Malaysian Company Law – sections 176 and 177 of the Companies Act 1965

Initially, when a company is in the status of weaving up, subdivision 176 and 177 [ 1 ] would be helpful to get the better of the fiscal troubles that have been faced by the company. In another words, subdivision 176 and 177 of the Companies Act 1965 will protect the company from settlement. Therefore, certain regulations and processs need to follow with inorder to protect the company from the debts incurred. Harmonizing tosubdivision 176 ( 1 ) of the Act[ 2 ] , where an application to the tribunal should be made and the order should be granted for the agreement of meeting that will be held between members and creditors. Meanwhile, the order to convene an agreement of meeting besides could be done by arising biddings harmonizing to Rules of Court 2012 [ 3 ] . It was enunciated in the instance ofRe Kuala Lumpur Industries Ltd[ 4 ] where, there is a demand for the tribunal to be satisfied whether there is or there would be a bona fide harmonizing to the application that has been made under subdivision176 ( 1 ) of the Companies Act 1965. Furthermore, it is besides non necessary that the proposal should arise from the company to the members and the creditors of the company since the proposal could arise from anybody.

In promotion of doing an application under subdivision 176 of the Companies Act 1965, it should be applied by the manner of inter parte. It has been illustrated in the instance of ReFoursea Construction ( M ) SdnBhd[ 5 ] , that the ex parte will non be allowed and inter parte should take topographic point. The intent of inter parte is to avoid unfairness that could be occurred towards the creditors of the company. Meanwhile, ex parte will merely takes topographic point when there is an exceeding competition occurs. For case, in the instance ofPECD Bhd & A ; Anor v Merino – Odd SdnBhd & A ; Ors[ 6 ] , the ex parte application had been filed by the parties and inorder to do an ex parte application, the parties have the duty to unwrap all the stuffs to the tribunal. But, in the above instance, the parties had failed to unwrap the relevant capable affair to the tribunal. Therefore, the tribunal had to put aside the application. As a general regulation, ex parte application will non be allowed, nevertheless, the tribunal has the discretion to O.K. the ex parte application if the parties comply with the demands where there should be “frank and fair” unwrap of the stuffs to the tribunal.

Apart from that, the tribunal besides will allow an order to convene a meeting between the company, members and the creditors that has been stated under subdivision 176 ( 1 ) of the Companies Act 1965. Based on the instance ofRe Price Mitchell Pte Ltd[ 7 ] , the tribunal has come into a decision that the issue on “public policy” , “commercial morality” and “the involvement of creditors” need to take into consideration. It was explained in the instance ofSri Hartamas Development SdnBhd v MBF Finance Bhd[ 8 ] , that the creditors meeting to be convened was set aside since the involvements of the unbarred creditors were non decently safeguarded and company was besides wind up which is once more the populace policy if the strategy is approved. Meanwhilethe instance of Re Buildmart ( Australia ) Ltd [ 9 ] , besides adopted the same rule taht has been stated in the instance of Sri Hartamas Development Sdn Bhd. This is where, the Supreme Court of the New South Wales need to take into on history sing the involvements of the creditors and the commercial morality. The tribunal purely held that, it will non let the creditors meeting as it is sum to promote the populace to affect in the commercial activities in a company which has been insolvent.

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However, on the other manus, if the order to convene the meeting had been ordered by the tribunal, the explanatory statement should be sent to the managers and the unsecured bonds of the company with the notice of citing harmonizing to the Companies Act 1965 [ 10 ] . The managers of the company besides should be provided with all the appropriate information. For a better illustration, in the instance ofRe Rankin and Blackmore[ 11 ] , the tribunal held that, the explanatory statements should incorporate the account about the strategy. Besides that, in the instance ofRe Dorman Long & A ; Co Ltd[ 12 ] , the tribunal came into the decision that, the members of the meeting should be guided with all the appropriate information in order for them to vote.

