… In particular, I see no reason why 21st Century cannot consult with other Scheme Creditors on the common interest that they all have of evaluating whether the Company's proposals for the future operations of the group are viable, or whether they are in effect being asked to throw good money after bad.” [Emphasis mine] [53] In short, the ‘common interest’ is therefore the joint consultation and evaluation of whether to accept the Scheme. It is certainly not an expression that means the individual private interests of creditors are to be examined in determining the composition of classes. Practical Aspects [54] A test based on similarity of rights is the most efficacious approach for both procedural and substantive reasons. [55] First, if it were based on similarity on interests, the natural diversity of individual creditor interests will give rise to a multitude of classes, which will, in turn, will create a multitude of minority creditors being able to veto the scheme by adverse voting at each class meeting. The fracturing of creditors in this way, will inevitably lead to failure of the scheme. As Lord Millet NPJ explained in Re UDL Holdings Ltd & Ors [2006] HKCU 917 at para 26: “26. Why, it may be asked, should persons with divergent interests be allowed to vote as members of the same class for the purpose of ascertaining whether the Scheme has been approved by the necessary 75% majority, if their votes are only to be discounted or disregarded by the Court when considering whether to sanction it? There seem to be three reasons. The first is the impracticality in many cases of constituting classes based on similarity of interest as distinct from similarity of rights. Re Alabama, New Orleans, Texas and Pacific Junction Railway Co. is an example of this; Re BTR plc is another. A second is that the risk of empowering the majority to oppress the minority to which Bowen LJ referred in Sovereign Life Assurance Company v Dodd is not the only danger. It must be balanced against the opposite risk of enabling a small minority to thwart the wishes of the majority. Fragmenting creditors into different classes gives each class the power to veto the Scheme and would deprive a beneficent procedure of much of its value.” [Emphasis mine] [56] I entirely agree with Justice Ong in Airasia X (supra) at para 50, when he stated the test for classification thus: “[50] The classic test for identifying classes is formulated by Bowen LJ in Sovereign Life Assurance Co v. Dodd [1892] 2 QB 573 (‘Sovereign Life’) that a class ‘must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest’. [51] This formulation has been subject to further refinements and clarifications in subsequent cases. [52] In Re Hawk, Chadwick LJ at para [33] stated: ‘When applying Bowen LJ‟s test to the question “are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?” it is necessary to ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a common interest should be treated as parties to distinct arrangements – so that they should have their own separate meetings – but also that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do so; lest by ordering separate meetings the court gives a veto to a minority group. The safeguard against majority oppression … is that the court is not bound by the decision of the meeting. It is important Bowen LJ‟s test should not be applied in such a way that it becomes an instrument of oppression by a minority’. [53] In Re Telewest and Argos UDL, the courts held that the test is based on similarity or dissimilarity of legal rights against the company and not on similarity or dissimilarity of interest not derived from such legal rights. [54] Thus, the fact that individuals may hold divergent views based on their private interest not derived from their legal rights against the company is not a ground for calling a separate meeting.” [Emphasis mine] [57] More recently, the Sovereign Life ‘rights’ test was applied by Justice Wan Amin in BGMC Holdings Bhd (formerly known as BGMC Holdings Sdn Bhd) v Fulloop Sdn Bhd & Ors [2023] 9 MLJ 465 at paras 61 to 63. His Lordship helpfully cited the major decisions in the UK, Hong Kong and a decision of the Singapore Court of Appeal. [58] All these cases apply the ‘rights-based test’ in Sovereign Life and are not an ‘interest’ based test. It is accepted that this rights based test has been applied in the UK, Hong Kong and Singapore, see MDSA (supra) at para 40. [59] I was tempted to cite them all but refrained, as the Federal Court has approved and applied the Sovereign Life rights based test in Francis a/l Augustine Pereira v Dataran Mantin Sdn Bhd & Ors and other appeals [2014] 6 MLJ 56, thus reaffirming that the test for classification is based on the rights of