1. Cranborne Enterprises Limited (Registration No. 1673723) v 1. Export-Impot Bank of Malaysia Berhad (Company No. 357198-K) (WA-22NCC-155-03/2019)

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1 IN THE HIGH COURT AT KUALA LUMPUR IN THE STATE OF WILAYAH PERSEKUTUAN, MALAYSIA SUIT NO.: WA-22NCC-155-03/2019 BETWEEN 5

Schedule

Schedule B1 of the Insolvency Act 1986 (UK) provides that: ‘3(1) The administrator of a company must perform his functions with 25 the objective of- (a) rescuing the company as a going concern, or 14 (b) achieving a better result for the company’s creditors as a whole than would be likely if the company were wound up (without first being in administration), or 5 (c) realising property in order to make a distribution to one or more secured or preferential creditors. (2) Subject to sub-paragraph (4), the administrator of a company must perform his functions in the interests of the company’s creditors as a whole. 10 (3) The administrator must perform his functions with the objective specified in sub-paragraph (1)(a) unless he thinks either – (a) that it is not reasonably practicable to achieve that objective, or (b) that the objective specified in sub-paragraph (1)(b) 15 would achieve a better result for the company’s creditors as a whole. (4) the administrator may perform his functions with the objective specified in sub-paragraph (1)(c) only if – (a) he thinks that it is not reasonably practicable to achieve 20 either of the objectives specified in sub-paragraph (1)(a) and (b), and (b) he does not unnecessarily harm the interests of the creditors of the company as a whole.’ [38] Paragraph 4 of Schedule B1 of the Act states that: 25 15 ‘The administrator of a company must perform his functions as quickly and efficiently as is reasonably practicable’. Paragraph 5 states that ‘The administrator is an officer of the court (whether or not he is appointed by the court)’. 5 [39] Paragraph 64(1) of Schedule B1 states that: ‘A company in administration or an offer of a company in administration may not exercise a management power without the consent of administrator’. In this regard, ‘management power’ is defined to mean ‘a power which could be exercised so as to interfere 10 with the exercise of the administrator’s powers’. [40] The English Court in Closegate Hotel Development (Durham) Limited v. McLean [2013] EWHC 3237 has interpreted ‘management power’ to include the exercise of power that interferes with the exercise 15 of the Administrators’ powers. Mr. Richard Snowden QC sitting as a Deputy Judge of the High Court in rejecting the proposition that causing the company to challenge the appointment of the Administrators necessarily interfered with the exercise of the Administrators’ power held thus: 20 ‘6. I do not accept that submission. On the basic point of construction of Schedule B1, in common with Lord Glennie in the Scottish case of Stephen, Petitioner [2012] BCC 537, I think that the concept of a ‘management power’ as defined in paragraph 64 is primarily intended to catch powers which, if exercised by the 25 directors, could impede the exercise of similar powers by the administrators. I do not think that paragraph 64 is intended to catch a power on the part of the directors to cause the company to make an 16 application challenging the logically prior question of whether the administrators have any powers to exercise at all’. [41] Given the functions of the Administrator as enumerated in Paragraph 3 of Schedule B1, there is no doubt that the directors of the 5 Plaintiffs in instituting this action and more specifically in seeking the injunctions under Enclosure 5, is exercising a management power. [42] The Plaintiffs’ application herein, particularly prayers 1 and 2 in fact interfere with the Administrators’ administrative powers as they are 10 seeking an ‘injunction against the Defendants…from enforcing any security documents against the Plaintiffs specifically but not limited to the property known as Days Hotel with an address at No, 54, Kennington Road, London SE17BJ, United Kingdom’ and seeking ‘an injunction against the Defendants, agent, employees, servant or anyone 15 connected with the Defendants from interfering, preventing and or disturbing the Plaintiffs from operating Days Hotel pending the disposal of this suit’. [43] As the Administrators of the 2nd. Plaintiff, the operation of the Hotel 20 will come under its administrative functions and powers as the 2nd. Plaintiff is the appointed operator of the Hotel. The injunction to restrain any interference with the Plaintiffs operating the Hotel will effectively interfere with the operation of the 2nd. Plaintiff which is now in the hand of the Administrators. 25 17 [44] Further, this action commenced by the company against the Defendants will expose the Plaintiffs to legal costs which in turn may affect the ability of the Administrators to achieve a better result for the company’s creditors as a whole. The application for the injunctions also requires the company to provide an undertaking as to damages. There is 5 nothing before this Court to show that the directors have provided any indemnity to the Administrators in respect of any liabilities, damages and or costs that the company may be ordered to be paid in the present action. 10 [45] The Administrators of the 2nd. Plaintiff have confirmed that they did not appoint Messrs Jaffar & Menon to act on their behalf or authorised Mohd Amin to depose to any affidavits in this action. The Administrators have not consented to the continuation of the proceedings. The Administrators’ objection is set out as exhibit ‘T-33’ to Enclosure 72. 