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Case Update: Restraining Order under a Scheme of Arrangement can be applied ex parte

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COMPANY LAW
Schemes of arrangement – Application for order to restrain further proceedings – General principles on ex parte applications – Sections 366 and 368, Companies Act 2016

Mansion Properties Sdn Bhd v Sham Chin Yen & Ors
[2020] MLJU 1969, Federal Court
- see the grounds of judgment here

Facts The appellant is the developer of a housing project known as D'Mansion, which includes a hotel and a condominium. The respondents are purchasers of the condominium units. The appellant did not deliver vacant possession of the condominium units within the stipulated time. Due to the delay in delivering vacant possession, some purchasers filed claims against the appellant for liquidated ascertained damages. In 2017, the appellant filed an ex parte originating summons under sections 366[1] and 368[2] of the Companies Act 2016 (the “CA”) (“1st OS”). In the 1st OS, the appellant sought an order to convene a creditors’ meeting for the approval of the appellant’s proposed scheme of arrangement and an order to restrain all other proceedings against the appellant. The appellant successfully obtained the ex parte Order to hold the creditors’ meeting and the restraining order, then served the ex parte Order to the purchasers and other creditors. Following this, the appellant held the creditors’ meeting at which the proposed scheme was approved. However, the respondents had sought to intervene in the 1st OS, to set aside the ex parte Order, and to reject the proposed scheme. In 2018, the appellant filed another ex parte originating summons to seek the court’s approval or sanction for the proposed scheme (“2nd OS”). The approval was granted by the Court and this second Order was served to the respondents. The respondents then filed applications in the 2nd OS to intervene and to set aside the approval obtained. The High Court allowed the respondents’ application to intervene in the proceedings but dismissed the prayers to set aside the ex parte Order and to reject the proposed scheme. The Court of Appeal then reversed the decision of the High Court on the grounds of procedural non-compliance and abuse of process. Hence, this appeal.

Issue The key issue in this present appeal is whether in the absence of any express provision on the relevant procedure, the appellant’s filing of an ex parte application for an order under section 368(1)[3] of the CA without serving it on the respondents constitutes an abuse of process?

Held In allowing the appeal, the Federal Court held that there is nothing inherently objectionable in filing an ex parte application under section 368 of the CA; the general practice is in line with the legislative purpose and does not deprive the affected parties of the right to be heard. In the circumstances of this case, the filing of an ex parte application under section 368(1) of the CA without serving it on the respondents cannot be regarded as an abuse of process.

ZUL RAFIQUE & partners
{15 December 2020}
 
[1] Power of Court to order compromise or arrangement with creditors and members
[2] Power of Court to restrain proceedings
[3] If no order has been made or resolution passed for the winding up of a company and a compromise or arrangement has been proposed between the company and its creditors or any class of those creditors, the Court may, in addition to any of its powers, on the application in a summary way of the company or any member or creditor of the company, restrain further proceedings in any action or proceeding against the company except by leave of the Court and subject to any terms as the Court may impose.