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2024 MarsdenLR 1119
HIGH COURT MALAYA KUALA LUMPUR
MAJU-TH SDN BHD – Appellant
Versus
LEMBAGA TABUNG HAJI – Respondent
[Originating Summons No: WA-28JM-8-03-2024]
Shareholders retain the right to be heard in a Judicial Management Application until irreversible insolvency is established, affirming shareholder interests in potential rehabilitation.
Headnote:(A) Companies Act 2016 - Sections 404, 405, 420, and 425 - Judicial Management Application - Shareholders' right to be heard in a Judicial Management Application is affirmed, as interests of shareholders persist until irreversible insolvency is established - The court recognizes that shareholder primacy is retained in the context of potential rehabilitation of the company. (Paras 6, 75, 80)
(B) Judicial Management - The court held that shareholders have a legitimate interest in the Judicial Management process, particularly when a proposal for rehabilitation exists that could provide tangible benefits to them. (Paras 72, 76)
Facts of the case:
The application concerns the Proposed Intervener, a shareholder of Maju-TH, seeking to intervene in a Judicial Management Application, claiming an interest in the potential rehabilitation of the company and its assets. (Paras 11-16)
Findings of Court:
The court allowed the intervention, emphasizing that shareholders should not be excluded from the process as long as the company is not irreversibly insolvent. (Paras 80)
Issues: Whether shareholders have the right to be heard in a Judicial Management Application given their interests in the company during potential rehabilitation. (Paras 1, 2)
Ratio Decidendi: The court determined that shareholders retain their rights until it is conclusively established that the company is irreversibly insolvent, thus allowing them to participate in the Judicial Management process. (Paras 80)
Result: The application for intervention was granted.
JUDGMENT
Introduction
[1] This application raises an important issue for which, as advised by Counsel, there is no reported decision in Malaysia. The issue is whether shareholders have a sufficient interest in a judicial management application ("JMA") so as to give them a right to be heard thereon and thus, a right to intervene.
[2] On the application of the Proposed Intervener to intervene in the JMA ("the Intervener NoA"), I granted the application. These are my reasons.
[3] The issue must be seen in the context of the interests of shareholders and creditors in a company in or verging on insolvency. This is necessary as s 404(a) and (b) of the Companies Act 2016 ("the Act") provides that a JMAmay only be made to Court on the pre-conditions that, inter alia, the company or a creditor considers that the company is or will be unable to pay its debts and there is a reasonable probability of rehabilitation or that the interests of the creditors would be better served than resorting to a winding up.
[4] Insolvency and rehabilitation are therefore the key drivers of a JMA and shareholder rights should be examined in this context. It may also be useful to examine such shareholder rights in other insolvency regimes such as an insolvent winding up and an insolvent scheme of arrangement.
The Ordinary Rule Of The Rights And Interests Of Shareholders
[5] As part of this introduction, I start with the ordinary rule as to the interests of shareholders when the company is solvent. David Richards LJ in BTI 2014 LLC v. Sequana SA and others [2019] 1 BCLC 347 ( Court of Appeal E&W) held:
"[125] Companies registered under the Companies Acts are the principalmedium through which business is carried on in this country. Businesses arefor the most part carried on for the purpose of making profits for theirshareholders and business involves risk-taking, as all who deal with them know (or should know).
[126] Registered companies must have one or more directors and it is their function, subject to the provisions of the company's articles of association, to carry on the business of the company. They do so ultimately for the benefit of the shareholders, who have the power to appoint and remove directors....
[129] Any recognition at common law that consideration of the interests of creditors could in certain circumstances be an element in the duties of directors is remarkably recent."
[6] So, when a company is solvent, the rights and interests of shareholders are 'primary'. This was confirmed on appeal to the Supreme Court in the monumental decision of BTI 2014 LLC v. Sequana SA and others [2022] 3 WLR 709 ("Sequana (SCt")). Lord Reed, at [65], recognised that 'shareholder primacy' as a common law approach, was retained in the legislation.
"First, the primary duty imposed on directors by s 172(1) is expressed in terms of promoting "the success of the company for the benefit of its members as a whole". Accordingly, the duty is no longer expressed by reference to the interests of the company, and the previous problem of identifying the interests of an artificial person is side-stepped.
Since the duty under s 172(1) is focused on promoting the success of the company for the benefit of its members as a whole, it is clear that, although the duty is owed to the company, the shareholders are the intended beneficiaries of that duty. To that extent, the common law approach of shareholder primacy is carried forward into the 2006 Act."
[7] Further, in Sequana (SCt), 'shareholder primacy' was recognised by Lord Hodge at [225]; and comprehensively, by Lady Arden at [243], [265], [332], [374], [375] and [386], noting the caveat that shareholder primacy does not completely override other interests.
[8] Under the English legislation, the rights of creditors are now formally recognised but only as residual claimants. While the legislation may have developed considerably, the common law approach to 'shareholder primacy' in a solvent company remains. Althoug
