Double Success Construction Sdn Bhd v Smart Glove Industries (Malaysia) Sdn Bhd (WA-28JM-13-04/2024)

The Applicant filed this application to place Smart Gloves Industries (Malaysia) Sdn Bhd under Judicial Management pursuant to section 404, 405 and 407 of the Companies Act 2016 (“CA 2016”).

Prior to this application, the Applicant filed an ex-parte application and obtained an order for the appointment of an Interim Judicial Manager (“IJM”) namely Andrew Heng and Kumarakuru A/L Jai Prakash Krishnan over the Respondent on 22.04.2024. Thus, as at the date of hearing of this application, the Respondent is under an Interim Judicial Management

The Applicant claims to be a creditor of the Respondent. The Respondent is alleged to owe the Applicant the sum of RM5,060,338.00 for works done by the Applicant for the Respondent. It is noted that the Applicant has not filed any proceedings in any court to claim the alleged debt owing to it by the Respondent.

Smart Glove Corporation Sdn Bhd (the First Intervener) which is clearly a company related to the Respondent supports this application. It is noted that the First Intervener like the Applicant does not have any court judgment against the Respondent.

Technygroup Holdings (M) Sdn Bhd (“the Second Intervener”) oppose this application. The Second Intervener is a creditor of the Respondent for the sum of RM28,747,539.73. This sum is owed to the Second Intervener pursuant to an adjudication award obtained against the Respondent dated 20.02.2023.

On 31.01.2024, the High Court dismissed the Respondent’s application to set-aside the adjudication award given in favour of the Second Intervener and at the same time allowed the Second Intervener’s application to enforce the award. With the enforcement application being allowed by the High court, the Adjudication award became enforceable like any order of the High Court.

On 5.2.2024, premised on the sums due and owed by the Respondent pursuant to the Adjudication Decision, the Second Intervener filed a winding-up petition in Companies Winding-Up Petition No.: WA- 28NCC-121-02/2024 (“Winding-Up Petition”) and served the Winding-Up Petition on the Respondent on 6.2.2024.

On 14.03.2024, the Respondent filed an application for, among others, a stay of enforcement in respect of the High Court Order in the Enforcement Application (“Stay of Enforcement Application”). On 18.4.2024, the High Court dismissed the Stay of Enforcement Application.

On 16.04.2024, just two (2) days before the hearing and decision of the Stay of enforcement Application this Judicial Management Application was filed by the Applicant.

Just one (1) day before the hearing of the Stay of Enforcement Application, the Applicant filed the Interim Judicial Management Application on 17.4.2024 together with the Certificate of Urgency dated 17.4.2024 seeking the Interim Judicial Management Order.

This application is filed pursuant to section 404, 405 and 407 of the CA

Section 404 of the CA 2016 reads as follows: “An application for an order that a company should be placed under a judicial management and for an appointment of a judicial manager may be made to the Court by the company or its creditor if the company or its creditor considers that:

the company is or will be unable to pay its debts; and

there is a reasonable probability of rehabilitating the company or of preserving all or part of its business as a going concern or that otherwise the interests of creditors would be better served than by resorting to a winding-up.” [12] Section 405 of the CA 2016 [TBA, TAB 2] reads as follows: “(1) Where a company or its directors, under a resolution of its members or the board of directors, or a creditor, including any contingent or prospective creditor or all or any of those parties, together or separately, makes an application under section 404, the Court may make a judicial management order in relation to the company if:

the Court is satisfied that the company is or will be unable to pay its debts; and

the Court considers that the making of the order would be likely to achieve one or more of the following purposes:

the survival of the company, or the whole or part of its undertaking as a going concern;

(ii) the approval under section 366 of a compromise or arrangement between the company and any such persons as are mentioned in that section;

(iii) a more advantageous realisation of the company’s assets would be affected than on a winding up. APPLICANT’S SUBMISSION [13] This Judicial Management Application was brought by the Applicant on the basis that:

The Respondent is an insolvent company;

The Respondents assets are “depleting at an alarming rate” by reference to its financial data for the year ended 30.9.2021 which shows that the Respondent’s fixed assets are sitting at RM115,214,842.00;

The Respondent total liabilities have increased from RM15,316,081.00 in 2020 to RM100,729,737.00 in 2021. In particular, the amounts owed to related companies have increased from RM3,995,308.00 in 2020 to RM71,422,849.00;

