Pembinaan BY Sdn. Bhd. v Minda Muhibah Sdn. bhd. PENCELAH China State Construction Engineering (M) Sdn Bhd

Case Significance

Confirms that a judicial management order under section 405 of the Companies Act 2016 requires proof that its statutory objectives are likely to be achieved, so that an application fails where a severely insolvent company cannot show it would survive as a going concern, and that a winding-up petition filed during the moratorium may be validated nunc pro tunc.

This High Court decision in the Commercial Division at Kuala Lumpur concerns an application for a judicial management order under section 405 of the Companies Act 2016 and a competing application by an unsecured creditor. The applicant, a company, sought to have the respondent placed under judicial management, with proposed judicial managers appointed, while an unsecured creditor sought leave to intervene and to strike out the application, and also sought leave nunc pro tunc to validate a winding-up petition it had filed. The case engaged the preconditions for granting a judicial management order, in particular whether the statutory objectives in section 405(1)(b) were likely to be achieved, the rights of an unsecured creditor and its locus to intervene, a conflict in Court of Appeal decisions on the interpretation of Rule 13 of the Companies (Corporate Rescue Mechanism) Rules 2018, and whether a winding-up petition filed during the statutory moratorium could be validated after the event. The Court granted the unsecured creditor leave to intervene. On the substance, it held that the preconditions in section 405 had not been met: the respondent was severely insolvent and lacked the funding to complete its projects, and there was no proof that it would likely survive as a going concern within the meaning of section 405(1)(b)(i), the absence of which was fatal — a liquidator could complete the projects just as a judicial manager could. The Court accordingly dismissed the application for a judicial management order. Consequently, and applying Lai King Lung & Anor v Merais Sdn Bhd, it granted the unsecured creditor leave nunc pro tunc to proceed with its winding-up petition that had been filed during the moratorium. The decision illustrates that judicial management is not an automatic alternative to liquidation for a distressed company: unless the court is affirmatively satisfied that rescue is likely to succeed, the interests of creditors are better served by allowing insolvency proceedings to take their course, and the statutory moratorium does not permanently invalidate a petition presented while it was in force.