Classic Maritime Inc v Lion Diversified Holdings Berhad (dalam Likuidasi) (WA-28PW-333-11/2021)

LION DIVERSIFIED HOLDINGS BERHAD (IN LIQUIDATION) (Company No. 9428-T)

BENAPRO SDN BHD (Company No: 1976011002290Z028236-H) …RESPONDENTS JUDGMENT (Enclosure 1)

This is a case where the Applicant has, in the Notice of Motion dated 19.11.2021 in enclosure 1 hereto (Motion), inter alia applied to reverse and/or set aside the Liquidators decision to dispose of 87.96% equity (Equity) interest of the Respondent in Banting Resources Sdn Bhd (“BRSB”), a subsidiary of the Respondent to Benapro Sdn Bhd (“Benapro”) for the price of RM42,220,800 S/N /kJsuZaM/0eUdcmzlt1qZw (Transaction) pursuant to the tender which closed on 6.10.2020 and for the disposal of any steps toward the disposal of the said equity interest of the Respondent in BRSB be stopped, terminated, reversed and/or set aside.

The grounds in support of the Motion are briefly as follows:

The Respondent was wound up by virtue of an Order dated 15.10.2019 by this Honourable Court (“Winding Up Order”).

The Applicant’s proofs of debt of RM 439,643,090.67 were admitted by the Liquidator on 5.7.2021;

Following a purported public tender exercise, the Liquidator, on 8.2.2021 accepted a bid by Benapro Sdn Bhd (“Benapro”) to purchase an asset of the Respondent being 87.96% equity interest in Banting Resources Sdn Bhd (“BRSB”) for the price of RM 42,220,800 and a waiver of outstanding amount of RM 5,593,655.34 owing by BRSB to Respondent. Benapro is related to the Respondent by reason that Tan Sri William Cheng Heng Jem, who is a substantial shareholder of the Respondent, also has substantial interests in Benapro;

The Liquidator has obtained an Order from this Honourable Court dated 26.8.2021 pursuant to Section 487(3) of the Companies Act 2016 approving, inter alia, that the 87.96% equity interest in BRSB be sold to Benapro for the price of RM 42,220,800 and a S/N /kJsuZaM/0eUdcmzlt1qZw waiver of outstanding amount of RM 5,593,655.34 owing by

The bid by Benapro is clearly undervalue and the Liquidator’s decision to accept it is prejudicial to the interest of the creditors;

In the process of obtaining the Order dated 26.8.2021, the Liquidator had failed to disclose all pertinent information including but limited to the clear undervalue of the equity interest as well as any valuation report to the Court and to bring the same to the Court’s attention;

Therefore, the Liquidator had not acted in the best interests of the creditors by entering into the sale of equity interest in BRSB to Benapro and as such, the decision should be reversed/set aside.

On 15.09.2020, the Liquidator conducted a public tender to dispose of some of the assets of the Respondent including but not limited to the 87.96% equity interests in BRSB.

The public tender was advertised in three different languages of newspapers, i.e Berita Harian, Sin Chew Jit Poh and New Straits Times which allowed the public to tender their offer to purchase of the respective assets of the Respondent, from 15.09.2020 until 06.10.2021. S/N /kJsuZaM/0eUdcmzlt1qZw

On 06.10.2021, the Liquidator received a tender form from Benapro offering the purchase price of RM48,000,000-00 for 100% equity interest of BRSB. The Respondent holds 87.96% equity interest in BRSB and the remaining 12.04% equity interest was held by LDH Trading Sdn Bhd (“LDH”).

On 08.01.2021, LDH agreed to the disposal of 12.04% equity interest with conditions.

On 08.01.2021, the Respondent’s Liquidator accepted the offer from Benapro vide a Notice of Acceptance of Tender.

On 19.05.2021, the Respondent has moved the Court with an application pursuant to section 487(3) CA vide Kuala Lumpur High Court, Post Winding-Up Application No.: WA-28PW-157-05/2021 (“the Disposal Action”).

On 26.08.2021, order in terms was granted in respect of the Disposal Action.

Currently there is an interim injunction in place against the completion of the said Transaction granted by this Court on 22.12.2021.

