TETUAN KRISH MANIAM & CO v Sarawak Cable Berhad (WA-28JM-21-07/2024)

The Originating Summons was filed by the Applicant, a law firm, to obtain a Judicial Management order against the Respondent, his former client. Inundated by contested interlocutory applications, the Originating Summons was never heard. However, an interim Judicial Manager (“IJM”) was appointed on 9-7-2024.

By the time this matter came up before this Court on the Applicant’s application for leave to discontinue the Originating Summons (“Enclosure 135”), the following parties were participating actively in the proceedings: a) the Applicant; b) the IJM, representing the Respondent; c) Hong Leong Islamic Bank Berhad and Ambank (M) Berhad pursuant to Notices of Intention to Appear on the Application for a Judicial Management Order dated 7-8-2024, in the stated capacity as secured creditors of the Respondent (“Banks”); d) Leader Cable Industry Berhad (In Liquidation) (“LCIB”) and Universal Cable (M) Berhad (In Liquidation) (“UCMB”), 2 of its subsidiaries and proposed Interveners (“Proposed Interveners 1”); and e) Mahmud Abu Bekir Taib, a director and proposed Intervener (“Proposed Intervener 2”).

Among the many unresolved applications was the IJM’s application vide Notice of Application dated 27-11-2024 (“Enclosure 51”) for directions on the utilization of a sum of money in the hands of the IJM. The application was made pursuant to the supervisory jurisdiction of the Court in section 414(5) of the Companies Act 2016 (“CA 2016”).

On 4-11-2025, this Court dismissed Enclosure 51 and allowed Enclosure 135 on terms including as to costs. Against these orders, the Respondent, represented by the same solicitors previously representing the IJM, has appealed to the Court of Appeal. Background facts

The Respondent was reportedly in financial distress since 2019. In 2021, it became an affected issuer under Practice Note 17 of the Listing Requirements and had attempted a scheme of arrangement in Kuching High Court Originating Summons No: KCH-24NCC-1- 9/2022 (“Scheme”). The Scheme was voted down on 26-9-2023.

Prior to that, the Respondent had entered into the following agreements with its financiers, comprising the Banks and Bank Muamalat Malaysia Berhad (together, the “SCB Financiers”) on 30-11-2020 after CDRC negotiations over an aggregate debt of some RM129,123,467.29 owed to the SCB Financiers: a) Restructuring Agreements with SCB Financiers (“RA”); and b) an Asset Sharing Agreement with SCB Financiers and Universal Trustee (Malaysia) Berhad (“ASA”).

The RA and ASA obliged the Respondent to utilise identified sources of funds for the payment of its indebtedness to the SCB Financiers, by paying the same into a defined “Escrow Account” maintained by Universal Trustee (Malaysia) Berhad as Facility Agent (not as trustee). The source of funds included “The Disposal Proceeds” which was also defined in the agreements.

Meanwhile, the Applicant claimed to be owed a debt for services rendered to the Respondent. On 2-7-2024, he filed this action and caused the IJM to be appointed on an ex-parte basis with the stated objective of rehabilitating the Respondent. It is noteworthy that the application for a judicial management order was roundly opposed from the start. Procedural ruling

According to the Applicant, the reason for filing Enclosure 135 more than a year after commencing the Originating Summons, was the withdrawal of the “white knight” in the rescue plan after the Respondent was delisted on 15-7-2025. The liquidator of LCIB, whose assets were apparently integral to the plan, strongly opposed the plan.

After the IJM came into the picture however, a sum of RM6,984,505.81 (“Balance Retention Sum”) became payable to the Respondent under the terms of a Conditional Share Purchase Agreement dated 29-7-2022 (“CSPA”) for the sale of the Respondent’s 78% stake in the shares of PT Impola Mitra Electrindo (“PTIME”) to KAB Energy Holdings Sdn Bhd (“KAB”).

The Balance Retention Sum was received by the IJM and the monies were held by the IJM’s solicitors as stakeholder and was the subject matter of Enclosure 51. Counsel for the Applicant urged the Court to disregard Enclosure 51, along with all the other pending interlocutory applications, as the discontinuance of the Originating Summons would result in them all becoming academic.

In the course of the hearing, it was established that there were no objections in principle to the discontinuance of the Originating Summons in Enclosure 135, save in respect of costs and the fate of the Balance Retention Sum being held by the IJM.

