Speaking in Kuching on the Companies Bill

I have been invited by CLJLaw to speak on 16 January 2015 at the Pullman Hotel, Kuching.The registration form is over here.

Due to the good response in KL the last time for the Companies Bill seminar, this will now be held over in Kuching.

 

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A lot of us are expecting the new Companies Bill to be tabled during the Parliamentary sitting in March 2015. The Bill and the changes it brings have been long-awaited.

The MAS Administration Act is Gazetted

I had earlier written about the Bill relating to Malaysia Airlines. As an update, the Bill has received Royal Assent on 30 December 2014 and Gazetted on 5 January 2015.

It is now known as the Malaysian Airline System Berhad (Administration) Act 2015. However, the Act will only come into operation on a date to be appointed by the Prime Minister by notification in the Gazette.

One particular significant change between the Act and the Bill has been the removal of certain powers of the Administrator. The Act has removed the provisions which originally allowed the Administrator to assume control over the property and business of a transition service provider and to carry on that business, if that transition service provider refused to provide such goods and services to the new MAB.

Such very wide powers have been dialed down such that if the transition service provider refuses, the new MAB and its subsidiary companies shall only have the right to recover any costs incurred or damage suffered.

Watch the Clock: Limitation Period for Enforcement of Arbitral Award

The Federal Court in Christopher Martin Boyd v Deb Brata Das Gupta [2014] 9 CLJ 887 resolved the issue as to the limitation period for the enforcement of an arbitral award (whether under the old Arbitration Act 1952 or the present Arbitration Act 2005). The Federal Court Grounds of Judgment are found here.

Briefly summarising the grounds, for an arbitral award, there are two different limitation periods applicable. The first is the 6-year time limit (under section 6(1)(c) of the Limitation Act 1953 (“Act”)) from the date of the arbitral award for the award to be registered or enforced as a Court Judgment. The arbitral award would then be deemed to be a Judgment from that date.

Thereafter, the second period is the 12-year time limit (under section 6(3) of the Act) from the date of that Judgment for any action to be taken based on that Judgment (e.g. execution proceedings or bankruptcy proceedings). Therefore, there could potentially be close to a total of 18 years for an arbitral award to be eventually executed on. There is the first 6-year period to obtain the Court Order enforcing the award as a Judgment and thereafter, the second 12-year period for legal actions to be taken based on the Judgment.

 

 

Insolvency and Arbitration: Will a winding up petition be stayed in favour of arbitration?

I am just setting out my thoughts and where I will be planning to write a more extensive article on this area. I have always been fascinated on the interaction of the statutory process of winding up and the contractual bargain of arbitration. Will one process always necessarily trump the other?

There are now several cases which try to deal with whether there can be a form of a stay of the Court winding up proceedings in favour of arbitration. The winding up itself can arise from either a creditor petitioning on the grounds of insolvency or a shareholder petitioning on the just and equitable grounds. In the former scenario, the petition may be grounded on a debt arising from a contract containing an arbitration clause. In the latter, the shareholder’s complaints may be arising from a shareholders’ agreement with the other shareholders. I now just record down some cases in the scenario of a petition being presented by a creditor on the grounds of insolvency.

There is a recent English Court of Appeal decision in Salford Estates (No. 2) Limited v Altomart Limited [2014] EWCA 1575 Civ  which held that the mandatory stay provisions in the English Arbitration Act would not apply to stay winding up proceedings. Instead, the Companies Court would exercise its usual discretion in whether to stay or dismiss a winding up petition, for example, if there was a bona fide dispute of the debt on substantial grounds.

This is a similar approach taken in Hong Kong, where its Arbitration Ordinance closely follows the Model Law (and therefore, may be more persuasive in Malaysia). The case of Jade Union Investment Limited [2004] HKCFI 21 also similarly held that the mere existence of an arbitration clause does not mean that the mandatory stay provisions under the Arbitration Ordinance would apply. The Court would still apply the test as to whether there was a bona fide dispute of debt when hearing the petition. Another case of Re Sinom (Hong Kong) Ltd [2009] HKCFI 2201 similarly followed Jade Union when deciding whether to grant an injunction to restrain the presentation of a petition.

It will be interesting to see how such a situation would play out in Malaysia. I am not aware of any such case involving a stay of a winding up petition or an injunction to restrain presentation based on the Arbitration Act 2005 (“AA”). I know of one or two cases under the old Arbitration Act 1952 where a stay of winding up proceedings was sometimes granted and sometimes not.

