1. ) KHEE SAN BERHAD 2. ) KHEE SAN FOOD INDUSTRIES SDN BHD 3. ) KHEE SAN MARKETING SDN BHD 4. ) MEGA GLOBAL CONFECTIONARY SDN BHD PENCELAH 1. ) TUNAI IMPIAN ENTERPRISE SDN BHD 2. ) HSBC Bank Malaysia Berhad 3. ) Alliance Bank Malaysia Berhad 4. ) DATO' ADAM PRIMUS VARGHESE BIN ABDULLAH (PENGURUS KEHAKIMAN INTERIM TERDAHULU BAGI KHEE SAN FOOD INDUSTRIES SDN BHD)

Case Significance

Confirms that a scheme creditor who conceals a side arrangement to secure approval of a scheme of arrangement under section 366 of the Companies Act 2016 cannot later invoke that arrangement to unwind the sanctioned scheme; the clean-hands principle estops the challenge.

This High Court decision at Kuala Lumpur, sitting in its commercial division, concerns whether a scheme creditor can have a court-approved scheme of arrangement set aside, and it turns on estoppel and clean hands. The applicant companies had proposed and obtained approval of a scheme of arrangement under section 366 of the Companies Act 2016, which had been sanctioned by the court under section 366(3) and (4) after approval by the scheme creditors. One of those scheme creditors then applied to set the scheme aside, contending among other things that there had been a total failure of consideration because of a secret deal it had made with the applicant of the scheme to secure its favourable vote. Two banks appeared as proposed interveners.

The court examined the difficult question of its jurisdiction after a sanction order, noting two schools of thought: one that the court cannot alter the substance of a scheme save in cases of obvious mistake or fraud, and another that a sanction order operates as an order of court which the court may supplement by subsequent orders. It did not need to resolve the tension in the abstract, because the applicant creditor's own conduct was decisive. The court found that the creditor had hidden the secret deal from the court at the time the scheme was placed before it for approval. Applying the principle that a court will not condone or assist a party who takes advantage of its own wrongdoing and comes to court without clean hands, it held the creditor estopped from mounting the challenge.

The court dismissed the scheme creditor's application to set aside the scheme, ordering it to pay costs of RM20,000 to the applicants and RM8,000 to each of the two intervener banks. The judgment illustrates that a scheme creditor who conceals a side arrangement to secure approval of a scheme of arrangement cannot later invoke that arrangement to unwind the sanctioned scheme; the clean-hands principle bars the challenge.