I am off for a team retreat for 4 days in Bangkok. Should be a great holiday, with lots of food, shopping and sights to see. I've only been to Bangkok once before, and that was when I was about 14.
Thursday, December 10, 2009
Tuesday, December 08, 2009
Schemes of Arrangement – Restructuring the Debts of a Financially Distressed Company
(This article was originally published in KL Bar's Relevan Online)
Part A. Introduction to Schemes of Arrangement
Schemes of arrangement under section 176 of the Companies Act 1965 (“the Act”) may be used for a variety of purposes. The common use of such a scheme is the restructuring of the financial affairs of a company heavily burdened with debt.
Section 176 of the Act provides a mechanism to facilitate a formal compromise which binds dissenting participants so long as agreement by the statutory majority has been achieved, and subject to the approval of the Court. This helps to overcome the impossibility or impracticability of obtaining unanimous consent of all the creditors to implement a debt restructuring scheme.
This article sets out the law on schemes of arrangement.
Part B. Restraining Order
In the interim period between the proposal of a scheme (the details of which may not be completely finalised) and its approval by the Court, a company would be vulnerable to its creditors who may move to wind up the company or institute execution proceedings on the assets of the company.
Under section 176(10) of the Act, the company or any member or creditor of the company may apply to the Court to restrain further proceedings in any action or proceeding against the company, except by leave of the Court. Such an order to restrain ‘any action or proceeding’ would extend to restraining legal suits, execution proceedings or winding up petitions filed against the company.
(i) Restraining Order for a Period of Not More than 90 days
Section 176(10A) of the Act sets out that the Court may grant a restraining order for a period of not more than ninety days or such longer period as the Court may for good reason allow if and only if-
“(a) it is satisfied that there is a proposal for a scheme of compromise or arrangement between the company and its creditors or any class of creditors representing at least one-half in value of all the creditors;
(b) the restraining order is necessary to enable the company and its creditors to formalize the scheme of compromise or arrangement for the approval of the creditors or members pursuant to subsection (1);
(c) a statement in the prescribed form as to the affairs of the company made up to a date not more than three days before the application is lodged together with the application; and
(d) it approves the person nominated by a majority of the creditors in the application by the company under subsection (10) to act as a director or if that person is not already a director, notwithstanding the provisions of this Act or the memorandum and articles of the company, appoints the person to act as a director.”
A question arises whether the requirements under sections 176(10A)(a) - (d) of the Act must be complied with even where the initial application for a restraining order is for a period of 90 days or less.
The unreported High Court decision of Jin Lin Wood Industries & 3 Ors v Mulpha International Bhd [2004] 1 LNS 432 (“Jin Lin”) involved an application to set aside the initial restraining order which was granted for a period of 90 days. Despite non-compliance with section 176(10A)(c) and (d) of the Act at the time of the grant of the initial 90-day restraining order, the Court dismissed the setting aside application.
The Court appeared to agree with the argument that section 176(10A) of the Act does not apply when a restraining order of not more than 90 days is sought and referred to the decision in Pelangi Airways Sdn Bhd v Mayban Trustees Bhd [2001] 6 CLJ 129 (“Pelangi Airways”).
In the earlier decision of Pelangi Airways, the High Court had allowed an application to set aside the initial restraining order which was granted for a period of 1 year. It is submitted that Jin Lin had misapplied Pelangi Airways since the latter never held that the requirements of sections 176(10A)(a) – (d) of the Act need not be complied with where the period was for not more than 90 days. Pelangi Airways merely held that the requirements under sections 176(10A)(a) – (d) of the Act must be complied with for extending the 90-day restraining period to the 1-year period.
This issue has also recently been considered in the unreported High Court decision of PECD Bhd & Anor (Applicants) (No. 2) [2008] 1 LNS 324 (“PECD Bhd”). The Court held that sections 176(10A)(a) – (d) of the Act “apply to any application for a restraining order pursuant to subsections (10) and (10A) of section 176 of the Companies Act regardless of the length of the period of the restraining order applied for." The Court found on a grammatical reading of the section, if the requirements of paragraphs (a) to (d) were meant to not apply to any restraining order for a period not exceeding 90 days, then subsection (10A) would have been drafted differently. Further, the Court also distinguished Pelangi Airways based on the facts of that case.
(ii) Extension of the Restraining Order
If the applicant seeks a restraining order past the period of 90 days, or for an extension of the initial restraining order past 90 days, the applicant must demonstrate a ‘good reason’. The High Court in Metroplex Bhd & Ors v Morgan Stanley Emering Markets & Ors; RHB Sakura Merchant Bankers & Ors (Interveners) [2005] 6 MLJ 487 (“Metroplex”) held the words ‘good reason’ in section 176(10A) of the Act to mean that:
(i) a bona fide scheme of arrangement is presented, with sufficient details provided to the creditors to enable them to make informed decisions as to its feasibility and merits (Re Kuala Lumpur Industries [1990] 2 MLJ 253);
(ii) the scheme of arrangement presented must not be such that it is bound to fail (Twenty First Century Oils Sdn Bhd v Bank of Commerce (M) Bhd [1993] 2 MLJ 353); and
(iii) the interest of creditors, that is, the beneficiaries under the proposed arrangement is safeguarded (Sri Hartamas Development Sdn Bhd v MBf Finance Bhd [1990] 2 MLJ 180).
Metroplex also made it clear that for extensions of a restraining order, all the provisions of section 176(10A) of the Act must be met afresh.
(iii) Approval of At Least 50% in Value of Creditors for the Restraining Order?
Metroplex had interpreted section 176(10A)(a) of the Act to mean that the section requires the approval of at least 50% in value of creditors in order for the Court to grant a restraining order. However, the High Court in Re Kai Peng Bhd [2007] 8 CLJ 703 (“Re Kai Peng Bhd”) construed the section differently and held that all the applicant needs to show is that the proposed scheme involves more than 50% of its creditors. The Court held that the approval of the creditors is only relevant at the stage of the creditors meeting ordered under section 176(3) of the Act, but not at the stage of the restraining order. It is submitted, that on a plain reading of the wording of section 176(10A)(a) of the Act, the interpretation of Re Kai Peng Bhd is to be preferred.
