Financially-distressed public listed company, Sarawak Cable Berhad, is placed under interim judicial management. Its former lawyers obtained an ex parte order to appoint an interim judicial manager over the company.
With the amendments to the Companies Act 2016, this is the first instance of a judicial management application being applied to a listed company.
I have had a read of the judicial management court papers and also read the various Bursa announcements to piece together the following chronology.
Background Facts
Sarawak Cable is a listed company on the Main Board of Bursa Malaysia. It is in the manufacturing and project engineering industry.
In December 2021, Sarawak Cable triggered Practice Note 17 (PN17) of the Main Market Listing Requirements of Bursa Malaysia but due to the Covid interim relief measures, it was not classified as a PN17 company. PN17 is essentially a classification triggered by financial distress.
Sarawak Cable had engaged the law firm of Krish Maniam & Co to act for it in legal proceedings including to apply for a scheme of arrangement for the Sarawak Cable group of companies.
In September 2022, Sarawak Cable was then classified as a PN17 issuer.
Also in September 2022, Sarawak Cable had applied for a scheme of arrangement and a restraining order to restructure its debts.
A year later, in September 2023, the scheme creditors rejected Sarawak Cable’s proposed scheme of arrangement.
Krish Maniam & Co had acted for the Sarawak Cable Group of companies in several legal proceedings and had invoiced for fees of more than RM345,000.00. Krish Maniam & Co have stated that their fees remained unpaid and in May 2024, Sarawak Cable terminated their appointment as solicitors.
There are ongoing legal proceedings filed against Sarawak Cable. For instance, Hong Leong Bank’s Writ action and Serendib Capital’s legal action.
On 2 July 2024, the Applicant, the law firm of Krish Maniam & Co, filed a judicial management application against Sarawak Cable. The application proposed the insolvency practitioner, Lim Sin Han of Sin Han & Co, as the judicial manager.
On 3 July 2024, Krish Maniam & Co also filed an ex parte application for the appointment of Lim Sin Han as the interim judicial manager of Sarawak Cable. The application was on the basis that Sarawak Cable was insolvent, its business and assets were in jeopardy, and there was a need for an interim judicial manager to preserve the assets of Sarawak Cable.
On 9 July 2024, the Court allowed the ex parte appointment of the interim judicial manager.
Comments
The new amendments to the Companies Act 2016 came into force on 1 April 2024 (I have written about these amendments here).
One of the changes amended section 403 of the Companies Act 2016 to generally allow judicial management to apply to public listed companies (save for certain restrictions now listed in section 403). Prior to these amendments, there were Court decisions finding that judicial management cannot apply to listed companies.
With these new amendments, Sarawak Cable is the first public listed company to now have an interim judicial manager appointed over it.
An interim judicial manager would mean all powers of management of the directors would cease. The interim judicial manager would have all such powers of management and will be protecting the status quo pending the full determination of the judicial management application.
The other effect of a pending judicial management application is that there is now a moratorium on all legal proceedings against Sarawak Cable. The moratorium will be in place until the disposal of the judicial management application.
However, it remains to be seen whether the judicial management application will be allowed to continue for much longer. Any secured creditor of Sarawak Cable may veto the judicial management application (see section 409(b) of the Companies Act 2016). This exercise of veto may then depend on whether any secured creditor would prefer to have Sarawak Cable in interim judicial management and eventual judicial management, or whether the secured creditor would instead prefer to pursue its own recovery and enforcement action.
Having read the judicial management court papers, it is notable that the Applicant in this case did not go into detail how the appointment of the judicial manager can meet or satisfy any of the aims of judicial management. The Applicant’s stated key aim in the affidavit is for the judicial management is to have a “more advantageous realisation of the company’s assets for the benefit of its creditors.” However, there was no proposed rescue plan nor liquidation analysis nor did the judicial manager candidate provide any evidence, report or statement to support the aims of judicial management.
On the ex parte appointment, my view is that the ex parte Court appointment of an insolvency practitioner (whether an interim judicial manager, an interim liquidator, or interim receiver and manager) to take over the management of a public listed company has to be reserved for the most exceptional of circumstances. The current exceptional circumstances must also be seen against the backdrop of the Applicant’s claimed debt of approximately RM345,000 owing by Sarawak Cable.
An ex parte injunction has a temporary lifespan and there will be an inter partes hearing for the Court to decide whether to indeed grant the full inter partes order. In contrast, an ex parte appointment of an interim judicial manager such as this will remain in place until it is set aside. So, if Sarawak Cable were to oppose the appointment of the interim judicial manager, Sarawak Cable would have to apply to set aside the earlier interim judicial manager appointment.
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