Harmonizing to subdivision176 ( 3 ) of the Companies Act 1965, the strategies meeting that have ordered by the tribunal should be agreed by the ? of the creditors that has been attended. Therefore, the strategy or the agreement that has been proposed by the company will be adhering if bulk of ? creditors and the members attended the meeting. In add-on the tribunal may allow its blessing if it thinks the conditions are fit it was stated in the subdivision of176 ( 4 )[ 13 ] . Once the proposal had been approved by the tribunal, the strategy or the agreement is adhering on the members of the company, company, creditors of the company and the murderer of the company. In add-on, after the approvalhas been given by the tribunal, all the footings and conditions of the agreement or the via media should be followed. It was good explained in the instance ofNite Beauty Industries SdnBhd v Bayer ( M ) SdnBhd[ 14 ],that the blessing that has been granted for the strategy of the agreement by the tribunal can non be reopen or challenged as it is known as the concluding determination of the tribunal.

Furthermore, in order for thesubdivision 173 ( 3 ) of the Companies Act 1965, to be effectual, a transcript of the order given by the tribunal should be lodged to the Registrar [ 15 ] and after the order has been lodged by the Registrar, thenit is effectual harmonizing to the jurisprudence. After the lodgment of the order, it is besides should be included in all the memoranda of the company that has been enunciated under subdivision 176 of the Companies Act 1965 [ 16 ] . Apart from that, harmonizing to subdivision176 ( 7 )of the Act [ 17 ] , the tribunal besides can allow a stating that, it can relieve the company from following the demands and besides may determine the period of clip in order for the company to follow with. Besides that, if any strategy or the agreement has been made even though it is non related to the Reconstruction of the company, the managers of the company has a responsibility to inform their advocators and comptrollers of the company to describe and send on the several studies to the managers of the company. The comptrollers and the advocators besides need to maintain a transcript in the registered office of the company so that, the stockholders and the creditors of the company could inspect it before the meeting [ 18 ] .

Finally, if the company and the several officer of the company fails to follow with subdivision176 ( 6 )and176 ( 8 )of the Companies Act 1965 will guilty of an offense where they will liable two thousand ringgit. The company will confront effects when company default in following subdivision 176 ( 6 ) or ( 8 ) shall be guilty of an offense against this Act, the punishment is two 1000 ringgit.

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An application can be made to the tribunal to keep the proceedings when a strategy or an agreement is proposed for the court’s consideration under subdivision 176 ( 1 ) or subdivision 176 ( 3 ) . Harmonizing to the subdivision 176 ( 10 ) of the Companies Act 1965 application to keep the proceedings must be made before an order has been made or any declaration passed for the weaving up of the company. Harmonizing to the instance ofInRe Kuala Lumpur Industries Bhd[ 19 ] the tribunal merely consider whether it had legal power to entertain an application pursuant to subdivision 176 ( 10 ) although no application had been made under subdivision 176 ( 1 ) to cite a meeting of creditors. The tribunal held that the policy of subdivision 176 was non that the subdivision 176 ( 10 ) application had to be tried to the subdivision 176 ( 1 ) application. It was the position court’s position that both applications may be brought independently.

The clip period of the tribunal that can allow keeping order under subdivision ( 10 ) is non more than 90 yearss or longer period if tribunal thinks there is sensible land to let. Section 176 ( 10A ) stated about the status that applied to the applier that can acquire longer period.It is clearly stated in the instance ofPelangi Airways SdnBhd v MayBank Trustees Bhd[ 20 ] where the complainant company proposed a strategy to reconstitute the rights of its creditors. The company had obtained a keeping order by which it acquired unsusceptibility from farther proceedings for one twelvemonth. Maybank Trustees Bhd applied to hold that keeping order set aside on the footing that the company had non complied with subdivision 176 ( 10A ) ( degree Celsius ) . The tribunal upheld Maybank’s application to put aside the keeping order.

There are four status where foremost was proposal for a strategy of via media or agreement between company and its creditors or any category of creditors stand foring at least one-half in value of all creditors. Second status is keeping order must acquire the blessing of the creditors or members. Third status is statement in prescribed signifier as to the personal businesss of the company must be made non more than three yearss before the application is lodged. Last status is the sanctioned individual that nominated by the creditors in the application will move as a manager if that individual is non already a manager that appointed before. The manager that appointed by tribunal under subdivision ( 10A ) have right of entree at all sensible clip to the accountinganother records of the company it is clearly province in the subdivision ( 10B ) .

