May 24 2022
Introduction
In October 2021, the Kuala Lumpur High Court in the case of Re Scomi Group Bhd [2021] MLJU 2173, dismissed an application for a judicial management order (“JM Order”) made by Scomi Group Bhd (“SGB”) on among others, the ground that a public listed company is precluded from applying for a JM Order. SGB’s application afforded the High Court its first opportunity to consider whether a public listed company is precluded from applying for a JM Order. Our commentary on the High Court’s decision can be read here.
On 25 April 2022, the Court of Appeal upheld the decision of the Kuala Lumpur High Court. In this regard, the Court of Appeal agreed with the High Court that a public listed company is “a company which is subject to the Capital Markets and Services Act 2007” and hence, is caught by Section 403(b) of the Companies Act 2016 (“CA”). The Court of Appeal further held that the right to veto granted to secured creditors under Section 409 of the CA is available to all secured creditors, regardless of whether they are entitled to appoint a receiver or receiver and manager.
Facts
By way of a recap, SGB is a global service provider in the oil and gas transport solutions industries. Its shares are listed on the Main Market of Bursa Malaysia. SGB has been classified as a financially distressed company since December 2019.
In April 2021, SGB filed an application for a JM Order at the Kuala Lumpur High Court. SGB’s application was opposed by three of SGB’s creditors, namely See Song & Sons Sdn Bhd, Malayan Banking Berhad and SBI Spectrum Sdn Bhd (collectively “the Respondents”).
The High Court did not hear parties on the merits of the application. Instead, the High Court directed that parties first address the following two threshold questions:
- whether as a public listed company, SGB was precluded from applying for a JM Order, by virtue of Section 403(b) of the CA (“1st Threshold Question”); and
- whether there is a right of veto available to all secured creditors, regardless of their rights under the respective securities, by virtue of Section 409 of the CA (“2nd Threshold Question”).
The High Court answered both threshold questions in the affirmative and dismissed the JM Order application. SGB then filed an appeal to the Court of Appeal.
SGB’s main arguments before the Court of Appeal are set out below.
1st Threshold Question
It was argued on behalf of SGB that not all public listed companies are precluded from applying for a JM Order. Instead, SGB asserted that Section 403(b) of the CA should be read to only preclude companies that are licensed and regulated by the Capital Markets and Services Act 2007 (“CMSA”).
First, SGB took the position that the phrase “subject to” in Section 403(b) of the CA is “unclear”. In this regard, Section 403(b) of the CA purportedly gave rise to the following two possible interpretations:
- that the judicial management mechanism does not apply to any company that the CMSA refers to or is concerned with, even incidentally (“1st Interpretation”); or
- that the judicial management mechanism does not apply to, more specifically, a company that is licensed and regulated under the CMSA (“2nd Interpretation”).
Second, given the ambiguity in Section 403(b) of the CA, the purposive approach should be applied and that the 2nd Interpretation is to be preferred based on, among others, the following reasons:
- the preamble to the CMSA states that the statute is intended “to regulate and to provide for matters relating to the activities, markets and intermediaries in the capital markets, and for matters consequential and incidental thereto” [Emphasis added];
- from the preamble, it is apparent that the CMSA is not concerned with companies per se. Rather, it is concerned with companies that are involved in activities or markets in the capital market or which are intermediaries in the capital market. Therefore, the CMSA is aimed at regulating the activities and other body corporates in so far as they involve the capital markets.
Third, Section 403(b) of the CA being on the same subject with the CMSA should be construed as enforcing and complementing the CMSA as one system. This leaves no room for interpretation to include companies which do not involve the capital markets and are therefore not regulated by the Securities Commission Malaysia under the CMSA.
Fourth, the 2nd Interpretation is also supported by a harmonious construction of Section 403 of the CA, together with Section 395 of the CA which contains provisions relating to corporate voluntary arrangements. In this regard, the phrase “public company” has been expressly carved out from Section 395, in addition to “a company which is subject to the [CMSA]”, which also appears in Section 403(b) of the CA. On the other hand, reference to “public company” has been omitted from Section 403 of the CA. This means that “public company” is to be understood as being a specific category that is separate and distinct from “a company which is subject to the [CMSA]”.
Fifth, in light of the maxim of noscitur a sociis, Section 403(b) of the CA must be interpreted in light of its preceding provision, Section 403(a) of the CA which seeks to preclude entities that are licensed and regulated by Bank Negara from applying for a JM Order.