the creditor against the scheme company as opposed to its private interests. The Federal Court held in at paras [44] and [65]: “[44] In Sovereign Life Assurance Co v Dodd, Bowen LJ formulated a test to determine which creditors fall into a separate class as follows -- that a class 'must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest'. The test formulated by Bowen LJ has been consistently adopted in later cases by the English judges and by courts in other jurisdictions such as Australia, Malaysia, Singapore and Hong Kong. … [65] With regard to the question of law posed in Legenda's appeals, our answer is as follows: All creditors of a company whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. In other words, we agree with the test formulated by Bowen LJ in Sovereign Life Assurance Co v Dodd, which is still a good law.” [Emphasis mine] [60] In my judgment, the rights-based Sovereign Life test is the law applicable in Malaysia. Classification - The Primary Attack Special Interests akin to Related Parties [61] This brings me to the primary attack. It is this. It is said that the classification was flawed as the creditors with charges over the shares in KNM Process must be placed in a class different from the other unsecured creditors. It was argued that these creditors have a ‘special interest’ in promoting the Schemes akin to related parties with shares in KMN Process. [62] The Royal Bank of Scotland NV v TT International Ltd [2012] 2 SLR 213 read together with MDSA (supra) at paras 198 and 208 are relied on to show that chargee creditors with charges over KNM Process shares are akin to related party creditors with a special interest in promoting the Schemes. [63] If correct, this would mean that every chargee holding shares in a company would be deemed to be ‘related’ to every member company within the Group. I have real difficulty in accepting that holding charges over shares in KNM Process, will give rise to ‘special interests’ requiring separate classification. [64] In Malaysia, the ‘rights based’ test has been applied in placing related party creditors (such as subsidiaries and associated companies) in the same class as other unsecured creditors with similar rights against the scheme company, see in particular, Nallini Pathmanathan J (as she then was) in Transmile Group Bhd & Anor v Malaysian Trustee Bhd & Ors [2012] MLJU 130 and Wan Amin J in BCMH Holdings (supra) at para 65, with whom I entirely agree. Indeed. Lord Millet NPJ in the Court of Final Appeal in UDL Argos (supra) at paras 24 and 25, puts the matter beyond contestation: a special interest does not require separate classification, although it may affect the analysis at sanction. [65] However, some argue that the majority of the Federal Court in MDSA (supra) has now decided that related party creditors have ‘special interests’ different from the ordinary unsecured creditors and should be placed in a separate class. [66] The Court of Appeal has resolved that debate, for the time being at any rate. In Fulloop & Ors v. BGMC Holdings in Civil Appeal No. W-02(NCC)(A)-294-02/2022 (24.6.2024) the Court of Appeal explained that the majority decision in MDSA was based on the finding of fact that the rights of the related party creditors were different from the rights of the other unsecured third parties. And it was for that reason, and not for having special interests, that the related parties were separately placed in a different class (as did the minority at para 54). The Court of Appeal held: “We read the majority in MDSA Resources' case in the FC as laying down the proposition that related parties' creditors who do not share the same legal rights as the other third party creditors are to be placed in a separate category for the purpose of a scheme of arrangement. It was a finding of fact of the majority that the third party creditors legal rights were different from the rights of the related parties' creditors in the MDSA case.” [67] I understand that leave to appeal to the Federal Court was refused. [68] Hence, the argument that the chargee creditors have a special interest akin to related parties and thereby should be placed in a different class, fails. The test remains purely ‘rights’ based. The Discounting [69] However, although creditors with special interests (without more) will not fracture a class comprising creditors with similar rights, the votes of such creditors with special interests may be discounted at sanction. [70] That maybe so, but such discounting is only possible where such special interests are ‘adverse’ to the interests of the members of that class. Justice Wan Amin in BCMH Holdings (supra) followed Re Lehman Brothers International Europe (in administration) [2018] EWHC 1980, who in