Sham Chin Yen & 15 Lagi v Mansion Properties Sdn Bhd (P-02(IM)(NCC)-1935-09/2018)

NG MI MI (K/P NO: 770625-02-5680) 20

WONG SIEW LAY (K/P NO: 660319-07-5370) 25

SEAH CHOON ENG (K/P NO: 660301-10-7914) ... PERAYU-PERAYU 30 DAN MANSION PROPERTIES SDN . BHD. ... RESPONDENT (Syarikat No. 574618-X) 35 [Dalam Mahkamah Tinggi Malaya Di Pulau Pinang Saman Pemula No. PA-24NCC-4-02/2018 Digabung dengan 40 Dalam Mahkamah Tinggi Malaya Di Pulau Pinang Saman Pemula No. PA-24NCC-19-10/2017 45 2 Antara 5 MANSION PROPERTIES SDN . BHD. ... PEMOHON (Syarikat No. 574618-X) 10 Dan 15 SHAM CHIN YEN & 20 Lagi … BAKAL-BAKAL PENCELAH] 20 CORAM HAMID SULTAN ABU BACKER, JCA HANIPAH FARIKULLAH, JCA 25 KAMALUDIN MD SAID, JCA 30 35 3 GROUNDS OF JUDGMENT 5 Introduction [1] The Appellants appeal against part of the decision of the learned judge of Penang High Court dated 17.8.2018 in dismissing the 10 Appellants’ several enclosures in Originating Summons No: PA- 24NCC-19-10/2017 and Originating Summons No. PA-24NCC-04- 02/2018 which were consolidated and heard under Originating Summon (Ex-Parte) No: PA-24NCC- 04-92/2018. 15 [2] The Penang High Court Judge allowed the Appellants’ a p p l i c a t i o n to intervene, but dismissed with costs other prayers of the Appellants to set aside the ex-parte Order dated 9.11.2017 (“the 1st ex-parte Order”) and the ex-parte Order dated 7.2.2018 (“the 2nd ex-parte Order”). The 1st ex-parte Order allowed 20 the Respondent to convene creditors meeting for Scheme of Arrangement and to restraining all other proceedings against the Appellants. The 2nd ex-parte Order approved/sanctioned the Scheme of Arrangement and maintain the restraint order given in the 1st ex-parte Order until the terms of the Scheme is carried out or implemented. 25 [3] The appeal came before us on 18.2.2019. The Appellants and the Respondent had made oral submissions and we have also relied on their written submissions. Having considered the appeal, we were unanimous in our decision that there are merits in the appeal and we 30 4 allowed the Appellants’ appeal with costs of RM15,000.00 here and 5 below and subject to allocator fee. We gave our reasons. The agreed facts [4] The Appellants/Interveners (“the Appellants”) are the purchasers 10 of condominium units and the Respondent/Applicant (“the Respondent”) is the housing developers of a housing project known as D' Mansion in Penang Island. [5] After obtaining vacant possessions of their condominium units, 15 the Appellants filed legal actions to claim Liquidated Damages (LADs) against the Respondent due to delay in delivering vacant possession of the condominium units. [6] At Penang High Court Originating Summons (Ex-Parte) No: PA- 20 24NCC-19-10/2017 ("the 1st Proceeding"), the Respondent obtained the 1st ex-parte Order dated 9.11.2017 inter-alia:

To convene creditors' meeting for t h e acceptance of the Respondent's proposed Scheme of Arrangement 25 seeking inter-alia, to reduce the Respondent's debt to RM0.20 for each RM1.00. 30 5

To restrain all other proceedings against the Appellants. 5 [7] The proposed scheme was approved in the Creditors' meeting convened on 14.12.2017. [8] The Appellants’ Enclosures (6), (9) and (16) are Originating Summon 10 (Ex-Parte) No: PA-24NCC-19-10/2017, inter-alia:

To intervene in the proceedings;

To seek leave under Section 368 of the Companies Act 15 2016 to continue and/or commence legal actions claiming LADs against the Respondent/Applicant;

To set-aside the proposed Scheme and the 1st ex-parte Order dated 9.11.2017;

To stay the 1 s t ex-parte Order dated 9.11.2017 and to appoint an independent approved liquidator under Section 367 of the Companies Act 2016 to assess the viability of the proposed Scheme. 25 [9] While the Appellants' applications were pending in the 1st proceeding, the Respondent secretly obtained the 2nd ex-parte Order dated 7.2.2018 in another Penang High Court via Originating Summon (Ex-Parte) No: PA- 24NCC-4-02/2018 ("the 2nd 30 proceeding") approving and sanctioning the Scheme of 6 Arrangement. 5 [10] The Appellants then filed applications in Enclosure (6) and (7) in the 2nd proceeding seeking inter-alia:

To intervene in the proceedings;

To set aside the 2nd ex-parte Order dated 7.2.2018;

Alternatively, to stay the 2nd ex-parte Order dated 7.2.2018: 15 [11] By the Order dated 26.2.2018, the two proceedings were consolidated and heard under Originating Summon (Ex-Parte) No: PA-24NCC- 04-92/2018 ("the 2nd proceeding"). [12] By the Orders 17.8.2018, the Penang High Court Judge allowed the 20 Appellants to intervene, but dismissed with costs other prayers of the Appellants in:

Notice of Application in Enclosure (6), (9) and (16) in the 1st proceeding; and 25

Notice of Application i n Enclosure (6) and (7) in the 2nd proceeding. 30 7 [13] The Grounds of Judgment of the Learned High Court Judge dated 5 17.8.2018 is at pages 54 to 82 of the Common Core Bundle. In gist, the reasons for approving or sanctioning the Scheme of Arrangement was to ensure that the Respondent obtained sufficient funds to complete the hotel project. The compromise reach with the creditors would enable the Respondent to remain solvent and to 10 avoid the Respondent from being wound up. The Scheme of Arrangement is to ensure the interest of creditors be given priority that they will received the benefit in their monetary return. The terms in the scheme of arrangement had been carried out by the Respondent and at this stage it was unreasonable for the Appellants 15 to raise objection which they could have raised it during the meeting of the creditors held on 14.12.2017. [14] The scheme of arrangement is found at pages 75 to 76 of the Common Core Bundle as follows - 20 THE SCHEME OF ARRANGEMENT

The Scheme is a scheme of compromise and arrangement pursuant to Section 366 of the Act between the Company and the 25 Creditors.