(iv) Restrain De-listing Procedures
It is not conclusive whether a restraining order obtained by a public listed company would extend to restraining de-listing procedures against the company.
The High Court in CHG Industries Bhd & Ors v Bursa Malaysia Securities Bhd [2007] 6 CLJ 710 involved the applicant company successfully arguing that a restraining order under section 176(10) of the Act would restrain Bursa Malaysia Securities Berhad (“Bursa Securities”) from proceeding with procedures to de-list the applicant.
However, in the unreported decision involving Avangarde Resources Berhad, Bursa Malaysia had on 11 April 2007 obtained a declaration from the High Court that a section 176 Restraining Order does not extend to include the decision of Bursa Securities to de-list the company in accordance with the listing requirements (see Listing Circular No. L/Q: 4285 of 2007).
(v) Protection of Creditors’ Interests
The restraining order has the wide-ranging effect of staying most, if not all, of the creditors’ actions against the company. In order to temper the risk of the creditors’ interests being prejudiced, certain safeguards have been put in place.
Section 176(10A)(d) requires the Court’s approval of the appointment of a director nominated by a majority of the creditors. This director would have access to the records of the company and is entitled to ask for any information and explanation he may require for the purposes of his duty (section 176(10B) of the Act). The Act is silent however on the extent and scope of the creditor-nominated director; must the director act in the interests of the company or can he act in the interests of the creditors?
Further, section 176(10C) of the Act also prevents any disposition of the company’s property and any acquisition of property by the company, other than those made in the ordinary course of business, unless the Court otherwise orders. A breach of this subsection will result in every officer in the company who is in default to be guilty of an offence which carries a penalty of imprisonment for 5 years or RM1 million fine or both (section 176(10D) of the Act).
(vi) Corporate Law Reform Committee
The Corporate Law Reform Committee (“CLRC”) had conducted an overall review of the Act and had recently published its ‘Review of the Companies Act 1965 – Final Report’. It is useful to highlight the CLRC recommendations on the changes to the scheme of arrangement framework under section 176 of the Act.
In relation to restraining orders, the CLRC recommended that any extension of the 90-day moratorium should only be for a maximum of one year. The CLRC noted section 176 of the Act has been used as a delaying mechanism by companies to frustrate the enforcement of any judgment debts by creditors.
Further, the CLRC recommended that a restraining order should not be effective against the companies and securities market regulators so as to prevent them from commencing any enforcement actions to ensure compliance of corporate and/or securities law or guidelines.
Generally as well, the CLRC recommended the requirement of an appointment of a qualified insolvency practitioner to assess the viability of a scheme of arrangement between a company and its creditors.
Part C. Court Convened Meeting
Where there is a proposed scheme of arrangement, the company will have to apply to the Court under section 176(1) of the Act to order a meeting of the creditors or class of creditors or of the members of the company or class of members. Separate meetings of each class of creditor or member would have to be called and classes are viewed as separate if their interests are so different that they will not be able to consult together with a view to their common interest, as set out in the authority of Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 (“Sovereign Life Assurance”).
At each of the court convened meetings, the scheme is considered to have been agreed to only if a majority in number (i.e. more than 50% in number) representing 75% in value of the class present and voting in person or proxy at the meeting or adjourned meeting agreed to it (see section 176(3) of the Act).
(i) Insolvent Company Embarking on a Scheme of Arrangement
A great utility of the scheme of arrangement provisions is that it would allow a technically insolvent company to restructure its debts and to return that company to a position where it could trade. It was held in the High Court decision of Intrakota Komposit Sdn Bhd & Anor v Sogelease Advance (M) Sdn Bhd [2004] 8 CLJ 276 that even if the applicant companies were in fact insolvent, that would not preclude the applicants from embarking on a scheme of arrangement.
However, in the earlier High Court decision of Sri Hartamas Development Sdn Bhd v MBf Finance Bhd [1990] 2 MLJ 31, the Court adopted the public policy argument that a scheme undertaken by an insolvent company would be against commercial morality as the court could not condone or encourage individuals to carry on business activities in a company which was handicapped by a heavy burden of indebtedness. The High Court decision has recently been quoted with approval in the unreported Court of Appeal decision of PECD Bhd & Anor v Amtrustee Bhd (Civil Appeal No. W-02(IM)-386-2009) where the Court of Appeal held that it was against public policy to approve a scheme by an insolvent company.
(ii) Classification of Related Creditors
One practical problem that arises in schemes of arrangement is in the classification of creditors which are related companies to the applicant company in the proposed scheme.
For instance, if the proposed scheme were to set out one class of unsecured creditors where more than half the number consists of subsidiaries of the applicant company, then this may draw the ire of the other unsupportive creditors since they may be outvoted.
On this issue, there is some divergence in approach of the Malaysian court decisions and that of other jurisdictions.
In the High Court decision of Re Sateras Resources (Malaysia) Bhd [2005] 6 CLJ 194, it was held that it was unfair to group the applicant’s subsidiaries in the same class of creditors with the applicant’s unsecured creditors as there was a divergence of interest. The Court held that it was undeniable that the applicant having full control of the subsidiaries would cause the subsidiaries to vote in support of the scheme. The test there focused more on community of interests.
In contrast, in the Singapore Court of Appeal decision of Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR 629 (“Wah Yuen”), the test was focused more on community of legal rights. The Singapore Court of Appeal agreed with the submission that related party creditors did not constitute a separate class of creditors for voting purposes simply because they were related parties. The test applied by the Singapore Court of Appeal was based on similarity or dissimilarity of legal rights against the company, not in similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights was not a ground for separating the related party creditors into a separate class.