If there is an arbitration clause in a contract and a statutory demand is made for payment under the contract, would the other contracting party be able to apply under section 11 of the AA for an injunction to restrain the presentation of the petition? What would the test for such an injunction be? Would it still be the Tan Kok Tong Court of Appeal test of a bona fide dispute of debt on substantial grounds? Or would the mere existence of an arbitration clause be sufficient? Or would an application for an injunction have to be grounded outside of the AA and the Court would exercise its inherent jurisdiction to grant a Fortuna injunction to restrain the presentation?

If the Petition was filed, would a stay of those Court proceedings be allowed under section 10 of the AA? The test for a stay under section 10 of the AA will not require the Court to decide on whether there is a bona fide dispute (that original provision has been taken out) and it is almost mandatory for a stay unless the arbitration clause can be questioned (e.g. the clause is null and void or inoperative).

I will try to deal with these questions in my more extensive article and after I have done more research.

The Repetitive Restraining Orders

Background and History to the Restraining Order

Under the scheme of arrangement framework, the Court can grant a restraining order under section 176(10) of the Companies Act 1965 (“Act”) to restrain further proceedings in any action against the company undertaking a proposed scheme. This allows the financially distressed company to have a moratorium and have breathing space from creditor action, while the company attempts to restructure or compromise its debts. Ordinarily, it would be the company itself which would apply for a restraining order but section 176(10) of the Act allows any member or creditor of the company to also make such an application. I had earlier written a general overview on the law of schemes of arrangement.

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The restraining order would have to strike a balance between different interests. On the one hand, a moratorium may be beneficial to the overall pool of creditors in order to prevent the scramble by creditors to execute against the distressed company’s assets. The restraining order could therefore facilitate the orderly restructuring of the debts where there was a genuine and viable scheme proposal. On the other hand, a wide stay of legal proceedings could also be abused. A company could sit on a restraining order, without any viable scheme proposal, and frustrate the actions by the creditors.

The potential for the abuse of the restraining order may have led to the amendment to our Act in late 1998 to tighten up the use of restraining orders. Additional restrictions and creditor-protection provisions were built in through the introduction of sections 176(10A) – (10G) of the Act. Essentially, it limited the grant of each restraining order to prima facie not more than 90 days with certain mandatory requirements to be met. Further, once the restraining order was granted, there could not be the disposition of any property of the company outside the ordinary course of business.

A recent case highlighted a situation where there could be the repeated use of a restraining order. That might delay legal proceedings by creditors but it may also be a lifeline for an ailing company, if there was a viable scheme proposal.

The Repeated Use of a Restraining Order

In the unreported case of Dynawell Corporation (M) Sdn Bhd (in provisional liquidation) v Universal Trustee (M) Berhad (Seremban High Court Originating Summons NCVC-24M-63-06-2013) (see [2013] 1 LNS 1391), the High Court was made aware of multiple applications for a restraining order and made a finding that the application for a restraining order was mala fide. Dynawell can also be read together with the related High Court decision in RHB Bank Berhad v Gula Perak Berhad [2013] 1 LNS 1409. From a reading of both the cases, the brief facts appear to be as follows.

Gula Perak Berhad was listed on the stock exchange and in May 2010, it was classified as a PN17 company. It was eventually de-listed in May 2011. In turn, Dynawell is a wholly-owned subsidiary of Gula Perak Berhad and where its core asset is the Dynasty Hotel. Several secured lenders initiated legal proceedings against both Gula Perak and Dynawell, including foreclosure proceedings on the Dynasty Hotel. Winding up proceedings were also taken against Gula Perak and Dynawell and where both companies had Provisional Liquidators appointed over them.

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During the course of these legal proceedings, there appeared to be at least 6 different applications filed in different Courts seeking for a restraining order on the basis of a proposed scheme of arrangement. Applications were filed in Kuala Lumpur, Shah Alam, Seremban and Taiping. There were different applicants, some may have been creditors or members of Gula Perak/Dynawell or in the Dynawell case, it was Dynawell itself. It was noted in the Dynawell judgment that the proposed schemes of arrangement applications had similar grounds and traits and where the averments in the affidavit in support were largely the same. Justice Zabariah Yusof remarked that this indicated that it originated from the same source or author.

Procedurally, an application for such a restraining order would ordinarily be taken out ex parte. This is because  only the Applicant would need to apply and need not necessarily add in any other party, or to add in any of the other creditors with pending legal proceedings for instance. Once the initial restraining order is granted ex parte, and this should only be for a limited time not exceeding 90 days, it will then have a universal effect in restraining all legal proceedings by all the creditors listed in the proposed scheme. The onus then shifts to the opposing creditors to intervene and to attempt to set aside the restraining order or to oppose the extension of the restraining order.