The Company has no secured creditors other than a hire purchase loan from Allince Bank Berhad in respect of motor vehicle No. PKD 333 for the balance sum of RM38, 660.29. The 30 8 Company’s debts are all owed to unsecured creditors (hereinafter 5 referred to as “Creditors of the Company comprise: -

Trade creditors RM1,856,740.41 10

Other creditors RM3,125,183.28

Retention sum due to the main contractors RM 975,000.00

Company’s exposure to liquidated damages RM1,809,863.00 to the LAD claim by Purchasers (as therein ---------------------- defined) RM7,766,788.69 15 ============= The total amount owing to the Company’s Creditors as at 30 September 2017 is RM7,766,788.69. 20 2. In light of the company’s immediate financial cash flow difficulties, following the Company’s request, a company known as Trimension Group Sdn Bhd (hereinafter referred to as “white knight”) who at present is a minority shareholder of twenty per cent (20%) of the issued and paid up capital of the Company 25 from the brink of insolvency. The white knight is a company that is also involved in property development, and is willing to execute a capital injection of RM500,000.00 into the Company as well as to provide the Company with a loan in the sum of RM1,500,000.00 upon the terms and conditions of the 30 Subscription Agreement between the Company and the white 9 knight (“Subscription Agreement”).

The Subscription Agreement is conditional upon the lodgement of the order of the High Court approving the Scheme pursuant to section 366 (4) of the Companies Act with the Companies Commission of Malaysia (hereinafter referred to as “the Effective 10 Date”).

The funds from the white knight will help the Company to pay off its debts such that each Creditors will be paid RM 0.20 for each ringgit of debt owed to them, which will be payable to the 15 Creditors in one sum within one (1) month of the Effective Date.

The Company has total liabilities of RM7,766,788.69 owing to the Creditors. If the Creditors are to accept RM0.20 for each ringgit of debt owed to them, the Company’s liabilities to have Creditors 20 will be reduced to RM1,553,357.74. The amount needed to complete the said Project is RM750,000.00. Thus. With the capital injection of RM500,000.00 and loan of RM1,500,000.00 from the white knight plus cash in hand of RM328,346.69, the Company will have sufficient funds to pay the Creditors and to 25 complete the said Project and apply for strata titles to the said Project.

Upon settlement of the debt, the balance of the debt owed will be deemed waived and the unsecured Creditors would be deemed 30 10 to have been paid in full. 5 This appeal [15] The Appellants set out 26 grounds of appeal in their memorandum of appeal at pages 2 to 7 of the Appeal Record (Part A). However, 10 before us as appears in their written submission, the Appellants confined their arguments on 5 main areas or issues which they submitted that the decision of the High Court was totally wrong and requires intervention from this Court. 15 [16] In gist the issues raised before us following the submissions were as follows -

The procedure of the Companies Act 2016 was not complied with and the Court's supervisory function was 20 bypassed. (Section 3)

Abuse of the Court process by the Respondent (Section 4)

The Scheme of Arrangement is unfair as it ignores the 25 priorities of claims by the creditors above the shareholders in the winding-up and wrongful findings by the High Court

Wrongful finding that an Independent liquidator had been 30 11 appointed by the Court for the Scheme. (Section 6)

The Scheme of Arrangement is not bona-fide and tainted with concealment of facts and wrongful findings by the High Court Judge. (Section 7) 10

Policy Argument and Conclusion. (Section 8) [17] The Respondent on the other hand submitted that the Learned High Court Judge arrived at her decision correctly upon the assessment of the available evidence presented, and such 15 decision is seldom disturbed unless there is clear error on the principles of law or the decision is erroneous and without any basis and justification. The Court at first instance (here the Penang High Court) is in more advantageous position to make the findings of fact and there should not be judicial interference unless 20 there are exceptional circumstances. [18] It was submitted that the Scheme of Arrangement was carried out in accordance with the provisions of sections 366 to 369 of the Companies Act 2016. The requirements and safeguards of these 25 provisions had been fulfilled and observed respectively.

The Procedures of the Companies Act 2016 was not complied 30 12 with and the Court's supervisory function was bypassed.

Abuse of the Court process by the Respondent [19] There were three points submitted under issue (a) above to say that the learned High Court judge had misdirected herself in law and in 10 fact in her decision as follows -

Failed to consider that the applications made under section 366 (1) and section 366 (4) of the Companies act 2016 must be made to the same Court and not in different Court.

(ii) Granted the 2nd ex-parte Order dated 7.2.2018 that approved the Scheme of Arrangement despite the 1st ex-parte Order dated 9.11.2017 for creditors meeting was first filed in different Court and the order was granted by 20 the said Court.

