Rajah & Tann Regional Round-Up
your snapshot of key legal developments in Asia
Issue 3 - Jul/Aug/Sep 2021
 

Recent Malaysian Court Decision Sheds Light on Proof of Debt Exercise in Schemes of Arrangement and the Test for Granting Leave to Proceed against Restraining Order

The recent Malaysian High Court decision in Re Top Builders Capital Bhd & Ors [2021] 10 MLJ 327 sets out the procedures to be followed for the proof of debt in a scheme of arrangement ("SOA") and the principles for granting leave for a creditor to proceed with legal proceedings against a company, despite the company having an existing restraining order barring legal proceedings against it.


Procedures to be Followed for Proof of Debt Exercise


The creditors must first submit proof of debt to the company or an appointed scheme manager ("decision-maker"). The decision-maker will then evaluate the claims based on the information and documentation provided, which may require the decision-maker to make fair estimates of certain claims. The decisions made, based on the proof of debt, ought to be made known to the creditors before the creditors' meeting(s).

In practice, the adjudicated list of scheme creditors and their respective quanta will be submitted to Court for the purposes of distribution of payments pursuant to the terms of the scheme as approved by the requisite 75% of the creditors in value who attend and vote at the creditors' meeting(s). While acknowledging that the decisions of the decision-maker are made in a summary fashion, the creditors' interests are protected by way of an appeal to Court, if the parties so choose. The Court will, on appeal, examine the evidence placed before the decision-maker (together with fresh evidence, where appropriate), and decide on a balance of probabilities whether the claim against the company is established and if so, what amount is payable.


The Principle for Leave to Proceed with Legal Proceedings


When considering a leave application, the Court will only grant leave where there are 'exceptional circumstances', and the burden is on the applicant to satisfy this threshold. 'Exceptional circumstances' are circumstances or a combination of circumstances that must be of sufficient weight to overcome the strong imperative to have the claims dealt with under the existing machinery of the SOA. Leave will likely be granted where the commencement or continuation of the legal proceedings does not impede the achievement of the SOA, or where it would facilitate or assist the achievement of the SOA. Ultimately, it is the Court that will need to exercise its discretion in balancing the harm to the applicant – if leave is not granted – against the harm to the general body of creditors if leave is granted.


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Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice.

 

Christopher & Lee Ong
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