It is pertinent to note that this Court had on 26.8.2021 (26.8.2021 Order) granted an order to dispose the said Equity in PW 157. Thus, in essence, this Court is functus officio to revisit the 26.8.2021 in the absence of any evidence that the said 26.8.2021 was irregularly obtained due to an illegality, breach of rules of natural justice, or lack S/N /kJsuZaM/0eUdcmzlt1qZw of jurisdiction. The law on this has been clearly stated in Badiaddin Mohd Mahiddin & Anor v Arab Malaysian Finance Berhad [1998] 1 MLJ 393 where Mohd Azmi FCJ had held: “It is of course settled law as laid down by the Federal Court in Hock Hua Bank's case that one High Court cannot set aside a final order regularly obtained from another High Court of concurrent jurisdiction. But one special exception to this rule (which was not in issue and therefore not discussed in Hock Hua Bank) is where the final judgment of the High Court could be proved to be null and void on ground of illegality or lack of jurisdiction so as to bring the aggrieved party within the principle laid down by a number of authorities culminating in the Privy Council case of Isaacs v Robertson [1985] AC 97 where Lord Diplock while rejecting the legal aspect of voidness and voidability in the orders made by a court of unlimited jurisdiction, upheld the existence of a category of orders of the court '… which a person affected by the order is entitled to apply to have set aside ex debito justitiae in the exercise of the inherent jurisdiction of the court, without his needing to have recourse to the rules that deal expressly with proceedings to set aside orders for irregularity, and give to the judge a discretion as to the order he will make'. The Privy Council through Lord Diplock also emphasized that the courts in England have not closed the door as to the type of defects in the final judgment of the court that can be brought into the category that attracts ex debito justitiae the right to have it set aside without going into the appeal procedure, 'save that specifically it includes orders that have been obtained in breach of rules of natural justice'. Similarly in this country, the statement of Abdoolcader J (as he then was) in Eu Finance Bhd v Lim Yoke S/N /kJsuZaM/0eUdcmzlt1qZw Foo [1982] 2 MLJ 37 at p 39 provides the correct guideline on the subject: The general rule is that where an order is a nullity, an appeal is somewhat useless as despite any decision on appeal, such an order can be successfully attacked in collateral proceedings; it can be disregarded and impeached in any proceedings, before any court or tribunal and whenever it is relied upon — in other words, it is subject to collateral attack. In collateral proceedings, the court may declare an act that purports to bind to be non-existent. In Harkness v Bells' Asbestos and Engineering Ltd [1967] 2 QB 729, Lord Diplock LJ (now a Law Lord) said (at p 736) that 'it has been long laid down that where an order is a nullity, the person whom the order purports to affect has the option either of ignoring it or of going to the court and asking for it to be set aside'. For my part, I must hasten to add that apart from breach of rules of natural justice, in any attempt to widen the door of the inherent and discretionary jurisdiction of the superior courts to set aside an order of court ex debito justitiae to a category of cases involving orders which contravened 'any written law', the contravention should be one which defies a substantive statutory prohibition so as to render the defective order null and void on ground of illegality or lack of jurisdiction”.

The Applicant had contended that the Applicant and the creditors of the Respondent will be aggrieved by the decision of the Liquidator to sell the said Equity in accordance with the 26.8.2021 Order as: S/N /kJsuZaM/0eUdcmzlt1qZw

the selling price of Equity to Benapro is significantly lower than the realisable value of the said Equity;

in breach of its duties, the Liquidator has failed to obtain the best-selling price for the sale of the said Equity;

Benapro has obvious ties to both the Respondent and the party which applied for the appointment of the Liquidator i.e Amsteel Mill Marketing Sdn Bhd as they are all related and/or connected to the Lion Group of Companies.

Based on the above issues, I have inter alia considered the following:

the Applicant appears to be the largest single creditor of the Respondent with a total debt of RM439.6 million which the Applicant claims represents 94% of the total admitted debts of the Respondent;

the shareholders of BRSB are the Respondent and LDH Trading Sdn Bhd (LDH Trading), a wholly owned subsidiary of the Respondent, with BRSB having 87.96% of shares of the Respondent and LDH Trading owning 12.04% share in the

a report done by one Ong Tee Chin of Asia Equity Research Sdn Bhd for the Applicant which essentially reviewed the Valuation Report dated 5.10.2020 (Valuation Report) seen in exhibit R-1 of enclosure 12 prepared by Sierac Corporate Advisers Sdn Bhd.