2nd Threshold Question
SGB argued that the Respondents do not qualify as secured creditors under Section 409 of the CA. It submitted that the phrase “secured creditor” in Section 409 must be understood in the context of Section 408(1) of the CA which obliges notice of an application for a JM Order to be given to, among others, a “secured creditor” who is “any person who has appointed or is or may be entitled to appoint a receiver or receiver and manager of the whole, or substantially the whole of a company’s property under the terms of any debentures of a company”. As such, a “secured creditor” under Section 409(b) of the CA must also be one that has appointed or is or may be entitled to appoint a receiver or receiver and manager”, which the Respondents are not. SGB purportedly draws support for its contention from the High Court decision in Leadmont Development Sdn Bhd v Infra Segi Sdn Bhd & Another Case [2018] 10 CLJ 412 (“Leadmont”).
In response to SGB’s contentions, the Respondents presented the following points before the Court of Appeal:
1st Threshold Question
First, Section 403(b) of the CA ought to be given a literal interpretation as there is no ambiguity in the said provision and neither does a literal interpretation of the same give rise to any absurdity. In this regard, in the recent decision of Tebin bin Mostapa (as administrator of the estate of Hj Mostapa bin Asan, deceased) v Hulba-Danyal bin Balia & Anor (as joint administrators of the estate of Balia bin Munir, deceased) [2020] 4 MLJ 721, the Federal Court held that the purposive approach of interpreting legislation cannot be adopted as the primary mode of statutory interpretation. It is only to be adopted in the event that the “words employed are not clear” and not when the “words of a statute are unambiguous, plain and clear”. Literal interpretation remains the primary mode of statutory interpretation. In this instance, the fact that Parliament had deliberately chosen to use different words/phrases in Sections 403(a) and 403(b) of the CA must mean that the words mean different things. The Courts should therefore not read words into Section 403(b) of the CA when there was no necessity to do so.
Second, it is set out in the preamble to the CMSA that it is an Act “to regulate and to provide for matters relating to the activities, markets and intermediaries in the capital markets, and for matters consequential and incidental thereto” [Emphasis added]. Such matters would include public listed companies which are listed on the capital markets. Furthermore, based on the arrangement of the sections of the CMSA, a significant number of its provisions relate to and/or are applicable to public listed companies. Accordingly, as a public listed company, the Appellant is naturally subject to the CMSA.
Third, that public listed companies are precluded from applying for a JM Order is consistent with the position taken by the Companies Commission of Malaysia (“CCM”). In this regard, in the CCM’s Consultation Document which discussed the proposed amendments to the CA, it was proposed that Section 403(b) of the CA be amended to allow public listed companies to apply for a JM Order. Such amendments, as set out in the draft Companies (Amendment) Bill 2020, reflect the position which the Appellant asserts is the state of affairs under the current CA. This cannot be the case as otherwise there would be no necessity for Parliament to amend the CA.
Fourth, nothing turns on the fact that the phrase “public company” has been expressly carved out from Section 395, in addition to “a company which is subject to the [CMSA]”, which also appears in Section 403(b) of the CA. The terms “public company” and public listed company” are not one and the same. They must not be conflated together. In this regard, not all public companies are listed and a public listed company is merely a subset of a wider category of public company. Similarly, a public listed company is also merely a subset of a wider category of companies subject to the CMSA. The fact that Section 395 of the CA refers to both “public company” and “a company which is subject to the [CMSA]” is limited only to showing that the said section was intended to be more far-reaching than Section 403 of the CA. In this regard, all public companies, whether listed or not, are precluded by Section 395 from entering into a corporate voluntary arrangement.