(iii) The learned judge had failed to carry out her supervisory duty and functions when she granted the 2nd ex-parte Order dated 7.2.2018 under section 366 (4) of the Companies Act 25 2016 despite the Appellants had made objections to the Scheme of Arrangement in their applications filed in Court which had not been fixed for hearing. 13 [20] The Appellants submitted the words "the Court" in section 366 (1) 5 and 366 (4) of the Companies Act 2016 (“the Act”) refers to the same Court and not different Court to enable the proper exercise of supervisory function throughout the process by the Court. As such, the application for approval/sanction of the Scheme of Arrangement under section 366 (4) of the Act shall be filed in the same Court 10 where the first Order to convene creditors' meeting under section 366 (1) of the Act was obtained, and not in a different Court as happened in the present case. [21] By filing the applications under section 366 (1) and 366 (4) of the Act 15 in two different court, the Respondent has in effect, deprived and bypassed the first High Court of its super visionary duty over the Scheme to ensure that the views and interests of those who have not approved the proposals at the meeting or meetings (either because they were not present or being present, did not vote in 20 favour of the proposals receive impartial consideration). [22] It was also submitted that the Second High Court Judge in the 2nd proceeding, granted the 2nd ex-parte Order dated 7.2.2018 sanctioning the Scheme of Arrangement without the knowledge of 25 the Appellants pending applications against the Scheme in the 1st proceeding, because the Respondent’s Affidavit-in-Support dated 2.2.2018 in the end proceeding made no mention of those pending applications in the 1st proceeding to oppose the Scheme. 30 14 [23] Therefore, the Second High Court Judge had failed in her 5 supervisory duty and functions in allowing the 2nd ex-parte Order dated 7.2.2018 approving/sanctioning the Scheme under section 366 (4) of the Act, without knowledge or taking into account the Appellants earlier applications in the first High Court. 10 [24] Under issue (b) above, the Appellants submitted that the Respondent's filing of Originating Summons for sanction/approval of the scheme under section 366 (4) of the Act in different/separate Court is also an abuse of the Court process. 15 [25] We may add that in the 1st ex-parte Order dated 9.11.2017 other than allowing the meeting for creditors, the Court also allowed restraint order against the Appellant for a period of 90 days from further proceedings in any action against the Respondent which application was made by the Respondent under section 368 (1) of the Act. We 20 also noted that part of the prayers in the Appellants’ applications was also to set aside the restraining Order. [26] For the purpose of argument, we considered issues (a) and (b) are the main issues for the Appellants’ appeal. The issues are point of 25 law which involved substantive arguments and determination of this Court whether the Respondent in making the application for Scheme of Arrangement and to restraint all other proceedings against the Appellants were in compliance with the procedure under section 366 and 368 of the Act. 30 15 [27] In the event the Appellants succeeded and we allowed the 5 Appellants’ appeal based on issues (a) and (b) above, we were of the view that issues (c), (d), (e) and (f) raised by the Appellants in this appeal would become academic and unnecessary for us to deal with those issues. If otherwise, we may proceed to deal with those issues. 10 Our view [28] The Respondent alleged that the order to convene a meeting of the creditors for proposed Scheme of Arrangement granted by the High Court vide the 1st proceeding dated 27.10.2017 and the meeting 15 convened for proposed Scheme of Arrangement on 14.12.2017 and subsequently the High Court granted its sanction to the proposed Scheme of Arrangement on 7.2.2018 vide the 2nd proceeding dated 2.2.2018, t h e requirements and safeguards of these provisions had been fulfilled and their actions had complied with the provisions 20 of the Act. [29] The 1st ex-parte Order dated 9.11.2017 obtained in the 1st Proceeding contained directions for the Respondent to convene creditors' meeting for acceptance of the Respondent's proposed Scheme of 25 Arrangement seeking inter-alia, to reduce the Respondent's debt to RM0.20 for each RM1.00 and in carrying out the Scheme of Arrangement, the creditors are restrained from proceeding with any legal actions against the Respondent including the Appellants from continue and/or commence legal actions claiming liquidated 30 16 damages for late delivery of vacant possession of the condominium 5 units (LAD). [30] The previous provisions governing Schemes of Arrangement were largely contained in sections 176 and 177 of the Companies Act

The new provisions relating to Scheme of Arrangement are 10 sections 366 to 371 of the Companies Act 2016. [31] Section 366 of the Companies Act 2016 provides that - Power of Court to order compromise or arrangement with 15 creditors and members

The Court may, on an application under this Subdivision, order a meeting in a summary way to be summoned in such manner as the Court directs, by either- 20

the company;

any creditor or member of the company;

the liquidator, if the company is being wound up; or

the judicial manager, if the company is under judicial 25 management.

A meeting held pursuant to an order of the Court made under subsection (1) may be adjourned if the resolution for adjournment is approved by seventy-five per centum of the total value of 30 17 creditors or class of creditors or the members or class of members 5 present and voting either in person or by proxy at the meeting.

The compromise or arrangement shall be binding on-

all the creditors or class of creditors;

the members or class of members;

the company; or

the liquidator and contributories, if the company is being wound up, if the compromise or arrangement is agreed by a majority of seventy-five per centum of the total value of 15 the creditors or class of creditors or members or class of members present and voting either in person or by proxy at the meeting or the adjourned meeting and has been approved by order of the Court. 20

The Court may grant its approval to a compromise or arrangement subject to such alterations or conditions as the Court thinks just.

An order under subsection (3) shall have no effect until an 25 office copy of the order is lodged with the Registrar, and upon being so lodged, the order shall take effect on an from the date of lodgement or such earlier date as the Court may determine and as may be specified in the order. 30 18

Subject to subsection (7), a copy of every order made 5 under subsection (3) shall be annexed to every copy of the constitution of the company issued after the order has been made, or in the case of a company not having a constitution, to every copy of the instrument issued constituting or defining the constitution of the company.

