Trans Fame Offshore Sdn Bhd v 1. ) Syed Ibrahim & Co (WA-24NCC-236-04/2023)

SYED IBRAHIM & CO.

TFO SPV SDN BHD [COMPANY NO.: 202301019645 (1513567-T)]

HAUMEA SDN BHD [COMPANY NO.: 202301014192 (1508114-W)] ...RESPONDENTS AND RHB BANK BERHAD [COMPANY NO.: 196501000373 (6171-M)] …PROPOSED RESPONDENT GROUNDS OF JUDGMENT Introduction [1] The Judicial Manager and Scheme Implementation Manager of the Applicant (collectively termed as the “Managers”), Trans Fame Offshore Sdn Bhd (“TFO”), sought to make RHB Bank a creditor of a company created pursuant to s.370(2)(a) of the Companies Act 2016 (“CA”) after a Scheme of Arrangement and Reconstruction (“the Scheme”) was sanctioned by this Court. RHB contended that they are not a scheme creditor of the Scheme and resisted. [2] At the conclusion of the hearing I dismissed TFO’s application. Background [3] By way of Notice of Application dated 8.3.2024 documented in Enclosure 75, TFO sought an order, among others, as follows – “(1) that the Applicant be given leave to join RHB Bank Berhad as a Respondent in this application;

consequent to prayer (2), the intitulement of this action be amended to include RHB Bank Berhad as a Respondent in these proceedings;

that the claims of RHB Bank Berhad against the Applicant under the Corporate Guarantee dated 20.10.2017 be transferred to and vested in the 2nd Respondent, TFO SPV Sdn. Bhd.; and

that RHB Bank Berhad shall become a Scheme Creditor of the 2nd Respondent, TFO SPV Sdn. Bhd., and be subjected to the Scheme of Arrangement and Reconstruction approved by the Orders dated 17.7.2023 and 11.8.2023 of this Honourable Court;”. [4] On the day of the hearing of Enclosure 75, Prayer 4 was subsequently abandoned by the Managers. [5] Enclosure 75 was made on the backdrop of this Court having granted sanction on 17.7.2023 to approve the Scheme applied for by the Judicial Manger of TFO, pursuant to s. 366(i)(d) of the CA. [6] The Scheme Creditors of TFO under the Scheme were transferred to and vested in TFO SPV Sdn. Bhd., a special purpose vehicle (“the SPV”). [7] On 24.11.2023, RHB issued TFO a demand for the Corporate Guarantee it gave for a loan facility that was granted by RHB to BAP Resources Sdn. Bhd. [8] The demand resulted in the Managers applying vide Enclosure 75 to have RHB be made a creditor of the SPV. [9] The Managers contended that s. 370(2)(a) was the appropriate provision under the CA to transfer RHB as a creditor of the SPV. [10] RHB on the other hand argued that s.370(2)(a) cannot be used by the Managers to transfer and vest them as the SPV’s creditors. RHB contended that it was never a scheme creditor and by definition, does not fall under the Scheme. As such it cannot be bound by the Scheme and any action to apply s.370(2)(a) to transfer them as a creditor to the SPV must fail. Issue [11] The issue is whether RHB can be made a Creditor of the SPV by the application of s.370(2) of the CA. Analysis [12] In essence, TFO contended that during the court convened meeting (“CCM”) held on 29.5.2023, the Scheme Creditors approved the Scheme by an overwhelming vote of 99.1% in value of creditors who were present and voting. The total value of creditors listed under the Scheme is RM126,768,183.98. The agreed outcome was for TFO not to have any creditors. As such, even if RHB was present at the CCM, their vote would not have changed the outcome. [13] The Scheme that was tabled to the Scheme Creditors was a scheme for the creditors of TFO to be transferred to another vehicle namely the SPV, so that a new party could take over TFO and pay a consideration to the SPV. The crown jewel of TFO namely the Petronas licence it owned would remain with TFO sans any creditors. There would be no reason for any third-party white knight who may have wanted the existing TFO shell to pay anything if all the creditors were still sitting in TFO. As such, it was entitled to apply under s. 370(2)(a) to place RHB as a creditor of the SPV. [14] Be that as it may, it is critical to understand the relationship between RHB and TFO. In essence, TFO executed the Corporate Guarantee in favour of RHB, to secure the amount due and owing under four

term loans (“Facilities”) granted by RHB to the borrower, BAP Resources Sdn. Bhd. (“Borrower”). [15] The Corporate Guarantee of the Facilities were secured by, among others, four (4) units owned by the Borrower at KL Gateway Corporate Office Suite and which have been assigned to RHB (“Assigned Properties”). As of the date hereof, the Assigned Properties have not been realised by RHB. [16] It is pertinent that the timeline of events prepared by RHB is reproduced. Critical to note are the dates in relation to the Facilities (which took place after the grant of the Sanction Orders and the effective date of the Scheme): Date

Event(s)

10.2023 RHB vide its solicitors issued a legal notice of demand to the Borrower (carbon copied to TFO), to demand for the then arrears of RM197,562.38 (calculated as at 19.10.2023) together with interest thereon.