(iii) Explanatory Statement
Section 177 of the Act requires that an Explanatory Statement be sent out to each creditor or member explaining “the effect of the compromise or arrangement and in particular stating any material interests of the directors, whether as directors or as members or as creditors of the company or otherwise, and the effect thereon of the compromise or arrangement so far as it is different from the effect on the like interests of other persons.”
This explanatory statement must ensure that the creditors are provided with sufficient or material information to make a meaningful decision, and a failure on the part of the applicant to make such disclosure may be fatal to the scheme.
In the English decision of Re Dorman, Long & Co Ltd [1934] Ch 635 it was held that it was essential to see that the explanatory circulars sent out by the board of the company were perfectly fair and to give all information reasonably necessary to enable the recipients to determine how to vote.
(iv) Without Prejudice Proposal?
An explanatory statement in setting out the effects of the proposed scheme will also list out the debts of the various scheme creditors. One issue raised before the Court of Appeal in PB Securities Sdn Bhd v Autoways Holding Bhd [2000] 4 MLJ 417 was whether there could be a ‘without prejudice’ proposal in a scheme of arrangement.
The case involved the applicant company issuing to a scheme creditor, various proposals for the restructuring scheme. After the applicant company had obtained leave to convene the meeting of creditors and had issued out the explanatory statement to all the creditors, the scheme creditor filed a proxy form stating that they would be voting against the scheme. The applicant then decided to oppose that creditor’s claim and had excluded their proxy representative from the court convened meeting.
The Court of Appeal overturned the High Court findings and held that the question of a bona fide dispute of the debt did not arise in light of the repeat acknowledgements in the various proposals. Further, the Court of Appeal held that there was no such thing as a without prejudice proposal under section 176 of the Act and there is no such thing as a restricted proposal. The appearance of the phrase ‘without prejudice’ had no effect on the proposal.
Part D. Court Approval
In the event the terms of the scheme are approved by the scheme creditors at the court convened meeting stage, a separate application has to then be made to the Court for approval of the agreed scheme.
When considering such an application, the court will generally be guided by the following principles:
(i) that the statutory provisions have been complied with;
(ii) that various classes were property identified and effectively represented by those who attended the meeting;
(iii) that statutory majority acted bona fide and did not coerce the minority in order to promote interests adverse to those of the class they purport to represent; and
(iv) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonable approve.
These general principles were examined in the High Court case of Re Sateras Resources (Malaysia) Bhd [2005] 6 CLJ 194.
Generally, the court should be slow in interfering with the decision of the majority of the creditors in the creditors meeting. Businessmen are better judges of what is to their commercial advantage than the court could be. However, the court may interfere if there has been some material oversight or miscarriage.
Schemes of arrangement under section 176 of the Companies Act 1965 (“the Act”) may be used for a variety of purposes. The common use of such a scheme is the restructuring of the financial affairs of a company heavily burdened with debt.
Section 176 of the Act provides a mechanism to facilitate a formal compromise which binds dissenting participants so long as agreement by the statutory majority has been achieved, and subject to the approval of the Court. This helps to overcome the impossibility or impracticability of obtaining unanimous consent of all the creditors to implement a debt restructuring scheme.
This article sets out the law on schemes of arrangement.
Part B. Restraining Order
In the interim period between the proposal of a scheme (the details of which may not be completely finalised) and its approval by the Court, a company would be vulnerable to its creditors who may move to wind up the company or institute execution proceedings on the assets of the company.
Under section 176(10) of the Act, the company or any member or creditor of the company may apply to the Court to restrain further proceedings in any action or proceeding against the company, except by leave of the Court. Such an order to restrain ‘any action or proceeding’ would extend to restraining legal suits, execution proceedings or winding up petitions filed against the company.
(i) Restraining Order for a Period of Not More than 90 days
Section 176(10A) of the Act sets out that the Court may grant a restraining order for a period of not more than ninety days or such longer period as the Court may for good reason allow if and only if-
“(a) it is satisfied that there is a proposal for a scheme of compromise or arrangement between the company and its creditors or any class of creditors representing at least one-half in value of all the creditors;
(b) the restraining order is necessary to enable the company and its creditors to formalize the scheme of compromise or arrangement for the approval of the creditors or members pursuant to subsection (1);
(c) a statement in the prescribed form as to the affairs of the company made up to a date not more than three days before the application is lodged together with the application; and
(d) it approves the person nominated by a majority of the creditors in the application by the company under subsection (10) to act as a director or if that person is not already a director, notwithstanding the provisions of this Act or the memorandum and articles of the company, appoints the person to act as a director.”
A question arises whether the requirements under sections 176(10A)(a) - (d) of the Act must be complied with even where the initial application for a restraining order is for a period of 90 days or less.
The unreported High Court decision of Jin Lin Wood Industries & 3 Ors v Mulpha International Bhd [2004] 1 LNS 432 (“Jin Lin”) involved an application to set aside the initial restraining order which was granted for a period of 90 days. Despite non-compliance with section 176(10A)(c) and (d) of the Act at the time of the grant of the initial 90-day restraining order, the Court dismissed the setting aside application.
The Court appeared to agree with the argument that section 176(10A) of the Act does not apply when a restraining order of not more than 90 days is sought and referred to the decision in Pelangi Airways Sdn Bhd v Mayban Trustees Bhd [2001] 6 CLJ 129 (“Pelangi Airways”).
In the earlier decision of Pelangi Airways, the High Court had allowed an application to set aside the initial restraining order which was granted for a period of 1 year. It is submitted that Jin Lin had misapplied Pelangi Airways since the latter never held that the requirements of sections 176(10A)(a) – (d) of the Act need not be complied with where the period was for not more than 90 days. Pelangi Airways merely held that the requirements under sections 176(10A)(a) – (d) of the Act must be complied with for extending the 90-day restraining period to the 1-year period.
