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2025 MarsdenLR 5249
HIGH COURT MALAYA KUALA LUMPUR
KHEE SAN BERHAD & ORS – Appellant
Versus
TUNAI IMPIAN ENTERPRISE SDN BHD & ORS – Respondent
[Originating Summons No: WA-24NCC-1067-12/2022]
A scheme of arrangement approved under the Companies Act is binding and cannot be set aside without clear grounds such as fraud or obvious mistakes; estoppel applies to creditors who fail to disclose relevant agreements.
Headnote:(A) Companies Act 2016 - Sections 366(3), 366(4), and 369D - Application to set aside a scheme of arrangement approved by creditors and the Court - Court found that a scheme creditor cannot set aside the scheme based on a secret deal not disclosed to the Court - The Court emphasized that the scheme is binding once approved and cannot be altered without clear grounds such as fraud or obvious mistakes. (Paras 1-80)
(B) Jurisdiction of the Court - The Court has limited jurisdiction post-sanction order and cannot alter the substance of the scheme unless there are obvious mistakes or fraud. (Paras 40-56)
(C) Estoppel - A scheme creditor is estopped from challenging the scheme after voting in favor and failing to disclose relevant agreements. (Paras 77-79)
Facts of the case:
The case involves Tunai, a scheme creditor, who attempted to set aside Scheme E of a scheme of arrangement approved by the Court, alleging a failure of consideration due to a secret deal with the applicants that was not honored. The Court found that Tunai's claims were barred by estoppel and that the scheme was binding. (Paras 1-80)
Findings of Court:
The Court dismissed Tunai's application, emphasizing the binding nature of the approved scheme and the lack of jurisdiction to set it aside based on the claims presented. (Paras 80)
Issues: The main issues included whether the Court could set aside an approved scheme, whether Tunai could rely on alleged illegality, and whether Tunai was estopped from challenging the scheme. (Paras 39-78)
Ratio Decidendi: The Court ruled that a scheme approved under the Companies Act is binding and cannot be set aside without clear grounds such as fraud or obvious mistakes, and that Tunai was estopped from challenging the scheme due to non-disclosure of the secret deal. (Paras 44-79)
Result: Application dismissed with costs.
JUDGMENT
[Application To Set Aside A Scheme Of Arrangement That Had Been Approved By Court ]
Introduction
[1] Can a scheme creditor apply to Court to set aside a scheme of arrangement which had been approved by the scheme creditors [including this scheme creditor], and approved by the Court under s 366(3) and (4) of the Companies Act 2016 [" CA 2016"]?
[2] Can a scheme creditor apply to Court to set aside a scheme of arrangement on the ground of a total failure of consideration because a secret deal he had agreed with the applicant of the scheme of arrangement to secure his favourable vote was not honoured by the applicant?
[3] Can this scheme creditor further argue that because this secret deal was not disclosed by him to the scheme creditors and to the Court that approved the scheme, the approved scheme of arrangement is illegal and can be set aside on ground of illegality?
[See written submissions of 1st Proposed Intervener Tunai Impian Enterprise Sdn Bhd ("Tunai or "TIESB") in encl 51 paras 3,4 and 22]
[4] The scheme creditor in question is Tunai.
[5] I heard counsel on 28 November 2024 and on 20 January 2025. On 20 January 2025 I dismissed Tunai's application for prayers 2 to 7 with costs. On costs, I ordered Tunai:
i. to pay costs of RM20,000.00 to the applicants subject to allocatur; and
ii. pay costs of RM8,000.00 each to the 2nd intervener and 3rd intervener subject to allocatur.
[6] Tunai has appealed to the Court of Appeal on 14 February 2025. These are my Grounds of Judgment.
Facts Of The case
Parties
[7] The 1st applicant is Khee San Berhad ["1st applicant" or "KSB"]. The 2nd applicant is Khee San Food Industries Sdn Bhd ["2nd applicant" or "KSFI"].
[8] The 3rd applicant is Khee San Marketing Sdn Bhd The 4th applicant is Mega Global Confectionary Sdn Bhd.
[9] The 1st intervener is Tunai. The 2nd intervener is HSBC Bank Malaysia Berhad ["HSBC"]. The 3rd intervener is ALLIANCE Bank Malaysia Berhad ["ABMB"].
Tunai's Secret Deal With The Applicants In Particular The 2nd Applicant
[10] The facts revealing Tunai's secret deal with the applicants in particular the 2nd applicant ["Secret Deal"] is disclosed in Tunai's written submissions in encl 51 from paras 22 to 28.
[11] At this stage it is sufficient to set out a few relevant paragraphs from encl 51 on the Secret Deal to expose Tunai's duplicity:
FAILURE OF CONSIDERATION ISSUE
22. Further, we respectfully draw this Honourable Court 's attention on how KSFI and/or the Applicants caused total failure of consideration, which led to TIESB's intended withdrawal of its approval in Scheme E. Key facts are as follows:
...
24. However, it is our submission that TIESB's support in Scheme E is strictly subject to KSFI's compliance and performance pursuant to the Consent Order.
25. We say this because KSFI has full knowledge or is deemed to have knowledge of the following:
25.1 TIESB will never support the proposed Scheme of Arrangement;
25.2 Since the Applicants obtained a Court 's order to convene a creditors' meeting on 23 September 2023, TIESB was never interested to attend any of the meetings on 11 November 2022 and 25 November 2022;
25.3 The Applicants sought to hold an Adjourned Court Convened Creditors' Meeting on 9 December 2022;
25.4 Only on 8 December 2022, one day prior to the Adjourned Court Convened Creditors' Meeting, TIESB had informed KSFI's solicitors(at that time), Messrs Krish Maniam & Co that:
"TIESB agreed to support Scheme E subject to and conditional upon KSFI and the white knight agreeing to honour the terms of the Consent Order...".
Refer: TIESB's solicitors' letter dated 8 December 2022, encl 18, Exhibit "CSW-10", pages 66-67.
25.5 Early in the morning before the Adjourned Court Convened Creditors' Meeting on 9 December 2022, KSFI had expressly acknowledged TIESB's condition and confirmed that:
(a) Messrs Norendra & Yap was appointed as the solicitors on record for the sales of the lands;
(b) The sales of the lands will be formalised on 12 December 2
