Section 176 Case Study

Issues on S 176(1) of Companies Act 1965 (CA) - Scheme of Arrangement

1.  Consideration taken by the court before giving order to convene meeting

#Re Kuala Lumpur Industries Bhd [1990] 2 MLJ 180

VC George J “In my view, what must be available to the court when considering a [S 210 (1)] application must be a proposal of a scheme of compromise or arrangement not necessarily ready for presenting to the creditors to be voted upon but with sufficient particulars to enable the court to assess that it is feasible and merits due consideration by the creditors when it is eventually placed before them in detailed form. Further, the court has to be satisfied that there is or that there would be a bona fide [S 210(1)] application”

2. Scheme is not bona fide for benefit of creditors
#Re K Rees Emporiums

Facts: Application for an order for a meeting of creditors – comp had been put into voluntary liquidation. Issue arise (a) who were entitle to apply for the order of meeting if comp is being wound up (b) requirement for the application to convene a meeting

Held: in case of comp is being wound up, the right to apply under this section is not confined to the liquidator but includes any creditors/members of the comp

- In the application, it must be shown that:

  (i) the applicant has the requisite qualification under the section

  (ii) there is in existence a bona fide proposal for a compromise or arrangement – a proposal of such a character that it can be seen as a bona fide attempt to conciliate the relations between company and creditors for the common benefit of the creditors to whom the proposal was intended to be addressed; and

  (iii) it is proposed to summon the creditors in an appropriate way - that the creditors can be ascertained and notified.

- but apart from the above, court still retain discretion @

Application refused – not made bona fide – not all creditors received notice of meeting.


3) Scheme must be viable, feasible, workable or intelligible.

#Twenty First Century Oils Sdn. Bhd. v. Bank Of Commerce (M) Bhd. & 2 Ors. (No. 2) [1993] 2 CLJ 677

Fact: The applicant, Twenty First Century Oils Sdn. Bhd. applied ex-parte and obtained an order on 17 February 1993 pursuant to s. 176(10) of the Companies Act 1965. Ie: Restraining Order

An application to Court was made by Bank of Commerce (M) Bhd., a secured creditor of the applicant, (and supported by two (2) other secured creditors), to set aside the restraining order.

Held: 1. On a proper reading of the proposed scheme of arrangement the scheme is not viable, feasible, workable or intelligible.

2. The proposed scheme of arrangement has not and will not get the support of the statutory majority in number representing three-fourths (3/4) of the class of creditors, that is, the secured creditors.

3. On the considerations above, no purpose would be served under these circumstances in holding the proposed meeting of the creditors of the applicant, Twenty First Century Oils Sdn. Bhd.

Issues on S 176(3) of CA

#Transmile Group Bhd & Anor v Malaysian Trustee Bhd & Ors

Facts: Petition presented by TGB & TAS – seeking the sanction of this court for the schemes of arrangement between each of them and their respective creditors – S 176(3) of CA

The creditors/respondent: MTB (1st Respt), STL (2nd-13th Respt.) & CB SPV (14th Respt.)

13 July 2010: TGB & TAS filed OS – leave to convene meeting & restraining order – MTB raised a preliminary issue relating to the priority of claims – court answered the issues in negative – all creditors are to rank Pari Passu

Petitioner seek the court’s approval for the (1) scheme of arrangement between TAS – scheme creditors (2) scheme of arrangement between TGB – STLs – CB SPV who claim under guarantees given by TGB

MTB opposes the sanctioning of the TAS & TGB schemes on several bases.

Legal Principle:

Adopted the principle in Re Hawk Insurance Co. Ltd. [2002] BCC 300 – 3 stages in the process - arrangements becomes binding on the company and all its creditors. First, Application to the court – an order that a meeting or meetings  be summoned – decision needs to be taken as to whether or not to summon more than one meeting, who should be summon to which meeting. Second, scheme proposal – put to the meeting/s. Third, if approved at the meeting/s – there must be further application to the court  - to obtain the court sanction to the arrangement

Each of stages serves distinct purpose – first stage, court directs how the meeting/s are to be summon – to ensure that those who are to be affected by the arrangement have a proper opportunity – present at the meeting/s at which the proposal are to be considered and voted upon. Second, ensure the arrangement are acceptable to the majority. Third, (a) to ensure that the meeting/s hv been summoned & held in accordance with the order – (b) ensure that proposal hv been approved by requisite majority – (c) ensure that the view & interest of those who hv not approved the arrangement at the meeting/s receive impartial consideration.

The court is not bound by decision of the meeting - it can exercise it’s own discretion – if it satisfied that the meeting is unrepresentative/those voting at the meeting hv done with special interest.