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2025 MarsdenLR 3122
HIGH COURT MALAYA KUALA LUMPUR
RE: PESTECH INTERNATIONAL BERHAD
[Originating Summons No: WA-24NCC(SOA)-1-01-2025]
The court sanctioned a pre-pack scheme under Section 369C of the Companies Act 2016 to resolve creditors' debts, requiring proper disclosure and classification while ensuring the interests of excluded non-scheme creditors are protected.
Headnote:(A) Companies Act 2016 - Section 369C - Pre-packaged scheme of arrangement - Court sanctioned a pre-pack scheme to compromise RM267 million debt owed to scheme creditors with a cash payment of RM65 million, representing a 76% haircut - New legislative provisions introduced to expedite company debt resolutions while protecting the interests of scheme creditors. (Paras 6, 34, 66, and 152)
(B) Scheme Creditors - Court may approve a scheme without convening meetings if statutory requirements are satisfied, including adequate disclosure and voting thresholds - The interests of excluded non-scheme creditors must be considered to prevent potential unfairness. (Paras 74, 125, and 132)
(C) Statutory Requirements - The applicant must demonstrate sufficient disclosure and proper classification of creditors, meeting statutory requirements for a valid pre-pack scheme. (Paras 75, 93, and 116)
(D) Bona Fide Assessment - The scheme must be bona fide and fair to ensure that minority creditors are not coerced into decisions adverse to their interests. (Paras 119-122) (E)
Result: Order granted for the sanction of the pre-pack scheme.
| Table of Content |
|---|
| 1. introduction of pre-pack sanction application (Para 1 , 2 , 4 , 5) |
| 2. jurisdictional requirements and challenges of pre-pack schemes (Para 6 , 7 , 8) |
| 3. financial distress and applicant's restructuring efforts (Para 29 , 30 , 31) |
| 4. details of scheme debts and creditor classifications (Para 32 , 33 , 34 , 35 , 36) |
| 5. court's sanction process for pre-packs (Para 66 , 67 , 68 , 70) |
| 6. bona fide efforts for creditor negotiations (Para 119 , 120 , 121) |
| 7. rights and protections for excluded non-scheme creditors (Para 124 , 125 , 126 , 130) |
| 8. conclusion and order granting sanction (Para 152 , 153) |
[1] These Grounds concern the application in encl 1 [Encl 1]; an ex parte Originating Summons dated 23 January 2024 for sanction ("Sanction Application") of a pre-packaged scheme of arrangement ("the Pestech Pre-Pack") between the Applicant and selected creditors ("the Scheme Creditors").
[2] Encl 1 is filed under s 369C of the Companies Act 2016 (" CA 2016"). It was introduced on 1 April 2024 as part of the new amendments to 2016, which provided for brave changes to the existing company law regime.
Introduction
[3] All references to sections are with reference to CA 2016, save where the context otherwise provides.
[4] The cause papers filed herein comprise:
(a) Encl 1;
(b) affidavit of Datuk Mohamed Razeek Md Hussain Maricar of 23 January 2025 [Encl 2] in support of Encl 1;
(c) supplementary affidavit of Ng Kar Man of 14 February 2025 [Encl 9] in support of Encl 1.
[5] The Contents of these submissions are as out below.
Pre-Packaged Schemes
[6] Pre-packaged schemes of arrangement ("pre-packs") under the new s 369C are designed to expedite the conventional scheme process. The section now allows for pre-packs to be sanctioned and effective without applications for convening orders or the holding of scheme meetings.
[7] I had occasion to consider whether meetings in conventional schemes under s 366 could be dispensed with, in Re: Purecircle Trading Sdn Bhd & Anor ; I held that they could not, see paras 40 to 43. Scheme meetings under s 366 are jurisdictional. So, failing to hold scheme meetings would mean that the Court would have no jurisdiction to sanction the underlying scheme.
[8] That must have been disappointing to the Applicant in Purecircle, as the scheme only involved an internal intra-group restructuring, which would be unanimously approved by the sole shareholder. Thus, the holding of meetings would, in practical terms, be an unnecessary expenditure of resources and time.
[9] As a meeting in a conventional scheme is jurisdictional, it is no surprise that dispensation with meetings could only be permitted if new legislation were introduced allowing dispensation. Hence, I can only surmise that it was for this reason that s 369C and s 71 of the Insolvency, Restructuring and Dissolution Act 2018 ("IRDA") in Singapore, were enacted.
[10] These pre-packs may compromise only selected or key creditors. Indeed, to 'pre-pack' all creditors may be impracticable. However, the legislation in Singapore and Malaysia makes no mention of the creditors that will be untouched by the pre-pack scheme and of the protection afforded to them.
[11] Accordingly, protection for such creditors must therefore be left to the Courts. This is one of the reasons why Singapore preferred the US Chapter 11 regime over the UK pre-packaged administration. The US regime provides for Court supervision, whereas the UK version generally does not, see paras 16 to 19 below.
Legislative History Of Pre-Packs
[12] Malaysia's pre-pack regime under s 369C was adopted from Singapore's provisions introduced in 2017, and later re-introduced in 2018 through IRDA. Only Malaysia and Singapore have pre-pack scheme of arrangement regimes.
[13] Singapore's IRDA was, in turn, inspired by the US Chapter 11 regime under the United States Bankruptcy Code, Sub-Chapters II and III ("Chapter 11").
[14] The main purpose of the US Chapter 11 Regime was to expedite pre-packaged o