After hearing counsel, this Court was persuaded that it was necessary to consider the issue raised in Enclosure 51 as the IJM’s mandate would end upon the discontinuance of the Originating Summons. In light of the Respondent’s appeal, the argument that the outgoing IJM will have no opportunity to appeal an adverse decision held no water. Analysis and findings Admitted contractual undertaking

There was no dispute that “The Disposal Proceeds” in the RA and ASA include the PTIME share sale proceeds under the CSPA. The retention sums thereunder formed part of these proceeds. Save for the Balance Retention Sum, the rest of the RM24,317,882.00 retention sum had previously been paid into the Escrow Account by the Respondent as contemplated under the RA and ASA.

In fact, this Court noted that counsel for IJM agreed with the proposition that, absent any application for a judicial management order, the Banks would have been entitled to have the Balance Retention Sum paid into the Escrow Account according to the terms of the RA and ASA. However, he now had concerns that doing so would give undue preference to the Banks.

The IJM filed Enclosure 51 during the subsistence of the application for a judicial management order, as he took the view that pursuant to the statutory functions and powers of his office under section 414 and the 9th Schedule of the CA 2016 he may utilise the Balance Retention Sum as part of the general assets of the Respondent.

This Court considered that in the instant that the Originating Summons is discontinued and the IJM discharged, control of the management of the Respondent would return to the directors. There was no evidence of a pending winding up petition before the Court or any change of circumstances to attract immediate concerns of insolvency or undue preference. The Applicant did not take a position on Enclosure 51 and no other unsecured creditor intervened to oppose the Banks’ claim to the Balance Retention Sum.

This Court therefore directed that the IJM pay the Balance Retention Sum into the Escrow Account as it was consistent with the contractual terms of the RA and ASA, binding as they were upon the Respondent. The IJM claimed to have no instructions on the position taken by the directors, but certain admissions were noted: a) In an application filed by the Respondent for leave of the Kuching High Court in January 2023 to complete the CSPA, the Respondent had explicitly admitted that the CSPA had to be completed under the ASA and that Disposal Proceeds from PTIME were bound to be paid to the financiers; b) The position of the Respondent was also confirmed by its DCR dated 30-11-2020 and a letter from its solicitors in February 2023; and c) The Respondent had previously instructed solicitors for KAB to make payment of the Disposal Proceeds directly into the Escrow Account, and this was effected in respect of part of the retention sum from the CSPA, with the Balance Retention Sum being the remaining portion.

19.

The substantive question as to whether the Banks had the security of a trust over the Balance Retention Sum was a live issue that concerned the outgoing IJM and apparently, it also concerned the Respondent. As it was argued, this Court also considered the competing contentions in respect of Enclosure 51, summarized as follows: a) the Banks argued that a “Quistclose Trust” was impressed upon the Balance Retention Sum, citing Barclays Bank Ltd v Quistclose Investments Ltd [1968] 3 All ER 651 (“Quistclose”) as expanded in PECD Bhd (In Liquidation) v AmTrustee Bhd [2014] 1 MLJ 91 (“PECD”). b) The IJM contended that there was no Quistclose trust or any trust over the Balance Retention Sum, referring to Demeter O&G Supplies Sdn Bhd v Datuk Stephen Daur Tuan Kiat (as Judicial Manager of Scomi Oiltools Sdn Bhd and Scomi KMC Sdn Bhd) [2021] MLJU 2769 (“Demeter”) and SK M&E Bersekutu Sdn Bhd v Pembinaan Legenda Unggul Sdn Bhd (in creditors’ voluntary liquidation) and another appeal [2019] 3 MLJ 281 (“SK M&E”).

Quistclose established the concept of a dual trust model to protect purpose-specific funds, especially in an insolvency. It arises when money is advanced for a specific purpose (primary trust), and if that purpose fails, the money is held on trust for the lender (secondary trust) rather than becoming part of the borrower’s general assets.

The facts of this case do not mirror an orthodox Quistclose trust. The Balance Retention Sum was not advanced by KAB for the specific purpose of it being paid into the Escrow Account and KAB had no reversionary interest in the money. Thus, the dual trusts structure is unclear. As noted however, the Banks relied on PECD.

