Top Builders Scheme Sanction

19 January 2022 - In Top Builders Capital Bhd & Ors v Seng Long Construction & Engineering Sdn Bhd & Ors [2022] MLJU 1 (grounds of judgment dated 5 January 2022), the High Court granted the sanction order for the approval of the schemes of arrangement.

The decision dealt with several significant legal issues for schemes of arrangement. Some of the key issues were decided for the first time under Malaysia law.

  1. Classification of Creditors: Confirmation that the classification of creditors in a scheme is based on the similarity of legal rights. The classification of creditors has to be decided at the first stage when the court grants leave for the scheme meeting. At the sanction stage, the court will be slow to depart from its initial decision. Creditors voluntarily waiving their entitlement under the scheme does not classify those creditors differently.
  2. Disclosure in a Scheme: The threshold test and the different factors in assessing adequate disclosure in the Explanatory Statement for a scheme.
  3. Virtual Meeting Objections: The court upheld the validity of the virtual meeting proceedings – especially taking into account the unprecedented Covid-19 environment. Some of the scheme creditors raised objections that they could only type out questions and receive verbal answers, a lack of ‘breakout rooms’, and the creditors not able to ask questions through video or audio. These objections did not invalidate the virtual meeting.
  4. Extension of Proof of Debt Submission: The scheme chairman could extend the deadlines for submitting proof of debt forms for the scheme. The scheme chairman did not require a court order to do so.
  5. Inspection of Proof of Debt Forms: Scheme creditors do not have an automatic right to inspect the proof of debt forms of other scheme creditors. There must be some prima facie evidence of impropriety to allow that inspection.
  6. Discounting of Related Party Creditors' Votes: On whether to discount or disregard certain scheme creditors’ votes, especially where they are intercompany or related party creditors, there is no exact mathematical formula or absolute rule. Ultimately, the court has discretion, and the court listed out several discretionary factors depending on the facts of the case.

Lee Shih and Pang Huey Lynn acted for the successful scheme companies in this matter. The Edge Malaysia had reported on the sanction decision earlier.