The Court may, by order, exempt a company from complying with the requirements of subsection (6) or determine the period during which the company shall comply with the requirements.

If any such compromise or arrangement, whether or not for the purposes of or in connection with a scheme for the reconstruction of any company or the amalgamation of any two or more companies, has been proposed, the directors of the 20 company shall —

if a meeting of the members of the company by resolution directs, instruct such accountants or advocates or both as are named in the resolution to report on the 25 proposals and forward their report to the directors as soon as practicable; and

make the report available at the registered office of the company for inspection by the shareholders and creditors 30 19 of the company at least seven days before the date of any 5 meeting ordered by the Court to be summoned in accordance with subsection (1).

The company and every officer who contravene subsection

or (8) commit an offence. 10 [32] The book on “Companies Act 2016, The New Dynamic of Company Law in Malaysia” published by CLJ, co-authored by Kenneth Foo Poh Khean and Lee Shih stated as follows:- 15 “11.3 GENERAL OUTLINE OF THE STAGES INVOLVED IN A SCHEME OF ARRANGEMENT” “A scheme of arrangement involves three stages, i.e. (citing Chadwick LJ in Re Hawk Insurance Co Ltd 20 [2001] 2 BCLC 480): First Stage: Application for Leave for Court Convened Meeting 25 Firstly, an application would have to file an application to court under s. 366 of the 2016 Act for leave to summon the meetings of the classes of creditors or classes of members. At the same time, the applicant may also apply for a restraining order pursuant to s. 368 of the 2016 Act. 30 20 5 During this stage, the court will direct the manner in which the meeting or meetings are to be summoned. The court has to ensure that those parties who would be affected by the proposed compromise or arrangement will be given a proper opportunity to be present and vote. 10 Second Stage: Holding the Court Convened Meeting Secondly, once the court has granted the order for the summoning of the meetings, the meetings of different 15 classes of creditors or members will be held. At this stage, each meeting must approve the proposed scheme through a 75% majority in value of the creditors or members, or classes of creditors or members. 20 Section 366 (3) of the 2016 Act has changed the approval requirement where under the previous s. 176 of the 1965 Act, the meeting had to cross the threshold of both 75% majority in value and more than 50% in number. 25 Third Stage: Applying for Court Sanction of the Scheme Thirdly, once the meetings have the proposed scheme, the applicant then files a further court application for the court to sanction the scheme pursuant to s. 366 (4) of the 2016 Act. 30 21 At this stage, the court will need to ensure that (i) the 5 meeting or meetings have been summoned and held in accordance with its previous order; (ii) the proposals have been approved by the requisite majority; and (iii) the view and interest of those who had approved the proposals at the meeting or meetings received impartial consideration.

11.4 LEAVE APPLICATION FOR COURT CONVENED MEETING As stated above, the first step is to file application for leave of court to convene the meeting of the classes of creditors or 15 members. This will be through the filing of an originating summons. Where the company is the applicant, the originating summons is normally filed on an ex-parte basis and with the 20 company as the sole party to the proceedings. However, where the applicant is a creditor or a member of the company to the originating summons, the company should be named as a respondent. 25 At this stage, the court will not consider the merits and fairness of the scheme (citing Re Telenest Communication Plc [2004] EWHC (Ch)). Further, given the inherently jurisdiction of the court to ensure that its processes are not improperly invoked, an order for leave would be refused if it 30 22 is shown that the application amounts to an abuse of 5 process (citing Intrakota Komposit Sdn Bhd & Anor v Sogelease Advance (M) Sdn Bhd [2004] 8 CLJ 276; HC, BHD Re Punj Lloyd Pte Ltd and Another Matter [2015] SGHC 321.) 10 The court may also consider the factors which affect the granting of leave-i) Hopelessly Insolvent Company (Sri Hartamas Development Sdn Bhd v MBF Finance Bhd [1990] 1 15 CLJ 827; [1990] 2 MLJ 31, HC); ii) No realistic Prospect of Success (PECD Bhd & Anor v Gula Perak Berhad; Town Hang Securities Co Limited (Applicant) [2010] 1 CLJ 940; [2010] 5 MLJ 20 357, CA) [33] A Scheme of Arrangement in section 366 of the Act involves three stages. It was also confirmed by Nallini Pathmanathan J (as she then was) in Transmile Group Berhad & Anor v. Malaysian 25 Trustee Berhad & Ors [2013] 2 MLRH 427, as follows – “[22] In Re Sateras Resources (Malaysia) Bhd [2005] 6 CLJ 194 Ramly J (now JCA) adopted the principles set up in Buckley on the Companies Acts, 14th ed, 1981, pp 473-474: 30 23 “…In exercising the power of sanction the court will see, 5 first, that the provisions of the statute have been complied with, second that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those 10 of the class whom they purport to represent, and thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest might reasonably approve. 15 The Federal Court of Australia in the case of Hiberman Friendly Society (NSW) Limited [2002] FCA 913 stated that: Nevertheless, the court is not a mere rubber stamp and it will look at the arrangement to ensure that it is a 20 reasonable one. If the court concludes that there is an objection to the arrangement, such that a reasonable person might not approve it. Then the court may refuse to approve the arrangement. The court must be satisfied that the proposal is at least so fair and reasonable that an 25 intelligent and honest person who is a member of the class of the security holders bound by the arrangement acting alone in respect of his or the interest, as such security holder might approve it." 30 24 [23] In the Hong Kong Court of Final Appeal case of UDL 5 Argos Engineering & Heavy Industries Co Ltd v Li Oi Lin [2001] HKCFA 19 …….. “The following principles can be derived from this consistent line of authority: 10 It is the responsibility of the company putting forward the scheme to decide whether to summon a single meeting or more than a meeting. If the meeting or meetings are improperly constituted, objection should be taken on 15 the application will be dismissed....................