2nd Threshold Question
After the case of Leadmont was decided, Section 409 was amended whereby the word “and” appearing at the end of Subsection 409(a) was replaced with the word “or”. This means that Subsections 409(a) and 409(b) of the CA must now be read disjunctively. In this regard, it is trite that Parliament does not legislate in vain, and therefore the amendment to Section 409 of the CA must be given its due effect. It therefore follows that an application for a JM Order must be dismissed so long as the requirements of either one of the said subsections are fulfilled. It is no longer a requirement for both subsections to be fulfilled in order for the application for a JM Order to be dismissed as found in Leadmont. This interpretation of the amended Section 409 of the CA has been upheld by the High Court in Re Biaxis (M) Sdn Bhd [2020] 1 LNS 1289 (“Re Biaxis”) and Tidal Marine Engineering Sdn Bhd v Portneka Sdn Bhd & Anor [2020] MLJU 2526 (“Tidal Marine”). Furthermore, the interpretation is in line with the original policy of Parliament in enacting Section 409 of the CA where it was stated in the Explanatory Statement to the Companies Bill 2015 that “Clause 409 seeks to provide that the Court may dismiss the application a judicial management order if a receiver or receiver and manager is or will be appointed or if the application is objected by a secured creditor.”
Decision of the Court of Appeal
In dismissing SGB’s appeal, the Court of Appeal held as follows:
1st Threshold Question
Firstly, the Court of Appeal found that in terms of statutory interpretation, the method of construction which promotes the purpose of a statute prevails. In this regard, the Court of Appeal found that there was a divergence in opinion within the Federal Court whereby:
- in PJD Regency Sdn Bhd v Tribunal Tuntutan Pembeli Rumah & Anor and other appeals [2021] 2 MLJ 60, the Federal Court had held that the literal interpretation rule must first be applied and the purposive interpretation rule would only be applied where absurdity or ambiguity result; and
- in Bursa Malaysia Securities Bhd v Mohd Afrizan Bin Husain [2022] MLJU 502 “Mohd Afrizan”), where the Federal Court held that by reason of Section 17A of the Interpretation Acts 1948 and 1967 (“IA”), the purposive approach prevails over the literal approach in terms of statutory interpretation.
The Court of Appeal held that it was bound by the doctrine of stare decisis to follow the most recent decision of the Federal Court that being Mohd Afrizan. As such, a purposive approach must be adopted in interpreting Section 403(b) of the CA.
However, the Court of Appeal went on to hold that even by applying the purposive approach as espoused in Section 17A of the IA, Section 403(b) of the CA is incapable of being construed in the manner suggested by the Appellant. The words of Section 403(b) are clear and unambiguous. When construed contextually, the legislative intent is clear. Section 403 applies to all companies whose shares are quoted on the stock market which is regulated by the CMSA (whether incidentally or otherwise) and to which such companies are subject to. This would include the Appellant. The fact that a public listed company is subject to the CMSA was reiterated in the Court of Appeal in Ng Kim Fong v Menang Corporation (M) Berhad [2020] 1 LNS 1263.
Furthermore, the fact that Section 403(b) precludes public listed companies from applying for a JM Order is evident from CCM’s Consultative Document on the Proposed Companies (Amendment) Bill 2020 where it was explained that “currently, the benefit of judicial management is not available to companies which are regulated under CMSA 2007 including listed companies. The proposed amendment would assist all companies facing financial difficulties including listed companies an avenue to rehabilitate their situations through judicial management….”
2nd Threshold Question
With the amendment to Section 409 of the CA where the word “and” at the end of Subsection 409(a) has been replaced with the word “or”, it means that creditors who are entitled to appoint or have appointed a receiver or a receiver and manager are a separate and distinct category from secured creditors. Parliament’s intention is clear. The right to veto is available to either category of creditors. Such interpretation is consistent with the case of Re Biaxis and Tidal Marine. Therefore, all secured creditors have a right to veto an application for a JM Order regardless of their rights under the security.
Conclusion
This is the first decision of the Court of Appeal pertaining to the question of whether public listed companies are precluded from applying for a JM Order by virtue of Section 403(b) of the CA. Given that this is the first time that the Courts have been called upon to interpret this statutory provision, it would be interesting to see whether SGB would be applying for leave to appeal to the Federal Court and if leave is granted, the manner in which the Federal Court would interpret Sections 403(b) and 409 of the CA. Notwithstanding this, it should be noted that under the draft Companies (Amendment) Bill 2020, CCM has proposed amendments to the present Section 403 of the CA. If these proposed amendments are tabled and passed, they may render any application by SGB to be academic as the amended section will no longer preclude SGB from applying for a JM Order upon the amendments coming into force.
It has been reported that the Shah Alam High Court of Malaya had also dismissed an application for a JM Order filed by another public listed company, Dolomite Corporation Berhad on similar grounds. We understand that Dolomite Corporation Berhad has also filed an appeal to the Court of Appeal.
