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Case Update: The First Decision in Malaysia on Judicial Management Order

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JUDICIAL MANAGEMENT
Judicial management order (‘JMO’) – Judicial manager – Application to set aside judicial management order – Grounds to set aside judicial management order – Whether a creditor may apply to set aside a JMO on the grounds that there had been material non-disclosure of facts and had acted mala fide

Leadmont Development Sdn Bhd v Infra Segi Sdn Bhd and another appeal
[2018] MLJU 1320, High Court
- see the grounds of judgment here

Facts Leadmont Development Sdn Bhd (‘Leadmont’ or ‘the Applicant’) is the developer of Selayang StarCity Project, which was eventually stalled due to the termination of contracts by the project’s contractors and nominated sub-contractors for non-payment. It was not in dispute that Leadmont was unable to pay its debts. Following the granting of a judicial management order (‘JMO’) to Leadmont, a secured creditor of Leadmont, Infra Segi Sdn Bhd (‘Infra Segi’ or ‘the Respondent’) made an application to the High Court (“the Court”) to set aside the JMO on the grounds that there had been material non-disclosure of facts and that Leadmont had acted mala fide[1]. In addition to Leadmont’s inability to pay its debts, the JMO was granted on the basis that there was a reasonable probability of rehabilitating Leadmont’s business as Leadmont, through its subsidiary, Sierra Delima Sdn Bhd (‘Sierra Delima’) was expecting to receive a foreign currency loan and proposed advances whereby such funds would be utilised to complete the project. Infra Segi argued that Leadmont failed to disclose to the court in its application for a JMO that the proposed advances that Sierra Delima was expecting to receive were a “no go at the outset”. Leadmont had also failed to inform the Court that Sierra Delima had also made an application for a JMO and that Sierra Delima had also omitted to disclose to the court in its JMO application that Leadmont had separately applied for a JMO.

Issue The main issue in this case was whether a creditor may apply to set aside a JMO on the grounds that there had been material non-disclosure of facts and that the applicant company which was granted the JMO had acted mala fide.

Held The High Court found that Leadmont has satisfied the test in Section 405(1) of the Companies Act 2016[2] and had disclosed sufficient facts. However, the Court proceeded to set aside the JMO on the basis that it was clear that the scheme to be proposed by the appointed judicial manager would not be approved by the requisite 75% majority of the total value of creditors based on the letters from Infra Segi and six sub-contractors of Sierra Delima confirming that they were opposed to the JMO and wished to have it set aside as well.

For more insights into this area of law please contact our Partners in Litigation Practice Group: P Jayasingam, Natalia Izra Nasaruddin, Idza Hajar Ahmad Idzam and Farah Shuhadah Razali. 
 
 
[1] Bad faith
[2] Power of Court to make a Judicial Management Order and appoint a judicial manager

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