The court will decline to sanction a scheme unless it is satisfied, not only that the meetings were properly constituted and that the proposals 20 were approved by the requisite majorities, but that the result of each meeting fairly reflected the views of the creditors concerned. To this end it may discount or disregard altogether the votes of those who, though entitled to vote at a meeting as a 25 member of the class concerned, have such personnel or special interests in supporting the proposals that their views cannot be regarded as fairly representative of the class in question”. 25 [25] In Re Hawk Insurance Co Ltd [2002] BCC 300 5 Chadwick LJ had occasion to consider this issue......................: "........three stages in the process by which a compromise or arrangement becomes binding on the 10 company and all its creditors ...............It can be seen that each of those stages serves a distinct purpose. At the first stage. the court directs how the meeting or meetings are to be summoned. It is concerned, at that stage, to ensure that those 15 who are to be affected by the compromise or arrangement proposed have a proper opportunity of being present (in person or by proxy) at the meeting or meetings at which the proposals are to be considered and voted upon. The second stage 20 ensures that the proposals are acceptable to at least a majority in number representing three-fourths in value, of those who take the opportunity of being present (in person or by proxy) at the meeting or meetings. At the third stage the court is concerned 25

to ensure that the meeting or meetings have been summoned and held in accordance with its previous order, (ii) to ensure that the proposals have been approved by the requisite majority of those present at the meeting or meetings and (iii) to ensure that 30 26 the views and interests of those who have not 5 approved the proposals at the meeting or meetings (either because they were not present or. being present. did not vote in favour of the proposals) receive impartial consideration. 10 [34] At this first stage the 1st ex-parte Order dated 9.11.2017 which allowed the Respondent to convene creditors’ meeting for Scheme of Arrangement was within the powers of the Court to “order a meeting in a summary way to be summoned in such manner as the Court directs” on application by the Respondent as 15 provided under section 366 (1) of the Act. In the same Order, the Court also restraint further proceedings in any action against the Respondent. The Court exercised its powers on the application in a summary way of the Respondent under section 368 (1) of the Act. 20 [35] Section 368 of the Act provides as follows-Power of Court to restrain proceedings

If no order has been made or resolution passed for the winding 25 up of a company and a compromise or arrangement has been proposed between the company and its creditors or any class of those creditors, the Court may, in addition to any of its powers, on the application in a summary way of the company or any member or creditor of the company, restrain further proceedings in any 30 27 action or proceeding against the company except by leave of the 5 Court and subject to any terms as the Court may impose.

The Court may grant a restraining order under subsection (1) to a company for a period of not more than three months and the Court may on the application of the company, extend this period 10 for not more than nine months if —

the Court is satisfied that there is a proposal for a scheme of compromise or arrangement between the company and its creditors or any class of creditors representing at least one- 15 half in value of all the creditors;

the Court is satisfied that the restraining order is necessary to enable the company and its creditors to formalize the scheme of compromise or arrangement for the approval of the creditors or members under section 366;

a statement of particulars as to the affairs of the company made up to a date not more than three days before the application is lodged together with the application; and 25

the Court approves the person nominated by a majority of the creditors in the application by the company under subsection (1) to act as a director or if that person is not already a director, appoints that person to act as a director 28 notwithstanding the provisions of this Act or the constitution 5 of the company.

………………

………………

………………..

An order made by the Court under subsection (1) shall not have the effect of restraining —

further proceedings in any action or proceeding that should be taken against the company by the Registrar or the 15

further proceedings in any action or proceeding against any person including the guarantor of the company but does not include the company that had applied for the restraining 20 order.

………………. [36] Paragraph 3 and 4 of the 1st ex-parte Order dated 9.11.2017 25 says as follows - “3. A restraining order be granted pursuant to section 368 (1) of The Companies Act 2016 for a period of 90 days or as the 29 court may order, from the date of the Order to restrain all 5 further proceedings in any action or proceeding against the Company including, without derogating from the generality of the foregoing, winding-up, execution and arbitration proceedings as well as any intended or future proceedings (hereinafter referred to as “the Restraining Order”) except 10 by leave of this Honourable Court, to enable the Company and the Creditors of the Company to formalize the Scheme of Arrangement for the approval of the Creditors of the Company pursuant to section 366 (1) of the Companies Act 2016;

That the Restraining Order be deemed to be personally effected on all persons affected by the Restraining Order, including, in the context of companies, the directors thereof……” 20 [37] The Respondent argued that the words “order a meeting in a summary way to be summoned in such manner as the Court directs” under section 366 (1) of the Act means at this first stage the originating summons filed by the Respondent for scheme of 25 arrangement including application under section 368 (1) of the Act for restraint order is ex-parte application which does not require the application to be served on the Appellants. 30 30 [38] The view expressed by the authors in their book “Companies Act 5 2016, The New Dynamic of Company Law in Malaysia” above is that where the company is the applicant, the originating summons is normally filed on an ex-parte basis and with the company as the sole party to the proceedings. It means, there is no requirement for the application for scheme of arrangement to be served on the creditors 10 i.e. the Appellants. However, where the applicant is a creditor or a member of the company to the originating summons, the company should be named as a Respondent. It means the originating summons must be served on the company. The common practice in Malaysia still appears to be filing of an ex-parte application for 15 scheme of arrangement and the creditors must subsequently intervene in order to raise their opposition to scheme of arrangement or the restraining order. At the first stage, normally the court will not consider the merits and fairness of the scheme. The court is only to ensure that its processes are not improperly invoked, an order for 20 leave would be refused if it is shown that the application amounts to an abuse of process. [39] It is not disputed that the application under section 366 (1) of the Act to convene meeting of creditors for the proposed Scheme of 25 Arrangement and restraint order under section 368 (1) of the Act were made under the same originating summons i.e the 1st proceeding dated 27.10.2017 and “in a summary way of the company” under sections 366 (1) and 368 (1) of the Act. Based on such application, especially the application had incorporated 30 31 restraint order on all proceedings by the Appellants against the 5 company i.e. the Respondent, in our opinion, it would necessarily mean that the application ought to be served on the Appellants and the application was to be heard inter parte. [40] In Re Panglobal Bhd & Ors [1999] 8 CLJ 520, it was held that the 10 application for restraining order ought to be served on the creditors whose actions or proceedings are sought to be restrained. These creditors would then have the opportunity to oppose the application for the restraining order. In this case, the court only granted an interim restraining order for two weeks to allow the application to be 15 served on the debenture holder. [41] The requirement to give notice to creditors in fact was also decided in the case of Re Foursea Construction (M) Sdn Bhd [1998] 3 CLJ

