1. ) KNM GROUP BERHAD 2. ) KNM PROCESS SYSTEMS SDN. BHD. PENCELAH 1. ) Hitachi Zosen Corporation [NOD at Encl. 192] 2. ) IPL Middle East DMCC 3. ) Alam Hzem Sdn Bhd [NOD at Encl. 192] 4. ) Cypark Sdn Bhd 5. ) ANN JOO METAL SDN BHD 6. ) ANN JOO METAL (SINGAPORE) PTE LTD 7. ) SAPURAOMV UPSTREAM (SARAWAK) INC. 8. ) Konecranes Material Handling (Malaysia) Sdn. Bhd. (Formerly known as MHE-Demag Malaysia Sdn. Bhd.) 9. ) TIETJEN VERFAHRENSTECHNIK GMBH 10. ) Affin Bank Berhad 11. ) Meccilect Sdn. Bhd...

Case Significance

States the convening-stage principles under section 366 and the restraining-order constraints under section 368 of the Companies Act 2016, and confirms that a court will refuse convening and restraining orders where the proposed scheme is bound to fail.

This High Court decision at Kuala Lumpur, in the Commercial Division, concerns applications by two companies for orders to convene a scheme meeting and for a restraining order in aid of a proposed scheme of arrangement and compromise with their creditors under the Companies Act 2016. The applications invoked section 366, which empowers the court to order a meeting of creditors to consider a scheme, and section 368, which permits a restraining order protecting the company from proceedings while a scheme is formulated. The applicant companies had previously filed earlier applications for convening and restraining orders, and the present application came before the court against that background.

The court set out the principles governing a convening order. At the convening stage the court is concerned with jurisdictional or quasi-jurisdictional matters, including the proper classification of creditors by reference to their rights rather than their interests, and with whether there has been full and frank disclosure of all material facts. A convening order will be refused where there is a factor, a "blot" or "roadblock", that would lead the court unquestionably to refuse to sanction the scheme, and the application must be bona fide and not an abuse of process. On restraining orders under section 368, the court noted the statutory constraints, including a cooling-off period before a fresh application and the exhaustion of the three-month duration prescribed for ad interim orders, and the requirement that the feasibility and merits of the scheme receive due consideration by creditors.

Weighing the material, the court found that the schemes were, on the evidence, bound to fail, and that the deficiencies in disclosure and the surrounding circumstances told against making the orders. It accordingly dismissed the application with costs, awarding costs to the several sets of respondents' solicitors, and struck out a withdrawn enclosure with no order as to costs. The judgment is a useful statement of the convening-stage principles under section 366 and the constraints on restraining orders under section 368 of the Companies Act 2016, and of the court's willingness to refuse relief where a scheme is bound to fail.