Federal Court holds filing of ex parte application to obtain orders for arrangement under Companies Act 2016 not an abuse of process

21 April 2021

Mansion Properties Sdn Bhd v Sham Chin Yen & Ors [2021] 1 MLJ 529

In Mansion Properties Sdn Bhd v Sham Chin Yen & Ors, the appellant (a developer of a residential complex which included a condominium) was sued in the sessions court by the respondents (buyers of units in the condominium) for damages, as they were not given vacant possession of their units on time. Facing financial difficulties, the appellant successfully filed an ex parte originating summons (“OS”) pursuant to the Companies Act 2016 (“CA 2016”), seeking:

• under section 366, an order to convene a meeting of its creditors to approve a proposed scheme of arrangement (“Proposed Scheme”) to settle its debts; 
• under section 368, an order to restrain creditor from suing the appellant pending approval of the Proposed Scheme.

The respondents applied to intervene and set aside the orders after they were served copies of the same. Meanwhile, the appellant also filed another ex parte OS seeking the court’s sanction to the Proposed Scheme approved at the creditors’ meeting. The High Court dismissed the respondents’ prayers to set aside the first and second OS orders and held that the Proposed Scheme was a bona fide attempt by the appellant to generate sufficient funds to complete the residential complex project and reach a compromise with its creditors. Dissatisfied, the respondents appealed to the Court of Appeal (“COA”). The COA allowed the appeal, set aside the first and second OS orders and held that the Proposed Scheme was not binding on the respondents.

The appellant was granted leave to appeal against the COA’s decision on whether the first OS order was an abuse of court process which rendered the entire court-sanctioned Proposed Scheme liable to be set aside. The Federal Court answered the leave question in the negative, set aside the COA’s decision and reinstated the orders of the High Court. The Federal Court held, among other things, that:

•  The purpose of section 368(1) of the CA 2016 was to ensure that a company’s restructuring efforts were not rendered nugatory pending the approval of a scheme of arrangement. 
• Since the first OS order was served on the respondents and they had successfully intervened in the proceedings and applied to set aside the order, no prejudice or breach of natural justice was occasioned to them by reason of the ex parte nature of the first OS application or the omission to serve the application on them.
• There was nothing inherently objectionable about filing an ex parte application under section 368 of the CA 2016 as the general practice was in line with the legislative purpose and did not deprive the affected parties of the right to be heard.
• The filing of the ex parte application by the appellant without serving it on the respondents was not an abuse of process which rendered the second OS order liable to be set aside.