The Court dismissed an ex-parte application for a restraining 20 order. The restraining order sought to restrain several pending winding-up petitions. The Court held that the application to be dealt with summarily, i.e. vide inter-parte hearing. This would give an opportunity to the creditors to make representation. By proceeding ex-parte, a great injustice is caused to creditors who are legally 25 entitled to enforce execution proceedings. The Court was also of the view that if there were pending winding-up proceedings in existence, then the application for restraining order must be made in those winding up proceedings. The judges in the winding up court would 32 then be aware of the wishes of all the creditors or contributories in 5 deciding whether to grant the restraining order. [42] Rekhraj J (as his Lordship then was) in his actual words said as follows - 10 “8. Upon hearing, I refused the Application and dismissed it because section 176(1) of the Companies Act 1965 "(1) Where a compromise or arrangement is proposed between a company and its creditors or any class of them or between the company and its members or any class of them 15 the Court may on the application in a summary way of the company or of any creditor or member of the company, or in the case of a company being wound up of the liquidator; order a meeting of the creditors or class of creditors or of the members of the company or class of members to be 20 summoned in such manner as the Court directs.".

Such an application under the section must be dealt summarily, i.e. by hearing Inter partes; with an opportunity given to the known Creditors on record; to make their representation, and not by Ex- 25 parte; as by so proceeding, great injustice is caused to the Creditors who are legally entitled to enforce execution proceeding (Ex debito Justitia); and are thus put to further unnecessary expense in setting aside the Orders”. 33 [43] The Respondent admitted that the originating summons was not 5 served on the Appellants. The Respondent’s action in filing the originating summons and without serving the originating summons to the Appellant was an abuse of court process. We were also of the view that even after having served the 1st ex-parte Order dated 9.11.2017 on the Appellants as if the Appellant was put to notice and 10 given the opportunity to intervene and challenge the Order, the service of the Order could not save the application which already been tainted for non-compliance of the procedure under the Act. In other words, the 1st ex-parte Order dated 9.11.2017 is liable to be set aside on the ground that the application in the first place was an 15 abuse of Court process. [44] In the present case, the Appellants had filed Originating Summon (Ex-Parte) No: PA-24NCC-19-10/2017 in enclosures (6), (9) and (16) inter alia - 20

to intervene in the proceedings, to seek leave under Section 368 of the Companies Act 2016;

(ii) to continue and/or commence legal actions claiming LADs 25 against the Respondent;

(iii) to set-aside the proposed Scheme and the 1st ex-parte Order dated 9.11.2017; 30 34

(iv) to stay the 1s t ex-parte Order dated 9.11.2017; and 5

to appoint an independent approved liquidator under Section 367 of the Companies Act 2016 to assess the viability of the proposed Scheme. 10 [45] The Appellants submitted that while their applications were pending, the Respondent secretly obtained the 2 n d ex-parte Order dated 7.2.2018 in another Penang High Court via the 2nd proceeding (Originating Summon (ex-parte) No: PA- 24NCC-4-02/2018) approving and sanctioning the Scheme of Arrangement and 15 restraining all proceedings against the Respondent. [46] The Respondent did not dispute such fact. The Respondent ought not to have filed the 2nd proceeding and obtained the 2nd ex-parte Order dated 7.2.2017 before Second judge when their application to 20 intervene and to set aside the 1st ex-parte Order dated 9.11.2017 which was allowed by the First judge is still pending. We were of the view that the Appellants must be given the opportunity to intervene and raised objections on the appropriateness of the impugned Order. 25 [47] We are mindful that although Judges of the High Court have concurrent jurisdiction to hear any cases filed at the High Court, in this particular case, we were of the view that since the First judge had given directions for the Respondent to convene creditors’ 30 35 meeting for the Scheme of Arrangement and restraint of all 5 proceedings against the Respondent, it is fair that the Appellants’ enclosures (6) (9) and (16) ought to be heard by the same judge. The First judge hearing enclosures (6) (9) and (16) of the Appellants would then be aware of the intervention and objections of the Appellants before deciding whether to set aside or affirmed the ex- 10 parte Order granted by the Court on 9.11.2017. [48] In the present case the Second judge heard enclosures (6), (9) and