Hence, the two judgments show that the opposing creditors had to go to each of the different Courts to apply to set aside the restraining orders obtained by different parties. The restraining orders and the related legal proceedings also delayed the foreclosure and the winding up proceedings.

The history of the litigation then led to the High Court in Taiping and in Seremban making orders that any further application for a restraining order be made inter partes and for such an application to be advertised in 3 newspapers.

Justice Zabariah Yusof made the following critical remarks:

“In view of the circumstances and the time line of the ex parte Originating Summons in Enclosure 2 filed, clearly shows the mala fide intent of Dynawell to conceal the application from UTB and at the same time concealing the material and relevant facts from the court.

Section 176(1) of the Companies Act does not state that an RO application may be made ex parte. It merely states that a party may apply. However, given the chequered history of Dynawell, the propose (sic) scheme of arrangements and the ROs applications which have been explained above, this is a case of abuse of process of the highest order. I would be failing in my duty if I do not invoke my inherent jurisdiction to curb further abuse by Dynawell.”

Costs of the setting aside of the restraining order were then made personally against the director of Dynawell.

Conclusion

A restraining order is usually a useful and often crucial mechanism to achieve a viable restructuring. However, this case shows how the repeated use of a restraining order could amount to an abuse of process. The present provisions in the Act, and the impending amendments to the Act, will not address this potential for abuse. An application for a restraining order can continue to be taken out ex parte, and where an applicant may still attempt to bypass the mandatory protection laid in the section 176(10A) requirements. Any creditor or member of the company could potentially also apply for a restraining order, thereby resulting in multiple and parallel restraining orders. The protection against any abuse of process therefore rests on the vigilance of the Courts when hearing such ex parte applications.

Moving the Call of Carmen Tham: A Tale of Two Vocations

In Malaysia, the admission to the Malaysian Bar is known as the Call to the Bar. It marks a pupil’s qualification as an Advocate & Solicitor. A member of the Bar with more than 7 years of experience will move the pupil’s Call, and to submit on behalf of the pupil as to why the pupil now qualifies to be admitted to the Bar. I can do no better than to refer to Fahri Azzat’s LoyarBurok article if you want to read more about the significance of the Mover and the Call to the Bar.

Other jurisdictions have started to move to a form of a mass Call and they do away with individual ‘submissions’ and speeches by the Mover. I think it is still a fine tradition to maintain here, despite the length of time taken. It is a delicate balance, with the increasing number of pupils being admitted to the Bar, and with judicial time being taken away.

On a personal note, I always get nervous when I have to move a pupil’s Call. Firstly, I recognise that this is a once-in-a-lifetime experience to get Called to the Malaysian Bar. Secondly, it is also not very often that we get a chance to publicly address and thank our loved ones, in particular to express our gratitude to our parents. With all these factors, I always get nervous in wanting to give the best speech that I can. Most times, I will try to write the speech from scratch, having had a chance to meet up with the pupil for a chat.

There was added pressure on this occasion since I was moving the call of a LoyarBurokker who is a pupil of another fellow LoyarBurokker. As the main theme of this speech, I wanted to focus on the term “vocation” since I thought it was very apt in describing Carmen’s future.

 

With leave My Lady,

I am Lee Shih for the Petitioner. My learned friends for the Attorney-General Chambers, the Bar Council and the Kuala Lumpur Bar Committee have been introduced earlier.

With leave My Lady, allow me to introduce the Petitioner.

The Petitioner was born on 6 November 1989. She is the eldest child of Mr Tham Kam See and Madam Chan Soo Kum. The Petitioner’s father cannot be in Court today but the Petitioner’s mother and sister are present in Court.

My Lady, the Petitioner read law at Aberystwyth University in Wales and graduated in 2010. She completed her Bar Professional Training Course at City University, London, and she was called to the English Bar at the Honourable Society of Inner Temple.

The Petitioner then completed her pupillage under my learned friend, Marcus van Geyzel, of Peter Ling & van Geyzel.

At the Petitioner’s Call to the Bar today, I think it is apt to draw our attention to the term “vocation.” Vocation is derived from the Latin word meaning “to call.” Hence, I find it very accurate to describe the legal profession as a vocation. Being members of the legal profession, we answer the call to serve others.

Now, having completed her 9-month journey as a pupil, the Petitioner is about mark her entry into this vocation of the legal profession.

In addition, the Petitioner is also about to complete another significant 9-month journey. Soon, the Petitioner will mark her entry into another vocation; the vocation of motherhood.

Both vocations will be a lifetime journey for the Petitioner. They will be filled with some challenges, but I have no doubt that both will bring her much pride and happiness.