PECD established a “Quistclose-type of trust” in favour of the intended creditor-beneficiary of segregated funds. The facts of that case were as follows: a) PECD Bhd was the holding company of a subsidiary that issued RM200m Islamic notes. The subsidiary defaulted, and the noteholders (represented by AmTrustee) were poised to sue; b) PECD Bhd promised via a Letter of Undertaking to pay RM30 million from the proceeds of a rights issue to AmTrustee for partial redemption of the notes; and c) The rights issue raised RM104 million, credited into a special PECD Rights Issue Account. PECD Bhd thereafter became insolvent and wanted to use the RM30 million in a proposed restructuring.

The legal issue that the court decided in PECD was whether the RM30 million in the special PECD Rights Issue Account formed part of PECD Bhd’s general estate in insolvency, or was held on a Quistclose trust for AmTrustee (and the noteholders). The Federal Court found that the monies were subject to a Quistclose trust.

In so doing, the Federal Court affirmed the dual trust Quistclose structure and held that the beneficiary of the trust need not be the payor of the monies. In this modified Quistclose trust, AmTrustee could enforce the primary trust as the identified creditor-beneficiary.

The decision in PECD was heavily grounded on considerations of fairness and equity, citing the following statement from Lord Millet in Twinsectra Ltd v Yardley [2002] 2 AC 164: “[64] … It is unconscionable for a man to obtain money on terms as to its application and then disregard the terms on which he received it. Such conduct goes beyond a mere breach of contract.”

On the facts, the close and direct analogy between PECD and the present case was difficult for this Court to ignore. KAB stands in a similar position to the subscribers of the rights issue as the source of funds, the funds are segregated for a specific purpose, and the Banks stand in a similar position to the noteholders as the ultimate intended beneficiaries of the funds.

The Respondent’s undertakings in the RA and ASA also appear to mirror those of PECD Bhd in the Letter of Undertaking, in that both set out a payment mechanism premised upon an obligation on the recipients to segregate and/or earmark incoming funds for the specified purpose. Neither were at liberty to treat the incoming funds as free assets.

The same brand of unconscionability is also present. The Respondent had represented to the Kuching High Court, in seeking leave to complete the CSPA (which enabled it receive the Balance Retention Sum when it did), that the sale proceeds would be channeled into the Escrow Account for payment to the SCB Financiers.

The only point of distinction identified by the IJM was the source of the funds. IJM argued that the RM30 million in PECD was an external contribution from a rights issue and not from the realization of its own assets. This Court was unable to see the point of the distinction for the creation of a trust over the funds which in both cases, ultimately came from an external source.

Applying PECD, this Court was therefore constrained to find that the same ‘Quistclose-type trust’ is imposed over the Balance Retention Sum, and that the SCB Financiers may similarly enforce the primary trust as identified beneficiaries of the segregated funds. Express contractual trust

It is reasonable to assume that the doctrinally more complex Quistclose device is resorted to where the so-called primary trust fails to amount to a true express trust. The Quistclose trust thus operates as a fallback mechanism to give effect to the parties’ intention that funds be used exclusively for a specific purpose. The Banks only argued the point in passing in response to the IJM’s main point that the language of the RA and ASA do not import a trust.

As a starting point, this Court refers to Re Kayford Ltd [1975] 1 All ER 604 (“Re Kayford”) where Megarry J noted: "... There is no doubt about the so-called 'three certainties' of a trust. The subject-matter to be held on trust is clear, and so are the beneficial interests therein, as well as the beneficiaries. As for the requisite certainty of words, it is well settled that a trust can be created without using the words 'trust' or 'confidence' or the like: the question is whether in substance a sufficient intention to create a trust has been manifested."

Since equity looks into the intent rather than the form, technical expressions are not needed to establish a trust. In Re Kayford, a mail-order company facing financial difficulties was advised to protect customer deposits by placing them into a separate bank account labelled “Customers’ Trust Deposit Account,” with withdrawals permitted only once goods were delivered.

Although the account was originally a dormant company account later renamed, the Court held in Re Kayford that the arrangement created a valid trust: the segregation of funds and the company’s conduct showed sufficient intention to hold customer monies on trust, ensuring that in liquidation those funds were safeguarded from the company’s general creditors.

On review of the RA and ASA, this Court found: a) there is certainty of subject matter, referring to the net disposal proceeds of SCB’s assets, together with dividends from LCIB, UCMB and other subsidiaries, and proceeds from warrants, all of which are identifiable; and b) there is also certainty of object, because the beneficiaries are clearly identified as the financiers named in Schedule 1, with the ASA prescribing a detailed priority waterfall for application of the funds to their outstanding indebtedness.