24.11.2023 As a result of the Borrower’s failure to comply with the said demand, RHB vide its solicitors issued a notice of termination of the Facilities to the Borrower (carbon copied to TFO), to recall and terminate the Facilities and to demand for the sum of RM13,928,455.75, being the entire sum outstanding under the Facilities calculated as at 31.10.2023, together with interest thereon.

24.11.2023 On the same day as the termination of the Facilities, RHB vide its solicitors issued a notice of demand dated 24.11.2023 to TFO pursuant to the Corporate Guarantee, to demand for the said sum of RM13,928,455.75 calculated as at 31.10.2023, together with interest thereon. [17] As such, it can be seen that RHB’s claim was after Sanction was granted by this Court on 17.7.2023. Finding [18] I rejected the application based on the following grounds.

Managers were not diligent [19] It was never disputed that TFO had provided the Corporate Guarantee. It therefore, cannot escape the attention of the Judicial Manager. The Judicial Manager must exercise all diligence especially when he embarks on an exercise to restructure the company. [20] It must be noted that given that TFO was to be transferred to the ‘white knight’ free of any liabilities including contingent liabilities, it is incumbent on the Judicial Manager to determine if there were contingent creditors and hence the Scheme should have been catered to include the same, if the management of TFO was not forthcoming. [21] Under Clause 9.9 of the Restructuring Agreement, it is clearly set out that one of the core objectives of the Scheme is for a reconstruction in TFO to not have any creditors. Instead all the creditors of TFO shall be transferred to and vested in SPV and become the creditors of SPV, Clause 9.9 reads as follows:– “9.9. The Court whether in making the sanction order or by one or more subsequent orders, make the necessary orders to ensure that upon the sanction order coming into effect: -

9.9.1. TFO shall not have any creditors and that the creditors of TFO shall be transferred to and vested in SPV and become the creditors of SPV;

9.9.2. The property of TFO, including proceeds that may result from rights of action against third parties (save for trust property) shall be transferred to and vested in SPV;

9.9.3. TFO shall not have any assets besides the Petronas

9.9.4. The Court may make an order that SPV shall act as a trustee for the creditors;…”. [22] With so much emphasis put on the need to ensure that TFO should not have any creditors, it is incumbent on the Judicial Manager to demonstrate all it had done to ensure that it had done all it could to ascertain the above issue. However, before the Court, nothing was produced by the Judicial Manage of any effort on their part apart from arguing that an advertisement was put up inform the reading public that the scheme was afoot. [23] It is surprising to say the least that the Managers took the position that it was RHB that was responsible to come forward and “reveal” itself as a creditor. What this means is that the Managers can adopt a Nelsonian approach when drawing up a scheme of arrangement. I find this argument to be over simplistic. [24] A Judicial Manager exercises power and discretion that affects creditors and members of the company. (See Solid Investments Ltd v Alcatel-Lucent (M) Sdn Bhd (previously known as Alcatel Network Systems (M) Sdn Bhd) [2014] 3 MLJ 785 (FC)). [25] He is also deemed to be an agent of the company. This is expressly provided under s. 416 of the CA. It reads as follows: “416. Agency and liability for contracts.

The Judicial manager or interim judicial manager of a company-

shall be deemed to be the agent of the company;…”. [26] A Judicial Manager is a fiduciary to the company. (see Macks v Viscariello 126 ACSR 68; Kyrris v Oldham [2004] 1 BCLC 305 5 Re Charnley Davies Ltd (No 2) [1990] BCLC 760) where an administrator, a position analogous to a judicial manager, owes a fiduciary duty to the company. He is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. [27] As a fiduciary, the Judicial Manager owes a duty to act in the best interest of the company. Therefore, to accept the argument of the Managers that it is RHB that must declare itself as creditor in the circumstances of the current case flies in the face of the role of a fiduciary. [28] The moment that an Insolvency Practitioner assumes the role of a Judicial Manager, he is clothed with statutory powers. S.414 of the CA which vests the Judicial Manager with wide powers. Among others, a Judicial Manager is bestowed with all powers conferred and duties imposed on the directors (see s. 414 of the CA). [29] With great powers comes great responsibilities. A Judicial Manager therefore must act in the best interest of the company not only as a fiduciary but also as an officer of the court. Therefore, he must carry out his duties to the fullest of his ability. He cannot sit and wait. He must be proactive and cannot adopt a “Godfather” approach where he sits in his comfortable office and expects people to pay homage to him. He is after all, being paid in priority to others. This is one of the mechanisms built into the law to ensure that Judicial Managers are remunerated for the work that they are expected to carry out. [30] In short, once an Insolvency Practitioner agrees to assume the duties of a Judicial Manager, he shoulders a huge responsibility. [31] In the context of identifying all creditors, I reject the argument by the Managers that RHB is to be faulted for not coming forward to identify themselves as a creditor and the Judicial Manager is not blameworthy in the present matter for not identifying RHB as a Scheme Creditor. [32] The Judicial Manager should have been aware of RHB as a potential contingent creditor as a result of the Corporate Guarantee. After all, they were in full control of TFO. They cannot now turn around and blame RHB.