This issue has also recently been considered in the unreported High Court decision of PECD Bhd & Anor (Applicants) (No. 2) [2008] 1 LNS 324 (“PECD Bhd”). The Court held that sections 176(10A)(a) – (d) of the Act “apply to any application for a restraining order pursuant to subsections (10) and (10A) of section 176 of the Companies Act regardless of the length of the period of the restraining order applied for." The Court found on a grammatical reading of the section, if the requirements of paragraphs (a) to (d) were meant to not apply to any restraining order for a period not exceeding 90 days, then subsection (10A) would have been drafted differently. Further, the Court also distinguished Pelangi Airways based on the facts of that case.
(ii) Extension of the Restraining Order
If the applicant seeks a restraining order past the period of 90 days, or for an extension of the initial restraining order past 90 days, the applicant must demonstrate a ‘good reason’. The High Court in Metroplex Bhd & Ors v Morgan Stanley Emering Markets & Ors; RHB Sakura Merchant Bankers & Ors (Interveners) [2005] 6 MLJ 487 (“Metroplex”) held the words ‘good reason’ in section 176(10A) of the Act to mean that:
(i) a bona fide scheme of arrangement is presented, with sufficient details provided to the creditors to enable them to make informed decisions as to its feasibility and merits (Re Kuala Lumpur Industries [1990] 2 MLJ 253);
(ii) the scheme of arrangement presented must not be such that it is bound to fail (Twenty First Century Oils Sdn Bhd v Bank of Commerce (M) Bhd [1993] 2 MLJ 353); and
(iii) the interest of creditors, that is, the beneficiaries under the proposed arrangement is safeguarded (Sri Hartamas Development Sdn Bhd v MBf Finance Bhd [1990] 2 MLJ 180).
Metroplex also made it clear that for extensions of a restraining order, all the provisions of section 176(10A) of the Act must be met afresh.
(iii) Approval of At Least 50% in Value of Creditors for the Restraining Order?
Metroplex had interpreted section 176(10A)(a) of the Act to mean that the section requires the approval of at least 50% in value of creditors in order for the Court to grant a restraining order. However, the High Court in Re Kai Peng Bhd [2007] 8 CLJ 703 (“Re Kai Peng Bhd”) construed the section differently and held that all the applicant needs to show is that the proposed scheme involves more than 50% of its creditors. The Court held that the approval of the creditors is only relevant at the stage of the creditors meeting ordered under section 176(3) of the Act, but not at the stage of the restraining order. It is submitted, that on a plain reading of the wording of section 176(10A)(a) of the Act, the interpretation of Re Kai Peng Bhd is to be preferred.
(iv) Restrain De-listing Procedures
It is not conclusive whether a restraining order obtained by a public listed company would extend to restraining de-listing procedures against the company.
The High Court in CHG Industries Bhd & Ors v Bursa Malaysia Securities Bhd [2007] 6 CLJ 710 involved the applicant company successfully arguing that a restraining order under section 176(10) of the Act would restrain Bursa Malaysia Securities Berhad (“Bursa Securities”) from proceeding with procedures to de-list the applicant.
However, in the unreported decision involving Avangarde Resources Berhad, Bursa Malaysia had on 11 April 2007 obtained a declaration from the High Court that a section 176 Restraining Order does not extend to include the decision of Bursa Securities to de-list the company in accordance with the listing requirements (see Listing Circular No. L/Q: 4285 of 2007).
(v) Protection of Creditors’ Interests
The restraining order has the wide-ranging effect of staying most, if not all, of the creditors’ actions against the company. In order to temper the risk of the creditors’ interests being prejudiced, certain safeguards have been put in place.
Section 176(10A)(d) requires the Court’s approval of the appointment of a director nominated by a majority of the creditors. This director would have access to the records of the company and is entitled to ask for any information and explanation he may require for the purposes of his duty (section 176(10B) of the Act). The Act is silent however on the extent and scope of the creditor-nominated director; must the director act in the interests of the company or can he act in the interests of the creditors?
Further, section 176(10C) of the Act also prevents any disposition of the company’s property and any acquisition of property by the company, other than those made in the ordinary course of business, unless the Court otherwise orders. A breach of this subsection will result in every officer in the company who is in default to be guilty of an offence which carries a penalty of imprisonment for 5 years or RM1 million fine or both (section 176(10D) of the Act).
(vi) Corporate Law Reform Committee
The Corporate Law Reform Committee (“CLRC”) had conducted an overall review of the Act and had recently published its ‘Review of the Companies Act 1965 – Final Report’. It is useful to highlight the CLRC recommendations on the changes to the scheme of arrangement framework under section 176 of the Act.
In relation to restraining orders, the CLRC recommended that any extension of the 90-day moratorium should only be for a maximum of one year. The CLRC noted section 176 of the Act has been used as a delaying mechanism by companies to frustrate the enforcement of any judgment debts by creditors.
Further, the CLRC recommended that a restraining order should not be effective against the companies and securities market regulators so as to prevent them from commencing any enforcement actions to ensure compliance of corporate and/or securities law or guidelines.
Generally as well, the CLRC recommended the requirement of an appointment of a qualified insolvency practitioner to assess the viability of a scheme of arrangement between a company and its creditors.
Part C. Court Convened Meeting
Where there is a proposed scheme of arrangement, the company will have to apply to the Court under section 176(1) of the Act to order a meeting of the creditors or class of creditors or of the members of the company or class of members. Separate meetings of each class of creditor or member would have to be called and classes are viewed as separate if their interests are so different that they will not be able to consult together with a view to their common interest, as set out in the authority of Sovereign Life Assurance Co v Dodd [1892] 2 QB 573 (“Sovereign Life Assurance”).
At each of the court convened meetings, the scheme is considered to have been agreed to only if a majority in number (i.e. more than 50% in number) representing 75% in value of the class present and voting in person or proxy at the meeting or adjourned meeting agreed to it (see section 176(3) of the Act).
(i) Insolvent Company Embarking on a Scheme of Arrangement
A great utility of the scheme of arrangement provisions is that it would allow a technically insolvent company to restructure its debts and to return that company to a position where it could trade. It was held in the High Court decision of Intrakota Komposit Sdn Bhd & Anor v Sogelease Advance (M) Sdn Bhd [2004] 8 CLJ 276 that even if the applicant companies were in fact insolvent, that would not preclude the applicants from embarking on a scheme of arrangement.
