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2020 MarsdenLR 2926
FEDERAL COURT PUTRAJAYA
MANSION PROPERTIES SDN BHD – Appellant
Versus
SHAM CHIN YEN & ORS – Respondent
[Civil Appeal No: 02(i)-91-11-2019(P)]
The procedure for ex parte applications under Sections 366 and 368 of the Companies Act 2016 does not require prior notice to affected creditors, and failure to serve does not constitute an abuse of process if the statutory framework allows for subsequent intervention.
Headnote:(A) Companies Act 2016 – Sections 366 and 368 – Procedure for ex parte applications for scheme of arrangement – The Court confirmed the need for ex parte applications under ss 366 and 368 CA to be served on affected parties, addressing procedural non-compliance and abuse of process principles. (Paras 16, 17, 24, 59)
(B)
Statutory safeguards in scheme of arrangement – The Court established that the legislature addressed necessary safeguards in ss 368(2)-(7) and did not require ex parte applications to be served on creditors before action. (Paras 50-58)
Facts of the case:
The appellant, a housing project developer, sought to restrain legal proceedings from creditors while proposing a scheme of arrangement under ss 366 and 368 CA following delays in property possession.
Findings of Court:
The application for the restraining order made ex parte was deemed permissible, with provisions allowing affected creditors to intervene later.
Issues
: The main issue was the procedural appropriateness of ex parte applications within the Companies Act framework.
Ratio Decidendi:
The Court ruled that the legislative intent did not mandate that applications under ss 366 and 368 required prior service to be valid and that previous procedural failures did not constitute an abuse of process.
Result:
Appeal allowed.
Introduction
[1] This appeal concerns the proper procedure for applications under ss 366 and 368 of the Companies Act 2016 (" CA ").
[2] The appeal arose out of the ex parte applications by the appellant under ss 366 and 368 of the CA in respect of a proposed scheme of arrangement between the company and its creditors. In the applications, the appellant sought orders from the High Court to convene a creditors' meeting, to restrain all proceedings against the appellant and subsequently to approve the compromise or arrangement agreed to by a majority at the creditors' meeting.
[3] The question at the heart of this appeal is whether the applications under ss 366 and 368 of the CA should be made ex parte or inter parte.
Factual Antecedents
[4] The appellant is the developer of a housing project known as D'Mansion, which includes a hotel and a condominium. The respondents are purchasers of the condominium units. The appellant did not deliver vacant possession of the condominium units within the stipulated time. The construction of the hotel had not been completed.
[5] Due to the delay in delivering vacant possession, some purchasers filed claims against the appellant for liquidated ascertained damages ("LAD") in the Sessions Court in 2017.
Previous Proceedings
[6] On 27 October 2017, the appellant filed an ex parte originating summons pursuant to ss 366 and 368 of the CA in the Penang High Court ("First OS"). In the First OS, the appellant sought an order to convene a creditors' meeting for the approval of the appellant's proposed scheme of arrangement and an order to restrain all other proceedings against the appellant. The scheme was, inter alia, to reduce the appellant's debt to RM0.20 for each RM1.00 ("the Proposed Scheme").
[7] On 9 November 2017, the Court granted an ex parte order to convene a creditors' meeting and an order restraining proceedings against the appellant for 90 days ("First Order"). The appellant served copies of the First Order on the respondents and other creditors on 11 November 2017.
[8] Pursuant to the First Order, the creditors' meeting was convened on 14 December 2017, at which the Proposed Scheme was approved.
[9] The respondents filed applications in encls 6, 9 and 19 on 12 December 2017 on 2 January 2018 and 14 January 2018, respectively in the First OS. Broadly, in these applications, the respondents sought:
(i) To intervene in the First OS proceedings;
(ii) Leave to continue and/or commence legal actions to claim LAD against the appellant;
(iii) To reject the Proposed Scheme and set aside the First Order; and
(iv) Alternatively, to stay the First Order until an independent liquidator is appointed by the Court to assess the viability of the Proposed Scheme.
[10] On 2 February 2018, the appellant filed another ex parte originating summons in the Penang High Court pursuant to s 366 of the CA , to seek the Court's approval or sanction for the Proposed Scheme ("Second OS"). The approval was granted by the Court on 7 February 2018 ("Second Order"). The appellant then served the Second Order on the respondents on 21 February 2018.
[11] On 23 February 2018 and 28 February 2018, the respondents then filed applications in encls 6 and 7 respectively in the Second OS, seeking:
(i) To intervene in the Second OS proceedings;
(ii) To set aside the Second Order; and
(iii) Alternatively, to stay the Second Order until the Enclosures in the First OS have been heard and determined.
[12] The two proceedings were consolidated and heard under the Second OS by an order dated 26 February 2018, pursuant to an application by the respondents. All the pending applications filed by the respondents were heard together.
High Court's Decision
[13] On 17 August 2018, the High Court allowed the respondents' application to intervene in the proceedings but dismissed all other prayers, including the prayers to set aside the First and Second Orders.
[14] In so holding, the High Court made the following findings:
(i) The responde