(ii) Definition of Creditor [33] The Scheme never intended to include a financial institution as a scheme creditor. This is because a “Creditor” is defined as “Creditors” of TFO are in the category of persons who supplied goods and services to TFO”. It is my view that the Scheme must stand and fall on the terms of the Scheme put forward for approval. [34] It is clear to my mind that at the time the said Scheme was proposed, the Scheme did not contemplate a creditor such as RHB. A perusal of the List of Scheme Creditors, none of them is a bank or a financial institution. [35] The Managers now seek to expand the category of a Scheme Creditor to include RHB which does not fall under the said definition under the Scheme. As such, at the onset it is a struggle for me to accept the argument that RHB can be included as a scheme creditor simply by coming to court and insisting that they be added via a Subsequent Order under s. 370(2)(a).

(iii) S.370 not the panacea [36] The Managers cannot resort to s. 370(2) (a) for the conundrum that they are in. [37] The Managers had withdrawn prayer 4 of Enclosure 75 on the hearing of Enclosure 75 on 28.05.2024. Thus, they no longer seek an order that RHB be included as a Scheme Creditor and be subjected to the Scheme but merely seeking an order that RHB’s claim be transferred and vested to SPV notwithstanding that the transfer and vesting to SPV of, among others, TFO’s liabilities (current and contingent) was at all material times part of the Scheme itself. [38] I accept the argument of RHB that given RHB is not a Scheme Creditor and will not be a Scheme Creditor following the withdrawal of prayer 4, there is no basis for the Managers to argue that RHB can or shall be treated the same manner as other unsecured Scheme Creditors. [39] The Managers appear to submit that this is a case whereby this Court has discretion to make such “subsequent order” (for transfer and vesting), by taking into consideration the circumstances of the present matter including the interests of the existing Scheme Creditors and the white knight, and so that the reconstruction can be fully and effectively carried out. [40] I am of the view that the “subsequent order” as sought by TFO under s.370(2) shall not be made in isolation of the Scheme which has been approved by this Court. Without RHB being included in the Scheme, there is no legal basis for TFO to insist that RHB’s claim, which is not a Scheme debt, be transferred and vested to the SPV pursuant to a “subsequent order” under s.370(2). [41] S. 370(2) is therefore inapplicable and does not assist the Managers in this current application.

(iv) Court cannot vary an approved scheme [42] In Top Builders Capital Berhad & Ors v. Seng Long Construction & Engineering Sdn Bhd & Ors [2023] 1 LNS 449, Ong Chee Kwan J dealt with the legal questions of whether the court has jurisdiction or powers to make any subsequent orders relating to a scheme of arrangement after the grant of the approval or sanction under s.366(4) of the CA, and if so, what are the limits of such jurisdiction or powers. [43] I fully concur with On Chee Kwan J when he reasoned that a company who proposes the scheme and it is the creditors who agree to it. Without the agreement of the creditors by the requisite majority, the Court has no jurisdiction to make the sanction order. The scheme derives its force from the provisions of the statute based on the requisite agreement of the creditors and the scheme constitutes a statutory contract binding on all the creditors for which the Court gives its sanction only upon satisfaction that the scheme is procedurally fair to all creditors and substance is one that an intelligent and honest man of the particular class would agree. [44] Apart from the above, reference is made to the following paragraphs in the judgment: [61] Just as the Court has no jurisdiction to vary a consent judgment, given that the scheme of arrangement is essentially an agreement reached between the creditors and the applicant company, it must necessarily follow that the Court too does not have jurisdiction to vary or set aside the scheme of arrangement subject only to the Court’s powers to make such orders necessary and deem fit to give effect to the scheme and ensure fair play to all the creditors.”. [45] Perhaps it is for this reason that the Managers decided to abandon prayer 4 of Enclosure 75 on the day of the hearing. Be that as it may, the effect of an order as sought by the Managers is that RHB be termed as a creditor of the SPV. It is my view that this cannot be done unless the Scheme is varied. However, for the reason mentioned above, it is not within this Court’s powers to vary the Scheme. Conclusion [46] While it can be seen that there have been other parties who have volunteered to be placed as a creditor o the SPV, RHB on the other hand has resisted such a move. It therefore behooves this Court to consider the arguments as discussed above. [47] Upon considering all arguments, I find that the application under s.370(2)(a) of the CA to be without merits and is accordingly dismissed. (AHMAD FAIRUZ BIN ZAINOL ABIDIN) Judge High Court of Malaya Kuala Lumpur Dated: 23rd September 2024 Counsel Kennie Ang and Goh Jing-Wen for the Judicial Manager and Scheme Implementation Manager Messrs. Ang Adila, Puchong Layyin Teh binti Hassan for the 1st Respondent Messrs. Syed Ibrahim & Co., Kuala Lumpur Ramesh Sathasiyam for the Proposed Respondent Messrs. Ramesh Dipendra Jeremiah Law, Kuala Lumpur