15 [46] It is not necessary for the Administrators to intervene in the present proceedings before it can be said that the Plaintiffs have no authority to commence the present action as contended by learned counsel for the Plaintiffs. The Administrators have already written directly to the 20 Plaintiffs registering their objection and disputing the Plaintiffs’ authority to carry on the present action. [47] The directors of the 2nd. Plaintiff have not even engaged the Administrators on their objections. They have not disputed their lack of 25 authority as alleged by the Administrators. The directors of the 2nd. Plaintiff have not shown that legal opinion from English solicitors stating 18 that they have residual powers to commence the present action on behalf of the 2nd. Plaintiff. [48] As regard the locus standi of the directors of the 1st. Plaintiff to commence this action without the consent of the Receivers, learned 5 counsel for the Plaintiffs drew on the distinction between a receiver and a receiver and manager being appointed to the company. Reference was made to the case of Score Option Sdn Bhd & Anor v. Duan Tuan Kiat & Ors [2013] 5 MLJ 716 where the Court of Appeal stated at page 720 thus: 10 ‘[5] The effect of an appointment of a receiver stems from the object of obtaining the appointment of a receiver that is to place the assets of the company under the protection of the court, and to prevent everybody except the receiver, as an officer of the court, from in any 15 way intermeddling with them. A manager is appointed when it is desired not merely to protect the assets, but also to carry on a trade or business to protect the goodwill since a receiver has no power to carry on the business. Once receivers and managers have been appointed, directors no longer have authority over the company or to act on behalf 20 of the company. Since an action could interfere with the functions of the receivers and managers, as well as impact upon the assets of the company, the consent of the receiver and manager is necessary if the directors seek to conduct legal proceedings on behalf of the company against a third party. See Newhart Developments Ltd v. Co-operative 25 Commercial Bank Ltd [1978] 2 All ER 896. [6] The directors have residual authority to take action against the receiver and manager, the party appointing the receiver and manager for any misconduct or if the appointment of receiver and manager is 30 19 contested. See Tudor Grange Holdings Ltd and Others v. Citibank NA and Another [1991] 4 ALL ER 1.’ [49] According to learned counsel for the Plaintiffs, the directors’ residual power permits them to institute the present action against the 5 Defendants. In Tan Ah Teck (t/a Plumeon Plumbing & Construction Co) v. Coffral (Malaysia) Sdn Bhd [1992] 1 MLJ 553, where the High Court held: ‘(3) The appointment of a receiver by a debenture holder, even with authority to act as agent of the Company does not divest the directors of 10 their power to institute proceedings on behalf of the company provided that the proceedings do not interfere with the receiver’s functions’ [50] Reference was also made to Newhart Developments Ltd v. Co-operative Commercial Bank Ltd [1978] 2 ALL ER 896, where the 15 English Court of Appeal, inter alia, held: ‘One has got to see what the function of the receiver is. It is not, of course, to wind up the company. It is perhaps interesting to note in passing that when a liquidator is appointed, certainly in a winding-up by the court, the powers of the directors immediately cease by statutory 20 provision. There is no such provision in relation to the appointment of a receiver, whose duty it is to protect the interests of the mortgagee or debenture holders, as the case may be. Insofar as it is requisite and necessary for him, in the course of his dealing with the assets of the company, bring them in and realising them and so on, to bring actions as 25 well, he empowered to do so by the debenture trust deed in the name of the company. That makes it possible for him to institute such proceedings without exposing himself to risk of a liability for costs if those proceedings should fail. But the provision in the debenture trust deed giving him that power is an enabling provision which invest him 30 20 with the capacity to bring an action in the name of the company. It does not divest the directors of the company of their power, as the governing body of the company, of instituting proceedings in in a situation where so doing does not in any way of impinge prejudicially on the position of the debenture holders by threatening or imperilling the assets which are 5 subject to the charge. There is in the debenture deed itself a provision to the effect that the receiver may carry on the business of the plaintiffs or concur in carrying on its business, which itself demonstrates that there is not a total extinction of the functions of the directors. It is only within the scope of its 10 assets which are covered by the debenture, and only insofar as it is necessary to apply those assets in the best possible way in the interests of the debenture holders that the receiver has a real function. If in the exercise of his discretion he chooses to ignore some asset such as a right of action, or decides that it would be unprofitable from the point of 15 view of the debenture holders to pursue it, there is nothing in any authority which has been cited to us which suggests that it is not then open to the directors of the company to pursue that right of action if they think it would be in the interests of the company. Indeed, in my view, it would be incumbent on them to do so, because, notwithstanding that the 20 debenture holders have got the right to be satisfied out of the assets subject to the charge, other creditors are entitled to expect that those concerned with the management of the company should exercise their best efforts to ensure that, when the time comes, they too will find themselves in the position that there is a fund available to pay them, if 25 not in full, at least something of what they are owed.’ [51] Learned counsel for the Defendants do not dispute the principles stated in the cases cited. However, 2 cases were highlighted to clarify the limits to the directors’ powers in a company under receivership. In 30 Tudor Grange Holdings Ltd v. Citibank NA [1992] Ch 53, Browne- 21 Wilkinson V-C held that since the causes of action involved the property of the company that was subject to the rights of the receiver, the directors did not have power to conduct legal proceedings on the company’s behalf. 5 [52] The facts in Tudor Grange’s case bear some resemblance to the present case. In that case, without the consent of the receivers, the companies commenced proceedings for damages against the defendant banks (who had appointed the receivers), claiming that the first defendant bank had induced the companies to enter into a deed of 10 release and cross-collateralisation agreements by misrepresentation. Additionally, they claimed that the cross-collateralisation had been procured by the banks by duress. [53] In allowing the defendants banks’ application to strike out the action, 15 Browne-Wilkinson V-C first referred to Newhart Developments Ltd v. Co-operative Commercial Bank Ltd (supra) and said: ‘In that case directors were held to have residual powers to bring proceedings against the debenture holder who had appointed the 20 receiver. Int hat case the Court of Appeal was very impressed by two matters. First, the fact that the company had been indemnified by outside sources against all liability not only for its own costs but also for the costs which the company might be ordered to pay to the other party. Therefore the bringing of proceedings by the directors in the company’s 25 name could not in any circumstances prejudice the property for which the receiver was responsible. The court was also impressed by the fact that the receiver was in an invidious position in deciding whether or not 22 to take proceedings by reason of the fact that he was being invited to sue those who had appointed him’. [54] His Lordship then held at paragraph E at page 63 of the report as follow: 5 ‘Unlike the position in the Newhart case, when the directors of the plaintiff companies decided to start proceedings in the name of the company they were starting proceedings which could directly impinge on the property subject to the receiver’s powers in that they held no indemnity against the liability of the company’s assets to satisfy a hostile 10 order for costs made against the companies. That brings this case outside both the decision and reasoning in the Newhart case since, unlike the Newhart case, the receiver’s position was prejudiced by the decision taken. In my judgment, the directors had no power to start the proceedings in those circumstances’ 15 [55] Also, in Sutton v. GE Capital Commercial Finance Ltd [2004] 2 BCLC 662, Chadwick LJ held that the residual authority could only exist where the proceedings does not impinge prejudicially on the position of the debenture holder. This is a case illustrating an instant where the 20 commencement of legal proceedings by the directors of the company under receivership does not in any way interfere and or threaten the interests of the debenture holder or the functions of the receivers. [56] In Sutton’s case, the legal proceedings instituted was to seek the 25 return of certain documents that were said to belong to the company. In fact, these documents were also subject to the debenture. For this reason, at paragraph 46 of the judgment, his Lordship held: 23 ‘[46] It cannot be said, in the present case, that the institution of proceedings in the APL action goes in any way to threaten the interests of GE, as debenture holder, in the assets subject to the debenture. In so far as the BT documents are assets subject to the debenture, the order sought in the APL action is for the return of those documents to APL; not 5 for the return of those documents to Mr. Paul Sutton. And , if those documents are returned to APL, there can be no impediment which denies the APL receivers the right to examine and make use of those documents …’. 10 [57] Hence, it is necessary to determine whether the Plaintiffs’ claims in this action will either impinge or imperilled the property that is subject to the receivership and or whether the claims will interfere with the Receivers’ functions in any way. The property in question is the Hotel. 