which applications hinge on setting aside the 1st ex-parte Order dated 9.11.2017 by the First judge. At the same time, she heard 15 enclosures (6) and (7) which were filed to set aside her own 2nd ex-parte Order dated 7.2.2018. All enclosures were consolidated and heard on 17.8.2018. Although, she may hear applications to set aside her own 2nd ex-parte Order dated 7.2.2018, question arises whether she can hear the applications to set aside the 1st ex-parte 20 Order dated 9.11.2017 when the applications are supposed to be pending before the First judge. In our view it is quite improper for the Second judge to dispose of enclosures (6), (9) and (16) related to the 1st ex-parte Order when she was at the same time defending her 2nd ex-parte Order in applications of enclosures (6) and (7). The very 25 least, having knowledge of enclosures (6), (9) and (16), the Second judge should have let the said enclosures be done by the First judge and enclosures (6) and (7) be stayed. 30 36 [49] In another scenario, assuming for a moment that the First judge 5 heard the Appellants’ applications and decided to set aside the 1st ex-parte Order, and in another Court the Second judge without her knowledge, upon application by the Respondent granted the 2nd ex-parte Order on 7.2.2018 and affirmed it on 17.8.2018. Obviously, there will be 2 contradicting Orders which may give rise to confusion. 10 [50] Assuming the 1st ex-parte Order dated 9.11.2017 was correctly issued and at the second stage i.e. holding the Court Convened Meeting was carried out of which the proposed Scheme was approved by the creditors and the applicant filed a further court 15 application for the court to sanction the scheme pursuant to section 366 (4) of the Act (2nd proceeding) before the First judge, at this third stage, the judge will have the opportunity to ensure that (i) the meeting or meetings have been summoned and held in accordance with its previous order; (ii) the proposals have been approved by the 20 requisite majority; and (iii) the view and interest of those who had approved the proposals at the meeting or meetings received impartial consideration. The judge may have the opportunity to hear the objections by the Appellants for example, the Appellants’ claims in this appeal that the Scheme of Arrangement is unfair as it 25 ignores the priorities of claims by the creditors above the shareholders in the winding-up, the appointment of liquidator by the Court for the Scheme, that the Scheme of Arrangement is not bona-fide and tainted with concealment of facts and policy argument. We agreed with the Appellants that at this third stage, the Court is 30 37 exercising its supervisory function. 5 [51] Siti Norma Yaakob J (as she then was) in the case of Sri Hartamas Development Sdn Bhd V MBF Finance Bhd [1990] 2 MLJ 31, held at pg. 32 that the statutory provisions really (referring to 176(1) of the Companies Act 1965) require two steps, the first being essentially 10 procedural in nature and the second essentially supervisory. [52] By filing the 2nd proceeding and obtained the said 2nd ex-parte Order dated 7.2.2017 from the Second judge from different Court secretly without the knowledge of the Appellants when they knew or ought to 15 have known of the Appellants’ applications, the Respondent was trying to avoid the Appellants on reasons best known to them, thereby, causing their action in our mind to be mala fide against the Appellants. We agreed with the Appellants that in this case, the Respondent bypassed the procedure established by law by 20 commencing the third stage action. Inference can be drawn that the Scheme of Arrangement sought by the Respondent is not a bona fide Scheme. [53] On the practice of filing related ex-parte proceedings in different 25 courts, the Court of Appeal, in Jasa Keramat Sdn Bhd & Anor v. Monatech (M) Sdn Bhd [1999] 1 MLRA 479, said as follows - 38 "When pronouncing the order of this Court I said that this was 5 one of the worst cases of an abuse of the process I had ever come across. Having re-read the appeal record for the purpose of writing this judgment I have found nothing to alter that view." Page 481 10 “Since the circumstances in which the court's process may be abused are varied and numerous. the categories of such cases are therefore not closed. Whether the institution of an action or its continuation or a step taken therein amounts to an abuse of process depends upon particular and individual 15 circumstances. Where an action is found to be an abuse of the court's process. it may be struck out or stayed. If it is too late to do this, the party aggrieved may bring an action based upon the tort of abuse of process. 20 Page 482 "Where the court's process is abused, the proceedings complained of may be stayed, or if it is too late to grant a stay, the party injured may bring an action based on the tort of collateral abuse of process.” 25 Pages 483-484 What remains is to apply the relevant principles to the facts of the present appeal. When that is done, I am driven to the conclusion that the respondent plainly abused the process of the court not 30 39 only in instituting the third action but in the steps it took therein. 5 There are several matters when taken together reasonably support that conclusion. First. it is clear that if the respondent was genuinely unhappy with the conduct of the arbitrator, it could have pursued the 10 remedy made available by s. 24(1) of the Arbitration Act 1952. That provision enables the High Court to remove an arbitrator who has misconducted himself. The proper procedure by which the High Court is to be moved for such relief is prescribed by RHC O. 69 r. 2(1)(b). The application should be by way of an 15 originating motion supported by an affidavit. The appellants would be entitled to appear and be heard upon such an application. Here. the respondent bypassed the procedure established by law by commencing the third action. 20 Second. the respondent having obtained an order before the High Court at Penang in the second action prohibiting the arbitrator from adjudicating upon the dispute in question, obtained a further ex-parte injunction in the third action restraining all proceedings in the second action. This bound 25 the appellants hand and foot. They found themselves in the unenviable position of being unable to apply for a discharge of the restraining order obtained by the respondent in the second action. The arbitration proceedings were truncated without a single shot being fired in reply. The conduct of the respondent 30 40 was, to say the least, entirely unconscionable in all the 5 circumstances of the case. In my view, there can hardly be a clearer case where injunctive relief has been used as an instrument of oppression. Third, the respondent having entered into a consent order in the 10 first action that the retention monies should be placed in a joint account, nullified that order with a stroke of a pen. This did by obtaining the further ex-parte order in the third action whereby the retention monies were to be released to it. By so doing, it bypassed the need for an inter parties’ application in the first 15 action to have the consent order vacated. Had such an application been made, the appellants would most certainly have had an opportunity to appear and oppose it. And the respondent having entered into the consent order with open eyes, would have found it most difficult to surmount the obstacles that lay in 20 its path in having that order set aside, especially since it was to the practical advantage to both parties. See, Chee Kuang Cheng v. Chou Kong Kah [1967] 1 MLRA 240: [1967] 2 MLJ 74”. 