Where’s the Parte? – The Federal Court Decision of Mansion Properties Sdn Bhd v Sham Chin Yen & Others

In the 2020 decision of Mansion Properties, the Federal Court was asked to consider whether an application for a Scheme of Arrangements under Section 366 and a Restraining Order under Section 368 of the Companies Act 2016 (“the CA”) should be made ex-parte or inter-parte.

For context, applications made ex-parte are applications made by one party to Court. These applications do not require the party making the application to serve the same to any other parties who may be interested in the proceedings. Inter-partes applications, on the other hand, must be served on all other interested parties.

It was noted during the hearing that it was already common practice for applications made under Sections 366 and 368 of the CA to be filed on an ex-parte basis. After considering the submissions by both parties, the Federal Court confirmed that such applications can be made on an ex-parte basis without serving the same on the respondents and would not amount to an abuse of process.

Brief Facts

Mansion Properties was the developer of a housing project, D’Mansion.

When Mansion Properties could not deliver its units on time, claims were filed against them for damages. Facing financial difficulty, Mansion Properties filed an ex-parte originating summons seeking for a Court convened creditors’ meeting to approve a proposed scheme of arrangements as well as a restraining order against all proceedings against the company pursuant to Sections 366 and 368 of the CA (“the 1st OS”). The ex-parte application was granted by the High Court.

Subsequently, the Respondents, who were purchasers of the units, filed an application to intervene in the 1st OS and to reject the proposed scheme. Following that, Mansion Properties filed another ex-parte originating summons and was granted a 2nd order to convene a creditors’ meeting for the proposed scheme of arrangements (“the 2nd OS”).

On appeal, the Court of Appeal found that there has been procedural non-compliance and abuse of process on the part of Mansion Properties when it failed to serve the 1st OS on the Respondents. The Court of Appeal, therefore, set aside both the orders to convene a creditors’ meeting granted by the High Court. Dissatisfied, Mansion Properties appealed to the Federal Court.

The Federal Court’s Reasoning

Mohd Zawawi Salleh FCJ noted the fact that such applications have commonly been made on an ex-parte basis as can be seen in cases such as Re Kuala Lumpur Industries Bhd [1990] 2 MLJ 180; Pelangi Airways Sdn Bhd v Mayban Trustees Bhd [2001] 2 MLJ 237; PECD Bhd & Anor v AmTrustee Bhd & Other Appeals [2010] 5 MLJ 357; Sri Hartamas Development Sdn Bhd v MBF Finance Bhd [1990] 2 MLJ 32. It also recognised the fact that ex-parte applications are necessary and appropriate in circumstances where it was crucial to preserve the subject matter of the suit without delay.

The Federal Court rejected the argument that unless it was expressly set out under Sections 366 and 368 of the CA, such applications could not be made ex-parte. In doing so, the Federal Court was guided by the decision of Tan Kim Hock Product Centre Sdn Bhd & Anor v Tan Kim Hock Tong Seng Food Industry Sdn Bhd [2018] 2 MLJ 1 which held that where a statute does not expressly provide whether an application can be made ex-parte or otherwise, the Court ought to consider the legislative purpose of the statutory provision before deciding whether there is a need for an order to be obtained swiftly in order to achieve the legislative purpose.

The Court should also consider that if it has an opportunity to review the ex-parte order, or where an aggrieved party can apply to set it aside, there is no reason why the application cannot be heard ex-parte.

Applying the principles gleaned from Tan Kim Hock (supra), the Federal Court held that since the purpose of the restraining order under Section 368 of the CA was meant to ensure that a company’s restructuring efforts were not frustrated and to preserve the status quo of the company, an ex-parte application would be suitable and appropriate as it would help achieve the legislative purpose of Section 368. As affected creditors also have a right to subsequently intervene and set aside the restraining order granted, there would be no prejudice or breach of natural justice occasioned to parties who were not served with the ex-parte application.

Further guidance was also drawn by comparing other sections of the CA which imposed specific service requirements with Section 368. For instance, Section 118(4)(a) of the CA imposed a requirement for creditors applying for a resolution to be cancelled to serve such applications on the company as soon as possible.

Parties applying for leave to proceed against a company in the process of winding-up must also serve its application on the liquidator pursuant to Section 471(2) of the CA. As such requirements were absent from Section 368 of the CA, the Federal Court held that it is not open to the Court to impose any additional requirements not envisaged by Parliament.