However, in the earlier High Court decision of Sri Hartamas Development Sdn Bhd v MBf Finance Bhd [1990] 2 MLJ 31, the Court adopted the public policy argument that a scheme undertaken by an insolvent company would be against commercial morality as the court could not condone or encourage individuals to carry on business activities in a company which was handicapped by a heavy burden of indebtedness. The High Court decision has recently been quoted with approval in the unreported Court of Appeal decision of PECD Bhd & Anor v Amtrustee Bhd (Civil Appeal No. W-02(IM)-386-2009) where the Court of Appeal held that it was against public policy to approve a scheme by an insolvent company.
(ii) Classification of Related Creditors
One practical problem that arises in schemes of arrangement is in the classification of creditors which are related companies to the applicant company in the proposed scheme.
For instance, if the proposed scheme were to set out one class of unsecured creditors where more than half the number consists of subsidiaries of the applicant company, then this may draw the ire of the other unsupportive creditors since they may be outvoted.
On this issue, there is some divergence in approach of the Malaysian court decisions and that of other jurisdictions.
In the High Court decision of Re Sateras Resources (Malaysia) Bhd [2005] 6 CLJ 194, it was held that it was unfair to group the applicant’s subsidiaries in the same class of creditors with the applicant’s unsecured creditors as there was a divergence of interest. The Court held that it was undeniable that the applicant having full control of the subsidiaries would cause the subsidiaries to vote in support of the scheme. The test there focused more on community of interests.
In contrast, in the Singapore Court of Appeal decision of Wah Yuen Electrical Engineering Pte Ltd v Singapore Cables Manufacturers Pte Ltd [2003] 3 SLR 629 (“Wah Yuen”), the test was focused more on community of legal rights. The Singapore Court of Appeal agreed with the submission that related party creditors did not constitute a separate class of creditors for voting purposes simply because they were related parties. The test applied by the Singapore Court of Appeal was based on similarity or dissimilarity of legal rights against the company, not in similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights was not a ground for separating the related party creditors into a separate class.
(iii) Explanatory Statement
Section 177 of the Act requires that an Explanatory Statement be sent out to each creditor or member explaining “the effect of the compromise or arrangement and in particular stating any material interests of the directors, whether as directors or as members or as creditors of the company or otherwise, and the effect thereon of the compromise or arrangement so far as it is different from the effect on the like interests of other persons.”
This explanatory statement must ensure that the creditors are provided with sufficient or material information to make a meaningful decision, and a failure on the part of the applicant to make such disclosure may be fatal to the scheme.
In the English decision of Re Dorman, Long & Co Ltd [1934] Ch 635 it was held that it was essential to see that the explanatory circulars sent out by the board of the company were perfectly fair and to give all information reasonably necessary to enable the recipients to determine how to vote.
(iv) Without Prejudice Proposal?
An explanatory statement in setting out the effects of the proposed scheme will also list out the debts of the various scheme creditors. One issue raised before the Court of Appeal in PB Securities Sdn Bhd v Autoways Holding Bhd [2000] 4 MLJ 417 was whether there could be a ‘without prejudice’ proposal in a scheme of arrangement.
The case involved the applicant company issuing to a scheme creditor, various proposals for the restructuring scheme. After the applicant company had obtained leave to convene the meeting of creditors and had issued out the explanatory statement to all the creditors, the scheme creditor filed a proxy form stating that they would be voting against the scheme. The applicant then decided to oppose that creditor’s claim and had excluded their proxy representative from the court convened meeting.
The Court of Appeal overturned the High Court findings and held that the question of a bona fide dispute of the debt did not arise in light of the repeat acknowledgements in the various proposals. Further, the Court of Appeal held that there was no such thing as a without prejudice proposal under section 176 of the Act and there is no such thing as a restricted proposal. The appearance of the phrase ‘without prejudice’ had no effect on the proposal.
Part D. Court Approval
In the event the terms of the scheme are approved by the scheme creditors at the court convened meeting stage, a separate application has to then be made to the Court for approval of the agreed scheme.
When considering such an application, the court will generally be guided by the following principles:
(i) that the statutory provisions have been complied with;
(ii) that various classes were property identified and effectively represented by those who attended the meeting;
(iii) that statutory majority acted bona fide and did not coerce the minority in order to promote interests adverse to those of the class they purport to represent; and
(iv) that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interest, might reasonable approve.
These general principles were examined in the High Court case of Re Sateras Resources (Malaysia) Bhd [2005] 6 CLJ 194.
Generally, the court should be slow in interfering with the decision of the majority of the creditors in the creditors meeting. Businessmen are better judges of what is to their commercial advantage than the court could be. However, the court may interfere if there has been some material oversight or miscarriage.
Monday, December 07, 2009
I Survived Another Half-Marathon
So I just made it through another half-marathon over the weekend, for the Singapore StanChart run. I have to say that the organisers continue to impress me with how well run the entire event is.
I went to collect the race packs on Saturday at the Singapore Expo, which is really far away from where I am, but they had so many counters open. The volunteers all greeted me with a big smile and I took the pack within a minute. I then scanned the race chip just to check that my details were recorded correctly and then I was off. No hassle, no fuss.
The next day was the morning of the race already. Had to wake up at an ungodly hour of 3.30am and then caught the coach from Bukit Gombak MRT into the city. Upon arrival, there was a slight queue at the bag deposit tent but they had 4 different sections open for the crowd to deposit the bags. I think the queue lines could have been set up better, with a lot of people just cutting the queue but the wait was only about 10 minutes, despite it being a long line, and I quickly deposited my bag.
The organisers had set up tons of portaloos this year, and there was no queue at all to enter the toilets since there were so many of them.