This Court also found that the ASA does demonstrate an intention to create a trust over the monies deposited into the Escrow Account. There are several reasons for this conclusion.

First, Clause 3.1 and 3.2 provide that dividends, disposal proceeds, and other repayment sources must be paid into the Escrow Account, which is to be operated solely by the Facility Agent. The Facility Agent is expressly tasked with applying those funds in a fixed order of priority to satisfy the Financiers’ entitlements. There is no indication that the Respondent has recourse to the monies in the Escrow Account for any purpose other than repayment to the SCB Financiers.

Although the Escrow Account was not called a trust account and the word “trust” was not found in the RA or ASA, the segregation of funds, coupled with the restriction that the Escrow Account is controlled exclusively by the Facility Agent for the benefit of the Financiers, evidences a clear intention that the monies are held separately from the Respondent’s general assets and administered for the specific purpose of repaying the SCB Financiers, thereby creating a trust-like arrangement.

Second, this Court also inferred that the Respondent did not intend for the incoming funds into the Escrow Account to be made available to its general body of creditors by its acknowledgment of the same in the context of the Scheme and from the Respondent’s earlier treatment of the rest of the retention sum from the PTIME sale.

As in Re Kayford, the combination of segregation and conduct evidences an intention to create a trust, ensuring that the Escrow Account monies are ring-fenced for the benefit of the SCB Financiers and protected from the Respondent’s general creditors in the event of insolvency. Unless the RA and ASA ceased to be operative for any reason, beneficial interest in the incoming funds had already passed in equity by the terms of the RA and ASA.

SK M&E and Demeter that the IJM referred to, both concerned unsegregated monies, namely contractor retention monies and monies received in a back-to-back payment mechanism. Unsurprisingly, the Courts in both these cases found no trust was created for the contractor in SK M&E and the supplier in Demeter.

The IJM’s only argument other than the absence of “trust language” is that the RA and ASA provide for an event of default that accelerates payment of all sums due under the RA if the Disposal Proceeds are not deposited into the Escrow Account. Apart from the incoming funds earmarked for the Escrow Account, the Respondent remains liable under the RA and ASA to pay off its original debt with certain compromises. It is therefore not surprising that there is a default and acceleration clause.

For all of the above reasons, the Court dismissed Enclosure 51 and made the orders incidental to Enclosure 135 that answers the question posed in Enclosure 51. The operative orders made were as follows: a) Enclosure 51 is dismissed; b) Enclosure 135 is allowed and in respect of Enclosure 135: i) the Balance Retention Sum from KAB Energy Holdings Sdn Bhd from the Conditional Share Purchase Agreement dated 29.7.2022 be paid by the IJM into the Escrow Account [account number] within 3 days from the date of this Order; ii) No order is made under section 417(4) of the CA 2016 on the release of the IJM in connection with the withholding of the Balance Retention Sum; c) the Applicant to bear the costs of the discontinued action including Enclosure 51 and the unresolved applications pending in the proceedings following the event. The global cost orders were as follows: i) RM30,000.00 for the Banks; ii) RM10,000.00 for Proposed Interveners 1; and iii) no order as to costs in respect of Proposed Intervener 2 who did not press for costs. Bertarikh : 4 December 2025 ELAINE YAP CHIN GAIK PESURUHJAYA KEHAKIMAN MAHKAMAH TINGGI MALAYA KUALA LUMPUR Peguam Untuk Pemohon: Lew Wei Hung Tetuan Ang & Wong Untuk Pengurus Kehakiman Interim (bagi pihak Responden): S Raven dan Tay Shu Hui bersamanya Tetuan S Ravenesan Untuk Hong Leong Islamic Bank Berhad dan AmBank (M) Berhad: Claudia Cheah Pek Yee dan Anson Liow bersamanya Tetuan Skrine Untuk Leader Cable Industry Berhad (Dalam Penggulungan) dan Universal Cable (M) Berhad (Dalam Penggulungan) (Pencelah yang Dicadangkan di Kandungan 73): Mattheus Goon Kin Zhi dan Lai Xuan Chi bersamanya Tetuan Shearn Delamore & Co Untuk Mahmud Abu Bekir Taib (Pencelah yang Dicadangkan di