I have viewed the above evidence against the Valuation Report in exhibit R-1 of enclosure 12 prepared by Sierac Corporate Advisers Sdn Bhd where amongst others it is stated therein that: S/N /kJsuZaM/0eUdcmzlt1qZw

the outstanding amount of RM5,593,655.34 owing by BRSB to the Respondent;

there is a pledge by BRSB of 5 parcels of its land to one Tunai Impian Enterprsie Sdn Bhd (Tunai Impian) for a loan of RM60 million under a Term Loan Agreement dated 1.8.2019 (Loan) secured by a Lien Holders Caveat and of which the Respondent is a corporate guarantor for the said Loan;

there is now an action by Tunai Impian for the recovery of the said Loan due to a default by BRSB;

BRSB is required to pay a monthly sum of RM600,000 as outstanding interest due and payable per month;

BRSB had appointed Lion Tin Sdn Bhd (LTSB) as its independent contractor and granted LTSB exclusive rights to undertake mining activities on its lands of which LTSB was to pay to BRSB the Mining Tribute;

the revenue from the Mining Tribute was unable to cover the interest expenses incurred by BRSB.

It was also averred by the Liquidator, to which this Court agrees, that based on the above evidence, there was a risk of BRSB being wound up and that it would in the circumstances be difficult to get a buyer who was interested in purchasing the said Equity as well that the Respondent should be discharged as the corporate guarantor for the Loan.

For the record, I have noted the Applicant’s contention that the Statement of Affairs (SOA) of the Respondent which declared that the realizable value of the Equity was RM257,987,027.36 was not S/N /kJsuZaM/0eUdcmzlt1qZw brought to the attention of this Court. I find that this allegation is misleading and inaccurate as the same was annexed in the affidavit in support for the application for the 26.8.2021 Order as seen in exhibit TJH-25 of enclosure 4.

This Court has further taken into consideration and found that:-

the Liquidator had taken out a public tender for the disposal of the said Equity and that there was only 1 bid i.e from Benapro;

the Liquidator had looked into the statement of profit in exhibit R4 of enclosure 12 and averred that from the same, the offer from Benapro appeared to be reasonable with the figures in the management account as indicative;

the issue of the conflict of interest between Benapro, the Respondent and Tan Sri William Cheng Heng Jem was disclosed to this Court in the affidavit in support for the application for the 26.8.2021 Order as seen in exhibit TJH-15 of enclosure 4 and that there is thus sufficient disclosure of the alleged conflict of interest as per Lim Boon Chuan @Lim Ban Huat v Wonderful Castle Sdn Bhd (in liquidation) & Anor [2019] 1 MLJ 270:- “[29] We have given anxious consideration to this grave allegation but are constrained to conclude that there is simply insufficient evidence to bear out this allegation of collusion for the following reasons: S/N /kJsuZaM/0eUdcmzlt1qZw

(a)we are cognisant of the position of Tan Peng Son as a majority shareholder in the company and as a director of the same;

(b)we also appreciate that as the majority shareholder and director of Steady Development, the purchaser, Tan Peng Son will be acquiring the most substantial and valuable asset of the company;

(c)however, the most important consideration to our minds that arises in determining whether there is any conflict or prejudice to the company or its unsecured creditors is whether there was sufficient disclosure of Tan [2019] 1 MLJ 270 at 279Peng Son’s interests and whether the price at which the acquisition was made is a reflection of the fair market value. We are satisfied that this is the case because Tan Peng Son annexed to the bid under Steady Development a statutory declaration disclosing his interest prior to the informal creditors’ meeting on 1 October 2015. This is what he said: ‘I am a substantial shareholder of Steady Developments … I am both a director and contributory of Wonderful Castle’. To our minds this afforded full and unqualified disclosure;

(d)we are also not aware of any authority prohibiting a contributory and a creditor from bidding in such a tender exercise provided there is full disclosure; and

(e)therefore, it cannot be said that the transaction was being undertaken at less than an arm’s length basis. S/N /kJsuZaM/0eUdcmzlt1qZw

there is in law no prohibition preventing a creditor or contributory from bidding for a wound-up company’s assets;

there is a Statutory Declaration in exhibit TGH-25 of enclosure 4 made by Serena Cheng Hui Ya, a director of Benapro disclosing the conflict of interest between Benapro, the Respondent and Tan Sri William Cheng Heng Jem which was done during the Tender Exercise for the Transaction.