Well, on to the race itself, where the route was almost identical to the half marathon route of last year. It was good since I could mentally prepare myself for where I was headed. Training has been haphazard for the entire year but thought I'd go and enjoy myself at the run.
The weather was nice and cool the entire morning, with a cloudy sky blocking most of the sun. Had no trouble until the 14km mark where I started to feel very tired but I still wanted to keep up the pace to try to finish in a good time. By the 17km mark, I was starting to struggle and where I just had to mentally will myself to keep up the jogging, notwithstanding my aching knees by that time.
So close to the finishing line, but at the 20km mark, I had to walk a bit already. Just didn't have enough in the tank to keep up the run and then I had to light jog to the finishing line.
Time: 2 hours 30 minutes. So I've slowly but steadily been getting, well, slower. Timings have increased from 2 hours 15 minutes to 2 hours 25 minutes, and now 2 1/2 hours. Ah well, there's always next year. I always look at the marathon runners with envy where I wish I could finish one, but then I run a half marathon, and now I tell myself I'd be insane to go run a full marathon!
The rest of Sunday was spent nursing very badly aching knees. It's terrible what I put my body through and I am getting worried about how bad my knees hurt after a long run. Lack of training notwithstanding, they shouldn't hurt so bad.
I enjoy my running so I don't want to give it up but I'm planning on implementing a slightly unconventional (well, unconventional to some) method of trying to get over my aches and pains during my runs. It will involve the opposite of getting a more cushioned shoe, or some motion control shoe or to slip on orthotics. Will see if that helps and will blog more about it in future.
I went to collect the race packs on Saturday at the Singapore Expo, which is really far away from where I am, but they had so many counters open. The volunteers all greeted me with a big smile and I took the pack within a minute. I then scanned the race chip just to check that my details were recorded correctly and then I was off. No hassle, no fuss.
The next day was the morning of the race already. Had to wake up at an ungodly hour of 3.30am and then caught the coach from Bukit Gombak MRT into the city. Upon arrival, there was a slight queue at the bag deposit tent but they had 4 different sections open for the crowd to deposit the bags. I think the queue lines could have been set up better, with a lot of people just cutting the queue but the wait was only about 10 minutes, despite it being a long line, and I quickly deposited my bag.
The organisers had set up tons of portaloos this year, and there was no queue at all to enter the toilets since there were so many of them.
Well, on to the race itself, where the route was almost identical to the half marathon route of last year. It was good since I could mentally prepare myself for where I was headed. Training has been haphazard for the entire year but thought I'd go and enjoy myself at the run.
The weather was nice and cool the entire morning, with a cloudy sky blocking most of the sun. Had no trouble until the 14km mark where I started to feel very tired but I still wanted to keep up the pace to try to finish in a good time. By the 17km mark, I was starting to struggle and where I just had to mentally will myself to keep up the jogging, notwithstanding my aching knees by that time.
So close to the finishing line, but at the 20km mark, I had to walk a bit already. Just didn't have enough in the tank to keep up the run and then I had to light jog to the finishing line.
Time: 2 hours 30 minutes. So I've slowly but steadily been getting, well, slower. Timings have increased from 2 hours 15 minutes to 2 hours 25 minutes, and now 2 1/2 hours. Ah well, there's always next year. I always look at the marathon runners with envy where I wish I could finish one, but then I run a half marathon, and now I tell myself I'd be insane to go run a full marathon!
The rest of Sunday was spent nursing very badly aching knees. It's terrible what I put my body through and I am getting worried about how bad my knees hurt after a long run. Lack of training notwithstanding, they shouldn't hurt so bad.
I enjoy my running so I don't want to give it up but I'm planning on implementing a slightly unconventional (well, unconventional to some) method of trying to get over my aches and pains during my runs. It will involve the opposite of getting a more cushioned shoe, or some motion control shoe or to slip on orthotics. Will see if that helps and will blog more about it in future.
Friday, December 04, 2009
Singapore Marathon 2009
I will be away this weekend in Singapore to run the Singapore StanChart run. It'll be back to the much better organised cousin of the not-very-good KL StanChart run.
I am looking forward to picking up my race pack with a cool running singlet and this year, we will all get disposable race chips to keep as souvenirs as well.
The run itself, well, I am guessing it might get pretty agonising towards the end. I'll only be doing the half-marathon (21km) again this year. Training has been very stop-start in the lead-up to this run and definitely didn't put in as many kilometres as last year. It's going to be a very quick pit stop in Singapore this weekend. Flight out from Subang on Friday night, Saturday will start off with the racepack collection, then an early night for Sunday's run in the morning. Then catching the night flight back to KL.
I am looking forward to picking up my race pack with a cool running singlet and this year, we will all get disposable race chips to keep as souvenirs as well.
The run itself, well, I am guessing it might get pretty agonising towards the end. I'll only be doing the half-marathon (21km) again this year. Training has been very stop-start in the lead-up to this run and definitely didn't put in as many kilometres as last year. It's going to be a very quick pit stop in Singapore this weekend. Flight out from Subang on Friday night, Saturday will start off with the racepack collection, then an early night for Sunday's run in the morning. Then catching the night flight back to KL.
Thursday, December 03, 2009
Stress test
A stress test involves testing beyond the normal operational capacity, often to a breaking point, in order to observe the results.
A while back I went through my own stress test, where I was just pushed to breaking point. It was by far the most stressful period I could ever remember. I lost my appetite, I dreaded answering my phone or checking my emails, and the only respite I had was when I went to sleep, and where I dreaded the drive to the office to face the emails waiting for me.
The thing is, even through normal stressful periods, you are benefiting from the work you are doing, the subject matter you are going through, picking up knowledge. The worse thing about my stress test was that I was not even doing any such work. It was just doing a lot of running around. I can look back at it with more objective eyes now and really, the only thing I took away from that was how far I could push myself without breaking. The number of times I just wanted to give up, and then I would just have to compose myself and soldier on.
In a way, I have taken away the fact that I know how far I can be pushed in such a situation in future but I just hope I never have to go through that again.
