MAJU HOLDINGS SDN BHD PENCELAH 1. ) BRIDGEX SDN BHD 2. ) Maybank Islamic Berhad 3. ) ANTAH SCHINDLER SDN. BHD. 4. ) ZAFAS SDN BHD

Case Significance

A judicial management application refused for want of strict proof, where a severely insolvent company relied on speculative projections from a future construction project with no proof of financing.

This High Court decision concerns an application for a judicial management order over a company under sections 404 and 405 of the Companies Act 2016. Judicial management is a rehabilitative process that places a financially distressed but potentially viable company under the control of an independent judicial manager, in preference to winding it up, where doing so is likely to achieve one of the statutory objectives — in particular the survival of the company, or the whole or part of its undertaking, as a going concern under section 405(1)(b)(i). The applicant relied on a revised debt settlement proposal to persuade the Court that the company could be rehabilitated.

The Court subjected that proposal to the strict scrutiny the statutory scheme demands. It emphasised that a judicial management order is not made on a mere assertion of belief that its purposes will be achieved; strict proof is required at every stage, and speculation or conjecture will not do. Examining the company's position, the Court found severe insolvency, an absence of any viable plan to restore solvency, and a proposal that leaned heavily and unrealistically on the anticipated profits of a future construction project (described as the Ulu Tiram Project). The projection relied on a gross-profit figure without accounting for financing and other costs that would determine whether the project could realistically fund repayment of creditors, and there was no proof of sufficient financing to meet the construction costs. The proposed subordination of related creditors did not cure these deficiencies. To allow such companies to continue trading on so speculative a footing would offend commercial morality.

The Court held that the statutory objectives were not likely to be achieved and refused the judicial management order. The judgment is a useful illustration of the strict-proof standard governing judicial management under sections 404 and 405 of the Companies Act 2016, and of the courts' refusal to sanction a rehabilitation resting on a speculative future project without proof of financing.