It is therefore clear from the above said evidence that at all material times the issue of the alleged conflict of interest was never concealed. In Abric Project Management Sdn Bhd v Palmshine Plase Sdn Bhd & Anor [2007] 3 MLJ 571, Ramly Ali J (as he then was) had held on a similar issue as follows:- “[84] Related to this issue, the applicant also contends that the second respondent was not a bona fide purchaser and the transaction was not at arms length because the second respondent is a related party. [85] The court cannot agree with this contention. At all material times the fact that the second respondent was indirectly related to the first respondent was never concealed. In turn, the requisite announcements were made and the necessary approvals and waivers were obtained from the relevant regulatory bodies. [86] Related party transactions are not prohibited in law. The fact is the law requires certain procedural steps to be complied with if the transaction falls within the category of a related party transaction. In this case full disclosure has been given to Bursa Saham Malaysia concerning the connection and shareholding S/N /kJsuZaM/0eUdcmzlt1qZw between a shareholder of the first respondent and the second respondent. As can been seen the shareholder that holds a 25% direct share and a 25% indirect share in the respondent also holds a 6.29% share in MFCS who in turn holds a 55% share in the second respondent. The connection between the two is minimal. In any case Bursa Saham Malaysia had exempted the second respondent from complying with the usual requirements of obtaining approval at a shareholders meeting.”

It is also trite that the true commercial value of a property is not what is as per a valuation report but the actual price that it would fetch in the open market, see Malayan Banking Bhd v Lim Poh Ho & Anor [1997] 1 MLJ 662, Abric Project management Sdn Bhd v Palmshine Plaza Sdn Bhd & Anor [2007] 5 MLJ 685 and Aeon Co (M) Bhd V Asia Plywood Co Sdn Bhd and anor appeal [2021] 2 MLJ 102. Thus, based on my above findings, I hold that there has been no undervalue and/or misevaluation of the sale to Benapro and that the Liquidator had in the circumstances of the matter obtained the best possible price for the sale of the said Equity and had made all reasonable effort to procure the same based on the facts and circumstances available to him at that material time.

This Court does not agree with the Applicant with regards the contention that the Liquidator had failed to ensure that the sale of the Equity by resorting to looking at specialized industry players and that an advertisement in the mass circulation of newspapers would not attract such potential purchasers as it is this Court’s decision that the Applicant should not question or challenge the tender process. Authority for this can be found in Ooi Woon Chee & Anor v Dato S/N /kJsuZaM/0eUdcmzlt1qZw See Teow Chuan & Ors [2012] 2 MLJ 713 where the Federal Court held: “The validity of any bid for the sale of assets of a company in liquidation by the liquidators of any incidental questions as to the capacity of the bidder, the nature of the bid, the funding arrangement, the tender procedure and deadline for submission of bids, are matters of discretion for the liquidators whether provided for in the bid terms or otherwise. It is not open to the contributories or any bidder to question or challenge the tender process after the tender sale had been concluded.”

I further hold that the Transaction was, based on all of the above, done on an arm’s length basis and in accordance with the statutory powers available to the Liquidator under section 472 and Part 1 of the Twelfth Schedule of the Companies Act 2016 and that the Liquidator has shown himself to have acted reasonably in taking the necessary steps in the Transaction.

It would further in my decision be unjust to deprive Benapro from the Transaction and to this I quote a case which was brought to my attention by learned counsel for the 2nd Respondent, which is the UK case of Mahomed and anor v Morris and others [1999] Lexis Citation 2919 where it was held by Jacob J that:- “I do not think it actually matters whether or not the court has jurisdiction in the formal sense to set aside such a transaction entered into by a liquidator. I cannot conceive of the court so acting in deciding what is 'just'. It would never be just to deprive a party who has negotiated a deal in good faith with a liquidator S/N /kJsuZaM/0eUdcmzlt1qZw from the benefits he has acquired from the deal. He should be in no worse a position than if he had dealt with the company before liquidation. Any other rule would make it even more difficult for liquidators to dispose of assets at the best price they could get.”

This Court therefore finds that the Applicant has failed to prove on a balance of probabilities that the Liquidator had taken into account any irrelevant considerations or had acted in manner that no reasonable liquidator would have acted.