A while back I went through my own stress test, where I was just pushed to breaking point. It was by far the most stressful period I could ever remember. I lost my appetite, I dreaded answering my phone or checking my emails, and the only respite I had was when I went to sleep, and where I dreaded the drive to the office to face the emails waiting for me.
The thing is, even through normal stressful periods, you are benefiting from the work you are doing, the subject matter you are going through, picking up knowledge. The worse thing about my stress test was that I was not even doing any such work. It was just doing a lot of running around. I can look back at it with more objective eyes now and really, the only thing I took away from that was how far I could push myself without breaking. The number of times I just wanted to give up, and then I would just have to compose myself and soldier on.
In a way, I have taken away the fact that I know how far I can be pushed in such a situation in future but I just hope I never have to go through that again.
Wednesday, December 02, 2009
Exodus?
With the turmoil in the financial markets over the last year or so, many lawyers decided to stay put and hang on to the jobs that they had. Malaysian lawyers were pretty much spared having to go through any retrenchment exercises, like those which occurred in other countries. I think almost all law firms did not freeze any salary increments either.
A sign of a possible improvement in the legal employment market, overseas at least, is the talk among some of the younger lawyers to again head off to other jurisdictions. Singapore is a favourite destination due to the easing of the entry requirements. So many young lawyers, especially those with at least 2 years' PQE is at least talking about taking the Part A Bar Course. The Ministry of Law is also exercising its discretion in granting exemptions such that non-citizens and non-Singapore PRs can still take the course. Even those who did not graduate from the scheduled universities may also be granted exemptions.
On a related note, we also see some law firms aggressively recruiting experienced lawyers from other firms. Through the use of headhunters, you'd get to hear of certain law firms looking for certain lawyers with specific skill sets. These law firms would pay top dollar to get the candidates in, something perhaps which is not seen that often in the Malaysian legal market. Firms still tend to be a bit more traditional or outmoded (depending on how you look at it) in paying out a set pay for a set level of seniority. There may not be that much room to maneuver in negotiating a higher level of pay.
Bottom line is, with the legal markets elsewhere picking up (and everyone is keeping their fingers crossed that the effects of the Dubai default will cause another crash), local law firms will have to be prepared to see their lawyers start leaving the country again, or to move to other law firms for higher remuneration and a better experience.
A sign of a possible improvement in the legal employment market, overseas at least, is the talk among some of the younger lawyers to again head off to other jurisdictions. Singapore is a favourite destination due to the easing of the entry requirements. So many young lawyers, especially those with at least 2 years' PQE is at least talking about taking the Part A Bar Course. The Ministry of Law is also exercising its discretion in granting exemptions such that non-citizens and non-Singapore PRs can still take the course. Even those who did not graduate from the scheduled universities may also be granted exemptions.
On a related note, we also see some law firms aggressively recruiting experienced lawyers from other firms. Through the use of headhunters, you'd get to hear of certain law firms looking for certain lawyers with specific skill sets. These law firms would pay top dollar to get the candidates in, something perhaps which is not seen that often in the Malaysian legal market. Firms still tend to be a bit more traditional or outmoded (depending on how you look at it) in paying out a set pay for a set level of seniority. There may not be that much room to maneuver in negotiating a higher level of pay.
Bottom line is, with the legal markets elsewhere picking up (and everyone is keeping their fingers crossed that the effects of the Dubai default will cause another crash), local law firms will have to be prepared to see their lawyers start leaving the country again, or to move to other law firms for higher remuneration and a better experience.
Tuesday, November 24, 2009
Former Permanent Residents
I get a fair number of hits on my blogs searching for issues on former Permanent Residents of Singapore. A fair number of people has also dropped comments on my posting on my experience of having renounced my PR-ship.
Related to this, I just picked up two recent news articles where as an observer, I notice the dissatisfaction (which is putting it mildly) among some of the Singaporeans with the apparent ease that PRship is being given out. This benefits the foreign PRs but the perception would be that this is to the detriment of the Singaporeans. The perception is that the PRs are taking away the jobs of Singaporeans and driving up property prices.
The Singapore Government does try to reassure the Singapore citizens that their best interests are still being protected.
So when a question is asked about the distribution of PRs among the Housing Board Estates, the section that is picked up by the Straits Times is that "Oh, the PRs own under 5% of all Housing Board flats." The issue about the distribution is also answered but why the need to add on to that answer the 5% figure?
Another example is that of a Parliamentary Question is put to the Minister of Home Affairs on:
(a) how many foreigners were successful in their application for permanent residency (PR); (b) how many of these permanent residents have given up their PR status; and (c) how many new PR applications have been received, 23 November 2009.
One would imagine the answer to give straight forward figures since the question was asking about specific figures. The long-drawn explanation was:
"From 2000 to 2008, an average of about 74,500 foreigners submitted applications for PR each year. For the same period, an average of 46,300 applicants were successful in their PR applications each year. An average of 2,200 PRs renounced their PR status over the same period.
2. The number of persons applying for PR and the numbers granted PR have been increasing steadily in recent years. This was due to two factors: the strong economy and the need to augment our population. A booming economy with economic growth of 6 to 8% between 2004 and 2007 also meant that we needed to take in more foreigners to work here. Most of these foreigners are transient, here to work and not to stay long term. But a good many who are well qualified with university degrees or diploma qualifications, skilled personnel and professionals, decided to stay longer and applied for PR.
3. The other reason was to augment our population. As Members are aware, we have a low fertility rate of 1.28. If we close our doors to immigrants, our population will age rapidly and start to decline by 2020. This will affect us adversely. We will lose our economic dynamism and competitiveness as a city state. The burden on Singaporeans will increase.
4. The Government recognizes that some Singaporeans feel anxious about the large inflow of foreigners in recent years. We should not think that all foreigners here are PRs. In fact, a very large proportion of these foreigners are non-residents such as foreign workers and foreign students who are here on short-term passes. In other words, they are here on a transient basis and will leave Singapore one day when their services are no longer needed by their employer or when they have finished their studies. There are some who are on long-term visit passes and they are sponsored by Singaporeans. To put this in perspective, as of June 2009, there were about 1,253,000 non-residents in Singapore as compared to 533,000 PRs.
