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2022 MarsdenLR 928
HIGH COURT MALAYA KUALA LUMPUR
TOP BUILDERS CAPITAL BERHAD & ORS – Appellant
Versus
SENG LONG CONSTRUCTION & ENGINEERING SDN BHD & ORS – Respondent
[Suit No: WA-24NCC-608-12-2020]
The court approved the schemes of arrangement as they met statutory requirements, provided better recovery for creditors compared to liquidation, and were not adversely affected by related party votes.
Headnote:(A) Companies Act 2016 – Sections 366 and 369 – Scheme of arrangements – The court sanctioned schemes of arrangement submitted by the first, second, and third applicants despite objections from several creditors – Key principles outlined include compliance with statutory requirements, fair representation of creditors, and the presence of an intelligent and reasonable man standard in approving the scheme. (Paras 69-72, 251-259)
(B) Relief Measures – The applicants benefitted from relief measures due to the pandemic that permitted the postponement of PN17 classification, enabling the restructuring of debts and preventing liquidation. (Paras 28-30)
Facts of the case: The first applicant suffered severe financial distress exacerbated by the COVID-19 pandemic, leading to the need for debt restructuring through schemes of arrangement, which were approved by a majority of scheme creditors present at the meetings. (Paras 3-10)
Findings of Court: The court found that the statutory requirements for sanctioning the scheme, including representation of creditors, were satisfied, and the proposed resolution provided creditors with better recovery compared to potential liquidation. (Paras 253-259)
Issues: The main issues revolved around the validity of creditor classifications and whether proper procedures were followed during the scheme meetings, along with objections on disclosure of documents and rights to vote. (Paras 217-219)
Ratio Decidendi: The court ruled that the schemes of arrangement met all statutory requirements, affirmed the validity of creditor classifications, and concluded that the schemes presented a better alternative for creditors than liquidation. (Paras 72, 250-251)
Result: The schemes of arrangements were sanctioned and approved by the court. (Para 280)
JUDGMENT
Introduction
[1] The applicants seek sanction for the schemes of arrangement as set out in Annexure A1, A2 and A3 of the applicants' Notice of Application ("encl 83" or "Sanction Application").
[2] The 1st applicant is a listed company on the Main Board of Bursa Malaysia. It is involved in the civil and building construction industry. The 2nd applicant is a wholly-owned subsidiary of the 1st applicant. In turn, the 3rd applicant is a wholly-owned subsidiary of the 2nd applicant.
[3] The 1st applicant's group of companies ran into severe financial distress, and the distress was further exacerbated during COVID-19 pandemic and the Movement Control Order ("MCO") restrictions on the construction industry.
[4] On 30 June 2020, the 1st applicant slipped into PN17 criteria. However, the Bursa Malaysia relief measures (arising from COVID-19 pandemic and MCO) provided time for the 1st applicant to stall a formal entering into PN17. The limited time period under the PN17 relief of only 18 months (ie up to 29 December 2021) proved to be significant.
[5] With the financial distress on the 1st applicant in June 2020, the 1st applicant's group of companies required urgent debt restructuring and rescue. With the assistance of its appointed financial advisors, Ernst & Young ("EY"), the applicants embarked on a scheme of arrangement.
[6] On 31 December 2020, the applicants obtained the orders for leave to hold meetings with their respective scheme creditors ('Scheme Meetings') as well as a restraining order.
[7] In the negotiation phase between the applicants and its scheme creditors, the mechanics of the schemes of arrangement continued to be fie tuned. The 1st applicant worked with a White Knight and the 1st applicant's capital market advisors to also try to effect an overall successful restructuring.
[8] The terms of the schemes of arrangement envisage the scheme creditors obtaining a 30% return on their adjudicated debts: 10% in the form of cash payment and 20% in terms of the issuance of ordinary shares of the 1st applicant. This is compared with a liquidation of the applicants and a liquidation recovery ranging from nil to 9% recovery (depending on which applicant company).
[9] With the adjudication of all the proof of debt forms that were submitted in the scheme, the total scheme debts of each of the applicants are approximately:
(i) 1st applicant: RM 59 million.
(ii) 2nd applicant: RM 422 million.
(iii) 3rd applicant: RM 78 million.
[10] On 26 August 2021, the applicants held the three Scheme Meetings on a virtual meeting platform. The summary of the voting that approved the schemes of arrangement is:
(iv) 1st applicant: 75.09%
(v) 2nd applicant: 80.60%
(vi) 3rd applicant: 100.00%
[11] There are opposing parties in these proceedings seeking sanction of the schemes: 3 out of the 4 respondents and 3 Interveners applied to oppose the sanction. They are referred to as the Opposing Scheme Creditors. In particular, the Opposing Scheme Creditors are objecting to the 2nd applicant's scheme of arrangement ('the IJSB Scheme'). The value of the Opposing Scheme Creditors' scheme debts ranges from 0.18% to 6.16% of the scheme debts of the 2nd applicant.
[12] The 1st applicant's financial advisors have informed the 1st applicant of the dire need to obtain a decision on sanction by the end of November 2021. This would allow the 1st applicant's group of companies to reflect the debt restructuring and to carry out a special audit and announce the results before 29 December 2021. After this deadline, the PN17 relief measures will expire and the 1st applicant would formally trigger PN17 resulting in dire consequences for the 1st applicant, potentially leading to the loss of the white knight support.
[13] Therefore, the applicants sought for sanction as well as an expedited decision in order to effect a corporate rescue of the applicants and to ensure better returns to the applicants' creditors compared with that of the applicants going into liquida