In the instance ofMetroplexBhd & A ; Ors v Morgan Stanley Emerging Markets Inc & A ; Ors ; Rhb Sakura Merchant Bankers Bhd & A ; Ors ( Interveners )[ 21 ] fact of the instance is the applier after 25 months from the day of the month of the keeping order, were still at initial phases of trying to accomplish a executable ‘scheme of via media or agreement between the company and its creditors ; much less than 50 % ( being merely 21 % ) in value of the appliers scheme creditors has agreed to the proposed strategy ; the bill of exchange strategy presented did non incorporate sufficient specifics for the strategy creditors to see its viability, for case, no valuable information on Putra Place which was a cardinal plus of the applier had been provided to the strategy creditors, therefore expressing unreasonable hold on the portion of the applier ; the appliers had sought an extension of three months to convey the proposed strategy of agreement to fruition although it is unlikely that blessings from the relevant governments could be forthcoming in three months and the appliers had non factored into the agenda for convening a meeting, the demand for seeking such blessings from the relevant governments. Thus the tribunal could merely reason that the appliers did non look to hold a genuine proposed strategy.

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Court held that subdivision 176 ( 10A ) of the act non merely provides that a keeping order may merely be granted if there was a proposal for strategy of via media which involved creditors stand foring at least one- half in value of all the creditors, but it besides stipulates that a keeping order may merely be extended for a longer period ‘if and merely if there is a good reason’ to make so. The word ‘good ground ‘had been construed by the tribunal to intend: ( I ) a bona fide strategy of agreement had been presented with sufficient inside informations provided to enable the creditors to do informed determinations as to its feasibleness and virtues, ( two ) the strategy of agreement presented must non be such it was bound to neglect and ( three ) the involvement of creditors which were the donees of the proposed agreement was safeguarded. The being of a ‘good reason’ ought to be predicated upon the applicant bona fide behavior towards accomplishing a executable elaborate strategy of agreement for presentation to the general organic structure of creditors [ 22 ] .

In the instance ofRe Kai PengBerhad[ 23 ] that follow above instance, nevertheless observation of this instance on Section 176 ( 10A ) ( a ) does non necessitate that 50 % of its creditors approve of the proposed strategy of agreement and that creditors blessing was merely relevant at the phase of the creditors meeting ordered under subdivision 176 ( 3 ) of Companies Act non at the phase of inquiring for an extension of keeping order under subdivision 176 ( 10A ) . All the applier needed to demo was that 50 % of all its creditors. It is doubted whether it is a right statement of the jurisprudence.

The tribunal held further mentioningRe Sanda Industries Bhd & A ; Ors[ 24 ] that under Section 176 ( 10A ) ( vitamin D ) of the act, it is for the tribunal to O.K. the individual nominated by the bulk of the creditors to move as a manager. Where a individual is nominated, no keeping order may be granted if the tribunal does non O.K. or name him to move as a manager. So, if for whatever ground, no individual is nominated by the creditors, there can be no 1 to O.K. or name, no 1 so is approved or appointed, and no keeping order may be granted.

Harmonizing to thesubdivision 176 ( 10C )of companies act 1965 any temperament of the belongings other than those made in ordinary class of concern made after the restraining order shall be null unless the tribunal otherwise order. Where the company will liable under subdivision( 10D )where company shall guilty of offense and the punishment is imprisonment for five old ages or one million ringgit or both. In the other manus when a company and every officer default in following to lodge an office transcript of the order with the registrar and print a notice of the order in a day-to-day newspaper go arounding by and large throughout Malaysia shall be guilty of the offense under the subdivision( 10E )and the punishment is one hundred 1000 ringgit. The order of keeping process will non impact any individual other than the company. “Any person” is includes surety of the company [ 25 ] .