5. Singapore needs to bring in a continuing flow of immigrants to augment our population and enhance our economic competitiveness. However, the Government is mindful of the concerns of Singaporeans. We will manage the inflow of immigrants taking into consideration how quickly our society can absorb and integrate these new immigrants without diluting our national identity or weakening our social cohesion. Such a sustained and calibrated inflow of immigrants will ensure that Singaporeans benefit from immigration in the long term."
Sounds kinda defensive.
On a side note, it's also interesting to see the figures of the number of PRs that renounce their PR status. Around 2,200 over a 9-year period. That is almost 250 a year.
Related to this, I just picked up two recent news articles where as an observer, I notice the dissatisfaction (which is putting it mildly) among some of the Singaporeans with the apparent ease that PRship is being given out. This benefits the foreign PRs but the perception would be that this is to the detriment of the Singaporeans. The perception is that the PRs are taking away the jobs of Singaporeans and driving up property prices.
The Singapore Government does try to reassure the Singapore citizens that their best interests are still being protected.
So when a question is asked about the distribution of PRs among the Housing Board Estates, the section that is picked up by the Straits Times is that "Oh, the PRs own under 5% of all Housing Board flats." The issue about the distribution is also answered but why the need to add on to that answer the 5% figure?
Another example is that of a Parliamentary Question is put to the Minister of Home Affairs on:
(a) how many foreigners were successful in their application for permanent residency (PR); (b) how many of these permanent residents have given up their PR status; and (c) how many new PR applications have been received, 23 November 2009.
One would imagine the answer to give straight forward figures since the question was asking about specific figures. The long-drawn explanation was:
"From 2000 to 2008, an average of about 74,500 foreigners submitted applications for PR each year. For the same period, an average of 46,300 applicants were successful in their PR applications each year. An average of 2,200 PRs renounced their PR status over the same period.
2. The number of persons applying for PR and the numbers granted PR have been increasing steadily in recent years. This was due to two factors: the strong economy and the need to augment our population. A booming economy with economic growth of 6 to 8% between 2004 and 2007 also meant that we needed to take in more foreigners to work here. Most of these foreigners are transient, here to work and not to stay long term. But a good many who are well qualified with university degrees or diploma qualifications, skilled personnel and professionals, decided to stay longer and applied for PR.
3. The other reason was to augment our population. As Members are aware, we have a low fertility rate of 1.28. If we close our doors to immigrants, our population will age rapidly and start to decline by 2020. This will affect us adversely. We will lose our economic dynamism and competitiveness as a city state. The burden on Singaporeans will increase.
4. The Government recognizes that some Singaporeans feel anxious about the large inflow of foreigners in recent years. We should not think that all foreigners here are PRs. In fact, a very large proportion of these foreigners are non-residents such as foreign workers and foreign students who are here on short-term passes. In other words, they are here on a transient basis and will leave Singapore one day when their services are no longer needed by their employer or when they have finished their studies. There are some who are on long-term visit passes and they are sponsored by Singaporeans. To put this in perspective, as of June 2009, there were about 1,253,000 non-residents in Singapore as compared to 533,000 PRs.
5. Singapore needs to bring in a continuing flow of immigrants to augment our population and enhance our economic competitiveness. However, the Government is mindful of the concerns of Singaporeans. We will manage the inflow of immigrants taking into consideration how quickly our society can absorb and integrate these new immigrants without diluting our national identity or weakening our social cohesion. Such a sustained and calibrated inflow of immigrants will ensure that Singaporeans benefit from immigration in the long term."
Sounds kinda defensive.
On a side note, it's also interesting to see the figures of the number of PRs that renounce their PR status. Around 2,200 over a 9-year period. That is almost 250 a year.
Monday, November 16, 2009
KL Bar Dinner: Reminiscing the 1920s
It was the age of mobsters and 'dolls', the days of Eliot Ness vs Al Capone, and the KL Bar Annual Dinner celebrated this era by Reminiscing the 1920s.
The event was held at the Sime Darby Convention Centre on a Saturday, and when we arrived, we were greeted with people being decked out in fedora hats, feather boas, trenchcoats and flapper dresses.
The Prohibition is no longer in force
Not quite a Tommy gun there
The ballroom at the convention centre is huge but the lighting that night was awful. I am not sure whether that is the usual lighting at Sime Darby, but there were just no spotlights and the angle of the floodlights just cast shadows on everyone's faces. The food was alright and the entertainment involved a dance group performing a number of songs from Moulin Rouge. Not quite fitting the 1920s theme but it was alright watching them. I kinda miss the usual comedy show that is brought on for these dinners.
The dancers doing the can-can dance routine
Our table got lucky when it won the table prize and all of us won a sandwich maker each.
The night only picked up at the end of the dinner itself, quite funnily. That's when all of us stood outside near the bar and chatted with friends and caught up over drinks.
The event was held at the Sime Darby Convention Centre on a Saturday, and when we arrived, we were greeted with people being decked out in fedora hats, feather boas, trenchcoats and flapper dresses.
The Prohibition is no longer in force
Not quite a Tommy gun there
The ballroom at the convention centre is huge but the lighting that night was awful. I am not sure whether that is the usual lighting at Sime Darby, but there were just no spotlights and the angle of the floodlights just cast shadows on everyone's faces. The food was alright and the entertainment involved a dance group performing a number of songs from Moulin Rouge. Not quite fitting the 1920s theme but it was alright watching them. I kinda miss the usual comedy show that is brought on for these dinners.
The dancers doing the can-can dance routine
Our table got lucky when it won the table prize and all of us won a sandwich maker each.
The night only picked up at the end of the dinner itself, quite funnily. That's when all of us stood outside near the bar and chatted with friends and caught up over drinks.
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