15 [58] The Plaintiffs’ causes of action in the Statement of Claim are for conspiracy to injure, breach of duty of care and tort of unlawful interference with the trade or business of the Plaintiffs. There is no cause of action challenging the validity of the 1st. legal charge and or the Debenture. There is no challenge to the validity of the appointment of 20 the Receivers and or Administrators at all. It is not in dispute that the cross default constituted an event of default under the Cranborne Facility which entitled the 1st. Defendant to seek the repayment of the outstanding amount of GBP 12,909,743.48 and to exercise its rights under the 1st. legal charge and or the Debenture to appoint the 25 Receivers. [59] The injunctions to restrain the Defendants from enforcing any security documents and or obstructing, disturbing or interfering with the 24 Plaintiffs’ operation of the Hotel, in my view, do interfere with the Receivers’ functions. It has the effect of restraining the Receivers from dealing with the sale of the Hotel. In fact, given that the Plaintiffs are not challenging the validity of the appointments of the Receivers, the injunction seeking to restrain the exercise of any security documents 5 which necessarily include the 1st. legal charge is incongruous to the Plaintiffs’ position. The Plaintiffs cannot on the one hand accept the 1st. Defendant’s right to appoint the Receivers and on the other hand seek to restrain the exercise of the security document that provides for the said appointment. 10 [60] Given the aforesaid, I agree with learned counsel for the Defendants that the present action filed by the directors of the Plaintiffs is not one that comes within their residual powers. Unless the Receivers and the Administrators have given their consent, I hold that the directors of the 15 Plaintiffs have no locus standi to commence this action in the name of the Plaintiffs. [61] Even if I am wrong and the directors of the Plaintiffs have locus standi, once an event of default has occurred under the 1st. legal charge, 20 the 1st. Defendant is entitled to appoint the Receivers. See: Sigur Ross Sdn Bhd v. Maybank Islamic Bhd & Anor [2018] MLJU 244. [62] By the appointment of the Receivers, the 1st. Defendant has already enforced the 1st. legal charge. This is provided for in Schedule 6, in 25 particular, section 6.1 therein states: 25 ‘6.1 At any time after the security constituted by this debenture has become enforceable, or at the request of the Borrower, the Lender may, without further notice: 5 6.1.1 appoint by way of deed, or otherwise in writing, any one or more person or persons to be a Receiver of all or any part of the Charged Property.’ 10 [63] Accordingly, the injunction that the Plaintiffs are seeking in respect of the enforcement of the 1st. legal charge and the Qualifying Floating Charge is now academic. The horse has already bolted from the barn. [64] Further, any challenge to the enforcement of the 1st. legal charge 15 and or the Debenture including restraining the Receivers and or Administrators from dealing with the operation and or sale of the Hotel must necessarily be taken in the United Kingdom before the Courts of England and Wales which have the exclusive jurisdiction over the receivership. 20 [65] As regard prayer (iii) of Enclosure 5, this relates to the Shapadu Facility which was the subject matter of the Shapadu Suit where summary judgment was entered against Shapadu Teguh for the sum of USD 17,211,877.39 alluded to above. 25 26 [66] The issue on the sale of the Accommodation Work Boat-Berkat Teguh No. KF 7052 was raised in the said suit and this issue is res judicata. In any case, the Plaintiffs are not direct parties to the Shapadu Facility and the issue on the sale of the Accommodation Work Boat, if at 5 all, would be between the 1st. Defendant and Shapadu Teguh. [67] Prayer (iv) seeks to compel the Defendants to deliver monthly account statements of the 1st. Plaintiff from the year 2018 to 25.3.2019. The Plaintiffs claim in their Statement of Claim that they were kept in the 10 dark as to whether penalty interests were imposed by the 1st. Defendant on them. This was relied upon as one of the facts constituting the conspiracy to injure and or breach of duty of care. [68] It is the non-provision of the monthly statements rather than the 15 penalty interests imposed, if any, that the Plaintiffs are relying on for their claims. In any case, the production or otherwise of these monthly statements, if at all, is more apt to be dealt with in a discovery application rather than an injunction. 20 [69] Accordingly, I find that there is there is no serious questions to be tried in the present application. 25 27 Balance of Convenience [70] I also find that the balance of convenience in the present instant is in favour of refusing the grant of the injunctive reliefs claimed under Enclosure 5. 5 [71] The Receivers are currently attempting to sell the Hotel. This is also consistent with the wishes of the Plaintiffs which are to have the Hotel sold to repay the outstanding amounts. An injunction will have the effect of frustrating this very effort. 10 [72] There are no serious allegations made that the Receivers have in any way acted unprofessionally or are wanting in the performance of their duties. Any further delay in the sale of the Hotel will only result in a potential loss of interests from parties interested in the purchase of the Hotel. 15 [73] An injunction at this stage will not serve the interest of the parties. Damages are adequate [74] In any case, damages will be an adequate remedy. The Hotel is a 20 commercial property and the Plaintiffs’ main dis-satisfaction has to do with the purchase price that can be obtained for the same. Such concerns can be easily compensated by an order for damages, if necessary. 25 28 Conclusion [74] For the reasons stated, Enclosure 5 is dismissed with costs fixed at RM 25,000.00 to be paid by the directors of the Plaintiffs personally. 5 Dated the 18th. day of July 2019 …………-tt-…………… 10 (ONG CHEE KWAN) Judicial Commissioner High Court of Malaya at Kuala Lumpur Parties : 15 Dato’ Muralee Menon with Ms. S. Kalikumari for Plaintiffs (Messrs. JAAFAR & MENON) Ms. Lim Koon Huan with Mr. Manshan Singh, Mr. Ryan Jaafar for 20 Defendants (Messrs. SKRINE)