The primary aim of this Judicial Management Application is to “maximise the prospect of recovery of the debts owed by the Respondent to the Applicant” and to “preserve the assets of the Respondent for the benefit of creditors of the Respondent and the interested parties…”; and

The Proposed Judicial Managers have given their consent to be appointed as Judicial Managers of the Respondent and the Judicial Managers have requisite experience as insolvency practitioners. [14] The Applicant submits that the Respondent owe it the sum of RM5,060338.60 and that since June 2022 the Applicant has demanded for payment of the said sum which the Respondent has failed to pay. [15] The Applicant submits that there is a reasonable probability of rehabilitating the Respondent by preserving all or part of its business as a going concern. However, it has not given any details of how it plans to rehabilitate the Respondent. [16] The primary trust of this application is the Applicant’s averment that in a judicial management scenario, the estimated recovery rate to the unsecured creditors is 50% whereas in a winding-up scenario, the estimated returns will only be 35%. Thus, the Applicant submits that it is more advantages for a judicial management order to be made against the Respondent instead of a winding-up order. FINDINGS BY THIS COURT [17] Although the Applicant claims to be a creditor of the Respondent and alleges that the Respondent owes it the sum of RM5,060,33860, yet curiously the Applicant did not file any legal action to recover the debt allegedly owing by the Respondent. Likewise the First Respondent who supports this application also claims to be a creditor with a substantial amount of RM86,145,156.00 owing to it by the Respondent, which is a related corporation. Again there is no judgment for the sum allegedly owing to it. [18] I find the Second Intervener to be the only party with judgment for the debt owing to it by the Respondent and I further find that the debt alleged owed to the Applicant and First Intervener to be unproven and is suspect. [19] Although the Interim Liquidator (IL) has accepted the debts allegedly due to the Applicant and the First Respondent, I find that the Interim Liquidator, who was appointed by the Applicant to be biased and not credible. [20] The IL’s decision to accept the alleged debt of the Respondent to both the Applicant and the First Intervener as valid while classifying the debt to the Second Intervener as “contingent liability” despite the fact that the debt to the Second Intervener was the only debt supported by a subsisting court order clearly shows that the IL is clearly taking the side of the two parties and to the detriment of the Second Intervener. Thus, I find the IL’s affidavits and even his proposal to be of little value and credibility. Therefore, I find the IL is not acting bona fide in dealing into the debt owing to the Second Intervener by the Respondent. THE IL’s DRAFT PROPOSAL [21] I find the IL’s draft proposal is speculative and based on conjecture and thus unlikely to bring about a better realization of the assets of the Respondent for the benefit of creditors and/or for the survival of the Respondent. [22] The Second Intervener submits that the Draft Proposal fails to provide any indication of bringing about the survival and/or better realization of SGI premised for the following reasons:

In the draft proposal by the IJM, the recovery rate in a winding up scenario is put at 35% as the Respondent’s assets are expected to be disposed of at “forced sale values” and that the assets would be sold under “distressed conditions” which would mean that the sale of the Respondent’s assets would be “significantly lower” than under normal sale conditions. The Second Intervener submits that this alleged recovery rate is devoid of merit and is speculative premised on the following grounds:

No explanation has been provided by the IJM on how it arrived at the recovery rate of 35%;

(ii) The said recovery rate is therefore highly questionable and premised on unexplained assumptions. This can be seen in Exhibit “F” of the Respondent’s Affidavit in Reply which provided no explanation whatsoever on how the recovery rate was arrived at as well as how the Estimated Recovery Values are determined;

(iii) Any averments made by the IJM that the Respondent’s assets will be realised at “forced sale values”, “distressed conditions” and that the market value of the Respondent’s assets will be “significantly lower” under a winding-up scenario is wholly speculative and purely premised on conjecture;

Even if one were to consider that a winding up scenario would only result in the recovery of only 35%, by way of a simple calculation of the total recovery amount of total liabilities (including purported contingent liabilities) would be in the sum of RM44,651,872.15 of the amounts due to the unsecured creditors. By comparing the same with the situation particularized in the Draft Proposal, the purported amount payable to the unsecured creditors by way of the sale of the Land 6496 is at the sum of RM32,000,000.00 TO RM44,000,000.00 and