25 "Lastly, there is the matter of the change in the forum to which I have already adverted. There is no good reason for the respondent to have approached the High Court at Shah Alam by way of the third action. It was aware of the first and second actions that were pending before the Penang High 30 41 Court. The manner in which the approach was made to the 5 High Court at Shah Alam smacks of an abuse” [54] In Dynawell Corporation (M) Sdn Bhd (In Provisional Liquidation) v Universal Trustee (M) Berhad [ 2013] 1 LNS 1391, the High Court was presented with multiple applications for a 10 restraining order and the Court held that it was an abuse of process (See also RHB Bank Berhad v Gula Perak Berhad: Town Hang, Securities Co limited (Applicant) [2013] 1 LNS 1409). There were at least six different restraining orders applications filed in different Court on the basis of similar proposed scheme of arrangement. The 15 restraining orders were obtained in High Courts of Kuala Lumpur, Shah Alam, Seremban and Taiping. The said orders were obtained by different applications via separate proceeding that had similar grounds and traits. Further the averments in the different affidavits in support were almost similar. The opposing creditors had to file their 20 application in each of the separate courts to set aside the restraining orders obtained by different parties. The multiple restraining orders and the related legal proceedings also delayed the foreclosure and winding-up proceedings taken against the two companies. It was held that this clearly indicated a wilful calculation to delay the 25 hearing of the foreclosure proceedings. The multiple restraining orders eventually led both the High Court in Taiping and Seremban to set aside the said orders and the courts made ancillary orders that any further application for a restraining order had to be made inter partes. The Seremban High Court held that given the 30 42 chequered history of the litigation, it was a case of abuse of process 5 of the highest order. [55] Further, the Respondent's filing of 2nd proceeding for sanction/approval of the scheme under section 366 (4) of the Act and for continued enforcement of the restraint order under section 368 (1) 10 of the Act in different/separate Court and without disclosing material fact that regarding the Appellants' pending applications in the 1st proceeding to oppose the scheme and the restraint order in their Affidavit in Support dated 2.2.2018 (at pages 83 to 98 of the Common Core Bundle) is clearly an abuse of process of Court. 15 [56] In PECD Bhd & Anor v Amtrustee Bhd and Other Appeals [2010] 5 MLJ 357, the Court of Appeal (Putrajaya) held as follows - “Whether The Appellant Had Failed to Disclose Material Facts? 20 “[25] All of the respondents contended that the appellants, in moving the second OS, has not disclosed material facts. The learned High Court judge ruled that what transpired in the first OS, and the decision of the Court of Appeal in respect of the appeal 25 therefrom, were material facts which should have been disclosed in their application for the ex parte order in the second OS. [26] The appellants took the position that there was no material non-disclosure in obtaining the ex parte order dated 18 August 30 43 2008 in the second OS. The non-disclosure of their failure to 5 obtain a further extension of the first RO from the High Court and the Court of Appeal in respect of the first OS was not material as the failure was due to non-compliance of s 176(10A)(c) and (d) of the Act upon the objection by a particular creditor when the extension was sought. In the second OS, these provisions of 10 s 176(10A) of the Act had duly been complied with. [27] I am in agreement with decision of the learned judge on this issue. What transpired in the first OS at the High Court, and the decision of the Court of Appeal in respect of the appeal therefrom, 15 were certainly material facts which should have been disclosed by the appellants in applying for the ex parte order in the second OS. The first appellant should also have disclosed the fact that RM30m of the RM40m scheme monies came from the proceeds from the rights issue raised for the specific purpose for payment to 20 Am Trustee for partial redemption of the notes, and that Am Trustee had claimed such monies. The appellants should have also held out their letter seeking Securities Commission's approval for the rights issue exercise and Securities Commission's approval for the rights issue exercise and its terms. 25 The failure to make such full and frank disclosure renders the ex parte order obtained liable, and rightly, set aside (see Kosma Palm Oil Mill Sdn Bhd & Ors v Koperasi Serbausaha Makmur Bhd [2004] 1 MLJ 316 at p 328; Castle Inn Sdn Bhd v Bumiputra-Commerce Bhd [2009] 1 MLJ 542 at p 550). 30 44 [28] On this ground alone these appeals can and are dismissed. 5 Notwithstanding this, the other issues raised are of some importance which must also be addressed”. Conclusion 10 [57] Based on the above reasons, the Respondent’s application in summary way under section 366 (1) and 368 (1) of the Act is non-compliance of procedure under the Act and it is an abuse of process of Court. It follows that the 1st Order dated 9.11.2017 obtained via the tainted application is liable to be set aside. Subsequently, the 2nd 15 Order obtained on 7.2.2018 via the 2nd proceeding before the Second judge does not have effect on the Appellant is also liable to be set aside. In the result the Scheme of Arrangement is not binding on the Appellants. 20 [58] We were unanimous in our decision that there are merits in the Appellants’ appeal and the appeal is allowed with Costs of RM 15,000.00 here and below subject to allocator fee. The deposit if paid is refunded to the Appellants. 25 Dated this 24 May, 2019 sgd KAMALUDIN MD. SAID JUDGE 30 COURT OF APPEAL MALAYSIA PUTRAJAYA 45 Parties 5

Siau Suen Miin for the Appellants (Messrs Siau Suen Miin & Tan)

B. Jeyasingam & Khor Wanxin for the Respondent 10 (Messrs Ghazi & Lim)