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2012 MarsdenLR 1582
HASNAH MOHAMMED HASHIM
HO HUP CONSTRUCTION COMPANY BHD & ORS – Appellant
Versus
LKL TRADING SDN BHD & ANOR – Respondent
The court upheld that minority creditors lack the right to exclude themselves from a restructuring scheme supported by the majority, emphasizing the requirement for collective creditor agreement in insolvency matters.
Headnote:(A) Companies Act 1965 - Section 176 - Financial difficulties - Proposed Restructuring Scheme (PRS) - The applicants sought to exclude certain creditors from a Restraining Order issued to prevent winding up proceedings. The court determined that minority creditors were not entitled to be excluded as the majority of creditors supported the PRS. (Paras 8-10)
(B) Restraining Orders - The court highlighted that the existence of litigation involving the applicants had been disclosed before issuing the RO, and that the rights of the Proposed Interveners would not be prejudiced as they could participate in creditors meetings. (Paras 11-13)
Facts of the case:
The applicants, undergoing a proposed restructuring scheme, wanted to exclude two unsecured creditors from a restraining order that prevented further legal actions against them. (Paras 5-6)
Findings of Court:
The proposed interveners did not provide compelling reasons to be excluded from the restraining order, nor could they demonstrate that the proposed restructuring scheme was unviable. Consequently, the court ruled against their application. (Paras 14-15)
Issues: The key issues were whether the proposed interveners should be removed from the ambit of the restraining order and whether their rights were prejudiced by the ongoing restructuring process. (Paras 7-8)
Ratio Decidendi: The court ruled that a restructuring plan supported by the majority of creditors does not necessitate the exclusion of minority creditors and emphasized the importance of protecting majority interests in creditor arrangements. (Paras 15-16)
Result: Application dismissed with costs.
Enclosure 50 is the proposed intervener application to intervene in the proceedings with the purpose of excluding themselves from the Restraining Order dated 20.10.2011 and alternatively seeking that the said Restraining Order not be extended.
The application is supported by the affidavit of Chew Swee Wei affirmed on 6.10.2011 and a further affidavit affirmed on 25.10.2011. The Applicants Affidavits of Wong Kit Leong affirmed on 20.10.2011 and 3.11.2011. The affidavits of Wong Kit Leong affirmed on 24.10.2011 and 28.10.2011 were also referred to.
Background
The Applicants have undertaken a Proposed Restructuring Scheme (PRS) which included a Creditors Scheme of Arrangement. If the PRS is implemented it is envisaged that the scheme creditor will get almost 100% return of the respective debts based on adjusted book value. The PRS is part of the Applicants regularization plan which has been submitted to Bursa Malaysia sometime in July 2011 and is awaiting approval from Bursa. The Restraining Order was granted on 20.10.2010. This was to prevent the creditors from initiating further action or winding up or execution proceedings against the Applicants. The Proposed Interveners are 2 of the 168 unsecured creditors of the 2nd Applicants under the PRS representing 1.19% in number and 0.32% in value of the 2nd Applicants debt. The PRS is supported by the 1st Applicants creditors holding 53.4% in number and 75.16% in value of the Applicants debt and by 102 of the 2nd Applicants creditors representing 60.71% in number and 92.12% in the value of the Applicants debt. The Proof of Debt of the Proposed Intervener has been submitted to the applicants Scheme Administrator on 1.1.2010.
The Proposed Interveners arguments
It is contended by the Proposed Intervener that their application should be allowed for the following reasons:-
i. The Court was not informed of the existence of the suit when the RO was obtained on 20.10.2010.
ii. The proposed Interveners should be excluded from the ambit of the RO as the judgment was obtained prior to the RO.
iii. The civil suit of D22NCC-792-2010 was excluded from the RO.
iv. The RO prejudices the Proposed Interveners rights.
The Applicants arguments
i. The High Court was appraised of all the litigation involving the Applicants which also includes the action and judgment obtained by the Proposed Interveners.
ii. The RO restrains all further action and/or proceedings against the Applicants. The proposed Interveners judgment was obtained before the RO. However any further action against the Applicants based on that judgment is restrained by virtue of the RO.
iii. The civil suit D22NCC-792-2010 was excluded as it was an action by and/or for the benefit of the Applicants and not against the Applicants. Therefore is does not fall within the ambit of the RO.
iv. The rights of the Proposed Interveners will not be prejudiced as they will be able to attend and voice their views at the Scheme Creditors meeting.
v. The PRS, once completed and approved, will benefit all creditors of the Applicants.
Decision and reasons
Section 176 of the Companies Act 1965 provides a mechanism to enable a company with financial difficulties but with a viable business to propose an arrangement. The creditors can vote and approve the scheme. When the scheme is approved and sanctioned by the Court, the scheme shall be binding on all creditors.
The proposed interveners have failed to show any valid reasons to support its application to be excluded from the RO. Furthermore the PRS has yet to be put to the creditors and according to the applicants, large number of the creditors have indicated their support of the scheme. The PRS is supported by the 1st Applicants creditors holding 75.16% in value of the 1st Applicants debt and also the 2nd Applicants creditors holding 93.125% of the 2nd Applicants debt. The proposed Interveners merely hold 0.32% of the total debt of the 2nd Applicant. The Court should no
