1 June 2021

Scheme of Arrangement – Interverner – Restraining Order – Whether leave shall be granted to proceed with legal proceedings despite restraining order – Companies Act 2016, Section 368(1)

Top Builders Capital Bhd, Ikhmas Jaya Sdn Bhd and Ikhmas Equipment Sdn Bhd
Suit No.WA-24NCC-608-12/2020, High Court

- see the grounds of judgment here

Facts In November 2020, Seng Long Construction & Engineering Sdn Bhd (“Seng Long”) which is a construction and renovation contractor had filed a writ action against Ikhmas Jaya Sdn Bhd (“IJSB”) which is the main contractor in a construction project to recover the alleged debt for services provided. At the end of December 2020, the public listed Top Builders Capital Berhad and two of its subsidiaries which are Ikhmas Equipment Sdn Bhd and IJSB filed for an application in the High Court (“Court”) for leave for the creditors’ meeting under a scheme of arrangement and obtained a restraining order. On 10 December 2020, Seng Long filed for a summary judgment application. However, on 31 December 2020, IJSB obtained a restraining order for three months to restrain any further legal proceedings. Moving forward to February 2021, Seng Long applied to intervene in the scheme of arrangement proceedings and to seek leave to continue with its writ action and summary judgment against the IJSB. Seng Long was allowed to intervene and the Court had to decide on whether leave to proceed against IJSB despite the restraining order allowed under Section 368(1)[1] of Companies Act 2016 (‘CA 2016’) was to be granted.

Issues Whether leave shall be granted to Seng Long to proceed with legal proceedings against IJSB despite the restraining order.

In dismissing Seng Long’s prayer for leave to proceed against IJSB despite the restraining order, the Court held that leave will only be granted in ‘exceptional circumstances’ and that the circumstance or combination of circumstances must be of sufficient weight to overcome the strong imperative to have the claims dealt with under the machinery of the scheme of arrangement. It was held that since Seng Long’s claim is a pure monetary claim and that the Seng Long’s contention that the summary judgment application has a real prospect of success are not ‘special circumstances’ to warrant the grant of leave. As such, Seng Long had failed to demonstrate that the circumstances in this case warrant its claims to be determined and proceeded with differently from the other general scheme creditors under the machinery of the scheme of arrangement.

ZUL RAFIQUE & partners
{1 June 2021}

[1] 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.

Please email your details to [email protected] if you would like to subscribe to our Knowledge Centre.

Let's Connect!
 LINKEDIN: Zul Rafique & Partners
 INSTAGRAM: @zrplaw