of the judicial management application to only secured creditors;


(b) That Section 409(a) and (b) of the Companies Act 2016 do not expressly state that any other creditor is unable to oppose a judicial management order;


(c) That a purposive approach in interpreting the provisions of the Companies Act 2016 and Companies (Corporate Rescue Mechanism) Rules 2018 must be taken by applying Section 17A of the Interpretation Act 1948 and 1967;


(d) That nowhere in the Companies Act 2016 provides that an unsecured creditor is precluded from taking part in a judicial management hearing or oppose a judicial management application;


(e) That the Companies (Corporate Rescue Mechanism) Rules 2018 must be read in conjunction with the parent act, the Companies Act 2016 and as the Companies Act 2016 does not prohibit any creditor from being heard at the judicial management application and / or to oppose the judicial management application, and therefore the Companies (Corporate Rescue Mechanism) Rules 2018 as the subsidiary legislation cannot contravene the parent act, the Companies Act 2016;


(f) That it is trite that the Court will allow an interested party to intervene if his legal rights and interest in relation to the subject matter of the action would be directly affected by any order which may be made in the act.


As such, Rule 13 of the Companies (Corporate Rescue Mechanism) Rules 2018 in precluding an unsecured creditor from appearing at a hearing of an application contravenes the Companies Act 2016.


CONCLUSION


Nadzrin Wok Nordin JC found no valid reasons to depart from the position in Goldpage and accordingly allowed the application of the proposed Intervener.


In another decision of the High Court in Twin Unitrade Sdn Bhd v TSK Hardware Sdn Bhd [2020] MLJU 2326 (“Twintrade”), the Court allowed the proposed Intervener to intervene in the judicial management application, once again echoing the decision in Goldpage.


The only instance where a Court did not follow the ratio decidendi of Chubb, Goldpage and Twintrade was in Million Westlink Sdn Bhd v Maybank Investment Bank Berhad & Ors [2019] MLJU 1721 (“Million Westlink”) wherein the High Court held that the proposed Intervener being unsecured creditors had no standing to intervene to oppose the making of a judicial management order as the right to oppose is only limited to the nomination of the proposed judicial manager. The Court of Appeal in Civil Appeal No. B- 02(IM)-1590-08/2019, however, overturned the High Court’s decision. The grounds of judgment are still unavailable.


In closing, the uncertainty to the position of an unsecured creditor in a judicial management application is solved and the position shall favour unsecured creditors as held by the Court of Appeal in Million Westlink and the High Court in Chubb, Goldpage and Twintrade.


An unsecured creditor may intervene and be heard in a judicial management application and its objections and views may be considered by the Court. It cannot be case that an unsecured creditor be shut out from a judicial management application hearing, based on the above.

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