On my part, I am also of the view that an order applied for by the Applicant to stop, terminate, reverse and/or set aside the effects of the 26.8.2021 Order is, in the circumstances of the facts before me, an abuse of the Court process as the said 26.8.2021 Order was regularly and conclusive obtained and I rely on the authority of Low Yin Kow v Tor Lean Hua & Ors [2002] 7 CLJ 234 where the Court held: “There is direct authority that an injunction cannot be granted to restrain execution upon a conclusive judgment obtained in another action. In Liew Ah Hock v. Malayan Railway[1967] 1 MLJ 53, where the facts are almost identical to the present application, the plaintiff claimed for an injunction "to restrain the defendant by itself, its servants or agents from proceeding with the execution of the judgment against the plaintiff in Civil Suit No 1759 of 1960 or otherwise from obstructing or interfering with the plaintiff's enjoyment of the said land"; the defendant had obtained a valid subsisting judgment against the plaintiff for possession of the land S/N /kJsuZaM/0eUdcmzlt1qZw in question. There it was submitted that the action was not maintainable in law on the ground that there is no precedent for asking a court to grant an injunction against the execution of its own judgment especially in the circumstances prevailing since the fusion of law and equity in 1878. And agreeing with the latter submission, Winslow J held as follows. Reliance was placed on the decision in Wright v. Redgrave (1879 11 Ch D 24) in which it was held that on the principle that there should never be conflicting proceedings going on at the same time in two branches of the court an injunction to restrain proceedings in one branch would be refused on an action being brought in another (emphasis mine). There is already a valid subsisting judgment in favour of the defendant for possession against the plaintiff of the land in question. That was a judgment of the High Court in Civil Suit No. 1759 of 1960, and in the execution of that judgment, the defendant has issued a writ of possession against the plaintiff. I am being asked, in effect, to grant an injunction to restrain such execution in the current action. I am of the opinion that I would no more be justified in entertaining such an application than Mulins V.C. was in Wright v. Redgrave above where his grant of such an injunction was reversed by the Court of Appeal for the reason I have already stated.” S/N /kJsuZaM/0eUdcmzlt1qZw

I hold that since the 26.8.2021 Order is a perfectly valid Court Order based on my decision above, Section 517 of the Companies Act 2016 is inapplicable before me as the said section 517 reads: “Any person aggrieved by any act or decision of the liquidator may apply to the Court which may confirm, reverse or modify the act or decision complained of and make such order as it thinks just.”

The clear and unambiguous express words in the said Section 517 of the Companies Act 2016 therefore contemplates that any application under the said section is an appeal against the decision of the Liquidator. Thus, in the matter before me, I cannot allow an application under the said section 517 of the Companies Act 2016 as the Motion before this court is strictly speaking no longer based on an appeal of the Liquidator’s decision but due to the 26.8.2021 Order.

It was held by the Court of Appeal in Koh Huat Kwan v Pegawai Penerima (selaku Pelikuidasi bagi Poh Mah Housing Development Sdn Bhd [2015] MLJU 310: “[15] At the outset, it is pertinent to note that the appellant’s application to set aside the Consent Order is predicated on s 263(3) and/or s 279of the CA 1965which are as follows: Section section 236(3) reads: “The exercise by the liquidator of the powers conferred by this section shall be subject to the control of the Court, and any S/N /kJsuZaM/0eUdcmzlt1qZw creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers.” section 279 further provides as follows: “Any person aggrieved by any act or decision of the liquidator may apply to the Court which may confirm reverse or modify the act or decision complained of and make such order as it thinks fit.” …. [17] By invoking either of the aforesaid sections of the CA1965, the Winding-Up Court is only justified in interfering with the exercise of the powers, acts or decisions of the 1st respondent qua liquidator if the appellant can show that the conduct of the 1st respondent falls within the following categories: a)That the 1st respondent had acted fraudulently; or b)That the 1st respondent was not bona fide in his conduct; or c)That the conduct of the 1st respondent was so utterly unreasonable and absurd that no reasonable person would so act

Although Koh Huat Kwan (supra) was decided on the old Companies Act 1965, I hold that the principles therein are still applicable under a section 517 of the Companies Act 2016 application and that the Applicant has failed to convince this Court that Liquidator had acted fraudulently; or that he was not bona fide in his conduct; or that his conduct was so utterly unreasonable and absurd that no reasonable person would so act. S/N /kJsuZaM/0eUdcmzlt1qZw

I would also like to reiterate that it is settled law that the Court will not interfere with the decision of a liquidator simply because its opinion might differ from that of the liquidator as seen in the decision of Andrew Christopher Chuah Choong Eng Chuan v Ooi Woon Chee & Anor [2007] 2 MLJ 12 and that it is my decision that the Motion here should be dismissed with costs of RM15,000 awarded to the 1st Respondent and RM10,000 to the 2nd Respondent. Dated: 11th day of October 2022 sgd. NADZARIN WOK NORDIN HIGH COURT JUDGE KUALA LUMPUR HIGH COURT Parties: Yap Yeow Han and Abd Azim bin Abd Razak for the Applicant [Messrs Rahmat Lim & Partners] Emily Wong and H’ng Yen Jun for the 1st Respondent [Messrs Dennis Nik & Wong] Saheran Suhendran and Rodney Gan for the 2nd Respondent [Messrs Sanjay Mohan] S/N /kJsuZaM/0eUdcmzlt1qZw