Introduction
Judicial management is a corporate rescue mechanism introduced under the Companies Act 2016 (‘CA 2016’). It enables the court to appoint a judicial manager to rehabilitate a financially distressed company, either preserving it as a going concern or protecting the creditors’ interests which is better than winding-up the company.
Prior to the Companies (Amendment) Act 2024,[i] section 403(b) of CA 2016 excludes companies listed under the Capital Markets and Services Act 2007 (‘CMSA’) from applying for judicial management order.[ii]
The exclusion of listed companies from the judicial management regime can be seen in Re Scomi Group Bhd [2021] 10 CLJ 975,[iii] where the Court of Appeal upheld the High Court’s decision that judicial management is not available to public listed companies.
This article will analyse the case of Re Scomi Group Bhd, and address the development of judicial management regime for listed companies after the Companies (Amendment) Act 2024 came into operation.
Overview of Re Scomi Group Bhd
Scomi Group Berhad (‘Scomi’) is a global service provider of oil and gas, whose shares are listed on the Main Market of Bursa Malaysia.[iv] Sometime in early 2020, Scomi was classified as a PN17 company as the company was in financial distress.
On 14.4.2021, Scomi applied to be placed under judicial management as part of its restructuring effort.[v] The High Court in Re Scomi Group Bhd was confronted with the following issues:
- Whether Scomi, a listed company, may apply for judicial management under CA 2016? (‘First Issue’); and
- Whether the objection from Scomi’s secured creditors would veto the judicial management application filed by Scomi? (‘Second Issue’).
The First Issue
Scomi argued that section 403(b) of CA 2016 only excluded companies licensed and regulated under the CMSA, and not all listed companies are excluded. The creditors disagreed and asserted otherwise, that all companies under CMSA—including listed ones—are excluded from applying for judicial management.
The Companies Commission of Malaysia (CCM), in its Consultative Document on the proposed Companies (Amendment) Bill 2020[vi] supports the interpretation for listed companies to be excluded from judicial management under CA 2016:
“the benefit of judicial management is not available to companies which are regulated under the CMSA including listed companies. The proposed amendment would assist all companies facing financial difficulties including listed companies an avenue to rehabilitate their situations through judicial management.”
The High Court reviewed the relevant CMSA provisions, noting that a “listed corporation” includes any company whose securities are listed on a stock exchange.
In dismissing Scomi’s purposive interpretation of section 403(b) of CA 2016, the High Court held that section 403(b) of CA 2016 applied to all listed companies, including Scomi. As such, Scomi was precluded from applying for judicial management.
The Second Issue
Section 409 of CA 2016 provides that the High Court must dismiss a judicial management application if a secured creditor objects to the judicial management application or if a receiver or receiver and manager has or will be appointed.
As Scomi’s application was objected by secured creditors, and coupled with Scomi’s ineligibility to apply for judicial management, the High Court dismissed Scomi’s application to be placed under judicial management.
Court of Appeal judgment
On 23.5.2022, the Court of Appeal dismissed Scomi’s appeal and upheld the High Court’s decision.
The Court of Appeal’s decision in Re Scomi Group Bhd effectively confirmed that section 403(b) of CA 2016 excludes public listed companies from applying for judicial management at the material time.
Impact of Companies (Amendment) Act 2024 on judicial management regime in Malaysia
The Companies (Amendment) Act 2024 introduces the framework which strengthens numerous provisions in CA 2016 relating to judicial management, scheme of arrangement, and corporate voluntary arrangement, amongst others.
It is noted that following the Companies (Amendment) Act 2024, listed companies are now eligible to apply for judicial management.
However, there are companies excluded from undertaking judicial management. This is provided in the amended section 403 of CA 2016, namely:
(i) a company which is a licensed institution or an operator of a designated payment system regulated under the laws enforced by the Central Bank of Malaysia;
(ii) a company which is approved or registered under Part II, licensed or registered under Part III, approved under Part IIIA, or recognised under Part VIII of the Capital Markets and Services Act 2007; and
(iii) a company which is approved as a central depository under Part II of the Securities Industry (Central Depositories) Act 1991.
Development of the judicial management regime following the Companies (Amendment) Act 2024
With the introduction of the Companies (Amendment) Act 2024, financially distressed public listed companies which do not come within the categories as set out in the amended section 403 of CA 2016 can now apply to be placed under judicial management.
Sarawak Cable Berhad (‘Sarawak Cable’), a company listed on the Main Board of Bursa Malaysia is reportedly the first listed company to have applied to be placed under judicial management subsequent to the amendment to section 403(b) of CA 2016. [vii]
By way of background, Sarawak Cable was in financial distress and was classified as a PN17 company in 2022. Sarawak Cable attempted to restructure its debts by way of a scheme of arrangement, which was rejected by its creditors.
Sarawak Cable then applied to be placed under judicial management, and the High Court subsequently allowed an interim judicial manager to be appointed for Sarawak Cable.
Notwithstanding the decision in Re Scomi Group Bhd, the subsequent development vide the Companies (Amendment) Act 2024 has amended the applicability of judicial management to public listed companies in the amended section 403 of CA 2016.
Conclusion
Judicial management now offers an alternative for financially distressed listed companies to rehabilitate themselves.
However, the prospect of rehabilitation through judicial management may be affected if there is an objection by a secured creditor, or if a receiver or receiver and manager has been or will be appointed. The existence of any of these scenarios will necessitate the court to dismiss an application for judicial management order as provided in section 409 of CA 2016, subject to subsection 405(5) of CA 2016.
This may reduce the effectiveness of judicial management regime for public listed companies. However, only time will tell whether the amendment to CA 2016 will achieve its intended purpose.
We trust the above provides a useful update on the case of Re Scomi Group Bhd and the development of judicial management in Malaysia. If you have any questions or concerns, or if you require any assistance in reviewing your company related matters, please do not hesitate to contact us.
This Legislative Update is contributed by the Brian Foong and Anson Chee, with the assistance of Nur Ellyana Farina Binti Muhammad Ello (Associate, Cheang & Ariff)
[i] Companies (Amendment) Act 2024 [Act A1701] dated 2.2.2024 https://www.ssm.com.my/Pages/Legal_Framework/Document/A1701%20BI.pdf
[ii] Kenneth Foo Poh Khean, Lee Shih, The New Dynamics of Company Law in Malaysia (2017 Edition, the Malaysian Current Law Journal Sdn Bhd) 440
[iii] Re Scomi Group Bhd [2021] 10 CLJ 975, (HC)
[iv] https://scomigroup.com.my/
[v] “Case Update: Malaysia High Court Finds that Listed Companies Cannot Apply for Judicial Management” by Lim Chee Wee Partnership https://www.ipam.org.my/includes/pdf/relevant-publications/Case%20Update%20%20Malaysia%20High%20Court%20Finds%20Listed%20Companies%20Cannot%20Apply%20for%20JM.pdf
[vi] Consultative Document on the proposed Companies (Amendment) Bill 2020 by Companies Commission Malaysia https://www.ssm.com.my/Pages/Legal_Framework/Document/Consultative%20Document%20%26Companies%20(Amendment)%20Bill%202020%20(280720).pdf
[vii] Ex Parte Interim Judicial Manager Appointed Over Listed Company by the Malaysian Lawyer dated 18.7.2024