In this regard, clearly the IJM has failed to demonstrate that the Draft Proposal can amount to the better realisation of SGI’s assets as opposed to a winding up scenario. [23] In the case of Gigatech Engineering, the High Court held as follows: “[43] With respect, I find that the opinion given above by the proposed judicial manager does not carry much weight for this honourable court to give due consideration. The preliminary judicial management proposal report have not put forward any suggestion as to how the applicant may be rehabilitated nor how its assets may be realized in order to satisfy the applicant’s indebtedness. There is also no evidence to suggest that the applicant is able to continue as a going concern. The proposed judicial manager’s proposal does not show how the applicant is able to survive or secure better returns for the creditors than if the company was left to be wound up. “[47] Be that as it may, to me, the proposed judicial manger should have given his professional opinion on how his plan or proposal would achieve the purposes mentioned in para 405 (1)(b) for this honourable court’s consideration. I certainly find it very difficult to give weight to the applicant’s application when the proposed judicial manager only provided a general projection statement by stating that in his opinion judicial management is the best option for the applicant without even setting out the detailed reasons for him having to arrive to that conclusion. With respect, the such kind of open projection statement had seriously weakend the probative force of the applicant’s case. [49] To conclude on this issue, I am of the considered view that the vague proposal provided by the applicant on how it is working towards resolving their effort and resources on restructuring and rehabilitation of the project is full of uncertainty and hence this honourable court will not grant the judicial management order as prayed for the applicant. [24] The High Court in Goldpage Assets Sdn Bhd v Gan Kam Seng & Ors [2021] 9 MLJ 618 emphasised that playing lip service to the requirements under Section 405(1)(b) of the CA 2016 is insufficient and a judicial management application must be supported instead by strict proof and evidence and not merely surmise and conjecture. It was held that: “[50] I further hold that the mere assertions of that there is a reasonable probability of rehabilitating the applicant or of preserving its business as a going concern and judicial management will serve the creditors interest better than by resorting to a winding up and merely playing lip service to the requirements under s 405(1)(b) of the CA 2016 is insufficient and I quote and adopt Re Wan Soon Construction Pte Ltd [2005] 3 SLR 375 where it was stated by the Singapore High Court that: ‘the court is not mere rubber stamp in as much as it will accede to any every request to order such other sections or provisions to apply almost, or even wholly, as a matter of course.” [25] Applying the principles enunciated by the above two cases I agree with the submissions by the Second Intervener that the proposal by the IJM is too speculative and is not likely to achieve a better returns for the creditors than a Winding-Up and additionally I find that this Judicial Management application is not bona fide and is an abuse of the court process for the following reasons:

This Judicial Management Application was filed only 22 days before the hearing of the Winding-Up Petition which was initially fixed on 07.05.2024;

This Judicial Management Application was brought 68 days from the date the Petition was advertised in the New Straits Times and

The Applicant filed the Interim Judicial Management Application on 17.04.2024 seeking for the Interim Judicial Management Order, 1 (one) day prior to the hearing of the Stay of Enforcement Application. [26] I find that this Judicial Management Application was prompted by the Winding-Up Petition and was designed and intended solely to stifle, and/or frustrate the winding up process. The over-riding aim of this application is to frustrate the adjudication award and the High Court Orders. [27] For the above reasons I find that this application is not made bona fide and consequently is dismissed with costs. Dated 10 April 2025 ……………t.t………………. Ahmad Murad Bin Abdul Aziz Judge High Court of Malaya Kuala Lumpur COUNSEL FOR THE APPLICANT: JANICE TAY, S. RAVEN WITH WILLIAM ANG SOLICITORS FOR THE APPLICANT: TETUAN ANG & WONG COUNSEL FOR THE PETITIONER: ANIZ AHMAD AMIRUDIN WITH POLWIN SUA SHIANG-NIAN SOLICITORS FOR THE PETITIONER: COUNSEL FOR THE RESPONDENT: SOLICITORS FOR THE RESPONDENT: TETUAN RAJ, ONG & YUDISTRA COUNSEL FOR THE 1ST INTERVENER: KRISHNA KUMAR SOLICITORS FOR THE INTERVENER: TETUAN KRISH MANIAM & CO COUNSEL FOR THE 2ND INTERVENER: LEW WEI HUNG SOLICITORS FOR THE INTERVENER: TETUAN CECIL ABRAHAM & PARTNERS Cases Referred to: ➢ Goldpage Assets Sdn Bhd v Gan Kam Seng & Ors [2021] 9 MLJ 618 Legislation Referred to: ➢ Companies Act 2016 Decision date: 10 Disember 2024