turn applied Re National Bank Ltd, which was essentially the Buckley test at sanction. Hildyard J said: “89. I agree with Counsel for the Administrators that the mere fact that the majority creditors have a special interest for supporting the scheme does not, without more, entail that the class was not ‘fairly represented’. As appears from Plowman J’s formulation of the guiding principles in Re National Bank Ltd (see para [65] above), the concern is whether the relevant creditors have a special interest which is adverse to, or clashes with, the interests of the class as a whole. A special interest which merely provides an additional reason for supporting the scheme (without clashing or conflicting with the interests of the class as a whole) does not undermine the representative nature of the vote.” [Emphasis mine] [71] In contrast, Ms. Kwong relies on TT International (supra) at para 170 where the Singapore Court of Appeal found that KBC Bank was, in effect, a related party creditor of the scheme company because the banking facilities it provided were secured by shares in that scheme company. The votes of KBC Bank were discounted to the value of the secured shares. The dicta in TT International (supra) at para 170 was also cited (not with express approval) by the majority in MDSA at para 208. [72] I have real difficulty in accepting this reasoning, However, for other reasons, I will not consider discounting the votes of the chargee creditors at this convening stage. My reasoning is this. [73] First, the basis for discounting votes is (as stated by Hildyard in Lehman Brothers (supra)) is by reason of the rule in the second stage of the Buckley sanction test. This second stage is to determine whether the class was fairly represented by the meeting, and whether the majority were coercing the minority in order to promote interests adverse to the class. [74] Thus, the basis for discounting is the Buckley test which is the test applied at sanction, going to the merits. As such, any issue as to the discounting of votes should be taken at sanction and not at the convening stage. In this respect, the discounting in MDSA by the majority of the Federal Court (see at para 214) and Pathfinder were both at the sanction stage. Further, discounting is a matter of an exercise of discretion and fact sensitive. As I have stated at para 132 below, such matters belong at sanction. [75] Secondly, discounting of such votes with ‘special interests’ will only be carried out if such special interests are ‘adverse’ to the interests of the other creditors of that class, see Lehman Brothers (supra) and paras 136 – 137 below. This cannot involve an arbitrary exercise or automatic discounting even on a wholly owned subsidiary as suggested in TT International (supra). Evidence must be led to show why such special interests are adverse to those of the other creditors. I entirely agree with Justice Wan Amin in BCMH Holdings (supra) when he held: “[85] Despite the respondents’ allegations that the bona fide test was not satisfied, they have not shown any evidence that the class was not fairly represented or that the majority was not acting bona fide or that the minority was being coerced to promote interests adverse to those of the class whom they purport to represent.” [76] The mere fact that chargees may have special interests in the shares of a scheme company, does not mean that they have interests ‘adverse’ to the creditors of that class per se; nor that they are not representative of the interests of that class. [77] Further, Justice Wan Amin also found that it was inappropriate to apply any presumption that a holding company holding even 80% of the subsidiary, will control it, particularly when the board comprises independent directors. At para 88(h) and 89, he said: “… (h) however, as stated earlier there is no justification on the facts for any discount of votes to be exercised. There is no basis to discount the debt of the ultimate holding company. [89] The respondents’ suggestion that all related company creditors’ votes are to be discounted irrespective of the terms of the scheme and relationship between the creditors and scheme company is unreasonable and is not in line with the principles stated in Re Lehman, Re Century Sun International [2021] HKCU 4788 and Re: App (Hong Kong) Ltd [2004] HKCU 477.” [Emphasis mine] [78] I agree. [79] Accordingly, discounting the votes of the creditor chargees should not be carried out at the convening stage and on an arbitrary or automatic basis without proof of an interest adverse to that class. Classification - The Miscellaneous Challenges [80] There were several other miscellaneous objections to classification. However, they were not pressed leaving the only one