Review on a Judicial Management

In general, there are two distinctive corporate rescue mechanisms available under the Companies Act 2016, which are the judicial management and the corporate voluntary arrangement. For the purpose of our assignment, only judicialmanagement mechanisms will be discussed.

The judicial management process basically grants the directors, shareholders or creditors of a particular company apply to Court to appoint a qualified judicial Manager to run the management of the company when the situation of improving or restoration of the company is required[1]. A creditor or creditors of the company have the rights to apply for judicial management[2]. However, application for judicial management by creditors is subjected to the conditions of the interest of creditors would be better served rather by winding up[3].

Judicial management under the Companies Act 2016 observed to be more pro-creditor rather than pro-debtor. This is because there are provisions under the Act which grants certain advantages to the creditors of a company. The best example to illustrate this is section 405(1) of the Companies Act 2016 which allows a creditor, which includes a contingent or prospective creditor to apply for a judicial management order. Once the condition to file a judicial management is fulfilled, the applicant i.e. the creditor shall nominate the judicial manager. Section 405(5) (b) of the Companies Act 2016 gives power to the applicant to appoint an interim judicial manager.

During the whole process of applying for judicial management until such applications become an order or dismissed, the company shall not pass any resolution, no security can be enforced and no proceedings can take place without leave from the Court[4]. The special characteristics of judicial management are the moratorium commence automatically as soon the judicial management procedure begins. During the six months period of moratorium, the company cannot be wound-up[5]. Besides that, the company will be also protected from any legal proceedings and no shares could be issued or transferred[6]. This time period could be further extended to another six months if the Courtrequires[7].

The judicial manager plays an important role in the judicial management process which he is required to do handle the company’s management and perform the duties which Court orders him to do. In addition to this point, the judicial manager also has the duty to prepare and present a proper restructuring plan for the betterment of the company. It shall be approved by a steady majority of 75%of the total value of creditors whose claim been acknowledged by the judicial manager during the creditors’ meetings. Inthe event of such restructuring plan been approved by the creditors, the judicial manager shall proceed to apply to Court for the plan to be legally authorized. Explained above is the brief procedure on how a judicial management process could take place in a company.

There are also situations that once again reaffirms that judicial management is-creditor which the creditor or members of the company shall apply to the court for an order when the company’s business and property managed by the judicial manager was done in unfairly prejudicial manner which affected the creditors or members interest[8] or any act or omission the judicial manager was very prejudicial in nature[9]. In other words, the creditors' members are allowed to apply to the Court during the judicial management process takes place in the company only if either one of the situations of section 425(1) of the Companies Act 2016 occurs which the judicial manager acts against the nature of his duty.

TheCourt shall grant a relief for the complained matters or adjourn the hearing or even make any other order which the Court feel it’s appropriate upon receiving such application by the creditors or members[10]. The orders which Court grants may bring different effects to the parties involved. It can be useful to regulate the company’s further management or require the judicial manager not to act the manner which the applicant companies, or even discharge the judicial management order and make other orders which the Court feels appropriate[11].

Furthermore, section 426 (1) of the Companies Act 2016 lays down that company which provides undue preference to a creditor in circumstances such as transaction involving property done against the company or transaction in benefit of anyone particular creditor shall be held fraudulent and void. In other words, there shall not be specific preference given to a particular creditor in any circumstances.

In a nutshell, judicial management practiced in Malaysia is more towards the pro-creditors. However, there is still room for improvements such as further provisions to protect the creditors from the commencement of judicial management process until the order is finally granted by the Court.