On this day, the Petitioner would like to take this opportunity to thank the following:

1. Firstly, her parents, Mr Tham Kam See and Madam Chan Soo Kum, for having sacrificed so much for her. In my conversation with the Petitioner, the Petitioner described her father as loving but stern, and who instilled a lot of discipline in the Petitioner. Mr Tham, the sole breadwinner in the family, through his hard work provided her with the best education that she could ever ask for. Madam Chan, on the other hand, provided the whole family with delicious meals every day. A dish is never repeated, and Madam Chan would have drawers after drawers filled with recipe books. Madam Chan’s cooking would be the impetus to draw all the family members back home to have dinner together.

2. To her spouse, Mr Clinton Wong, for being her pillar of strength and for his unconditional care and love throughout Bar school and pupillage.

3. To her colleagues, former colleagues and bosses in Peter Ling & van Geyzel, particularly Li Ying and Jin for making her pupillage experience rewarding, unforgettable and fun.

4. To her pupil master, Marcus van Geyzel, who, in her words, is the coolest pupil master ever and also a very good friend who has imparted on her great knowledge and wisdom. As I have known the Petitioner’s pupil master for years now, I have no doubt that he would have bestowed some of his wealth of sartorial sense on to the Petitioner as well.

5. Finally, the Petitioner would like to thank her friends who took the time and effort to be present here today to witness this special occasion.

My Lady, I believe that the Petitioner’s papers are in order and that the relevant bodies have no objections. I humbly pray that the Petitioner be admitted and enrolled as an Advocate and Solicitor of this Honourable Court.

I seek leave from this Honourable Court for my learned friend, Marcus van Geyzel, to robe the Petitioner.

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The MAS Administration Bill: Malaysia Airlines to Soar Again?

This is my article originally published on LoyarBurok and then picked up by The Malay Mail.

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As part of the massive restructuring plans for Malaysia Airlines (MAS), the Malaysian Airline System Berhad (Administration) Bill 2014 was tabled before Parliament on 26 November 2014.

As a general overview, I will just touch on some of the interesting aspects of this Bill.

  1. A new entity, the similar-sounding Malaysia Airlines Berhad (MAB), will be incorporated under the Companies Act 1965.
  2. The Bill proposes for its provisions to apply for 5 years or upon the successful listing of the shares of MAB on the official list of Bursa Malaysia, whichever is earlier.
  3. It appears that MAS and its subsidiaries listed in the Bill may be placed under administration. Malaysia does not have a formal administration regime like in the UK but this is the mechanism referred to in the Bill. It effectively allows MAS and its subsidiaries to be placed under the management and control of an Administrator, and the Administrator will, among others, have the powers to manage the business and operations, manage the assets, assume all the powers of management, and to make any arrangement or compromise.
  4. An Administrator need not hold a liquidator license but merely needs to be an approved company auditor (as under the Companies Act 1965) and one who is, in the opinion of the appointer, capable of performing the duties of an administrator.
  5. Upon the appointment of the Administrator over any of the listed companies, a very wide moratorium will apply. This will essentially prevent any form of legal proceedings to be taken against MAS and its subsidiaries. The moratorium will apply for a period of 12 months, unless the administration is terminated. The 12-month moratorium can be extended by the Minister.
  6. Undue preference would apply on the appointment of the Administrator and with the effective date being the date of the coming into force of the eventual Act. This could pose difficulties and uncertainty for the creditors  of the MAS companies, with a possible clawback period of 6 months before the coming into force of the Act.
  7. Interestingly, there is some scope to ‘cherry-pick’ the assets or liabilities to be transferred into the new MAB entity and to leave other assets or liabilities behind. This will be carried out through a vesting order under the eventual Act. The Administrator has the power to re-negotiate existing contracts of the MAS companies.
  8. Further, MAB has the sole discretion to offer employment to the employees of the MAS companies, on the terms and conditions as MAB may determine. It is made very clear that MAB is not deemed to be a successor employer in any way. This allows MAB to make a very clean break from the MAS employment contracts. There is also a specific provision to deal with MAB negotiating with trade unions and associations.
  9. There can be no Court Orders which stays, restrains or affects the powers of the Administrator or which compels the Administrator to do or perform any act.

The provisions of the Bill appear to be very specific in targeting some of the possible issues that MAS faces in its restructuring. As part of its restructuring, MAS may find that it needs to extricate itself from certain commercial contracts and employment contracts. The Bill will provide the Administrator with very wide powers and with a wide array of options in attempting to restructure MAS. Nonetheless, a balance must be struck in protecting the MAS creditors’ and employees’ interests.

Hopefully, the new entity of MAB will be able to take flight, like a phoenix soaring up again. Nonetheless, a balance must be struck in order to protect the interests of the MAS creditors and employees.