The Position of Unsecured Creditors in Judicial Management Applications – Million Westlink Sdn Bhd v Maybank Investment Bank Bhd & Ors

The recent Court of Appeal case of Million Westlink recently reconciled a fairly contentious and uncertain area of company law in relation to judicial management. This particular area involved the positions of unsecured creditors and whether they had locus to challenge the making of a judicial management order. In order to understand the significance of Million Westlink, a brief history of the law and precedence in this area leading up to this decision will be set out.

The position of unsecured creditors was first discussed at the High Court in Million Westlink before it was appealed to the Court of Appeal. At the High Court, it was decided that unsecured creditors did not have locus to oppose the making of a judicial management order. This was primarily reasoned on the ground that Rule 13 of the Companies (Corporate Rescue Mechanism) Rules 2012 (CCRMR 2012) and Section 408(1)(b)(ii) & Section 409(b) of the Companies Act 2016 (CA 2016) make specific reference to only receivers and / or managers, and secured creditors in determining parties that may oppose an application for judicial management. For this reason, the right to oppose a judicial management application should be limited to these specific aforesaid parties. Additionally, by virtue of Wong Chee Lin JC’s dicta in Leadmont Development Sdn Bhd v. Infra Segi Sdn Bhd & Another Case [2018] 10 CLJ 412, it was held that “the special right to oppose an application for JMO is only conferred on one specific type of secured creditor.”

However, in June 2020, the Court in Goldpage Assets Sdn Bhd v Unique Mix Sdn Bhd took a contrary approach and held that unsecured creditors do have the right to oppose an application for judicial management. The Court rationalized this decision on the following grounds.

First, in response to the decision in the High Court of Million Westlink that made reference to Section 409 of the CA 2016, the Court in Goldpage Assets took the approach that Section 409 did not expressly exclude unsecured creditors. The true purpose of Section 409 was to mandate the dismissal of a judicial management application in the event that a secured creditor opposes said application. To further substantiate their decision, the Court held that a purposive approach should be taken in interpreting the relevant laws. Reference was made to the Federal Court case of Pengusaha Tempat Tahanan Perlindungan Kamunting Taiping & Ors v. Badrul Zaman bin PS Md Zakariah [2018] 12 MLJ 49, where it was held that an approach that promotes legislative intent and the core purpose of the provisions should be adopted. Further, the Court looked to the Hansard in determining parliamentary intent, which made no mention of any restrictions placed on unsecured creditors. On this basis, the Court ultimately decided that unsecured creditors should not be shut out from judicial management applications in line with parliament’s intent of the same. Whether or not an unsecured creditor should be allowed to oppose an application for judicial management is a matter that would fall within the discretion of the Court.

Perhaps the only provision that prohibited an unsecured creditor from opposing an application would be Rule 13 of the CCRMR 2018 as earlier explained. However, the Court held that the CCRMR 2018 was subsidiary legislation, to be read in conjunction with its parent act, the CA 2016.  The CA 2016 did not make any such prohibition, and as such, the provisions of the CA 2016 would prevail as a result of Section 23 of the Interpretation Act 1948 & 1967 which stipulates that inconsistent subsidiary legislation would be void to the extent of its inconsistency.

The consequence of this thus resulted in the positions of unsecured creditors being rather uncertain and inconsistent. However, the Court of Appeal in Million Westlink resolved this uncertainty and set appellate level precedence in line with the judgement in Goldpage Assets. Unsecured creditors are thus now allowed to oppose an application for judicial management. Analysis into the grounds of judgement of the Court of Appeal in Million Westlink will be conducted in due course, once the grounds of judgement are made available.